The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979-1995

Abstract

We examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation. Recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to R&D. Yet the propensity of semiconductor firms to patent has risen dramatically since the mid-1980s. We explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 U.S. semiconductor firms during 1979-1995. The results suggest that the 1980s strengthening of U.S. patent rights spawned ''patent portfolio races'' among capital-intensive firms, but it also facilitated entry by specialized design firms.

Offensive Patent Portfolio Races

“…In such a situation, firms amass defensive patents in order to mitigate holdup risk and forearm against infringement suits (Cohen et al, 2000;Hall and Ziedonis, 2001;Ziedonis, 2004). The rationale of this strategy is the ability to countersue potential plaintiffs, at least those that are practicing entities themselves (in contrast to "nonpracticing entities", or "patent trolls"; e.g.…”

“…Received literature has explained patent portfolio races to occur because of fragmented ownership of patents. The logic is straightforward: High fragmentation, with possibly thousands of patentees, decreases the odds of identifying the holders of all relevant patents prior to designing and manufacturing a product (Hall and Ziedonis;, Williamson, 1985Ziedonis, 2004) and increases the risk of patent infringement by the focal firm.…”

“…In some industries, patenting increases take the form of patent portfolio races in which firms compete to assemble the greatest collection of patents. 1 They do so in an effort to reduce the threat of being held up by other patent owners, the rationale being that a larger patent portfolio comes with a greater ability to countersue a potential plaintiff (Cohen et al, 2000;Hall and Ziedonis, 2001;Ziedonis 2004). In other words, these measures are largely defensive -patents are not obtained with the purpose to gain market share or increase profits but to defend against potential aggressive competitors.…”

The Role of Patent Rights in Mergers: Consolidation in Plant Biotechnology

“…They …nd that imminent patent expirations are a motivation for acquisition. Hall and Ziedonis (2001) touch on entry in the semiconductor industry following the 1980s' strengthening of U.S. patent rights. They note that because of stronger patent rights, specialized research …rms may have been able to enter more easily.…”

“…Firms may patent "strategically," when there are concerns about holdup (Grindley andTeece 1997, Hall andZiedonis 2001), and bargaining may break down when broad patents are enforced in technology areas that require many actors (Merges and Nelson 1994).…”