“R&D Contracting and Appropriability: Evidence from the U.S. Court of Appeals for the Federal Circuit” by Professor Ivan Paak Liang Png
STRATEGY AND IB SEMINAR
Professor Ivan Paak Liang Png
National University of Singapore
NUS Business School
Developers of technology can perform R&D for themselves and then commercialize technology or they can perform R&D for others (contract R&D). Technology is non-rival and non-excludable, and so, difficult to contract on. Stronger patent law increases appropriability, which supports commercialization through sale of product, or licensing or sale of technology. Exploiting differences in the reduction in patent invalidity across states due to the U.S. Court of Appeals for the Federal Circuit (CAFC), we find that the CAFC was associated with 31 percent less contract R&D. We interpret this as due to companies performing more R&D for self-commercialization. The effect was stronger in industries where patents are reported to be more effective in appropriability of process innovations, and in larger or more diversified companies and those with more complementary investments in manufacturing or advertising.