Essays on the Economics of Patents

Patent rights seek to create incentives for innovators, but are costly to society as they cause ex-post deadweight losses due to the exclusion right. However, the patent sys-tem’s economic implications extend considerably further. This dissertation studies three aspects in this context. A first essay considers the causal effect of patents on follow-on invention, using large-scale data on cases of opposition to patent grants issued by the European Patent Office. A new instrumental variable is introduced, which leverages the participation of the patent examiner in the opposition proceeding. According to the estimates, patent invalidation leads to a highly significant and sizeable increase of forward citations, especially in discrete technology areas, in the absence of patent thickets, and for small patent holders facing small follow-on innovators. The second essay investigates to which extent patent invalidation causally impacts inventor outcomes and the direction of innovation. To this end, examiner participation in opposition proceedings is again used as an instrument for invalidation in fixed effects instrumental variables estimations. Preliminary results suggest that inventors patent significantly less in the aftermath of an invalidation and that the propensity of working on high-impact inventions is reduced in many technical fields. In the third essay, a model for the selection of patents into litigation is developed and subsequently cali-brated to reproduce observable outcome rates. The fitted parameters imply that substantially fewer patents may be latently invalid than found in previous studies. Besides, the model suggests that raising the courts’ validity threshold may be effective in stimulating entry, and hence in transforming the competitive environment.