Patent Publication and the Market for Ideas

Abstract

In this paper, we study the effect of invention disclosure through patent publication on the market for ideas. We do so by analyzing the effects of the American Inventor's Protection Act of 1999 (AIPA)which required US patent applications to be published 18 months after their filing date rather than at patent grant-on the timing of licensing deals in the biomedical industry. We find that post-AIPA US patent applications are significantly more likely to be licensed before patent grant and shortly after 18month publication. Licensing delays are reduced by about ten months, on average, after AIPA's enactment. These findings suggest a hitherto unexplored benefit of the patent system: by requiring inventions to be published through a credible, standardized, and centralized repository, it mitigates information costs for buyers and sellers and, thus, facilitates transactions in the market for ideas.

Information Disclosure and the Market for Acquiring Technology Companies

“…Our findings inform theories of markets for technology and how they function (Arora et al, 2001;Arora & Gambardella, 2010;Gans et al, 2008). As in technology licensing markets (Agrawal et al, 2015;Hegde & Luo, 2018), our evidence suggest that informational frictions and valuation challenges are impediments to technology-related trades and may deter otherwise profitable deals from "getting done." We add to growing evidence that such frictions underpin the corporate takeover market for technology-intensive companies (Akerlof, 1970;Ragozzino & Reuer, 2007.…”

“…Information in patent application documents, including invention descriptions or correspondence with patent examiners, remained confidential until the issue date. Pre-AIPA, the delay in the disclosure of technological developments to the public domain was considerable; the median patent filed in 2000 took 32.5 months to be granted (Hegde & Luo, 2018).…”

“…So, a substantial number of technological developments in patent applications that would have remained secret were published 18 months after the earliest priority date after AIPA's implementation. Moreover, disclosure at foreign patent offices is not as effective as that at the USPTO, given the use of foreign languages and the lack of public records linking USPTO applications with their equivalents at foreign patent offices before AIPA (Hegde et al, 2018;Saidi et al, 2018). financing (Saidi & Zaldokas, 2018) and to license their inventions (Hegde & Luo, 2018). A recent working paper by Hegde, Herkenhoff & Zhu (2019) further documents a post-AIPA acceleration in the diffusion of technological know-how.…”

Waiting for the Payday? The Market for Startups and the Timing of Entrepreneurial Exit

“…Gans et al (2008) argue that licensing deals occur earlier if patent rights are more clearly defined, and they show empirically that there is an increase in the probability to license around the patent-grant date. Along similar lines, Hegde and Luo (2016) argue that mechanisms that make information about technology public, reduce the time-to-license of patented technology. They develop a model showing that when firms are forced to publish their patented applications, licensing is more likely even if the patent has yet to be granted.…”

Do Patents Enable Disclosure? Evidence from the Invention Secrecy Act

“…Baker and Mezzetti (2005) show that disclosure allows a second mover to buy some time in a patent race. Hegde and Luo (2018) show that early publication of patent documents speeds up licensing transactions, while Lück et al (2020) and Hegde et al (2020) provide evidence that patent publication reduces technology duplication.…”