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Tica Susi PXHJVHVHXVHVVXHVX
Tica Susi PXHJVHVHXVHVVXHVX
Tica Susi PXHJVHVHXVHVVXHVX
Strat.Mgmt.J.,32:11281138(2011)
PublishedonlineEarlyViewinWileyOnlineLibrary(wileyonlinelibrary.com)DOI:10.1002/smj.925
Received16July2009;Finalrevisionreceived5October2010
Inthispaperweusenovelsurveydataon1,790Australianinventionstoestimatetheaverage
patent premium, which provides an important benchmark for technology managers and IP
professionals.OurdataaredrawnfromtheAustralianInventorSurvey,whichwassenttoall
AustralianapplicantswhosubmittedapatentapplicationtotheAustralianPatentOfficefrom
1986to2005.Sincesomepatentapplicationswereunsuccessful,wehaveinformationaboutthe
privatevalueofbothpatentedandunpatentedinventions.Ourresultssuggestthatthepresenceof
apatentincreasesthereturnstoaninventionbyaround40to50percentregardlessofhowwe
definevalue.Copyright2011JohnWiley&Sons,Ltd.
INTRODUCTION
Theintroductionofnewproductsand
processes plays a pivotal role in
driving firms productivity,
profitability, and competitive
advantage (Ceccagnoli, 2009).
However, innovators face an
important challenge in choosing
among different appropriation
strategies including patenting and
keepingaheadoftheopposition,the
choice of which can have far
reaching consequences for firm
profitability. Survey evidence has
suggested
Keywords: patents; invention;
commercialization;patentpremium
*Correspondence to: Dr. Paul H. Jensen,
Melbourne Institute of Applied Economic and
Social Research, and Intellectual Property
Research Institute of
Australia (IPRIA) Level7,
AlanGilbertBuilding,The
University of Melbourne,
Parkville VIC 3010,
Australia.
Email:
pjensen@unimelb.edu.au
that, on average,
patentsareconsidered
relatively
less
important than other
appropriation
strategies,butthatthe
value of patenting
varies considerably
across technology
areas (Levin et al.,
1987; Harabi, 1995;
Cohen, Nelson, and
Walsh,2000).Inpart,
this observation may
reflectthefactthatnot
all technologies are
patentable. In this
paper we use novel
survey data on 1,790
Australian inventions
to estimate the
average
patent
Copyright2011JohnWiley&
Sons,Ltd.
overandabovethatwhichcouldhave
been generated by the second best
means of appropriation (Schankerman,
1998; Lanjouw, 1998).1 The value of
patent protection can be defined as
either the incremental return (i.e., in
dollar terms) or as the proportional
increaseinvaluetoaninventiondueto
patentprotection.Thelatterisreferred
to as the patent premium by Arora,
Ceccagnoli, and Cohen (2008) and is
analogoustoSchankermans(1998:95)
equivalentsubsidyrate.
Existingstudiesofthevalueofpatent
protection can be divided into three
streams.Thefirstrelatestosurveysof
firms and inventors, which show that
patenting ranks nearthebottom of all
appropriation mechanisms (see Levin
et al., 1987; Cohen et al., 2000).
Similarly,Mansfieldandcollaborators
(Mansfield, Schwartz, and Wagner,
1981; Mansfield, 1986) found patent
protection to be important in the
commercialization of a minority of
innovations. Arora et al. (2008)
developed a model of innovation and
patentingtodirectlyestimatethepatent
premiumanditsimpactonresearchand
development(R&D)investment.Using
survey data, they modeled the patent
premiumasconsistingofafixedfirm
component as well as an idiosyncratic
component and then jointly estimated
the firms R&D productivity, patent
propensity, and patent premium. They
showed that the mean premium is
positive in only a few industries, but
that conditional on patenting, the
averagepatentpremiumis0.5.
