Patents, Antitrust, and Innovation: Evidence From the Xerox Case

ABSTRACT How does antitrust enforcement affect innovation when patents are the main barrier to entry? I address this question by empirically studying the US antitrust case against Xerox, the former monopolist in the market for plain‐paper copiers. In 1975, Xerox accepted a consent decree whose primary remedy was compulsory licensing of all its copier‐technology patents in the US and abroad. I show that this antitrust intervention promoted innovation by other firms in the copier industry, measured by a disproportionate increase in patenting in technology classes with a higher propensity for containing copier‐related inventions. This effect is driven by Japanese competitors, whose patenting became more novel and diverse as they started developing smaller desktop copiers.