Where to Patent? Theory and Evidence on International Patenting

This paper builds on the repeatedly documented empirical observation that flows of international patent applications are closely related to international trade relationships. In the first part of this paper we provide additional evidence for this empirical phenomenon using aggregated trade and patent data of the contracting states of the European Patent Office. From this lesson we conclude that a firm's decision to apply for patent protection for a particular location is likely to be driven by the same factors that determine the firm's international trade activities with this location. In the subsequent part of this paper we try to formalize this relationship between international trade and patenting along the lines of a simple model of new trade theory. We explicitly account for the probability that a firm may not fully appropriate the monopolistic advantage implied by patent protection because of the disclosure of relevant knowledge through the patent which facilitates imitation. This setup yields a simple decision rule which determines a firm patenting in a particular location if its expected net profits from patenting abroad are positive. The econometric counterpart of this decision rule is a threshold crossing binary choice model. Empirical evidence is given in the final part of this paper using a sample of 887 German manufacturing firms from the first wave of the Mannheim Innovation Panel (MIP) collected in 1992. The data set contains information on patent applications at the German and European Patent Offices and the United States Patent and Trademark office leading to a system of three patent equations to be estimated. The three equations are likely to be correlated because a single invention can be filed with different offices. We therefore estimate a trivariate probit model by full information maximum likelihood. While conventional determinants of patenting behavior as firm size and R&D expenditures turn out significantly, factors which are usually considered as crucial determinants of a firrn's export designation have only a limited impact on the firm's decision of patenting abroad.

Inkmann, J., Winfried Pohlmeier and Luca Antonio Ricci (1998), Where to Patent? Theory and Evidence on International Patenting, ZEW Discussion Paper No. 98-35, Mannheim.