Thesecondstreamofstudiesinvolves
imputingthevalueofpatentsfrompatent
renewal decisions. The seminal
contribution is Schankerman and Pakes
(1986),whilemorerecentstudiesinclude
Sampat and Ziedonis (2004), Deng
(2007), and Gronqvist (2009). The
premiseofthisapproachisthatfirmsonly
renewtheirpatentsifthevalueofpatent
protection is greater than the cost of
renewal.Themethodinvolvesestimating
parametersthatdescribethedistribution
oftheinitialvalueofpatentedinventions
as well as depreciation rates. It is
generally acknowledged that the highly
skeweddistributionofpatentvaluesmake
finite sample estimation unreliable (see
Bessen, 2009). Schankerman (1998: 95)
generated an estimate of the equivalent
subsidyratebydividinghisestimatesof
thevalueofpatentprotectionbythetotal
1
ResearchNotesandCommentaries
R&D expenditure used to produce
those patents (in practice this is
measured by aggregate R&D
expenditureinthepreviousyear)giving
anestimatedeffectivesubsidy rate of
0.25.2
Thethirdstreamofresearchattempts
to infer the value of patent protection
fromitseffectonthemarketvalueof
firms(typicallyTobinsQ).Examples
of this approach include Griliches
(1981); Hall, Jaffe, and Trajtenberg
(2005); Hall and MacGarvie (2006);
Bosworth and Rogers (2001); and,
Ceccagnoli (2009). Bessen (2009)
argued that, in principle, the
incremental value of patents can be
isolatedifwecancontrolforthefirms
totalqualityadjustedtechnologystock.
However, this approach relies on the
efficientmarketshypothesis,whichis
not universally considered to be a
robustassumption.
Inthispaper,weadoptanewapproach
tothisissuebasedonanalysisusingdata
drawn from the Australian Inventor
Survey2007(AIS07),3whichwassentto
allAustralianapplicantswhosubmitteda
patentapplicationtotheAustralianPatent
Office from 1986 to 2005. A major
differencebetweentheAIS07andother
inventorsurveys(seeHarhoffetal.,1999;
Giuri et al., 2005; and Gambardella,
Harhoff,andVerspagen,2008)isthatwe
survey patent applicants rather than
patentees.Sincesomepatentapplications
were unsuccessful, we have information
abouttheprivatevalueofbothpatented
and unpatented inventions. Moreover,
there is considerable variation in the
commercialization outcomes across
patentedandunpatentedinventions.This
variation is the key to our empirical
identificationofthepatentpremium.We
also attempt to separate the patent
premium from observable quality
characteristicsoftheinvention.4
Our paper makes a number of
contributions. First, we present new
estimatesoftheaveragepatentpremium
basedonanovelempiricalapproach.All
of the inventions in our counterfactual
sample are potentially patentable, as
indicatedbythedecisionoftheapplicants
toapplyforapatent.5Second,wepresent
estimatesoftheprivate
SeesimilaranalysisbyLanjouw(1998)
for WestGermanpatentsduringthe period1953
FormoredetailsoftheAIS07,seeWebsterand
Jensen(2009).
31988.
4
Ideally,wemightuseindependentevaluationsof
inventionquality(e.g.,Moser,2007)toachievethis.
However,suchdataarenotavailableforoursample
ofinventions.
Moreover,notethatsinceourestimated
1130
P.H.Jensen,R.Thomson,andJ.Yong
there were
value
of
43,200
SUR
Australian
inventor
VEY
application
inventions.
pairs in the
Finally,ourpaperDAT
population that
providesestimatesA
related to
of
theAND
31,313 unique
heterogeneity ofEMPI
patent
the
patentRICA
applications
premium across
L
(i.e.,
technology areas.
APP
inventions).On
In this light, our
ROA
the basisofthe number ofsurveysreturned
results have
to usunopened (anda postenumerationsur
CH
important
veyof
implications for
nonrespondents
The
AIS07
the strategic
),weestimate
involved
management of
thatthere
sending
a
inventive activity.
questionnaire
were5,446inventionswithvalid
addressesat
Estimating the
9
to
every
thetimeofthemailing.
Intotal,
wereceived
patent premium
Australian
6
alsohasimportantinventor who
Figures
2005
or
nearest
for
available
year,
calculated
fromOECD(2008a,
2008b).
public policysubmitted a
7
As survey
in the PatVal
implications.
EUsurvey,wesent
patent
the
to the
the
inventorratherthan
the
owner While
that
of
invention.
it
is
possible
the
Governments
inventorknowsless
than
the
owner
application to
about
commercial
ization
outcomes,
Gambardella
et al.
