This paper empirically investigates a firm's propensity to patent. It thereby builds on a theoretical model on a firms' patenting decision in a market with vertically differentiated products. We deduce and empirically test several hypotheses from the theoretical results regarding patenting and rival's market entry decision presented in Zaby (2009). Our main finding is that in industries which are characterized by easy-to-use knowledge spillover, the technological lead of the inventor is reduced to such an extent that the propensity to patent increases. Furthermore, the intensity of patent protection has a delaying impact on rival's market entry.