The Role of Foreign Patents in US Firms’ Patent Portfolios

Abstract

I investigate the role of foreign patents (patents issued in countries outside of the US) in US firms’ patent portfolios. Foreign patents are substantial and prevalent for US firms. Foreign patents form about 39% of the average patent portfolio of US firms. Firms with foreign patent applications are financially stable, and these firms have a higher percentage of foreign sales to total sales. Besides, I exploit exogenous shocks to foreign sales (free trade agreements and bilateral investment treaties) to identify the effect of foreign sales on the propensity to foreign patent. I find firms with a larger percentage of foreign sales have a higher propensity to foreign patent. Additional analysis reveals US firms have a higher propensity to patent in countries with strong patent rights.