Absorptive Capacity and the Strength of Intellectual Property Rights

A policy debate continues about the relative merits and and negative consequences of federal policies that encourage patent protection to university research results. Given the importance of university research for innovation in many industries, the effects of such policies are of critical importance to firms. This paper examines the impact of the increase in university patenting on the effectiveness of firm strategies historically associated with enhanced exploitation of university research. Results from a simultaneous equation estimation using a panel data set of biopharmaceutical firms suggest that connectedness to university scientists provides substantially less benefit for innovative outcomes of firms as university patenting increases. This has implications for understanding the impact of the policy change on technology transfer and also for firm managers seeking to take advantage of university-generated research. JEL Classifications: O31, O32, O33, L65, D83