Did TRIPS Spur Innovation? An Empirical Analysis of Patent Duration and Incentives to Innovate

How to structure IP laws in order to maximize social welfare by striking the right balance between incentives to innovate and access to innovation is an empirical question. It is a challenging one to answer, both because innovation is difficult to value and changes in IP protection are rare. The 1995 TRIPS agreement provides a unique opportunity to learn about this question for two reasons. First, the adoption of the agreement was uncertain until shortly before adoption, making it a plausibly exogenous change to patent duration. Second, the nature of the law change meant that the patent duration change was heterogeneous across patent classes. Using both patent counts and citation-weighted counts, I am able to take advantage of the TRIPS-induced law change to empirically estimate the impact of patent duration on innovation. I find evidence for an increase in innovation due to patent term extension following TRIPS. Both patent counts and citation-weighted counts increased more following TRIPS in those classes that received greater expected term extensions relative to classes receiving shorter extensions. While the precise calibration of innovation valuation is difficult, this paper provides the first attempt to empirically estimate its response to a major change to patent duration, from the TRIPS agreement