Trading Knowledge: An Exploration of Patent Protection & Other Determinants of Market Transactions in Technology and R&D
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ARTICLE SUMMARY
The authors argue that the growth of patent protection has influenced growth in industries of the technology trade.
POLICY RELEVANCE
Despite an integration of research and development (R&D) in the twentieth century, the last two decades have resulted in a significant increase in the exchange of technologies. This increase is due in part to patent protection in industries where patents were not traditionally as important.
KEY TAKEAWAYS
- Patents are a supporting institution that help facilitate effective exchange in markets for technology. Thus, defining property rights in innovation should make those innovations easier to exchange.
- Patents vary significantly across industries regarding how much protection they provide.
- This article focuses on the impact that patent strength has when considered in relation to a firm’s own capabilities to determine the impact on technology transactions.
- Transactions increase where secrecy is effective in preventing information leaks prior to exchange of technology. This is because even where gains in trade are available they will not be taken if firms cannot adequately safeguard themselves. Formal patent protection is another safeguard.
- Patent protection is less effective in encouraging trade through licensing when there are tight connections between R&D and other functions in the firm.
- R&D that is integrated with manufacturing in a firm makes that firm less likely to participate in the market for technology and to be less affected by changes in patent protection in that industry.
- Although R&D has been integrated with other firm functions in the twentieth century, the data explored suggest that industries with significant technological advances may have room for specialized suppliers focusing solely on R&D, and their effectiveness will be enhanced by patent protection, among other things.
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About Wesley Cohen
Wesley M. Cohen is Professor of Economics and Management and the Snow Family Professor of Business Administration in the Fuqua School of Business, Duke University. He also holds secondary appointments in Duke’s Department of Economics and School of Law, is a Research Associate of the National Bureau of Economic Research, and serves as the Faculty Director of the Fuqua School’s Center for Entrepreneurship and Innovation. Professor Cohen’s research focus is on the economics of technological change.
