Screening Property Rights for Innovation

We develop a dynamic structural model of patent screening incorporating incentives, intrinsic motivation, and multi-round negotiation. We estimate the model using detailed data on examiner decisions and employ natural language processing to create a new measure of patent distance that enables us to study strategic decisions by applicants and examiners. The estimated parameters and counterfactual analysis imply three main findings. First, patent screening is moderately effective, given the existing standards for patentability. Second, examiners exhibit substantial intrinsic motivation that significantly improves the effectiveness, and reduces the net social costs, of screening. Third, limiting the number of negotiation rounds strongly increases the speed and quality of screening. We quantify the net social costs of patent screening and find that the annual social cost of the existing system is $25.5bn, equivalent to 6.5% of U.S. R&D performed by the private sector.