Intellectual Property Rights and
Firms
Outline
•
•
•
•
•
•
How can firms benefit from IPRs?
Exploring the returns to IPRs
Markets for IPRs
Costs of obtaining and enforcing IPRs
Strategies for IPRs
Empirical studies on the value of IPRs
How can firms benefit from IPRs?
• Lowering costs via process innovation:
can increase profit at current price
can increase market share if lower price
• With product innovation firm expects to
increase sales/gain market share as novelty
of the product attracts customers
• Also has option to license process or
product to other firms and collect fees
• Broader technology exchange agreements
can be made – termed patent pools
• Signalling value to investors using IPRs
Are IPRs critical to innovation?
• Unregistered intellectual property rights
also play a role in sustaining profits
• Trade secrets
• Confidential information
• Examples – technological know-how,
formulas, recipes, customer information
• Advantages of secrecy over patents – do
not have to reveal information to wider
world
Effectiveness of different
methods of appropriability
Other alternatives to IPRs
• Open innovation model – individual firms
cannot sustain complex innovation projects
• Engage in sharing of knowledge, ideas and
inventions
• Can include university departments as well
as other firms
• Open source and public licence in field of
computer software
• Access to source code and permission to
modify it provided extend same rights to
others when releasing their products
Skewness in returns
• A few patents have very high values but
many patents have little or no value
• In aggregate total value can be high but
value is very unevenly distributed
• Similar differentials are seen for
trademarks – compare top twenty brands
(Coca Cola, Disney, Google) with any new
shampoo or toothpaste now being
launched
• Also for copyright – compare successful
Hollywood movie with value of this book
Markets for IPRs
• Licensing decision influenced by:
novelty,
codified/tacit knowledge,
breadth,
small firm size,
not core tech., degree of competition
• Compulsory licensing requested:
for national emergency,
to restore competition,
• Patent trolls - market liquidity or market
impediment?
Costs of obtaining and
enforcing IPRs
•
•
•
•
•
•
•
•
Direct costs of obtaining IPRs vary
Generally not too high for each country
Costs mount if seeking coverage worldwide
Wide coverage needed for traded goods
and services
Enforcement can be very costly
Lawyers fees mount with length of case
Small firms can be disadvantaged
Settlement out of court is a useful option
Strategies for benefiting from
patents I
Strategy
Description
Obtain market, or monopoly, power
Standard economic argument to
increase profits. Lipitor, which is
Pfizer’s patented cholesterol-lowering
drug, is estimated to have sales of $12
billion in 2007.
To act as a signal
A patent may signal to financiers,
granting
agencies,
customers,
suppliers, universities or others that the
firm is innovative. Hsu and Ziedonis
(2007) find some evidence for this in
370 US start-up semi-conductor firms.
To restrain power of suppliers
For example, Nokia has patents
relating to loudspeakers and other
components, even though these
are manufactured by suppliers.
Strategies for benefiting from
patents II
Strategy
Description
To build negotiating power
This relates to the idea of patent
pools. Firms may need their own
patents to enter cross- licensing.
To avoid being invented around
This is the idea of patent thickets.
Having a number of patents
covering similar areas makes it
more difficult to invent around.
To prevent others from patenting
(‘blocking’), or developing certain
technologies (‘fencing’), or raise
costs of entrants or rivals
(‘flooding’ or ‘blanketing’)
These
strategies
are
selfexplanatory. They result in patent
thickets and/or act to change
rival’s costs or strategies.
Strategies for benefiting from
trademarks
Strategy
Description / examples
Signal origin and quality of product
Such a signal allows marketing and
advertising to build this into a brand
(e.g. Coca-Cola or Intel Inside)
Families of trademarks
McCafe, McChicken and McFeast common element to link products.
Multiple trademarks
Intel Inside strategy includes words,
logos, musical jingle. Intel currently
has over 9,000 trademarks.
Umbrella or corporate trademarking
Including a single name in many
trademarks (e.g. Virgin Megastore,
Virgin Atlantic, Virgin Brides.
Strategic opposition
Trademark owners monitor and
object to new trademarks, so as to
prevent potential competition
Empirical studies on the value of
patents
What metrics for IPR value?
• Stock market value - reflects investors
perceptions of value of IPR now and in future
• Studies show patents (weighted by citations)
are associated with increased market value
• Firm productivity - reflects ability to generate
high value output from inputs at current time
• Studies again show a positive association
between productivity and patents
Analysis of patent renewals
• Demonstration of inequality in patent value
using renewals data
• After initial period of grant patents have to
be renewed with a fee being paid
• Firms will not pay to renew patents that
have no value
• Renewal fees filter out less valuable patents
leaving those where value > or = fees
• Evidence for Europe has been used to
calculate lower bound estimates of total
value of patents
Returns to trademarks, copyright
• Parallel methods have been applied to
trademark evaluation as to patents
• Stock market value, productivity and firm
profits are positively associated with
trademark acquisition
• Copyright is much harder to evaluate
• No requirement to register and no option to
do so outside of US, so no databases
• Get indirect assessment from rising value
of firms when copyright extended from 50
to 70 years after death of author
Questions for discussion
1. Why are the returns to IPRs so skewed?
2. Does the existence of patent trolls imply the
patent system is working well?
3. When, if ever, should compulsory licenses be
used?
4. How can one empirically assess the value of IPRs
to firms?
5. Are small or large firms more likely to use patent
system? Does the patent system help or hinder
new firms?
6. Find some examples of (a) patenting strategies
and (b) trademarking strategies.
References
• Gambardella, A., P. Giuri and A. Luzzi (2007), 'The
market for patents in Europe', Research Policy, 36,
1163-83.
• Heller, M. A. and R. Eisenberg (1998), 'Can patents deter
innovation? The anticommons in biomedical research',
Science 280, 698-701.
• Hall, B. (2000), ‘Innovation and market value’, in R.
Barrell, G. Mason and M. O'Mahoney (eds.), Productivity,
Innovation and Economic Performance, Cambridge UK,
Cambridge University Press.
• Bloom, N. and J. van Reenen (2002), ‘Patents, real
options and firm performance’, Economic Journal, 112,
C97-116.
• Schankerman, M. and A. Pakes (1986), ‘Estimates of the
value of patent rights in European countries during the
post-1950 period’, Economic Journal, 96(384), 1052-77.