Spring 2015 I&E Research Seminar Series

Lauren H. Cohen, Harvard Business School, Harvard University

“Patent Trolls: Evidence from Targeted Firms”

February 4, 2015
4:30-6:00 PM
R. J. Reynolds Auditorium, Fuqua School of Business

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We provide theoretical and empirical evidence on the evolution and impact of non-practicing entities (NPEs) in the intellectual property space. Heterogeneity in innovation, given a cost of commercialization, results in NPEs that choose to act as “patent trolls” that chase operating firms’ innovations even if those innovations are not clearly infringing on the NPEs’ patents. We support these predictions using a novel, large dataset of patents targeted by NPEs. We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks). Furthermore, NPEs target firm profits arising from exogenous cash shocks unrelated to the allegedly infringing patents. We next show that NPEs target firms irrespective of the closeness of those firms’ patents to the NPEs’, and that NPEs typically target firms that are busy with other (non-IP related) lawsuits or are likely to settle. Lastly, we show that NPE litigation has a negative real impact on the future innovative activity of targeted firms.

Scott Stern, MIT Sloan School of Management, Massachusetts Institute of Technology

Where is Silicon Valley? Nowcasting and Placecasting Entrepreneurial Quality and Performance

March 5, 2015
10:30 – Noon
R. J. Reynolds Auditorium, Fuqua School of Business

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A central challenge in the measurement of entrepreneurship is accounting for the wide variation in entrepreneurial quality across firms. This paper develops a new approach for estimating entrepreneurial quality by linking the probability of a growth outcome (e.g., achieving an IPO or a significant acquisition) as a function of start-up characteristics observable at or near the time of initial business registration (e.g., the firm name or filing for a trademark/patent). Our approach allows us to characterize entrepreneurial quality at an arbitrary level of geographic granularity (placecasting) and in advance of observing the ultimate growth outcomes associated with any cohort of start-ups (nowcasting). We implement this approach in Massachusetts from 1988-2014, yielding several key findings. First, consistent with Guzman and Stern (2014), we find that a small number of observable start-up characteristics allow us to distinguish the potential for a significant growth outcome: in an out-of-sample test, more than 75% of growth outcomes occur in the top 5% of our estimated quality distribution. Second, we propose two new economic statistics for the measurement of entrepreneurship: the Entrepreneurship Quality Index (EQI) and the Regional Entrepreneurship Cohort Potential Index (RECPI). We use these indices to offer a novel characterization of changes in entrepreneurial quality across space and time. For example, we are able to document changes in entrepreneurial quality leadership between the Route 128 corridor, Cambridge and Boston, as well as more granular assessments that allow us to distinguish variation in average entrepreneurial quality down to the level of individual addresses. Third, we find a high correlation between an index that depends only on information directly observable from business registration records (and so can be calculated on a real-time basis) with an index that allows for a two-year lag that allows the estimate of entrepreneurial quality to incorporate early milestones such as patent or trademark application or being featured in local newspapers. Finally, we find that the most significant “gap” between our index and the realized growth outcomes of a given cohort seem to be closely related to investment cycles: while the most successful cohort of Massachusetts start-ups was founded in 1995, the year 2000 cohort registered the highest estimated quality.

Benjamin Jones, Kellogg School of Management, Northwestern University

“University Entrepreneurship and the Professor’s Privilege”

March 17, 2015
1:30-3:00 PM
Leaman Classroom, Fuqua School of Business

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University-based researchers are potentially important sources of marketplace innovation, and public policy in many countries works to enhance innovative outcomes from university workforces. Yet little is known about how university-based researchers respond to incentives to engage in commercial innovation. This paper studies a natural experiment — the end of the “professor’s privilege” in Norway — where two-thirds of the property rights to innovations were transferred from one investing party, the individual researcher, to another, the university itself. Using data on all Norwegian workers, all Norwegian start-ups, and all Norwegian patents, we find an approximate 50% decline in the rate of university-based start-ups and patents after the reform. These findings inform literatures on commercialization policy, innovation incentives, and the link between taxes and entrepreneurship.

Yael V. Hochberg, Jones Graduate School of Business, Rice University

“Accelerators and the Regional Supply of Venture Capital Investment”

April 8, 2015
4:30 – 6:00 PM
R. J. Reynolds Auditorium, Fuqua School of Business

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Recent years have seen the rapid emergence of a new type of program aimed at seeding startup companies. These programs, often referred to as accelerators, differ from previously known seed-stage institutions such as incubators and angel groups. While proliferation of such accelerators is evident, evidence on efficacy and role of these programs is scant. Nonetheless, local governments and founders of such programs often cite the motivation for their establishment and funding as the desire to transform their local economies through the establishment of a startup technology cluster in their region. In this paper, we attempt to assess the impact that such programs can have on the entrepreneurial ecosystem of the regions in which they are established, by exploring the effects of accelerators on the availability and provision of seed and early stage venture capital funding in the local region.