Open(ing) IP: The Effects of Patent Non-Assertion on Innovation

Innovation has long been seen as the engine of economic growth. But as barriers to innovation such as patent thickets and patent litigation have risen dramatically in recent years, firms are beginning to examine the role that patents play in driving innovation. We examine how shifts in a firm’s intellectual property (IP) strategy can affect future innovation. In particular, we investigate whether or not a firm’s IP strategy can spur follow-on or generative innovation that builds upon its inventions. Our paper looks at one aspect of an open IP strategy (i.e. patent non-assertion pledges) affects the rate and type of future innovation. We study open IP strategy in the context of the Patent Commons (a set of patent non-assertion pledges) formed in 2005 by IBM. In the period following the formation of the Commons, we find that there is a 24% decrease in the average yearly forward citation rate. However, the effects of patent pledges are most strongly evidenced in the citations made by external inventors. Average annual external citations decrease by 27% following the patent pledge. We find that IBM’s shift towards a Patent Non-Assertion strategy led to a decrease in the use of pledged intellectual property in future generative innovation.