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    The Bright Side of Patents
    20 Jan 2016Working Paper Summaries

    The Bright Side of Patents

    by Joan Farre-Mensa, Deepak Hegde and Alexander Ljungqvist
    We examine whether patents help startups grow and succeed using detailed micro data on all patent applications filed by startups at the U.S. Patent and Trademark Office since 2001 and approved or rejected before 2014. We find that patent approvals help startups create jobs, grow their sales, innovate, and reward their investors.
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    Author Abstract

    Motivated by concerns that the patent system is hindering innovation, particularly for small inventors, this study investigates the bright side of patents. We examine whether patents help startups grow and succeed using detailed micro data on all patent applications filed by startups at the U.S. Patent and Trademark Office (USPTO) since 2001 and approved or rejected before 2014. We leverage the fact that patent applications are assigned quasi-randomly to USPTO examiners and instrument for the probability that an application is approved with individual examiners’ historical approval rates. We find that patent approvals help startups create jobs, grow their sales, innovate, and reward their investors. Exogenous delays in the patent examination process significantly reduce firm growth, job creation, and innovation, even when a firm’s patent application is eventually approved. Our results suggest that patents act as a catalyst that sets startups on a growth path by facilitating their access to capital. Proposals for patent reform should consider these benefits of patents alongside their alleged costs.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: December 2015
    • HBS Working Paper Number: 16-071
    • Faculty Unit(s): Entrepreneurial Management
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