In 1994, as part of the General Agreement on Tariffs and Trade (GATT) that created the World Trade Organization (WTO), the United States made the largest change in patent terms in over forty years. In order to conform to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the United States changed the duration of patent protection from seventeen years from grant date to twenty years from application date. This change affords the opportunity to learn about one of the most basic issues in IP: the relationship between the quantity of innovation and the duration of IP protection.

In this Article, I explore this relationship between duration and quantity using U.S. patent application and citation data around the dates of the implementation of the TRIPS agreement. I use a difference-in-difference framework—exploiting the heterogeneous impact of the change across patent classes—based on Patent and Trademark Office (PTO) processing time. I find a statistically significant relationship between the magnitude of the term extension resulting from the TRIPS law change and patent count. Further, I find that this relationship persists when using citation-weighted patent counts as the dependent variable, which is arguably a better proxy for value of innovation. I do not find a significant increase in the average number of citations to patents receiving longer extensions relative to those receiving shorter extensions following the change.

Standard theory argues that an increase in the duration of patent protection has two primary effects: an increased incentive to innovate (created by monopoly profits) and increased deadweight loss (due to exclusive rights). The optimal patent term is that point at which the marginal benefit from increased innovation is exactly offset by the marginal cost of the deadweight loss created by the patent right.