Patent Thickets, Licensing and Innovative Performance
With Iain M. Cockburn and Elisabeth Mueller
We examine the relationship between fragmented intellectual property (IP) rights and innovative performance, taking into consideration the role played by in-licensing of IP. Controlling for a variety of firm and market characteristics, we find that firms facing more fragmented IP landscapes are more likely to report expenditures on in-licensing and for those firms that do incur license costs we find a weak positive association between licensing expenditure and fragmented IP rights in the relevant technology. We also observe a negative relationship between IP fragmentation and innovative performance, but only for firms that engage in in-licensing and only for product innovation. The relationship between fragmentation and innovative performance also depends on the size of a firm's patent portfolio, which suggests an important strategic role for defensive patenting in the context of fragmented property rights.

Patents, Thickets and the Financing of Early-Stage Firms: Evidence from the Software Industry
(with Iain M. Cockburn)
Journal of Economics & Management Strategy, 2009, vol. 18, issue 3, pages 729-77
Legal changes in the patentability of software since the mid 1990s have resulted in a substantial increase in the number of patents on software inventions. We focus here on the impact of transactions costs associated with patent "thickets" on new entrants' interactions with the capital markets. Using data on the financing of entrants into 27 narrowly defined software markets, we show that start-up software companies operating in markets characterized by denser patent thickets saw their initial acquisition of VC funding delayed relative to firms in markets less affected by patents after the mid 1990s. The relationship between patent thickets and subsequent financing activity such as IPO or acquisition is more complex, but there is weak evidence that firms without patents became less likely to go public if they operated in a market characterized by patent thickets. Firms with patents are more likely to be funded or experience a liquidity event. However, the application for a patent appears to matter more than its grant.

Entry and Patenting in the Software Industry
(with Iain M. Cockburn)
Revised version, October 2007
We examine the effects of software patents on entry and exit in 27 narrowly-defined classes of software products, using a dataset with comprehensive coverage of both mature public firms and small privately held firms between 1994 and 2004. Reflecting the complex economics underlying the relationship between patent protection, entry costs and industry structure, we find that patents have a mixture of effects on entry and exit. Controlling for firm and market characteristics, firms are less likely to enter product classes in which there are more software patents. However, all else equal, firms that hold software patents are more likely to enter these markets. The net effect on entry of increasing the number of software patents is difficult to measure precisely: estimates of the effect of an across-the-board 10% increase in patent holdings on the number of entrants into the average market in this sample range from -5% to +3.5%, with quite large standard errors. Evidence on exit and survival is consistent with these findings - holding patents appears to enhance the survival prospects of firms after entering a market.

The Private Value of Software Patents
(with Bronwyn H. Hall)
We investigate the value creation or destruction associated with the introduction of software patents in the United States in two ways. The first looks at the cumulative abnormal returns to ICT firms around the time of important court decisions impacting software patents, and the second analyzes the relationship between firms' stock market value, the sector in which they operate, and their holdings of software patents cross-sectionally. We find that the extension of patentability to software was initially negative for software firms, especially for those producing application software or services. We also find that software patents are positively and significantly associated with Tobin's Q, and that the market's valuation of software patents increased following changes in the USPTO's treatment of software patents in 1995.

Early Academic Science and the Birth of Industrial Research Laboratories in the US Pharmaceutical Industry
with Jeffrey L. Furman
Journal of Economic Behavior and Organization January 2007
The establishment and growth of industrial research laboratories is one of the key organizational innovations affecting technological progress in the United States in the 20th century. In this paper, we investigate the rise of industrial research laboratories in the U.S. pharmaceutical industry between 1927 and 1946. Our evidence suggests that institutional factors, namely the presence of universities dedicated to research, played a crucial role in the establishment and diffusion of private pharmaceutical research laboratories. Specifically, we document that the establishment of industrial pharmaceutical laboratories between 1927 and 1946 is positively and significantly correlated with the extent of local university research. These core results are robust to a number of specifications and are also robust to correcting for the simultaneous influence of private firms on university programs. Overall, our analyses suggest that while the presence of industrial facilities helped shape the direction of university research programs, there was a significant, positive, and causal effect running from university research to the growth of industrial research laboratories in the first half of the twentieth century in the United states.

Do Firms Learn from International Trade?
The Review of Economics and Statistics, February 2006
Abstract: Using patent citations as a proxy for the influence of foreign technology on French firms' patents, this paper finds that the inventions of importers are significantly more likely to be influenced by foreign technology than are the inventions of firms that do not import. Furthermore, importers. citations increase relative to similar firms after they start importing. Exporting, in contrast, is not significantly associated with citations to foreign patents. These results persist after controlling for foreign ownership linkages and joint ventures and alliances, and after correcting for selection bias using propensity-score matching.

How Well Do Patent Citations Measure Flows of Technology? Evidence from French Innovation Surveys
with Emmanuel Duguet
Economics of Innovation and New Technology, Volume 14, Number 5 / July 2005
Patent citation data are used in a growing body of economics and business research on technological diffusion. Until now, there exists little evidence on whether or not patent citations are a good measure of knowledge flows. Our paper assesses the legitimacy of using European patent citations as a measure of technology flows. It uses information from the Community Innovation Survey (CIS) collected by the French Service des Statistiques Industrielles (SESSI), which contain firms' responses to questions about their innovative activity. We show that patent citations are indeed related to firms' statements about their acquisition and dispersion of new technology, but that the strength and statistical significance of this relationship varies across geographical regions and across channels of knowledge diffusion.

The Determinants of International Knowledge Diffusion as Measured by Patent Citations
Economics Letters, Volume 87, Issue 1 , April 2005, Pages 121-126
This paper models the cross-country diffusion of technological knowledge using aggregate patent citation counts. It asks to what extent international trade, investment, communication, and other variables affect the rate at which knowledge diffuses. It finds that knowledge diffuses more rapidly between countries that are physically close to each other, and that the negative effect of distance has weakened slightly since 1980. Countries that spend more on R&D are better at learning about foreign technology, and knowledge flows more freely between countries that share a common language. Foreign Direct Investment also acts as a channel of diffusion. For countries in which the composition of innovative activity is dissimilar, international trade is a substitute for knowledge diffusion. However, when countries' mixes of R&D activities across technological fields are sufficiently similar, trade is positively associated with knowledge diffusion.

Work in Progress

Regulatory Policy and the Location of Bio-Pharmaceutical FDI in Europe
with Pamina Koenig

Labor Mobility and International Knowledge Diffusion: Evidence from the Foreign Fulbright Program
with Shulamit Kahn

How do Agglomerations of Innovative Firms Evolve?
with Mercedes Delgado-Garcia

International Students and the Diffusion of Scientific and Technological Knowledge

Megan MacGarvie  |  September 2007