This article analyzes the relationship between private and social value of patents, comparing discrete and cumulative innovation. Indicators of the social value of patents are known to be less correlated with measures of private value in technological fields where innovation is more cumulative. We test whether this is because the link between private and social value is weaker, or because the indicators are less informative of the underlying concepts of value. Furthermore we analyze whether these differences between technological fields are really due to cumulativeness. We observe cumulative innovation by making use of databases of patents declared essential for technological standards. Using factor analysis and a set of patent quality indicators, we test the relevance of social value for predicting the private value of a patent measured by renewal and litigation. Whereas we establish a robust and significant link for discrete technologies; neither common factors nor any indicator of social value allows predicting the private value of essential, very cumulative patents. Nevertheless, this result cannot be generalized to whole technological classes identified as “complex” by the literature.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Patent thickets can be defined as: “a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology” (Shapiro 2001).
The earlier literature often refers to a broader concept of “patent quality”. Nevertheless, the concept of patent quality lacks a clear definition. We will therefore stick to the better defined concept of patent value, and rely upon the traditional distinction between private and social value of inventions. This distinction dates back at least to Arrow (1962).
See for instance Cohen et al. (2000), p. 19: “[…], the key difference between a complex and a discrete technology is whether a new, commercializable product or process is comprised of numerous separately patentable elements versus relatively few”.
Such as for consumers, intermediaries, and follow-up inventors.
Such as the effect on the profits of a competitor.
There is an increasingly precise regulatory framework for licensing patents in these very cumulative technologies, as it is not clear that market mechanisms will yield prices that are in adequate proportion to the technological contribution of the patent. A recent example is the drastically extended chapter on standardization in the draft guidelines on the applicability of European competition law to horizontal cooperation agreements, see http://ec.europa.eu/competition/consultations/2010_horizontals/guidelines_en.pdf.
Harhoff et al. (2008).
Indeed, the notion of complex technology fields seems problematic in light of e.g. recent evolutions in the field of biotechnology. Biotechnology comprises a set of technological advancements in the field of medical drugs, plant breeding and crops. These technological fields are traditionally classified as discrete. Biotechnology itself however is characterized by an important degree of cumulativeness, with strong incidence of patent thickets and cross-licensing. This example shows that processes of strongly cumulative innovation can occur also in “discrete” technological fields. On the other hand, also in complex technology fields there are inventions that can individually be commercialized. For this reason, it is important to directly identify cumulative technologies, and to assess to what respect technological classification is able to capture the effects of cumulativeness.
Data available online at http://www.ssopatents.org/.
993 of these patents are part of a patent pool.
This could hint to the fact that patents are indeed used in a slightly more “litigious” way in complex industries, and corroborates the argument that patents generate value in a different way from complex to discrete technological fields.
In economics, factor analysis is used when capturing a common phenomenon is more interesting than analyzing individual variables. Lanjouw and Schankerman (2004) first used the principal factor analysis to identify an overall patent “quality” factor through four indicators.
This confirms our interpretation that this factor discriminates between fundamental and incremental innovations.
See for instance Liu et al. (2008).
see for instance Hall et al. (2001) on the variables that have an impact on the number of citations.
We control for selection effects by excluding all patents from the analysis that have never been renewed, by restricting the samples to patents that have been litigated, by dropping all patents from the sample that have a social value—impact factor score below average, and by introducing the square of the social value factors to control for non-linear effects.
The results are available upon request from the authors.
Arrow, K. (1962). Economic welfare and the allocation of resources for invention, NBER Chapters. In The Rate and Direction of Inventive Activity: Economic and Social Factors (pp. 609–626). Princeton: Princeton University Press.
Berger F., Blind K., & Thumm N. (2012). Filing behaviour regarding essential patents in industry standards. Research Policy, forthcoming.
Bessen, J. (2004). Patent thickets: Strategic patenting of complex technologies. Research on Innovation Working Paper.
Bessen, J. (2006). The value of U.S. patents by owner and patent characteristics. Research on Innovation Working Paper.
Bessen, J., & Hunt R. (2003). An Empirical Look at software patents. Research on Innovation Working Paper No. 03-17/R.
Bessen, J., & Maskin, E. (2006). Sequential innovation, patents, and imitation. MIT Deptaerment of Economics Working Paper No. 00-01.
Bloom, N., Schankerman, M., & Van Reenen, J. (2010). Identifying technology spillovers and product market rivalry. Working Paper.
Cohen W., Nelson R., & Walsh J. (2000). Protecting their intellectual assets: Appropriability conditions and why U.S. manufacturing firms patent (or not). NBER Working paper.
Giummo, J. (2003). Should all patentable inventions receive equal protection? Identifying the sources of heterogeneity in patent value. Discussion paper. Berkeley: University of California.
Griliches, Z. (1990). Patent statistics as economic indicators: A survey. Journal of Economic Literature, 28(4), 1661–1707.
Hall, B. H., & Ziedonis, R. H. (2001). The patent paradox revisited: Determinants of patenting in the U.S. semiconductor industry, 1979–95. Rand Journal of Economics, 32(1), 101–128.
Hall, B. H., Jaffe, A., & Trajtenberg, M. (2001). The NBER patent citation data file: Lessons, insights and methodological tools. NBER Working Paper 8498.
