We investigate the opposing impacts of two basic effects underlying the decision to patent: the protective and the disclosure effect. On the one hand, patents grant a temporary monopoly to an inventor, and thus, have a positive protective effect. On the other hand, patent law requires the full disclosure of all technological details concerning a patented discovery. As this transfer of enabling knowledge benefits rival firms the profits of the innovator may decrease. Hence, the patenting decision of an inventor has to balance the tradeoff between the benefits of temporary monopoly power, and the drawback of the disclosure. Naturally, the positive effect may be enhanced by stronger property rights while the negative effect is subject to the impact of the disclosure requirement. The presented analysis consists of a theoretical part which is a condensed version of Zaby (2010b) and an empirical test of the theoretical predictions.
Heger, Diana and Alexandra K. Zaby (2013), A Look at Both Sides of the Coin: Investigating the Protective and the Disclosure Effect of Patenting, ZEW Discussion Paper No. 13-048, Mannheim. Download