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In 2011, Korea amended its Copyright Act to comply with the U.S.-Korea Free Trade Agreement’s intellectual property chapter, which included an obligation to enact a safe harbor for secondary copyright infringement in the online environment. Safe harbors protect internet firms from legal liability when their users post infringing content online, on the condition that the firms maintain a system to efficiently remove infringing content when notified of the infringement by rightholders.

This paper tests whether the newly established safe harbors had an impact on innovation by Korean internet firms. I hypothesize that the amendments alleviated litigation risks faced by internet firms, incentivizing the development of new products and services. I test this by estimating difference-in-differences regressions on a panel of Korean internet and software producers between 2008 and 2015. Using R&D spending as a share of sales and patent metrics as measures of innovation inputs and outputs, respectively, I find that internet firms increased both R&D/sales and patent applications relative to the control group of software firms after the introduction of safe harbors. I find small changes in the direction of innovation as well: both internet and software firms expanded the set of technologies in which they applied for patents, though this was greater for the internet firms.