A Study of Patent Thickets
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This report analyses whether entry of UK enterprises into patenting in a technology area is affected by patent thickets in the technology area. The aim is to contribute to our understanding of the role of patent thickets as a barrier to entry into new technologies for UK enterprises, in particular small and medium sized enterprises (SMEs). The report consists of several parts: 1) a review of the literature on patent thickets, including the limited empirical evidence regarding effects of patent thickets on R&D investments and competition; 2) discussion of the factors contributing to thicket formation and growth; 3) an empirical evaluation of the extent to which patent thickets appear to be barriers to entry in some technology areas. In our comprehensive review of the empirical and theoretical literature on patent thickets of the last 15 years, we find overwhelming evidence that patent thickets arise in specific technology areas. This literature consists of surveys of firm representatives as well as of econometric analyses of firm level data. The literature on thickets contains more than 100 peer reviewed papers and a number of extensive studies undertaken by competition regulators. Although the literature is not always in complete agreement, a very large majority of the researchers agree with this conclusion. The factors identified as leading to the growth of patent thickets are the following: 1) changes in enforcement of patent rights in the US during the 1980s; 2) cumulativeness of innovation and the increasing complexity of technology; 3) shifts in technological opportunity in some areas; 4) strategic patenting by large corporations and the rise of Patent Assertion Entities (PAEs); 5) lack of resources and misaligned incentives in patent offices faced with a flood of patent applications; 6) growth in trade of high technology products, leading to an increase in the demand for patents worldwide. The main novel contribution in this study consists of an empirical analysis of the effects of patent thickets at the European Patent Office on entry into patenting by UK firms. Using a new measure of patent thickets developed by Graevenitz et al. (2012), the report provides a descriptive analysis of the growth of patent thickets in the European patent system and an analysis of the exposure to these thickets of UK entrants into patenting. Econometric analysis of the probability of entry into patenting by technology area shows that the density of a patent thicket in a particular technology area is associated with reduced entry into patenting in that area by UK firms. Given the importance of holding patents in such areas, we interpret this result as indicating reluctance to enter technological areas with patent thickets.