Patents : Ability or Choice?

This paper provides causal evidence on the impact of patenting choices on innovation outcomes. Using a novel database on legal decisions that randomly change firms' patenting motives, I show that patenting choice alone explains 50% of the variation in patents. By increasing the incentive to file patents, S&P 500 firms gain 67% more patents per year on average, even when there is no change in their innovation ability. This quantitative evidence challenges the conventional wisdom of using patents as a measure of innovation ability. Further, I find patenting choice has a significant real effect on investment and R&D, and affects scaled patent citations. I conclude by providing some improved measures of innovation ability