nep-ipr New Economics Papers
on Intellectual Property Rights
Issue of 2009‒02‒28
fifteen papers chosen by
Roland Kirstein
Otto von Guericke University Magdeburg

  1. Patent Thickets and the Market for Innovation: Evidence from Settlement of Patent Disputes By Galasso, Alberto; Schankerman, Mark
  2. Complementary Patents and Market Structure By Schmidt, Klaus M.
  3. To Be Financed or Not… - The Role of Patents for Venture Capital Financing By Haeussler, Carolin; Harhoff, Dietmar; Mueller, Elisabeth
  4. Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes By Bhattacharya, Sudipto; Guriev, Sergei
  5. On the price elasticity of demand for patents By de Rassenfosse, Gaétan; van Pottelsberghe, Bruno
  6. 'Essential' Patents, FRAND Royalties and Technological Standards By Dewatripont, Mathias; Legros, Patrick
  7. The London Agreement and the Cost of Patenting in Europe By Mejer, Malwina; van Pottelsberghe, Bruno
  8. Motivation and Sorting in Open Source Software Innovation By Belenzon, Sharon; Schankerman, Mark
  9. Electricity Sector Liberalisation and Innovation: An Analysis of the UK Patenting Activities By Jamasb, T.; Pollitt, M.G.
  10. Economic incongruities in the European patent system By Mejer, Malwina; van Pottelsberghe, Bruno
  11. Inducement Prizes and Innovation By Brunt, Liam; Lerner, Josh; Nicholas, Tom
  12. Venture Capital and Industrial ''Innovation'' By Hirukawa, Masayuki; Ueda, Masako
  13. Geographic and Technological R&D Spillovers within the Triad: Micro Evidence from US Patents By Aldieri, Luigi; Cincera, Michele
  14. Venture Capital and Innovation: Which is First? By Hirukawa, Masayuki; Ueda, Masako
  15. Are the US outperforming Europe in university technology licensing? A new perspective on the European paradox By Annamaria Conti; Patrick Gaulé

  1. By: Galasso, Alberto; Schankerman, Mark
    Abstract: We study how fragmentation of patent rights (‘patent thickets’) and the formation of the Court of Appeal for the Federal Circuit (CAFC) affected the duration of patent disputes, and thus the speed of technology diffusion through licensing. We develop a model of patent litigation which predicts faster settlement agreements when patent rights are fragmented and when there is less uncertainty about court outcomes, as was associated with the ‘pro-patent shift’ of CAFC. The model also predicts that the impact of fragmentation on settlement duration should be smaller under CAFC. We confirm these predictions empirically using a dataset that covers nearly all patent suits in U.S. federal district courts during the period 1975-2000. Finally, we analyze how fragmentation affects total settlement delay, taking into account both reduction in duration per dispute and the increase in the number of required patent negotiations associated with patent thickets.
    Keywords: anti-commons; litigation; patent thickets; patents; settlement
    JEL: K41 L24 O31 O34
    Date: 2008–08
  2. By: Schmidt, Klaus M.
    Abstract: Many high technology goods are based on standards that require access to several patents that are owned by different IP holders. We investigate the royalties chosen by IP holders under different market structures. Vertical integration of an IP holder and a downstream producer solves the double mark-up problem between these firms. Nevertheless, it may raise royalty rates and reduce output as compared to non-integration. Horizontal integration of IP holders (or a patent pool) solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always encourages entry and innovation.
    Keywords: complementary patents; IP rights; licensing; patent pool; standards; vertical integration
    JEL: K11 L15 L24 O31 O32
    Date: 2008–10
  3. By: Haeussler, Carolin; Harhoff, Dietmar; Mueller, Elisabeth
    Abstract: This paper investigates how patent applications and grants held by new ventures improve their ability to attract venture capital (VC) financing. We argue that investors are faced with considerable uncertainty and therefore rely on patents as signals when trying to assess the prospects of potential portfolio companies. For a sample of VC-seeking German and British biotechnology companies we have identified all patents filed at the European Patent Office (EPO). Applying hazard rate analysis, we find that in the presence of patent applications, VC financing occurs earlier. Our results also show that VCs pay attention to patent quality, financing those ventures faster which later turn out to have high-quality patents. Patent oppositions increase the likelihood of receiving VC, but ultimate grant decisions do not spur VC financing, presumably because they are anticipated. Our empirical results and interviews with VCs suggest that the process of patenting generates signals which help to overcome the liabilities of newness faced by new ventures.
