Shooting Ourselves in the Foot to Kill a Fly? Patent Enforcement and Market for Technology

Abstract

Patent enforcement and its wide consequences have long been debated among scholars and practitioners. This study examines the causal impact of patent enforcement strength on firms’ technology trade and patenting strategies. Exploiting a precedential U.S. Supreme Court decision (eBay vs. MercExchange, 2006) that reduced patent enforcement strength, we investigate its impact by comparing U.S. firms to a matched control group of European firms. We find that U.S. firms significantly decrease their patenting and out-licensing activities due to lower patent enforcement strength. The decline in out-licensing activities is specifically driven by small and medium-sized firms, and software companies. Our study contributes to the innovation and markets for technology literatures by depicting the causal impact of patent enforcement strength, and discussing its implications.