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Patents serve as incentives for innovation. By giving inventors exclusive rights over their discoveries for a certain period, patents allow them to recover their investments and profit free from the threat that a competitor will commercialize the same invention at the same time.
For startup companies, having a first patent application approved has sizable knock-on effects for future innovation and growth. Economists at the National Bureau of Economic Research find that startups that have had their first patent applications approved have then gone on to develop 42 percent more subsequent patents than startups that have had their first patent applications rejected. More patenting translates into more growth for a startup. These same economists estimate that when a startup receives a patent, it hires an average of 16 more workers and generates $10.6 million more sales over the next five years.