Proprietary Rights and Market Entry: Evidence from Invalidated Genes
Whether patents stifle or stimulate innovation is the subject of an open debate. Using a sudden shift in the patentability of genomic compounds due to a U.S. Supreme Court decision in 2013, this study provides new evidence that upstream patents impede downstream innovations. Using data on the population of isolated gene patents and genetic diagnostic tests, I find that patents disproportionately hinder startup firms relative to established firms. Following the invalidation of patents on genetic compounds, startup firms more aggressively develop new gene- based diagnostic tests in comparison to established firms. Moreover, startup firms shift their innovative activities from peripheral markets toward higher-demand central markets than do incumbent firms.