Patent Regime Shift and Firm Innovation: Evidence from the Second Amendment to China’s Patent Law

In this paper, we exploit the second amendment to China’s patent law in 2000, which for the first time affirmed equal treatment of state- and privately-owned enterprises in obtaining and enforcing patent rights, to examine how the policy change causes a change in the patenting strategy of listed state-owned enterprises (SOEs) versus non-SOEs. Using a difference-in- differences design, we show that following the patent regime shift, while SOEs experienced a substantial increase in their patent applications for minor innovations, their applications for major innovations did not see a significant rise. More importantly, we find a significant decline of SOEs’ patent quality after the policy change. However, such a patent quality decline is elevated for SOEs in monopoly industries and reduced for SOEs in high-tech industries, suggesting that competitive and innovative pressures mitigate some of the unintended negative consequences of the patent law reform for firm patenting.