Social Value of Patents: Evidence from the U.S. Court of Appeals for the Federal Circuit

To encourage invention, society awards inventors exclusive rights through patents. Patent law trades off incentives to invent new technologies against reduced access to already invented technology. However, patent law being national, it is difficult to investigate the trade off without confound by national economic and scientific changes. We exploit a unique quasi-natural experiment which changed patent law sub-nationally, within the United States. Beginning 1982, the Court of Appeals for the Federal Circuit shifted law in favor of patent owners, to degrees varying geographically by judicial circuit. For businesses in complex technology industries, we find that the CAFC increased costs to users by more than US$5.6 billion per year, but did not significantly affect the technological quality of patented inventions. Our work contributes to a more nuanced appreciation of socially optimal patent law. Shifting the law in favor of patent owners, a policy to encourage innovation, seemed to increase economic rents without commensurate effect on invention quality.