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Despite the diffusion of communication tools and boundary spanning technologies, knowledge flows in innovation processes retain a distinct localized nature in many industries, and geographical clusters emerge as critical areas to foster technological diffusion. In this article, we focus on the knowledge mediating role, as technological “gatekeepers,” of focal firms in industrial districts. Based on a longitudinal dataset of 720 patents granted by the United States Patent and Trademark Office (USPTO) between 1990 and 2003 to firms in the automatic packaging machinery industrial district in Northern Italy, and controlling for the uneven geographical distribution of patenting activities, we show that: (i) firms within the district use local knowledge to a greater extent and more rapidly than knowledge from outside the district, (ii) focal firms use external knowledge to a greater extent than other firms operating in the district …