Use of Grace Periods and Their Impact on Knowledge Flow: Evidence from Japan

This paper examines the determinants of the use of grace periods, as well as their effects on knowledge flow, in order to assess the economic effects based on a large scale panel data of the use of grace periods in Japan. For this purpose we discriminate which of the three views ("acceleration of disclosure," "deferral of domestic patent filing," and "promotion of domestic patenting") best explains the use of grace periods. The major findings are the following. Grace periods are used more for inventions with strong science linkages and in high technology sectors, but for those with a smaller number of claims. Science linkages matter more than the number of claims for academic inventors compared to corporate inventors in using grace periods. Their use has significantly declined in those technology areas with high level of international applications, following the Patent Cooperation Treaty (PCT) Reform in January 2004, allowing, in particular, automatic designation of all PCT contracting states. Critically, the use of grace periods significantly increased the knowledge diffusion to third parties as measured by non-self forward citations, relative to self-citations. Such effect is stronger than that of ex-post academic disclosure, following the patent application or its publication. These results show that the main motivation of the use of grace periods is the acceleration of disclosure, and that they enhance knowledge diffusion and are likely to enhance social welfare.