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How Valuable are Patent Blocking Strategies?

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Abstract

Firms use patents for blocking competitors’ innovation activities. Offensive blocking is a practice whereby firms patent alternatives of a focal invention preempting technological substitutes produced by competitors. Defensive blocking entails the creation of patent portfolios that block technologies in order to increase competitors’ willingness to trade patents. This paper examines the private value of both patent blocking strategies with the use of a novel measure of the offensive and defensive “blocking power” of patent portfolios. We show that both strategies increase firms’ market value. In discrete (complex) product industries, however, only offensive (defensive) patent blocking is associated with higher value.

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Notes

  1. The prior art consists of all information (including patents) that is publicly available prior to the date that a patent is filed and that is relevant for a patent examiner to assess the novelty and inventiveness (and hence the patentability) of the patent filing. Infringing prior art documents contain claims that prejudice the novelty or inventiveness of claims of the patent filing.

  2. Note that the blocking power of patents is never perfect in the sense that no patent on related technologies (and hence no one that cites the earlier patent) is granted in the near future. This is because patent applications change during the application process, so that applicants can narrow the scope of the invention for which they seek protection in case blocking prior art is found. This explains why patent applications that infringe on prior patents can still be granted, but in a modified version.

  3. Claims are the building blocks of inventions that seek patent protection. Covering individual parts of the invention they define the scope and the boundaries of the patent.

  4. Ceccagnoli (2009) relies on data from the Carnegie Mellon survey—which was also used by Cohen et al. (2000)—to construct an indicator of offensive patent blocking. The offensive patent blocking variable takes a value of one if a firm indicated in the survey that the blocking of rivals and not licensing nor cross-licensing were reasons to file for their most recent product or process patent. .

  5. In constructing the citation-weighted patent stock, we used an ‘additive’ or ‘linear’ approach whereby each citation is considered to be worth as much as each patent. This choice is based on the work of Trajtenberg (1990), who found that a linear weighting of patents by the number of forward patent citations provides a good approximation of the underlying economic value of patents.

  6. These documents may have been suggested by the applicant at the time of the patent filing, or the examiner might have found additional pieces of prior art and added these to the patent dossier under scrutiny. Other than at the USPTO the applicant of a patent at EPO does not have to report relevant prior art in the patent filing. In consequence, about 90 percent of all patent citations in EPO patents are added by the patent examiner (Criscuolo and Verspagen 2008).

  7. See https://www.epo.org/law-practice/legal-texts/guidelines.html.

  8. Note that a patent can still be granted if it receives blocking citations to prior art, although this is less likely. This can, for instance, be the case for patent filings with many claims. Blocking citations pertain to individual claims, and the remaining claims can be strong enough to support the granting of a modified (although reduced in scope) patent. In our data, we see blocking references to prior art in the initial patent filing.

  9. Blocking citations include the citation categories “X” and “Y” of the European search reports.

  10. Notable exceptions are Blundell et al. (1999), Bloom and van Reenen (2002), and Toivanen et al. (2002).

  11. The European firms are located in Belgium, Switzerland, Denmark, Finland, France, Germany, the Netherlands, Sweden, and the United Kingdom.

  12. An invention can be applied for at multiple national patent offices, in which case each patent office assigns a different patent number to the same invention.

  13. Since we have complete annual listings of patent filings of the sample firms since 1978 (the foundation year of EPO), the initial value for PAT is set to zero.

  14. We use only patent applications that have been granted at the EPO while using their application date as the relevant date for the match. Although patent applications enter the pool of prior art and may hence constitute conflicting prior art for future patent applications, they do not grant the right to exclude third parties from using the invention—which is the intention of blocking patent strategies. We rely on the EPO grant decision because: (1) the grant rate at the USPTO is relatively high, which leads to a large number of low-quality granted patents (Carley et al. 2013); and (2) patent applications at the JPO cover fewer claims than do patents at the EPO and at the USPTO (Van Pottelsberghe de la Potterie 2011).

  15. Forward citations (blocking and non-blocking) are derived from the OECD/EPO Patent Citation Database and include citations to patent applications at the EPO and the WIPO. By constructing citation counts on patent applications, we get a more complete picture of the blocking potential of patents. Patent equivalents at national patent offices are taken into account in the calculation of citations in order not to underestimate the number of forward patent citations (see Harhoff et al. 2005; Webb et al. 2005).

  16. The fence consists of five patent families that are listed in the U.S. Food and Drug Administration (FDA) “Orange Book”. The FDA Orange Book identifies drug products, and their patents, that are approved with regards to the safety and effectiveness standards of the FDA.

  17. We thank Franz Schwiebacher for providing this measure.

  18. E.g. if a firm patented only in technology class 1 in the past, the weights are (1, 0, 0, 0, …, 0). If a firm patented equally much in technology classes 1 and 2, the weights are (0.5, 0.5, 0, 0, …, 0).

  19. The reader might wonder whether the coefficients for the control variables differ as well for complex and discrete product industries. We ran a regression that estimates different coefficients for firms in discrete and complex industries. A test on the null hypothesis of jointly equal coefficients for product and complex product industries is not rejected at the 5% level.

  20. Intel has the highest numbers of deals (193 times), followed by Motorola (114), Hewlett Packard (94), Alcatel (78), Texas Instruments (63), Fuji Electric (38), Toshiba (33) and National Semiconductor (31). All these firms operate in complex product industries, where cross-licensing is a frequent strategy. A significant number of firms (87 of 151 firms), which are active in both discrete and complex product industries, have no cross-licensing agreements in the sample period 1995–2000.

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Acknowledgements

We thank Rene Belderbos, Paul Jensen, Leo Sleuwaegen, and Lawrence White, as well as two anonymous reviewers for helpful comments. This paper was presented at the Pacific RIM Conference in Melbourne, the EARIE Conference in Istanbul, and the Patent Statistics Conferences in Vienna and Leuven. We thank the participants for helpful comments and discussions.

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Authors and Affiliations

  1. Department of Management, Strategy and Innovation, KU Leuven, Naamsestraat 69, 3000, Leuven, Belgium

    Dirk Czarnitzki, Katrin Hussinger & Bart Leten

  2. University of Luxembourg, 162A Avenue de la Faiencerie, 1511, Luxembourg, Luxembourg

    Katrin Hussinger

  3. Hasselt University, Hasselt, Belgium

    Bart Leten

  4. Centre for European Economic Research (ZEW), Mannheim, Germany

    Dirk Czarnitzki & Katrin Hussinger

  5. Centre for R&D Monitoring (ECOOM), KU Leuven, Leuven, Belgium

    Dirk Czarnitzki

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  1. Dirk Czarnitzki
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Correspondence to Katrin Hussinger.

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Czarnitzki, D., Hussinger, K. & Leten, B. How Valuable are Patent Blocking Strategies?. Rev Ind Organ 56, 409–434 (2020). https://doi.org/10.1007/s11151-019-09710-9

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