This paper examines the patenting behavior of firms in the US semiconductor industry from 1979 to 1995, focusing on the apparent paradox that despite the strengthening of US patent rights in the early 1980s, semiconductor firms did not rely heavily on patents to appropriate returns from R&D. However, the propensity of semiconductor firms to patent increased dramatically during this period. The study explores this paradox by conducting interviews with industry representatives and analyzing the patenting behavior of approximately 100 US semiconductor firms during a period that spans the “pro-patent” shift in the US legal environment. The results suggest that the strengthening of US patent rights spawned “patent portfolio races” among capital-intensive firms, but also may have facilitated entry by specialized design firms during this period. The paper finds that the increase in the patent propensities of semiconductor firms is driven by the “pro-patent” shift in the US legal environment in the 1980s. Two potential effects of strengthened patent rights on the intensified patenting observed in this industry are distinguished. First, the enhanced enforcement environment could induce more aggressive patenting by firms most vulnerable to “hold up” in the new patent regime. Second, a shift toward stronger patent rights could facilitate vertical-specialization within the industry and lead to the emergence of ‘technology specialists’. The study also finds that firms entering the industry since 1982 patent more intensively than pre-1982 entrants, especially specialized design firms. The results suggest that stronger patent rights are especially critical to these firms in attracting venture capital funds and securing proprietary rights in niche product markets. The paper concludes that the primary reason for intensified patenting among our sample of semiconductor firms is more aggressive patenting by capital-intensive firms. The results of the econometric analysis corroborate views commonly expressed by industry representatives that the 1980s “pro-patent” shift in the US legal environment altered their firms’ incentives to patent.This paper examines the patenting behavior of firms in the US semiconductor industry from 1979 to 1995, focusing on the apparent paradox that despite the strengthening of US patent rights in the early 1980s, semiconductor firms did not rely heavily on patents to appropriate returns from R&D. However, the propensity of semiconductor firms to patent increased dramatically during this period. The study explores this paradox by conducting interviews with industry representatives and analyzing the patenting behavior of approximately 100 US semiconductor firms during a period that spans the “pro-patent” shift in the US legal environment. The results suggest that the strengthening of US patent rights spawned “patent portfolio races” among capital-intensive firms, but also may have facilitated entry by specialized design firms during this period. The paper finds that the increase in the patent propensities of semiconductor firms is driven by the “pro-patent” shift in the US legal environment in the 1980s. Two potential effects of strengthened patent rights on the intensified patenting observed in this industry are distinguished. First, the enhanced enforcement environment could induce more aggressive patenting by firms most vulnerable to “hold up” in the new patent regime. Second, a shift toward stronger patent rights could facilitate vertical-specialization within the industry and lead to the emergence of ‘technology specialists’. The study also finds that firms entering the industry since 1982 patent more intensively than pre-1982 entrants, especially specialized design firms. The results suggest that stronger patent rights are especially critical to these firms in attracting venture capital funds and securing proprietary rights in niche product markets. The paper concludes that the primary reason for intensified patenting among our sample of semiconductor firms is more aggressive patenting by capital-intensive firms. The results of the econometric analysis corroborate views commonly expressed by industry representatives that the 1980s “pro-patent” shift in the US legal environment altered their firms’ incentives to patent.