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Bargaining Failure and Freedom to Operate: Re-evaluating the Effect of Patents on Cumulative Innovation

Fabian Gaessler, Dietmar Harhoff () and Stefan Sorg
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Fabian Gaessler: MPI-IC Munich
Stefan Sorg: MPI-IC Munich

No 220, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We investigate the causal effect of patent rights on cumulative innovation, using large-scale data that approximate the patent universe in its technological and economic variety. We introduce a novel instrumental variable for patent invalidation that exploits personnel scarcity in post-grant opposition at the European Patent Office. We find that patent invalidation leads to a highly significant and sizeable increase of follow-on inventions. The effect is driven by cases where the removal of the individual exclusion right creates substantial freedom to operate for third parties. Importantly, our results suggest that bargaining failure between original and follow-on innovators is not limited to environments commonly associated with high transaction costs.

Keywords: cumulative innovation; patents; bargaining failure; freedom to operate; opposition (search for similar items in EconPapers)
JEL-codes: K41 L24 O31 O32 O33 O34 (search for similar items in EconPapers)
Date: 2019-12-16
New Economics Papers: this item is included in nep-ipr and nep-law
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