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We investigate the causal effect of patent rights on cumulative innovation, using large-scale data that approximate the patent universe in its technological and economic variety. We introduce a novel instrumental variable for patent invalidation that exploits personnel scarcity in post-grant opposition at the European Patent Office. We find that patent invalidation leads to a highly significant and sizeable increase of follow-on inventions. The effect is driven by cases where the removal of the individual exclusion right creates substantial freedom to operate for third parties. Importantly, our results suggest that bargaining failure between original and follow-on innovators is not limited to environments commonly associated with high transaction costs.

We study the causal impact of invalidating marginally valid patents during post-grant opposition at the European Patent Office on affected inventors' subsequent patenting. We exploit exogenous variation in invalidation by leveraging the participation of a patent's original examiner in the opposition division as an instrument. We find a disciplinary effect of invalidation: Affected inventors file 20% fewer patent applications in the decade after the decision. This effect is entirely driven by a reduction in low-quality filings, i.e., filings that examiners associate with prior art that threatens the application's novelty or inventive step. We do not observe shifts into national patenting. JEL-Codes: O310, O340.

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