The system of patent-granting, which confers temporary monopolies for the exploitation of new technologies, was originally established as an incentive to the pursuit of risky new ideas. Yet studies of the most patent-conscious business of all—the semiconductor industry—suggest that firms do not necessarily become more innovative as they increase their patenting activity. Ziedonis and Hall, for example, found that investment in research and development (a reasonable proxy for innovation) did not substantially increase between 1982 and 1992, the industry’s most feverish period of patenting. Instead, semiconductor firms simply squeezed more patents out of existing research and development expenditures. Moreover, Ziedonis and Hall found that as patenting activity at semiconductor firms increased in the 1980’s, the consensus among industry employees was that the average quality of their firms’ patents declined. Though patent quality is a difficult notion to measure, the number of times a patent is cited in the technical literature is a reasonable yardstick, and citations per semiconductor patent did decline during the 1980’s. This decline in quality may be related to changes in the way semiconductor firms managed their patenting process: rather than patenting to win exclusive rights to a valuable new technology, patents were filed more for strategic purposes, to be used as bargaining chips to ward off infringement suits or as a means to block competitors’ products.
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