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  Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition

Gaessler, F., Harhoff, D., Sorg, S., & Graevenitz, G. v. (2024). Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition. Management Science, forthcoming.

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Description:
Also published as: CRC TRR 190 Rationality and Competition Discussion Paper, No. 494
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 Creators:
Gaessler, Fabian1, Author           
Harhoff, Dietmar1, Author           
Sorg, Stefan1, Author           
Graevenitz, Georg von 2, Author
Affiliations:
1MPI for Innovation and Competition, Max Planck Society, ou_2035292              
2External Organizations, ou_persistent22              

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Free keywords: follow-on innovation, freedom to operate, licensing, patents, opposition
 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 follow-on 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.

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Language(s): eng - English
 Dates: 2024
 Publication Status: Issued
 Pages: -
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Title: Management Science
Source Genre: Journal
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Pages: - Volume / Issue: - Sequence Number: - Start / End Page: forthcoming Identifier: ZDB: 206345-1
ISSN: 0025-1909
CoNE: https://pure.mpg.de/cone/journals/resource/954921352320