The research use exemption from patent infringement: Boon or bane?

A research use exemption enables companies or research institutions to apply patented know-how of third parties for research purposes for free without being sued for hurting patent rights.Depending on the extent of its implementation, the research use exemption may be positive or negative for stimulating innovation. The main task of patent policy is to find the right balance that fosters technological progress by contributing to the diffusion of newly generated knowledge while providing sufficient incentives to patent inventions. To disentangle these effects of research use exemption, we analyse two research questions: (a) Can a research use exemption contribute to technological progress by fostering firms' R&D activities? (b) Does the extent of a research use exemption have an impact on firms' propensity to patent? In order to answer these questions, we first model varying degrees of research use exemption in a setting of cumulative innovations. One innovation is based on a previous (pioneer) invention, which is either patented or kept secret. In a second step, we look for empirical evidence confirming our predictions using data generated by an online survey conducted in Germany and Australia.