Innovation, Imitation, and Political Cleavages in Trade and Patent Protection

• In Event: Firms in Trade with China

Abstract

Exporting firms face a range of risks to their assets in global markets, such as US intellectual property (IP) theft by China. However, some exporters demand IP enforcement more than others. Why? This paper illustrates how the threat of new entrants leads to lobbying for entry deterrence by incumbent firms. In equilibrium, companies whose exports are prone to reverse engineering by import-competing firms for their long product lifetime seek stronger patent protection by home government. To test this argument, I measure product cycles using millions of patent citations and analyze lobbying reports filed on US trade agreements for patent protection, signed after the 2001 Doha Round. I find that patent holders who manufacture products with longer product cycles lobbied Congress more to ratify the trade agreements. This tendency becomes more pronounced as the agreements adopt higher standards for patent protection. I also find that the longer product cycle length, the more likely the lobbying reports are to contain keywords representing an increased exposure to imitation, such as counterfeit. The results suggest that rapidly innovating firms engage less in rent seeking, challenging the dominant view on firms' political connections.

Author

• Sojun Park, Princeton University