The Economic Value of
Intellectual Property Rights
Professor Derek Bosworth
Intellectual Property Research
Institute of Australia
Melbourne University
Coverage of the presentation
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Components of value
Counterfeiting and infringement
Borrowing against assets
Distribution of values/risk in investment
Conclusions
Components of value
Components of value: private
• Value of the underlying IP
an invention may have value without IPRs
e.g. “protection” by being first to market
• Value of the IPR to the company
value of the IPR is the difference in value of
the IP with and without IPR protection
the value of IP would be severely eroded in
the absence of IPRs
incentive to invent or maintain quality would
be severely undermined
Components of value: public
• Positive impact of IPRs on dynamic
welfare, i.e.
creativity (i.e. incentive to invent, incentive to
maintain or increase product quality, etc.)
accessing high technology of others
ability to licence/cross licence
• Negative impact of IPRs on static welfare,
i.e.
higher prices for goods
Effects of IPRs on value: inventions
• Inventions
expensive to produce
cheap to reproduce?
• Investments in R&D not recouped in
absence of IPRs
• As expenditure on R&D cannot be
recouped, there is no incentive to invest
• Countries such as China introduced IPRs
in order to access foreign technology
Effects of IPRs on value: trade marks
• Trade names and brand value
expensive to build
cheap to reproduce (counterfeit/pirate)
• Investments in advertising, R&D, etc. not
recouped
• Perceived product quality is undermined
by counterfeit goods
• Incentives to maintain or improve quality
are affected by counterfeit goods
Counterfeiting and infringement
• Counterfeiting and piracy relate to the actions of
one company in attempting to pass-off their
goods (or services) as those of another
company.
Software Information Industry
Piracy Study, 1999
Western Europe
Eastern Europe
North America
Latin America
Asia Pacific
Middle East
Africa
Total - worldwide
Piracy (%)
34
70
26
59
47
63
56
36
Revenue loss
3,629,371
505,213
3,631,212
1,127,639
2,791,531
284,445
193,747
12,163,159
Drivers of (Cross-border) Counterfeiting
• Market size
population
brand popularity
income and income
distribution
• Distance
physical
cultural
language
technological
distance (ability to
produce accurate
replicas, including
marks)
• Unit costs
labour costs
capital costs
• IPR and costs of
protection (risks to
originator/counterfeiter)
IPR regime (weak,
moderate, strong)
extent and efficiency
of policing
Origin of Counterfeits in EU (% cases)
Thai
Czech USA
China
Turkey Poland HK
Other
Food …
0
10
0
10
20
20
0
40
Perfume..
0
0
8
0
13
2
0
77
Clothes…
28
29
0
7
11
4
0
22
Electrical..
4
0
5
16
0
0
25
50
Computer.
5
0
8
18
0
0
27
43
CD, DVD.
56
0
0
0
0
2
3
40
Watches
14
8
37
5
0
9
10
17
Toys &
games…
14
0
19
24
0
0
19
25
Other…
4
0
30
19
8
10
6
23
26
15
10
8
6
5
4
25
Total
Patent Infringement Damages
Patent owner
$ (m)
Litton
1200.0 Honeywell
(US, large)
Polaroid
873.2
Eastman Kodak
253.0
Nintendo
(Japan, large)
Smith International 204.0
Hughes Tool
(US, medium)
(US, large)
(US, large)
1995
1991
(US, large)
(US, small)
Honeywell
Year
(US, large)
(US, large)
Alpex Computer
Infringer
166.0
Minolta
(Japan, large)
1994
1986
1994
Borrowing against assets
Intangible assets as collateral
• In some firms/sectors intangibles
significantly exceed the value of tangibles
• Borrowing against tangible assets
disadvantages firms with higher
proportions of intangibles
• Knowledge-based firms need to borrow
against intangible assets
• Such firms must
account for their intangibles
protect their intangibles using IPRs
police their intangibles and
punish IPR infringers
Borrowing against IP
Borrower
Borden
Disney
Liggitt
Chemical Company
Calvin Klein
GE Capital
Fashion Company
News Corporation
Nestle
David Bowe
IP
Trade marks
Copyrights
Trade marks
Patents
Trade marks
Trade marks
Trade marks
Copyright
Trade marks
Copyrights
$ (m)
480
400
150
100
58
n/a
100
260
n/a
55
Date
1991
1992
1992
1994
1993
1995
1996
1996
1996
1997
Distribution of values
Distribution of values
• All the empirical literature points to a
highly-skewed distribution of values of
IP/IPRs
Most IP is worth little if anything
But a small proportion of IP is extremely
valuable
• This result is consistent with (though not
proof of) the risks of investments in IP
Basic R&D is a highly risky activity
New product launches are highly risky
Identifying value distribution of patents
• Main methods:
patent renewal information
patent citation information
surveys of commercial value
• Consistent findings:
most patent lives are short/relatively few very
long lived
most patents receive very few citations/very
small proportion receive a large number of
citations
surveys show only a very tiny proportion of
patents are worth large amounts/most are
worth little if anything
Example of a highly cited patent
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Bristol-Myers Squibb patent 4105776
Invented by Ondetti and Cuslunan
granted in 1978
cited 165 times from the date of its issue in 1978
through September 1995
• single most highly cited patent issued in 1978, out of
70,590 patents issued in that year
– 101 times by later Bristol-Myers Squibb patents
– 16 times by American Home Products patents
– 48 times by patents assigned to 20 other
companies or inventors