(2008)
compared
the
value
estimates
around the worldthe Australian
from
patent
a sample
of
French
and found
that
owners
and
inventors
the
biasintroducedwas
negligible.Wehave
noreasontobelieve
employ an arrayPatent Office
that
such
bias
in
is
any
larger
Australia.
of
policiesbetween 1986
8
Where on
multiple
surveys
returned
were
the
designed toand2005.7The
same
(randomly
only
one
selected)
invention,
response
wasused.
stimulate
relationship
betweeninven
innovative
9
The low
and
activities. Fortor
invention
is
proportion of
example, across
the Organisationmanytomany.
inventions with
forEconomicCoTo deal with
valid inventor
this, we sent
operation and
the survey to
addressesisaresult
Development
each listed
of the fact that the
(OECD),
inventor on a
governments
survey included
patent
typically fundapplication.8
patent applications
between 10 andWhere an
datingbackto1986.
20percentoftotalinventor had
SincetheAustralian
business investmultiple
6
PatentOffice
ment in R&D. inventions, the
Estimates of thesurvey asked
Copyright2011John
patent premiumquestions
Wiley&Sons,Ltd.
enable policyregarding a
makers
tomaximum of
fiveinventions.
consider the size
We conducted
of the implicit
two separate
subsidy providedmailingsofthe
to inventors viasurvey in July
the patent systemand December
visa`vis otherof2007.
subsidies.
In total,
coveredabroad
completed
questionnaires crosssection of
relating to 3,736 different
unique
technology
inventions.
areas, which
The data set were classified
has
still
International
pending a patent
Patent
office
Classification
examination
decision at the (OSTIPC)
time the survey technology
concordance.
was
Thedistribution
administered.
These appli by technology
cations were area suggests
excluded from that our sample
the analysis is broadly
because our representative
focus here is on of
the
theestimationof population of
the premium patent
associatedwitha applications.
patent grant.10 A By applying
further
13 for a patent,
observations had the inventor
missing
has signaled
information on that his or her
otherexplanatory
technology is
variables and
patentable
were
also
subject matter.
excluded,
leaving a final Since the
sample of 1,790 patent
application
observations.
process
Survey
responses cameinvolves
from inventors indisclosure of
a range ofthetechnology,
the inventor
employment
has foregone
arrangements:
companies (43.7the possibility
of relying on
percent), public
secrecy to
sector research
appropriate
organizations (5.9
returns. This
percent), and
indicates that
individuals (50.4
our sample
percent). The
includes only
inventions in the
inventions for
sample of survey
which
respondents
patenting was
considered to
be the best
option (Moser,
2007). It also
suggests that
our estimates
are an upper
bound of the
ex ante value
of patent
protection
since it is
harder to
appropriate
returnswithout
patent
protectiononce
disclosure has
occurred
(Horstmann,
MacDonald,
and Slivinski,
1985;
Schankerman,
1998).
ESTIMATES
OF
INVENTION
VALUE
The private
value of an
inventionisthe
discounted
flow of profits
that accrue to
its owner over
the
does not update
inventors contact
details, we were
unable to contact
inventors whose
contactaddresshad
changed for any
reason (e.g., job
change, retirement,
or changes in
personal
circumstances).
10
As a robustness
check, we also
undertook the
analysis
by
including
applications
results.
categorized
as
pending. This did not
changethesubstantive
typically
approach such a
problem using prices
observed in market
transactions. However,
the vast majority of
patentsarenottradedin
an open market.11 An
increasingly popular
alternativewhich we
useinthispaperisto
ask inventors to esti
mate the value of their
invention.
Like PatValEU, our
survey data include
inventions of different
vintages. The initial
PatValEUsurvey,which
was conducted in 2003
2004, includes a sample
ofpatentswithapriority
date between 1993 and
1997. Both PatValEU
and AIS07 require
respondentstoestimatea
total value including
returnsalreadygenerated
aswellasexpectedfuture
returns.12
PatValEU
askedinventorstoreport
the price they would be
willing to sell the
inventionforatthetime
the patent was issued.
Ourapproachisdifferent
in that we separate
historical returns (i.e.,
returns generated up to
thetimeofthesurveyin
2007) from the future
value(i.e.,thediscounted
value of expected future
profitsafter2007)ofthe
invention.Thiseasesthe
computational burden
imposedontheinventors
Strat.
