Fact of the Week: Start-up Patents Are More Influential Than Patents Filed by Large Incumbent Firms

Source: Julian Kolev et al., “On Academics and Creative Destruction: Startup Advantage in the Process of Innovation,” NBER Working Paper Series, no. 30362, August 2022.

Commentary: Analyzing start-up and incumbent firms’ patent activity around the United States’ top 25 research universities, Julian Kovel et al. find that patents filed by start-ups receive more citations and are more likely to be “outlier patents.” The authors define outlier patents as being among the top 5 percent in citations, accounting for grant year and technology area. Specifically, the authors find that a start-up’s patent receives on average 20 percent more citations in the five years following its grant year than a comparable patent by an incumbent firm. This increases to 50 percent more citations in the six to ten years after the patent’s grant year and twice as many in the 11-15 years after its grant year. The authors also find that start-up patents are 40 percent more likely to be outlier patents.

Kovel et al. propose two sources of start-ups’ advantage: The first is that academic start-up founders have more private knowledge about the commercial potential of avenues of research and are therefore more likely to pursue the most promising. The second is that start-ups are not plagued by the “cannibalization effect,” whereby a firm is discouraged from pursuing an innovation that may displace its existing products and therefore threaten its existing competitive advantage.