    Keywords: biotechnology; intellectual property rights; patents; R&D; venture capital
    JEL: G24 L20 L26 O30 O34
    Date: 2009–01
  4. By: Bhattacharya, Sudipto; Guriev, Sergei
    Abstract: We develop a theory of control rights in the context of licensing interim innovative knowledge for further development, which is consistent with the inalienability of initial innovator’s intellectual property rights. Control rights of a downstream development unit, a buyer of the interim innovation, arise from its ability to prevent the upstream research unit from forming financial coalitions at the ex interim stage of bargaining, over the amount and structure of licensing fees as well as the mode of licensing, based either on trade secrets or on patents. We model explicitly the equilibrium choice of the temporal structure of licensing fees, and show that the innovator’s ex interim financial constraint is more likely to bind when the value of her innovation is low. By constraining the financial flexibility of the upstream unit vis-a-vis her choice over the mode of licensing of her interim knowledge, the controlling development unit is able to reduce the research unit’s payoff selectively in such contingencies. This serves to incentivise the research unit to expend more effort ex ante, to generate more promising interim innovations. We further show that such interim-inefficient control rights can nevertheless be renegotiation-proof.
    Keywords: control rights; corporate venturing; patents; trade secrets
    JEL: D23 K12 O32
    Date: 2008–08
  5. By: de Rassenfosse, Gaétan; van Pottelsberghe, Bruno
    Abstract: This paper investigates whether patent fee policies are a potential factor underlying the boom in patent applications observed in major patent offices. We provide the first panel-based evidence suggesting that fees affect the demand for patents in three major patent offices (EPO, USPTO and JPO), with a price elasticity of about -0.4 (similar to that of the residential demand for oil or water). The laxity of fee policies adopted by patent offices over the past 25 years therefore contributed, to a significant extent, to the rising propensity to patent observed since the mid-nineties. This is especially true at the European Patent Office, which has dramatically decreased its fees since the mid-1990s.
    Keywords: patent cost; patent systems; patenting fees; price elasticity; propensity to patent
    JEL: O30 O31 O34 O38
    Date: 2008–11
  6. By: Dewatripont, Mathias; Legros, Patrick
    Abstract: In this paper we abandon the usual assumption that patents bring known benefits to the industry or that their benefits are known to all parties. When royalty payments are increasing in one’s patent portfolio, private information about the quality of patents leads to a variety of distortions, in particular the incentives of firms to 'pad' by contributing weak patents. Three main results that emerge from the analysis are that: (i) the threat of court disputes reduces incentives to pad but at the cost of lower production of strong patents; (ii) mitigating this undesirable side-effect calls for a simultaneous increase in the cost of padding, that is, a better filtering of patent applications; (iii) upstream firms have more incentives to pad than vertically-integrated firms which internalize the fact that patent proliferation raises the share of profits going to the upstream segment of the industry but at the expense of its downstream segment. This seems consistent with recent evidence concerning padding.
    Keywords: Frand; padding; royalty; Standard setting organization; weak patent
    JEL: L24 L40 O31 O34
    Date: 2008–08
  7. By: Mejer, Malwina; van Pottelsberghe, Bruno
    Abstract: This paper analyses the consequences for the European Patent System (EPS) of the recently ratified London Agreement (LA), which aims to reduce the translation requirements for patent validation procedures in 15 out of 34 national patent offices. The simulations suggest that the cost of patenting has been reduced by 20 to 30 percent since the enforcement of the LA. With an average translation cost saving of €3,600 per patent, the total savings for the business sector amount to about €220 millions. The fee elasticity of patents being about -0.4, one may expect an increase in patent filings of eight to 12 percent. Despite the translation cost savings, the relative cost of a European patent validated in six (thirteen) counties is still at least five (seven) times higher than in the United States.
    Keywords: European patent system; fee elasticity; London Agreement; patent fees; translation costs
    JEL: O34 P14 P51
    Date: 2008–11
  8. By: Belenzon, Sharon; Schankerman, Mark
    Abstract: This paper studies the role of intrinsic motivation, reputation and reciprocity in driving open source software innovation. We exploit the observed pattern of contributions - the 'revealed preference' of developers - to infer the underlying incentives. Using detailed information on code contributions and project membership, we classify developers into distinct groups and study how contributions from each developer type vary by license (contract) type and other project characteristics. The central empirical finding is that developers strongly sort by license type, project size and corporate sponsorship. This evidence confirms the importance of heterogeneous motivations, specifically a key role for motivated agents and reputation, but less for reciprocity.
