Do Patent Systems Deter Innovation in a Genetically Modified Seed Research?

This paper empirically examines the relationship between research exemptions – which are mechanisms in patent law that provide shelter to researchers using patented inventions for scientific research from infringement claims – and innovation. We analyze a 2002 court decision (Madey v. Duke University) that has dramatically limited the scope of research exemptions in the United States. The court decision provides us with a quasi-natural policy experiment we leverage to empirically estimate the effects of this policy change on innovation. We use data on patents in the area of genetically modified organisms. Employing a difference-in-difference estimation approach, we find statistically significant evidence that this policy change led to a marked decrease in research conducted in the United States. However, we find no significant effect in research conducted in countries with more liberal research exemptions. Our results suggest that there is a negative relationship between research exemptions and genetically modified seed patents. We also find that U.S. researchers still engage in co-invention with their domestic peers, suggesting that they have not yet strategically adapted to this policy change and new research environment. The oligopolistic market structure of the genetically modified seed industry may stifle an active relocation of research abroad, thereby hindering innovation.