Patents negatively affect follow-on innovation in select industries, research finds

Last month, SSTI highlighted a recent research paper on the debate regarding university-industry collaboration’s impact on the academic ideal of open sciences and reduced academic productivity. In a new working paper from National Bureau of Economic Research (NBER), MIT researcher Heidi Williams examines another controversial Intellectual Property (IP) topic – whether patent systems, in practice, improve the alignment between private returns and social contributions. Williams findings indicate that for select industries the patents of large firms can reduce the amount of follow-on innovation conducted by small firms and startups – potentially reducing the social impact of those new technologies. However, for select industries, patent invalidation – the denial of patent rights by the USTPO or federal courts – has limited impact on follow-on innovation.

Through How Do Patents Affect Research Investments?, Williams tries to identify three parameters:

• How the disclosure function affects research investments;
• How patent strength affects research investments in new technologies; and,
• How patents on existing technologies affect follow-on innovation.

To address these questions, Williams looked at several data sources including existing survey evidence, federal court case decisions, and USPTO patent application decisions.

After completing her analysis of the data, Williams concluded that there may be heterogeneity across industries or across technologies in how patents affect research investments, specifically follow-on innovations. The results of the study suggest that patent invalidation increases the follow-on innovation in several industries such as computers and communications, electronics, and medical instruments. This is especially true when the patents owned by large firms are invalidated and it leads to increases in the number of small innovators subsequently citing the focal patent.

In contrast, Williams found that several industries – drugs, chemicals, and mechanical technologies – seemingly saw little increase in follow-on innovation when patent invalidation occurred. In addition to these industries, Williams also looked at a case study on patents on human genes. In this analysis, she found that gene patents have not had quantitatively important effects on follow-on innovation.

However, Williams does contend that more data is needed to provide input into optimal patent policy design that will better align the private returns to developing new technologies with the social value of those inventions.