Strengthening patent protection discourages innovation – empirical data.

This Article is one of the first dedicated to the hidden incentives of patent law shopping.19 Using data provided to us from the Global IP Project20 Darts-ip,21 our analysis explores whether firms optimize value by placing R&D and innovation in countries with “better” patent laws. To verify our models, we interviewed notable patent attorneys practicing in the United States, Europe, and Asia. Our hypothesis is that foreign patent environments offer inventors meaningful options influencing where they choose to innovate but not in the expected ways. We find that inventors are heterogeneous with contrasting preferences depending on their stage of innovation.22 Entrenched patent owners value stronger patent rights—reflected by sizeable royalty awards, treble damages, and equitable remedies—to deter and punish acts of infringement.23 Inventors during the innovation stage, on the other hand, have incentives to develop technology where patent rights are weaker. This is because the innovation process exposes the typical inventor to liability if the inventor’s R&D has unwittingly (or intentionally) incorporated another’s patented technology without permission.24 Increasing this issue’s saliency, there are both practicing and non-practicing entities that, in asserting meritless patent infringement claims, exploit the high costs of U.S. patent litigation; this strategy is typically meant to either extract rents from inventors or frustrate efforts to develop competing technology, which may lead early stage innovators to seek out foreign patent regimes.25 As a partner at an international law firm confirmed to us, patent litigation is a common strategy used against upstart companies who have “stepped on the toes” of dominant players.26 Another practitioner witnessed “egregious” examples of large companies “steamrolling” smaller inventors using patent litigation.27 Given the average cost to defend an infringement lawsuit in the United States is roughly $3.5 million28 and royalty awards have surpassed $2.5 billion29— which inventors can potentially mitigate by innovating almost anywhere but the United States—this may explain why the United States has reportedly lost innovation. Our results generate novel empirical and theoretical insights into the way patent rights incentivize innovation. According to our quantitative analysis, some firms avoid the litigation risks of U.S. patent law by developing technology in countries that have lessened the costs and risks of patent enforcement (i.e., all the costs borne from the patent assertion and litigation processes).30 We deduce, then, that a critical and generally ignored element of patent law’s ability to promote innovation concerns where the resulting innovation takes place. It seems industry advocates and patent scholars overestimate how much innovation strong patent protection generates, while underestimating the deterrent effect of the high costs associated with patent enforcement. So, contrary to popular logic, recent congressional efforts, and industry advocates,31 our findings indicate that the increasingly common proposal to strengthen patent rights would have the opposite effect of diminishing innovation in the United States