Mgmt.J.
32:1128
1138(2011)
DOI:10.1002/smj
and enables us to
evaluatethesensitivityof
our results to different
measures of invention
value. This also means
that our forwardlooking
measure of value is in
constant(2007)prices.
We asked inventors
the following three
questionsinrelationto
inventionvalue:
your estimate of
sales revenue
from products and
processes using
thisinvention?
(2) If this patent has
been licensed,
what is your best
estimate
of
licensing revenues
todate?
(3) If you were
selling this patent
orinventiontoday,
what price would
you be willing to
acceptforit?
In each case, the
survey respondent had
to select one of six
possible value ranges
(in Australian dollars):
below
$100,000,
$100,001 $500,000,
$500,001$1million,
$1$2million,
11
The few
that
are
subject
to
observable
trades
are
highly
selected.
Serrano
(2006)
and
SneedandJohnson(2009)have
examined
some
patent
transfers(viaauctions)inorder
to understand
the such
market
for
patents.
12
This is quite
inGermanyin1977.Thus,the
Harhoff et al. (1999) survey
covered revenues actually
generatedbytheinvention.
Copyright2011JohnWiley&
Sons,Ltd.
ResearchNotesandCommentaries
$2$10 million, above
$10million.Toconvert
the responses to
numerical values, we
took the midpoint of
eachinterval.Sincethe
highest value category
(above $10 million) is
unbounded,weimposed
an upper bound of $50
million.13
Questions(i)and(ii)
focus on returns that
have already been
generated, capturing
sales
revenue
generated14
and
licensing revenues,
respectively. Question
(iii) reflects the net
present value of
expectedfuturereturns.
To estimate invention
value, we use
information from
responses to all three
questions.
Since
Question(i)isrevenue
ratherthanprofitbased,
wesetthegrossmargin
at30percentforgoods
and services produced
using an invention.15
Wethenaddedthethree
components of value
togethertoconstructthe
private inventionvalue,
which we denote
InvVal.16
We argue that it is
importanttoincludeboth
pastprofitsandexpected
future revenue in our
measure of invention
value. Since we have a
mix of inventions of
different ages, simply
using data on total
revenue to date will
underestimate the value
ofnewerinventions.The
value of inventions with
faster rates of
depreciationmayalsobe
systematically
overestimated.
As
1131
depreciation of inven
tion value is in part a
functionofdiffusion,itis
likely to be related to
patent grant status.
However,
we
acknowledgethat survey
questions relating to
expectedfuturerevenues
are perhaps noisier and
less reliable than
questionsbasedonactual
revenues. Accordingly,
we also present results
from regressions using
the answer to Question
(i) as the dependent
variable (with controls
forpriorityyear)which
werefertoasSalesRev.17
The distribution of
estimatedprivateinven
tion value (InvVal ) is
highly skewed: the
mean and median
invention values in our
sample are A$6.6
million and A$800,000
respectively, which is
broadly consistent with
other inventor surveys
(seeGambardella etal.,
2008).Thedifferencein
13
Wealsocomputedallresults
using
values
of
$100m
and
$200m
did
as the
upper
bounds,
which
not
change
the
results.
14
Itmay,however,be aweak
measure of process invention
valuesinceprocessesaremore
likely than product inventions
to be used inhouse, and
therefore do not typically
generatesalesrevenue.
15
16
With
revenue,
the
we
set to
the the
licensing
value
to
zero
if the
respondent
or
did
not
answer
question
was
unsureoftheamount.Thus,we
probably
regard
understate
actual
licensingrevenue.
17
We thank an
1
1
3
8
(
2
0
1
1
)
DOI:10.1002/smj
1132
P.H.Jensen,R.Thomson,andJ.Yong
Figure1.Distributionofprivateinventionvalue,bypatentgrantstatus
21
Ideally,
we
inventionvaluebypatentgrantstatus wouldalsotestthevalidity
ispresentedinFigure1.Fromthis,
we can see that there areofourmeasureofinvention
proportionatelymorevaluableinvenvalue by comparing them
tions (above A$1 million) among
inventions protected by a patent. with other indicators of
However, many inventions that are patent value, such as the
not protected bya patent are highlynumber of forward
valuable.Thedifferencebetweenthe
meanvalueofthepatentedandnon citations. However, this is
patented inventions is 9.4 percent. 18notpossibleinthisinstance
Thus, patented inventions are more
because disclosure of prior
valuable on average, but unpatented
art is voluntary at the
inventionsarefarfromworthless.
