Patent Publication and Innovation

How does the publication of patents affect innovation? We answer this question by exploiting a large-scale natural experiment—the passage of the American Inventor's Protection Act of 1999 (AIPA)—that accelerated the public disclosure of most U.S. patents by two years. We obtain causal estimates by comparing U.S. patents subject to the law change with “twin” European patents which were not. After AIPA's enactment, U.S. patents receive more and faster follow-on citations, indicating an increase in technology diffusion. Technological overlap increases between distant but related patents and decreases between highly similar patents, and patent applications are less likely to be abandoned post-AIPA, suggesting a reduction in duplicative R&D. Firms exposed to one standard deviation longer patent grant delays increased their R&D investment by 4% after AIPA. These findings are consistent with our theoretical framework in which AIPA provisions news shocks about related technologies to follow-on inventors and thus alters their innovation decisions.