Patent Law, Appropriability, and External R&D: Empirical Evidence

Theoretically, whether technology firms should increase external R&D in response to stronger patent law depends on the effects of law on returns to external and internal R&D. Exploiting geographical differences in the strengthening of patent protection due to the U.S. Court of Appeals for the Federal Circuit, we find that, on average, external R&D increased by 42.3 percent. The effect was more pronounced among companies less intensive in manufacturing, smaller in scope, and in complex-technology and more geographically concentrated industries, and those where patents were less effective in appropriability.