Trading and Enforcing Patent Rights

Alberto Galasso, Mark Schankerman, Carlos J. Serrano

NBER Working Paper No. 17367
Issued in August 2011, Revised in August 2012
NBER Program(s):Industrial Organization, Law and Economics, Productivity, Innovation, and Entrepreneurship

We study how the market for innovation affects enforcement of patent rights. Conventional wisdom associates the gains from trade with comparative advantage in manufacturing or marketing. We show that these gains imply that patent transactions should increase litigation risk. We identify a new source of gains from trade, comparative advantage in patent enforcement, and show that transactions driven by this motive should reduce litigation. Using data on trade and litigation of individually-owned patents in the U.S., we exploit variation in capital gains tax rates as an instrument to identify the causal effect of trade on litigation. We find that taxes strongly affect patent transactions, and that reallocation of patent rights reduces litigation risk on average, but the impact is heterogeneous. We show that patents with larger potential gains from trade are more likely to change ownership, suggesting that the market for innovation is efficient, and the impact of trade on litigation depends on characteristics of the transactions.

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Document Object Identifier (DOI): 10.3386/w17367

Published: Galasso A ., M. Schankerman and C. Serrano, 2013 , Trading and Enforcing Patent Rights , RAND Journal of Economics 44, 275 - 312 .

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