The Innovation Consequences of Mandatory Patent Disclosures

We investigate the effect of patent disclosures on corporate innovation. Using the American Inventor’s Protection Act (AIPA) as a shock that increased patent disclosures, we find an increase in innovation for firms whose rivals reveal more information after the AIPA and a decrease in innovation for firms whose own disclosures are divulged to competitors as a result of the law. These findings suggest patent disclosures generate both spillover benefits and proprietary costs. Further, we find that firms use strategic disclosure choices allowed by patent law in an attempt to mitigate proprietary costs. Our findings provide justification for patent disclosure requirements by demonstrating positive externalities: rivals’ disclosures facilitate a firm’s innovation. However, we also highlight that mandatory patent disclosure can impose proprietary costs on firms that are not fully mitigated by strategic disclosure responses.