We also undertook a range ofAustralianPatentOffice.
analyses to probe the robustness of
our value measure. First, it isCopyright2011JohnWiley&
reassuringthatresponsestoQuestion Sons,Ltd.
(i) and Question (iii) are positively
correlated.19 Wealsoconsideredthe
distribution of invention values by
commercialization stage.20 As one
would expect, private value was
foundtobeincreasinginthestageof
commercializationattempted.21
18
ThemeanvaluesareA$6.7millionandA$6.1
million
forthe
patented
and unpatented
inventions
respectively.Thedifferenceinmedianinventions
values for
two groups,
however,
is much
larger.
19
Therawcorrelationis0.33.Inalog
onlog regression model controlling for year of
application (and therefore obsolescence), the
coefficientontheresponsetoQuestion(iii)is0.5,
20
withatvalueabove25.
WebsterandJensen(2009)considertheimpact
of
patent grant
on attempts
to commercialize
innovations
the
showthat,onaverage,patentsplayasmallbut
important
using
role data
in from
shaping
AIS07.
attempts They
to
commercializeinventions.
EMPIRICAL
MODEL
Let Vij denote the total
private value of
inventioni intechnology
area j ,i = 1, . . .,nj
andj = 1,
. . .,J.Wespecifya
linear model where
the value of an
inventiondependson
whetherapatenthas
been
granted
(conditional on a
patent application
beingmade).
lnVij=Gij+X+j+ij,
whereGijisabinaryvariabletaking
ofunityifapatenthas
beengrantedandzero
otherwise,22 X is a
vector of additional
explanatory
variables, j is a
technologyspecific
term, and ij is the
residual error term.
We model the
technologyspecific
term, j, using a
technologyspecific
dummy variable,
whichtakesthevalue
of unity if the
invention is in
technologyareaj,and
zerootherwise.23
One of the most
difficult aspects of
our study relates to
separating the value
of patent protection
from the underlying
value of the
technology.
If
(1)
thevalue
22
Although we treat this variable as a simple meanzeroandvariance .
binaryvariable,weacknowledgethattheclaims
inagrantedpatentmaybedifferentfromthosein
the
originalthe
patent
application.
Unfortunately,
changesin
claims
as a result of
interaction
betweentheapplicantandthepatentexaminerare
unobserved.Wethankananonymousrefereefor
pointingoutthisissue.
Theresultsaresimilarandare
23
brevity.
specification,therandominterceptmodel,inwhich
Str
jisassumedtobearandomvariableandfollowsan
at.
Mg
mt.
J.,
32:
11
28
11
38
(20
11)
DOI:10.1002/smj
Oneimportantfeatureofourempiricalapproachis
thatourdataonlyincludeinventionsthat,intheview
of
the
applicant,
involve of
patentable
subject
matter
and
have
the potential
passing the
criteria
of
noveltyandnonobviousness.
25
ResearchNotesandCommentaries
1133
1134
dependentvariable
have
higher
asadependentvariable,whichwedenoteasvariables Gij and
OST technology
Table1.Listofvariablesandsummarystatistics
standard
errors
SalesRev. The use of these two different
areadummydj,so
than
the
measures
enables us toExplanation
ascertain thethat(1)becomes:
Variable
corresponding
robustness of our results and the ad hoc
estimatesproduced
ln(InvVal)
Privatevalueofinvention(inlogarithms)
assumption that gross profit
margins are lnVij=Gij+
using
InvVal,
No.ofuses
No.ofproducts/processesforwhichinventionwasused
uniformlythesame(30percent)acrossall
Otherinventionsused
No.ofotherinventionsusedindevelopment
suggestingthatthe
j(Gijdj)+
inventions.
profit margins
No.inventors In particular, if
No.ofinventorsinvolved
historical revenue
X+j+ij,
Largecompany
dummy,(=1ifinventionownedbylargecompany)
vary systematically with patent
protection,
based measure of
SME
dummy,(=1ifinventionownedbySME)
ouruseofafixedproportionmaydownward
value is less
j=1,
.
