Patent Success, Patent Holdup, and the Structure of Property Rights
54 Pages Posted: 20 Sep 2015 Last revised: 11 Jun 2020
Date Written: September 17, 2015
When innovation is cumulative, patent protection on early inventions can generate holdup problems if later complementary patents are owned by different firms. Consistent with the property rights literature, we show that shareholder ownership overlap across firms with patent complementarities helps mitigate such holdup problems and correlates significantly with higher R&D investment, more patent success, and lower patent infringement litigation risk for firms with follow-on innovations. The positive innovation effect is strongest for concentrated overlapping ownership and for the cases in which overlapping shareholders are dedicated investors, with long investment horizons and underdiversified portfolios.
Keywords: Patents, Holdup Problems, Innovation, Institutional Ownership
JEL Classification: L22, G31, G32
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