Hall, B. H., Jaffe, A., & Trajtenberg, M. (2005). Market value and patent citations. RAND Journal of Economics, 36, 16–38.
Harhoff, D., Narin, F., Scherer, F. M., & Vopel, K. (1999). Citation frequency and the value of patented inventions. The Review of Economics and Statistics, 81, 511–515.
Harhoff, D., von Graevenitz, G., & Wagner, S. (2008). Incidence and growth of patent thickets—The impact of technological opportunities and complexity. CEPR Discussion Papers 6900.
Jaffe, A., & Lerner, J. (2004). Innovation and its discontents. Princeton: Princeton University Press.
Lanjouw, J., Pakes, A., & Putnam, J. (1998). How to count patents and value intellectual property: Uses of patent renewal and application data. Journal of Industrial Economics, 13(4), 405–433.
Lanjouw, J., & Schankerman, M. (1999). The quality of ideas: Measuring innovation with multiple indicators. NBER Working Paper, Cambridge, MA.
Lanjouw, J., & Schankerman, M. (2004). Patent quality and research productivity: Measuring innovation with multiple indicators. Economic Journal, 114(495), 441–465.
Levin, R.C., Klevorick, A.K., Nelson, R.R., Winter, S.G., Gilbert, R., & Griliches, Z. (1987). Appropriating the returns from industrial research and development. Brookings Papers on Economic Activity: Special Issue on Microeconomics, 3, 783–831.
Liu, K., Arthurs, J., Cullen, J., & Alexander, R. (2008). Internal sequential innovations: How does interrelatedness affect patent renewal? Research Policy, 37(5), 946–953.
Merges, R. P., & Nelson, R. (1990). On the complex economics of patent scope. Columbia Law Review, 90(4), 839–916.
Nagaoka, S., (2005). Patent quality, cumulative innovation and market value: Evidence from Japanese firm level panel data. IIR Working Paper 05–06. Institute of Innovation Research. Hitotsubashi University: Tokyo.
Noel, M., & Schankerman, M. (2006). Strategic patenting and software innovation, LSE Research Paper No. EI43.
Parchomovsky, G., Polk Wagner, R. (2005). Patent Portfolios. University of Pennsylvania Law Review, 154(1), 1–77.
Rysman, M., & Simcoe, T. (2008). Patents and the performance of voluntary standard setting organizations. Management Science, 54(11), 1920–1934.
Salant, D. (2009). Formulas for fair, reasonable, and non-discriminatory royalty determination. International Journal of IT Standards and Standardization Research, 7(1), 66–75.
Shapiro, C. (2001). Navigating the patent thicket: Cross licenses, patent pools, and standard-setting. Innovation Policy and the Economy, 1, 119–150.
Swanson, D., & Baumol, W. (2005). Reasonable and nondiscriminatory (RAND) royalties, standards selection, and control of market power. Antitrust Law Journal, 73(1), 51–56.
Thomas, P. (1999). The Effect of technological impact upon patent renewal decisions. Technology Analysis and Strategic Management, 11(2), 181–197.
Trajtenberg, M. (1990a). A penny for your quotes: Patent citations and the value of innovations. RAND Journal of Economics, 21(1), 172–187.
Trajtenberg, M. (1990b). Economic analysis of product innovation: The case of CT scanners. Cambridge, MA: Harvard University Press.
Trajtenberg, M., Henderson, R., & Jaffe, A. (1997). University versus corporate patents: A window on the basicness of invention. Economics of Innovation and New Technology, 55(1), 19–50.
van Zeebroeck, N., & de la Potterie, B. (2011). The vulnerability of patent value determinants. Economics of Innovation and New Technology, 20(3), 283–308.
Von Graevenitz, G., Wagner, S., & Harhoff, D. (2009). How to measure patent thickets: a novel approach. Discussion papers in business administration 10962. Mannheim: University of Munich, School of Management.
The following table summarizes the results of a principal factor analysis of the four main indicators of patent quality used by Lanjouw and Schankerman (2004).
See Table 5.
We inform the concrete technological standard that 1.509 patents are essential to and the dates of disclosure. If one patent is disclosed as essential to several standards, we retain only the standard of the first disclosure. For every standard, we calculate the mean of the disclosure dates of all essential patents. For every patent, we generate an age_of_disclosure variable, defined as the difference between the disclosure date and the mean disclosure date for this particular standard. For the 993 pool patents, we use an earlier database including an age_of_input variable, defined as the difference between the date of input of a given patent and the date of input of the first patent in the pool. Even though differently constructed, age_of_disclosure and age_of_input both allow studying the chronological order of patents that are essential for the same technology.
We created two new variables, founding patent pool, which equals 1 if the patent is a pool founding patent and founding_patent_sso which equals 1 if the patent was disclosed before the average age of patent disclosure to the respective standard. These variables allow us to discriminate between fundamental and incremental innovations. The underlying assumption is that founding patents of a pool or a standardization project are more fundamental. We run a regression with the two variables founding patent pool and founding_patent_sso as explained variable and the factors highlighted in section III as the explanatory variables. See Table 6.
See Table 7.
About this article
Cite this article
Baron, J., Delcamp, H. The private and social value of patents in discrete and cumulative innovation. Scientometrics 90, 581–606 (2012). https://doi.org/10.1007/s11192-011-0532-5
- Patent value
- Patent quality
- Cumulative innovation
- Complex technologies