.
.
,J1
Publicorganization
dummy,(=1ifinventionownedbypublicorganization)
bias
our
estimate
of
the
patent
premium.
precise.
Individual
dummy,(=1 ifinventionownedbynonaffiliatedindividual)
Thus the effect
Eachmodelalsoincludespatentapplication
Radicalinvention
dummy,(=1 ifinventionwasradicalrelativetostateofart)
The coefficients
of a patent grant
PCTapplication
dummy,(=1ifPCTapplication)
onaninventionin
yeardummies(equivalenttoinventionage)
of the other
technology area j
to
capture the effects dummy,(=1
of technology,
explanatory vari
Granted
ifpatentapplicationgranted)
isgivenby+j,
businesscycles,and/orobsolescence.Tablewhich varies by
ablesareconsistent
1 lists the variables we used in the technologyarea.
with
a priori
estimationandsomedescriptivestatistics.
expectations. The
variables radical
Thepatentpremiumiscapturedbythe RESULTS
coefficient in Equation (1) and is
invention and PCT
reportedasthecoefficientofthevariable
application
granted inTable2.Thisdummyvariable The estimation
equals one for patent applications thatbased onEquation
weregranted,andzeroiftheapplication (1) is imple
was refused, withdrawn, lapsed, or mented usingboth
revoked. As such, the variable takes aInvVal
and
broaddefinitionofnongrantsinthatit SalesRev as the
includesallpatentapplicationsthatwere dependent
eitherunsuccessfulorwereremovedfromvariable. The
the examination process by the patent resultsarereported
office(ortheapplicant).Thekeypointisin Table 2. The
that all the inventions categorized as
main result using
grantedhavepatentprotectionandthat
allinventionscategorizedasnongrantsInvValasthevalue
do not. The coefficient of the variable measure suggests
granted tells us whether the protection thatinventionsthat
offeredbyapatentincreases(andbyhoware protected by a
much) the inventors returns, ceteris patent are 47
paribus.Asthedependentvariableisin percent more
logarithms, reflects the proportionalvaluable than
increase in invention value that is inventions without
associatedwithapatentgrant.
a patent, ceteris
Weextendthebasemodelbyallowing paribus.27
In
the effect of a patent grant to vary by comparison, the
technology area. Specifically, wesame regression
introduceinteractionterms
models imple
mented using
Copyright2011JohnWiley&Sons,Ltd.
SalesRev as the
value measure
yield estimates of
the
patent
premium of 38
percent.
Interestingly, the
patent premium
estimates pro
duced using
SalesRev as the
Mean
Std.dev.
6.945
1.331
0.378
1.549
0.088
0.351
0.059
0.502
0.628
0.356
2.026
0.971
0.623
1.127
0.283
0.478
0.235
0.500
0.483
0.479
0.727
0.446
27
We also estimated a
randomintercept model.
The results, available
upon request, are
remarkably consistent
with those from the
fixedeffects model and
areomittedforthesake
ofbrevity.
Strat.
Mgmt.
J.,32:
1128
1138
(2011)
DOI:10.1002/smj
ResearchNotesandCommentaries
1135
Table2.Estimationresults
Dep.variable:ln(InvVal)
coefficient(std.error)
No.ofuses
Otherinventionsused
No.inventorsinapplication
0.4068
(0.0460)
0.4931
(0.0719)
0.0789
Dep.variable:ln(SalesRev)
coefficient(std.error)
0.2471
(0.0548)
0.2054
(0.0857)
0.0198
Radicalinvention
PCTapplication
Largecompany
SME
Publicorganization
Granted
Intercept
AdjustedR2
Numberobservations
Numbertech.classes
(0.0457)
0.6591
(0.0913)
0.5575
(0.1075)
0.3927
(0.1752)
0.3818
(0.1051)
0.0313
(0.2314)
0.4717
(0.1047)
5.4650
(0.5341)
0.208
(0.0544)
0.3101
(0.1089)
0.3805
(0.1281)
1.4052
(0.2088)
0.9887
(0.1253)
0.4597
(0.2758)
0.3790
(0.1248)
4.5903
(0.6366)
0.116
1,790
28
Notes:(1)Includedinallregressionmodelsare19yeardummies,whichdenotetheyearinwhichthepatent
applicationwaslodged,and27OSTtechnologyclassificationdummies.(2)Significancelevels:10%; 5%;
1%.
