| In 1982 the U.S. Congress established the Court of Appeals for the Federal Circuit (CAFC), a move seen as strengthening patent protection in the United States. Hall and Ziedonis (2001), among others, have observed that the strengthening of the patent regime has not changed the R&D expenditure significantly, but there has been a large increase in patenting. IP managers in various firms have commented that a stronger patent regime has increased the incentive to create large patent portfolios for bargaining purposes. This observation is particularly relevant for complex industries, such as the semiconductor industry, where the development of the end product is generally achieved by using ideas and products owned by different firms. In this thesis, I look at firm-level data on patenting and R&D from 1979--2002 for the semiconductor industry. I find that after 1982 the increase in patenting per R&D has been much sharper compared to the increase in R&D per employee. I develop a model of basic invention and product development that examines the effects of a patent regime change on the patenting and R&D decisions of firms in complex industries. In this model basic invention requires investment in R&D, but the product development process is facilitated by increased access to ideas that are owned by other firms. Firms in more complex industries have a greater need to access a large number of ideas to successfully develop an end product. I find that a move towards a stronger patent regime, in the absence of licensing, increases both patenting and R&D expenditure of firms in complex industries. In the presence of licensing, however, such a change in the patent regime increases patenting but the effect on R&D is ambiguous. Even when a strong patent regime leads to higher R&D in the presence of licensing, the increase is much smaller than the increase in patenting. I also analyze the welfare effect of a stronger patent regime. |
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