nep-ipr New Economics Papers
on Intellectual Property Rights
Issue of 2024‒03‒18
one paper chosen by
Giovanni Battista Ramello, Università di Turino

  1. Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition By Fabian Gaessler; Dietmar Harhoff; Stefan Sorg; Georg von Graevenitz

  1. By: Fabian Gaessler (University Pompeu Fabra , Barcelona School of Management, Barcelona School of Economics, MPI-IC); Dietmar Harhoff (MPI-IC, LMU Munich, CEPR); Stefan Sorg (MPI-IC); Georg von Graevenitz (Queen Mary University of London)
    Abstract: We study the blocking effect of patents on follow-on innovation by others. We posit that follow-on innovation requires freedom to operate (FTO), which firms typically obtain through a license from the patentee holding the original innovation. Where licensing fails, follow-on innovation is blocked unless firms gain FTO through patent invalidation. Using large-scale data from post-grant oppositions at the European Patent Office, we find that patent invalidation increases follow-on innovation, measured in citations, by 16% on average. This effect exhibits a U-shape in the value of the original innovation. For patents on low-value original innovations, invalidation predominantly increases low-value followon innovation outside the patentee’s product market. Here, transaction costs likely exceed the joint surplus of licensing, causing licensing failure. In contrast, for patents on high-value original innovations, invalidation mainly increases high-value follow-on innovation in the patentee’s product market. We attribute this latter result to rent dissipation, which renders patentees unwilling to license out valuable technologies to (potential) competitors.
    Keywords: follow-on innovation; freedom to operate; licensing; patents; opposition;
    JEL: O31 O32 O33 O34
    Date: 2024–02–13

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