has a pvalue of
arebothpositivelyassociatedwithvalue. 0.142.28 Thus we
Inaddition,theresultssupportthenotion find no evidence
that inventions that have many uses are tosuggestthatthe
positively correlated with higher value, effect of a patent
andthat inventionsregistered to private grant is different
firms (both SMEs and large firms) are across technology
more valuable than those registered to areas. This is
individuals or to public sector somewhat
organizations. It is noteworthy that the surprising given
effect of firm size (i.e., the large firm the empirical
dummy variable) becomes substantially support in other
larger when we replace InvVal withstudies
that
SalesRev asthedependentvariable.This suggests patents
increase in the firm size effect perhaps aremorevaluable
reflectsthesuperiorabilityoflargefirms in pharmaceuticals
in product development and andchemicalsthan
commercialization, and the tendency of other technology
SMEsandindividualinventorstorelyon areas. However,
licensing andoutrighttransferofpatents we note that the
toappropriatereturns.
existing literature
Weextendthebasemodelbyallowing also shows some
thecoefficientofgrantstatustovaryby inconsistencies in
technology area. The estimation is this regard. For
implemented using InvVal as theinstance, analysis
dependent variable, and the results are by Schankerman
reported in Table 3. We perform a (1998) finds that
statistical test of whether the effect of a thevalueofpatent
patent grant varies by technology area; protection in
thejointtestofallinteractiontermsequal pharmaceuticals is
zerogivesanFteststatisticof1.3,which less than that in
othertechnological
Copyright2011JohnWiley&Sons,Ltd.
fields.
Nonetheless, we
caution that our
result is likely
caused by the
small number of
observations
within
each
technologyarea.29
28
Wealsoperformedthe
same
regressions
SalesRev
as using
the
dependent
variable.
The
results,
are
available
upon
request,
similar
and
areomittedfor
the sake
ofbrevity.
29
We also
estimated the model
using six major OST
technology areas rather
than the 30 technology
area classifications. In
this specification, we
findstrongevidencethat
the value of a patent
grant varies across
technology
areas.
However,thisisamuch
coarser
(and
heterogeneous)
classification
of
technologyareas.
Strat.
Mgmt.
J.,32:
1128
1138
(2011)
DOI:10.1002/smj
1136
P.H.Jensen,R.Thomson,andJ.Yong
Wiley&Sons,Ltd.
Table3.Estimation
results:effectof
patentgrant,by
technologyarea
Table3.
(Continued)
Dep.variable:ln(InvVal)
Dep.variable:ln(InvVal)
Genvironment,pollution
No.ofuses
Gmechanicaltools
Otherinventionsused
Gengines,pumps,turbines
No.inventorsinapplication
Gmechanicalelements
Radicalinvention
Ghandling,printing
PCTapplication
Gagriculture/food
machinery
Largecompany
SME
Publicorganization
Gtransport
Gspacetechnology,
weapons
Granted
Gconsumergoods&
equipment
Gelectrical
deviceselectrical
engineering
Intercept
Gaudiovisualtechnology
AdjustedR2
Numberobservations
Numbertechnologyareas
Gtelecommunications
Ginformationtechnology
Goptics
Ganalysis,measurement,
control
Gmedicalengineering
Gorganicfinechemicals
Gpharmaceuticals,
cosmetics
Gbiotechnology
Gmaterials,metallurgy
Gagriculture,food
Ggeneralprocesses
Gsurfaces,coatings
Gmaterialprocessing
Notes:(1)Included
intheregressionare
19 year dummies,
which denote the
year in which the
patent application
waslodged,and27
OST technology
classification
dummies. (2) The
omitted reference
group for the
interaction terms is
G
civil
engineering,
building, mining.
Another interaction
term G
macromolecular
chemistry,
polymers
is
omitted due to
singularity. (3)
Significance levels:
10%; 5%;
1%.
