Patent Blocking and Infringement and their Effects on Firms? Participation in Markets for Technology

In recent years, firms have increasingly contributed to and been confronted with a patent landscape characterized by numerous but marginal inventions, overlapping claims and patent fences. As a result, firms risk to be blocked in their patent applications or to be infringed upon by rivals. While both aspects constitute major challenges for the appropriation of returns to inventive activity, extant literature suggests that participation in the market for technology might actually resolve or at least alleviate these problems. In this paper, we investigate the effect of patent blocking and infringement on firms’ engagement in in- and
cross-licensing. Based on a sample of more than 1000 German manufacturing firms our results show that firms engage in in-licensing as a reaction to patent blocking and in both in- and cross-licensing if their protected IP was infringed upon. However, these effects vary depending on the fragmentation of technology fields and whether the firm operates in a discrete or complex product industry.