The Consequences of Radical Patent-Regime Change

This paper analyzes the consequences of radical patent-regime change by exploiting a natural experiment: the forced adoption of the Prussian patent system in territories annexed after the Austro-Prussian War of 1866. Compared to other German states, Prussia granted patents more restrictively by setting higher novelty requirements, while patent fees were much lower. By using novel hand-collected data, we show that the forced adoption of the Prussian patent law caused a massive drop in the number of patents per capita in annexed territories. By contrast, we find a significantly positive effect of the patent-regime change on World’s Fair exhibits per capita, which we use as a proxy for non-patented innovation. We interpret this finding as evidence that restrictions on the granting of patents, which foster competition and technology diffusion, can be conducive for the generation of innovation