Research

Exploiting variation in the shift in patent law due to the Federal Circuit Appeals Court (CAFC), we find that the average increase in patent protection due to the CAFC led businesses in the complex industry to reduce strategic patenting by 23.3%. Theoretically, stronger legal protection affects strategic portfolios in two ways. As each patent becomes more effective, the gain from multiple patents would be less, reducing the demand for patents (negative inframarginal effect). With the effective price of patent protection being lower, the demand for protection and patents would increase (positive marginal effect). The net effect is especially negative for complex industries, where products are protected by multiple patents.

How do changes in patent law affect the exchange by which society awards an exclusive right of limited duration and the inventor discloses technology that others may freely use after the period of exclusivity? Between 1983-85, the U.S. Court of Appeals for the Federal Circuit (CAFC) shifted the law in favor of patent owners, to degrees varying geographically by judicial circuit. We find that the CAFC was associated with an increase in the commercial value of patents by 11.7 percent but no significant increase in the technological quality of the patented inventions. Apparently, the value of the patent monopoly increased substantially without a commensurate increase in inventors’ contribution of knowledge to society.