Impact of patent rights on innovation: A meta‐analysis

• Author: Sidheswar Panda,Ruchi Sharma
• Published date: 01 May 2020
• Date: 01 May 2020
• DOI: http://doi.org/10.1002/pa.2000

ACADEMIC PAPER

Impact of patent rights on innovation: A meta-analysis

Sidheswar Panda | Ruchi Sharma

School of Humanities and Social Sciences,

Indian Institute of Technology Indore, Indore,

India

Correspondence

Sidheswar Panda, School of Humanities and

Social Sciences, Indian Institute of Technology

Indore, Indore, India.

Email: sidheswareco@gmail.com

Research shows that the enforcement of patent rights (PRs) play a significant role in

countries' innovation and technological development. The existing narrative reviews

find that the impact of PRs on innovation is not clear across countries. Therefore, this

study examines the impact of patent rights protection on innovation across countries

by conducting a meta-analysis from 14 empirical studies that contain 145 estimates,

undertaken during 1996–2019. This study intends to test whether the findings are

sensitive to various measures employed and identify possible policy implications

across countries. Our analysis suggests that certain aspects of measuring innovation

are crucial in explaining the significance of these findings. This study finds that coun-

tries' strength in PRs plays a significant role in determining its innovation. We also

find that there is a distinction in PRs' contribution to domestic innovation across

developed and developing countries in the existing primary studies.

1|INTRODUCTION

Research shows that the enforcement of patent rights (PRs) play a sig-

nificant role in countries' innovation and technological development.

A country's PRs lead to the disclosure of information by the innovator

and ensures the appropriability of research and development (R&D)

(Sharma & Saxena, 2012). Considering the potential impact of PRs on

innovation in advanced countries, many standard literatures argue

that the returns to innovation are increased by strong PRs protection

(Allred & Park, 2007a; Landes & Posner, 2003; Scotchmer, 2004).

Moreover, according to the prospect theory, a strong PRs gives inno-

vators incentives to commercialize and organize the market better for

follow-on innovation (Kitch, 1977). However, with these positive

influences, innovation may be negatively influenced by strong PRs

owing to problems encountered in obtaining permission to use pat-

ented technologies for technological exchange; consequently increas-

ing transaction costs for technologies that develop cumulatively like

biotechnology (Williams, 2013). The condition is that “the transaction

costs may particularly harm research and innovation when patentees

hold rights to research tools, or where innovation is a cumulative and

sequential process”(Allred & Park, 2007, p. 4).

According to Lerner (2002), the prospect theory may not apply to

developing countries that are involved in adaptive technology, imita-

tion, and follow-on innovation. However, there is a positive impact of

strong PRs on innovation through knowledge spillovers from patents

and the appropriability effects of patent protection (Siebeck, 1990).

Moreover, many studies suggest that the impact of countries' PRs on

innovation depends upon countries' technology capabilities

1

(Ginarte & Park, 1997; Panda, Sharma, & Park, 2020; Schneider,

2005). The history of the patent system reveals that developed econ-

omies formulated PRs according to their strategic trade policy (Kaufer,

2012) as a significant policy tool that drives innovation by firms; and

subsequently, the technological change of an economy. Chu, Cozzi,

and Galli (2014) argue that optimum PRs protection is stage depen-

dent while countries implement weak PRs protection in the early

stages of economic development to encourage imitation; however, in

the later stages of development, countries implement strong PRs pro-

tection to stimulate innovation. One important study argues that “the

levels of technology (using patent data) vary between developed and

developing countries, which raises questions about the derivation of

economic benefits from trade related intellectual property rights

(TRIPS)”(Shin, Lee, & Park, 2016, p. 775).

Most research on PRs and innovation was undertaken in view of

the agreement on trade-related aspects of intellectual property rights

(TRIPs) under the world trade organization (WTO). This agreement

influenced the domestic intellectual property rights related legisla-

tures of the member states within a timeframe set by the agreement.

1

Kim (1997) defines technological capability as “the ability to make effective use of

technological knowledge in efforts to assimilate, use, adapt and change existing

technologies.”(p. 4).

Received: 24 June 2019 Accepted: 5 July 2019

DOI: 10.1002/pa.2000

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