Working Paper | HBS Working Paper Series | 2013

Imperfect Information, Patent Publication, and the Market for Ideas

by Deepak Hegde and Hong Luo

Abstract

In this study, we investigate the role of an important information-disclosure mechanism—patent publication—in facilitating transactions in the market for ideas. We do so by analyzing the effects of the American Inventor's Protection Act (AIPA) of 1999, 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 simple theoretical framework that yields predictions about the effects of AIPA on the timing of licensing. We then test the predictions using a sample of 339 licenses of biomedical inventions protected by patent applications filed between 1995 and 2005. Consistent with the predictions, we find that post-AIPA patent applications experience a sharp increase in the probability of licensing after 18-month publication, and, on average, are 18 percentage points less likely than pre-AIPA patent applications to wait until allowance to be licensed. Even for patent applications that are not licensed until allowance, 18-month publication shortens the time to licensing. Overall, for inventors that choose to license, 18-month publication accelerates licensing by 8.5 months on average. We conclude that information disclosure through patent publications plays an important role in facilitating transactions in the market for ideas.

Keywords: Market Transactions; Information; Patents; Investment; Innovation and Invention; Biotechnology Industry; United States;

Citation:

Hegde, Deepak, and Hong Luo. "Imperfect Information, Patent Publication, and the Market for Ideas." Harvard Business School Working Paper, No. 14-019, September 2013.