Gthermaltechniques
Gbasicchemicalprocessing,
petrol
Copyright2011John
The
estimated
patentpremium
implies that a
Coefficient(std.error)
(0.6714)
0.3961
(0.8517)
0.8348
(0.6658)
0.2068
(0.6094)
0.8741
(0.6105)
1.0242
(0.4668)
0.6946
(0.4190)
0.5291
(0.4224)
0.6602
(1.5009)
0.1920
(0.3736)
5.1310
(0.5623)
0.212
1,790
28
patent increasesprovided an
the A$420
the value of theimplicit
million via
median invensubsidy to
subsidies,
tion by aboutinnovators of
grants, and
about A$4
procurement
A$256,000.30
billion.
This
is
(ABS Cat.
The results also
approximately
8104.0).
have important
five
times
public policy
larger than the
implications.
Since approxcombined
30
Givenby0.47/(1
imately 2,000value of the
+0.47)(median
patents areA$425 million
patentedinvention
value).
grantedeachyearcontributed by
in Australia, ourthe govern
Strat.
Mgmt.J.,
result suggestsment through
32:1128
tax
incentives
that in 2005 the
1138(2011)
patent system(IA,2007)and
DOI:10.1002/smj
vary according to
idiosyncratic inventor
and
market
CONCLUSIONS
characteristics
surroundinganinvention,
This paper sheds new
theaverageeffectiveness
light on a fundamental
reported in this paper
question frequently
provides a valuable
asked, but never
benchmark
to
definitively answered:
technologymanagersand
what is the increase in
IP professionals. This
private value due to the
resultshouldaidfirmsin
presenceofapatent?We
their decisions on the
tacklethisquestionusing
different appropriation
a novel empirical
mechanisms to use as
approachthatmakesuse
part of their IP
of data from a
management strategy.
comprehensivesurveyof
Further,wealsoprovide
inventorswhoappliedfor
new evidence on the
a patent in Australia
effectivenessofpatenting
between1986and2005.
bytechnologyarea.
We use the variation in
Weacknowledgethat
patent examination
there are some
outcomes to identify the
importantlimitationsof
patent premium. The
our attempt to estimate
results provide strong
the patent premium.
androbustsupportforthe
Foremost among these
existence of a sizeable
isthatinventionvalueis
patent premium. The
difficulttomeasure.We
presence of a patent
have relied on an
increases the returns to
inventor survey to do
an invention by around
this, but we are cog
40 to 50 percent on
nizant of the fact that
average, regardless of
selfreported
how we define value.
evaluationsofinvention
Whilethevalueofpatent
value can be
protectionisexpectedto
problematic. However,
in the absence of a
perfectly functioning
market for technology
(which may never
exist), we have made
some valuable inroads
into understanding how
inventorsurveyscanbe
used to tackle the
identification of the
patent premium. We
also note that some
recent research has
established a strong
statistical relationship
between surveybased
measures of invention
value and other
measures of value
derived from citation
and renewal analysis
(Gambardella et al.,
2008). Second, it is
difficult to disentangle
invention quality from
patent value. Rather
than relying on self
reported proxies of
inventionquality(aswe
have done), it may be
better to rely on
independentevaluations
of the inventions as in
Moser(2007),although
suchdataaredifficultto
come by. Future
research on this issue
might
consider
alternative ways in
which the underlying
technological
characteristicsmaybe
Copyright2011JohnWiley&
Sons,Ltd.
ResearchNotesandCommentaries
measured. Third, we do
not observe firms
willingness to enforce
theirpatents,whichisan
importantdeterminantof
the private returns to
patenting (see Lanjouw
1998; Lanjouw and
Schankerman2001).
ACKNOWLEDGME
NTS
We thank Associate
EditorTomiLaamanen,
two
anonymous
referees, Beth Webster,
Jim Bessen, Alfonso
Gambardella, Georg
von Graevenitz, Dirk
Czarnitzki, and Georg
Licht for thoughtful
comments on this
paper. Comments and
suggestions
from
seminar participants at
Ludwig Maximilians
University (Munich),
ZEW Mannheim,
MERIT (Maastricht
University), and the
Katholieke University
ofLeuvenaregratefully
acknowledged. Funding
for this research comes
from an Australian
Research Council
(ARC) Linkage Grant
with IP Australia
(LP0667467).
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