Why do patents facilitate trade in technology? Testing the disclosure and appropriation effects

Do patents facilitate trade in technology through appropriation and disclosure effects?

We care because understanding the mechanisms by which patents support technology transactions is crucial because an efficient market for technology can drive innovation and economic growth. Transaction failures can hinder the effective exchange of technologies, which has implications for welfare and the rate of innovation. By exploring how patents impact the success of negotiations, we can propose better policies to mitigate market imperfections and improve the functioning of technology markets.

We conducted an exact matching analysis on a dataset of 860 technology transaction negotiations in Australia. These data included negotiations for technologies that had been patented, were pending patent, or had never been filed for a patent. We compared negotiation outcomes to identify the effects of patents on the likelihood of successful technology trades.

We find significant evidence for the appropriation effect, indicating that successful negotiations involving granted patents were 9.4 percentage points more likely than those involving pending patents and significantly higher in technology fields like biotech and chemicals (specifically, an increase of 16.6 percentage points when examining specific strata). However, we find no statistically significant support for the disclosure effect, with difference estimates showing that negotiations with pending patents did not enhance completion rates relative to those with no patent at all.

• 860 technology transaction negotiations in Australia
• 467 successful negotiations and 393 unsuccessful negotiations
• Response rate of 47% from a survey of 1427 potential technology traders

• Negotiation outcomes are independent of unobserved variables given observed characteristics
• The dataset adequately captures relevant covariates affecting both treatment assignment and negotiation outcomes
• The matching methods employed effectively control for confounding factors