Imperfect Information, Patent Publication, and the Market for Ideas

We investigate the role of an important information-disclosure mechanism—patent publication— in the market for ideas. We do so by analyzing the effects of the American Inventors Protection Act (AIPA), which required, as of November 29, 2000, that U.S. patent applications be published 18 months after their filing rather than at the time of patent grant. We develop a theoretical framework that yields predictions about the effects of AIPA on the timing of licensing, and test the predictions using a sample of 339 licenses of biomedical inventions protected by patent applications filed between 1995 and 2005. We find that post-AIPA patent applications experience a sharp increase in the probability of licensing after 18-month publication, and, on average, are licensed about 8.5 months sooner than pre-AIPA patent applications. Thus, information disclosure through patent publications appears to facilitate transactions in the market for ideas and significantly accelerate the commercialization of inventions. This Version: August 31, 2013 Initial Draft: July, 2012 ∗The authors are grateful to Luis Cabral, Jay Choi, Wesley Cohen, Nancy Gallini, Bronwyn Hall, David Hsu, Alfonso Gambardella, David Mowery, Bhaven Sampat, Tim Simcoe, Scott Stern, and seminar participants at New York University, Harvard Business School, Georgia Tech, University of California, Berkeley, the Erasmus School of Economics, the University of Munich, the NBER Summer Institute, the International Industrial Organization Conference, and the Academy of Management meetings for helpful comments. We also thank Hazel Pike and Laurel McMechan for their excellent research assistance. Hegde’s research was funded by a 2013 Kauffman Junior Faculty Fellowship. †New York University-Stern School of Business and USPTO; email: dhegde@stern.nyu.edu. ‡Harvard Business School; email: hluo@hbs.edu.