“This first broad-based view of patent racing in the real world affirms that it is prevalent and important for firm innovation.”
When it comes to patents, timing matters. If two inventors are working on the same invention, it is the one who races to the patent office first that gets the brass ring. Perhaps the most famous example of a “patent race” is when Alexander Graham Bell and Elisha Gray both filed a patent for the telephone on the same day. Bell won the patent, started a successful company, and is now synonymous with the telephone, while few people remember Gray.
For years, economists have used patent races as the quintessential example of how firms innovate in the presence of competition. But these discussions are usually only grounded in theory. To gain more insight on how this plays out in the real world, Jeffrey Kuhn and I created the first way to identify patent races—and we used it to analyze the effect of patent racing on innovation.
The key to our method is that the patent office keeps applications secret for a while after they are filed. This means that two companies may end up filing patents for the same invention, not realizing that the other also filed. After some digital sleuthing, we were able to pick up the paper trail from these cases to see how often this type of neck-in-neck innovation happens and what the benefits are from being the winner.
It turns out that these races have a significant impact on innovation both in direction and magnitude. Protected by their patent, winners do 14% more follow-up innovation. In contrast, losers are almost three times as likely to abandon their invention. The ones that do keep going have to “invent around,” finding alternate technical paths to avoid the patent coverage of the winner.
Given the importance of winning a patent race, it is not surprising that firms in hotly contested technology areas—where patent races are frequent—do more R&D and much more patenting. We saw 53% more patenting among these firms. They also seem to patent in smaller “steps,” rather than waiting until bigger milestones are achieved.
We also found that patent racing behavior is surprisingly frequent, with 10-11% of all patents in races. In some technology areas, patent racing is even more frequent. For example, 16% of the patents in computing are in races and 13% in communications. In comparison, only 5% of patents in biotechnology are in races.
There are many possible reasons for the frequency of patent racing in those areas. Patents in computing and communications are usually considered weaker, whereas those in biotechnology are stronger. Another explanation is that firms in areas like biotechnology might actively avoid patent racing by buying up competitors or exiting research areas in order to reduce the risk of paying for expensive medical trials and ending up without patent coverage.
This first broad-based view of patent racing in the real world affirms that it is prevalent and important for firm innovation. Winning a race protects the victor, allowing them to push their research agenda forward. At the same time, it deflects the loser, leading them to do less follow-on work and having to “invent around” the winner.
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