The Value of Patented Inventions at the Extensive and Intensive Margin

The Value of Patented Inventions at the Extensive and Intensive Margin

KITeS Conference: New Frontiers in the Economics and Management of Innovation

Bocconi University, 22-23 March 2012 

Alfonso GambardellaJoint with

Dietmar Harhoff, LMU, MunichBart Verspagen, Maastricht University, Maastricht

What determines the economic value of inventions?

· Value of innovations depends to a good extent on downstream development, production and commercialization (Rosenberg, Teece)

· But what about upstream?

· Question is important· Markets for technology· Firms want to understand value created by their labs

· We focus on patents· Closer to inventions than fully developed, manufactured,

commercialized products· Value of patents interesting per sé

· Inventions cannot be examined in isolations

· We study the determinants of the value of a portfolio of related inventions· “patents related in technical ways or in value”

)(NVNV

Value of patent portfolio V increases because of N or ?V

Determinants of N vs. ?V

We focus onResources invested in producing the invention (man-

months)Inventor characteristics (past citations, education)

),(),,(

ZMNNZMNVNV

DefinitionExtensive margin = % in V due to 1% in N given

M

Intensive margin = % in V due to 1% in M given N

Intensive mgExtensive

mg+ complementarity– substitutionEcon of scope in

knowl.

Plan

· Some theory to guide our empirical analysis

· Data

· Empirical results

Theory (1 of 4)

· Research sequence

Ideas Signal about potential value of ideas

Patent a subset of ideas (signal > threshold)(inventions)

Commercialize a subset of patented inventions (innovations)

Theory (2 of 4)

1 2 3

Expected values

Projects

H1 H3H2

1. Screening of expected outcomes

Better screeningH1

H2

H3

threshold(exp costs)

2 projects3 projects

Poorer ability to screen makes the extensive margin relatively more important than the intensive margin

Theory (3 of 4)

1 2 3

Expected values

Projects

2. Spread around expected value

E(V | above thr.) … like worst screening

H1

H2

H3 threshold(if below, you know you won’t comm. patent)

2 projects3 projects

5

8

12 (50%)

4 (50%)

6 (50%)

2 (50%)

4

H1: 8 – 5 = 3 … H2: 0 (because 4 – 5 < 0) H1: (12 – 5)*0.5 + 0*0.5 = 3.5 … H2 (6 – 5)*0.5 + 0*0.5 = 0.5 … launch H2 as well

More precise information about expected value fewer patents in the portfolio

Theory (4 of 4)

· (N V) relative to (M V) : screening (extensive vs intensive margin)

· Science N : precision of info (lower N)· Science M : more ideas (higher N)· Science V : net effect· Two models (which one dominates?)

· scientific (low N, high M)· empiricist (high N, low M)

),(),,(

ZMNNZMNVV

Patent Portfolio – Data (PatVal-EU)

· Population: all EPO patents with priority date 1993-1997· France (FR), Germany (DE), Italy (IT), Netherlands (NL),

Spain (ES), UK (GB) – later addition: Danmark (DK) and Hungary (HU)

· questionnaire sent to first inventor (if not available: any other inventor)

· questions on inventor biography, employer, invention process, invention characteristics

· 27,000 questionnaires mailed, about 9,000 responses (17.9% UK, 40.2% DE, 13.8% IT, 1.7% ES, 12.9% FR, 13.3% NL)

· For details: Giuri, Mariani et al. (2007) “Inventors and invention processes in Europe: Results from the PatVal-EU survey”, Research Policy, 36 (8), 1107-1127

Patent Portfolio – Data (N)

· Define portfolio: “group of patents related technically or in value”

· Survey question (to the inventor of the focal patent):· “How many patents in this portfolio”?

· Menu: 1; 2; 3-5; 6-10; 11-20; > 20

Patent Portfolio – Data (Value)· Survey question:

· “Suppose that on the day at which this patent was granted, the applicant had all the information about the value of the patent that is available today. In case a potential competitor of the applicant was interested in buying the patent, what would be the minimum price (in Euro) the applicant should demand?“

· We offer a menu of 10 value intervals: < 30K€; 30-100k€; …; to > 300M€

· Ask same question about portfolio· More intervals: 300M-1B; 1-3B; >3B

33

72

88

75

42

25

107

1 1

42

71

90

74

41

23

74

1 10

10

20

30

40

50

60

70

80

90

100

< 30K 30-100K

100-300K

300-1M 1-3M 3-10M 10-30M 30-100M

100-300M

> 300M

Value Classes (354 observations)

Freq

uenc

ies

Inventors

Managers

Patent Portfolio: Inventors vs Managers

GMM results

Many controls (including strategic patenting for N), 4638 obs., N, M endogenous

Conclusions

· In the invention process the extensive margin is important · Resources· Inventor’s experience (past successes, education)

· Can (almost) compensate the lack of science

· Importance of N when screening is hard … early entrepreneurship?

· You have to leave with unused ideas … or failed start-ups

Thank You!www.alfonsogambardella.it

Robustness check 1

Robustness check 2