In implementing an innovation-driven strategy and building an intellectual property nation to promote high-quality development and improve national economic competitiveness, protecting intellectual property rights (IPR) is protecting innovation. However, the existing literature rarely examines the relationship between IPR protection and entrepreneurship from a micro-firm perspective, especially lacking theoretical studies and empirical evidence on how R&D spillover mechanisms determine the location selection decisions of corporate entrepreneurship. This paper argues that stronger IPR protection can influence urban entrepreneurial activity through R&D spillover effects. Theoretically, based on a dynamic and static game analysis framework with complete information, this paper finds that increasing IPR protection can influence entrepreneurs’ production location decisions and enhance urban entrepreneurial activity by reducing illegal R&D spillovers from innovative firms (direct path) and increasing legal R&D spillovers from society (indirect path). On the one hand, enhanced IPR protection can reduce illegal R&D spillovers from innovative firms. Innovators with patented products choose to open new firms in regions with strong IPR protection to capture innovation’s monopoly benefits. On the other hand, with the increase in IPR protection, the supply of technology in the market increases the legal R&D spillovers from society. Entrepreneurs prefer to cluster in cities with strong IP protection to enjoy the external economy of low transaction costs and R&D spillovers. In general, the fewer illegal R&D spillovers and the more legal R&D spillovers, the higher the entrepreneurial activity in the region. Empirically, based on panel data from 270 prefecture-level cities from 2005 to 2018, this paper examines the impact of the Chinese IPR model city pilot policy on the entrepreneurial activity of patent-intensive, software copyright-informed enterprises using a difference-in-differences (DID) model. Compared with the existing literature, this paper expands the following: first, we introduce the R&D spillover into the complete information dynamic and static game models and theoretically elaborate the intrinsic mechanism of IPR protection affecting urban entrepreneurial activity. Second, this paper expands the study of the entrepreneurial effect of IPR protection from the perspective of the R&D spillover effects for the first time. Moreover, this paper uses the quasi-natural experiment of Chinese IPR model city construction to conduct an empirical analysis. Third, this paper selects the “Strong Intellectual Property County Project” as an instrumental variable, effectively alleviating the endogeneity problems caused by reverse causality and omitted variables. This paper finds that Chinese IPR model cities significantly enhanced the cities’ entrepreneurial activity. The entrepreneurial effect is more significant in regions where intellectual property protection is in the first and second echelon and cities with better-developed technology markets. The mechanism test shows that: (a) the pilot policy reduces the illegal R&D spillovers from enterprises by strengthening administrative and judicial protection, which in turn increases the cities’ entrepreneurial activity; (b) the pilot policy increases the level of legal R&D spillovers in the market by increasing the scale of patent citations, which in turn increased the overall entrepreneurial activity in the city. Among them, the Chinese IPR model cities construction mainly enhances the overall entrepreneurial activity of the city by increasing the legal R&D spillovers (indirect path). Therefore, to give full play to the innovation and entrepreneurship effect of IPR protection, policymakers should reduce illegal R&D spillovers from enterprises through administrative and judicial protection means; and open up channels for legal R&D spillovers from society by fostering technology trading markets and other means, forming a protection system of industry self-regulation, enterprise compliance, and citizen integrity.