    Keywords: incentives; innovation; intrinsic motivation; motivated agents; open source software; reciprocity; reputation
    JEL: L14 L17 L41 O31 O32
    Date: 2008–10
  9. By: Jamasb, T.; Pollitt, M.G.
    Abstract: Liberalisation has had a marked effect on innovative activities in the electricity industry. R&D and patenting activities are generally regarded respectively as innovative inputs to and outputs from technological progress. Electricity reforms have resulted in a reduction in R&D spending in the sector. This paper examines the effect of reforms on patenting activity in the UK electricity sector. The results indicate that electricity related patents in non-nuclear and renewable technologies have increased in the post-liberalisation period. We attribute this trend to increased commercialisation of the sector. While this development is positive, we argue that a lasting decline in R&D will in the longer run reduce technological progress in the sector. In order to maintain the pace of innovation, we discuss the need for a framework for innovation systems that is commensurate with the incentive mechanisms of a liberalised sector.
    Keywords: Electricity, patent, innovation, technology, liberalisation
    JEL: L94 O31 Q32 Q38
    Date: 2009–01
  10. By: Mejer, Malwina; van Pottelsberghe, Bruno
    Abstract: This paper argues that the consequences of the ‘fragmentation’ of the European patent system are more dramatic than the mere prohibitive costs of maintaining a patent in force in many jurisdictions. First, detailed analysis of judicial systems in several European countries and four case studies provide evidence suggesting that heterogeneous national litigation costs, practices and outcome induce a high level of uncertainty. Second, a high degree of managerial complexity results from systemic incongruities due to easier ‘parallel imports’, possible ‘time paradoxes’ and the de facto paradox of having EU-level competition policy and granting authority ultimately facing national jurisdictional primacy on patent issues. These high degrees of uncertainty and complexity contribute to reduce the effectiveness of the European patent system and provide additional arguments in favour of the Community patent and a centralized litigation in Europe.
    Keywords: enforcement; European patent system; litigation process; patent cost; uncertainty
    JEL: K41 O34 P14
    Date: 2009–01
  11. By: Brunt, Liam; Lerner, Josh; Nicholas, Tom
    Abstract: We examine prizes as an inducement for innovation using a novel dataset of awards for inventiveness offered by the Royal Agricultural Society of England from 1839 to 1939. At annual shows the RASE held competitive trials and awarded medals and monetary prizes (exceeding one million pounds in current prices) to spur technological development. We find large effects of the prizes on contest entries, especially for the Society’s gold medal. Matching award and patent data, we also detect large effects of the prizes on the quality of contemporaneous inventions. These results hold even during the period when prize categories were determined by a strict rotation scheme, thus overcoming the potential confounding effect that awards may have targeted "hot" technology sectors. Our evidence suggests that prize awards can be a powerful mechanism for encouraging competition and that prestigious non-pecuniary prizes can be a particularly effective inducement for innovation.
    Keywords: awards; contests; patents
    JEL: N40 O30 O31
    Date: 2008–07
  12. By: Hirukawa, Masayuki; Ueda, Masako
    Abstract: For the sample period of 1965-1992, Kortum and Lerner (2000) find that venture capital (VC) investments have a positive impact on patent count at industry level, and this impact is larger than that of R&D expenditures. We confirm that this positive impact continued to be present and became even stronger in late 90s during which VC industry experienced an unprecedented growth. We then proceed to study if this positive impact of VC is also present on productivity growth, which is a measure of innovation alternative to patent count. Unlike the impact on patent count, we do not find that VC investment affects total factor productivity growth. We do find that VC investment is positively associated with labor productivity but this positive impact is originated from the technology substitution from labor to other productive inputs such as energy and material. Therefore, our finding suggests that, at industry level, VC investment increases the patent propensity but may not necessarily improve the productive efficiency. Various interpretations are offered why this may be the case.
    Keywords: Factor Substitution; Innovation; Patent; Productivity; Venture Capital
    JEL: D24 G24 O31 O32
    Date: 2008–12
  13. By: Aldieri, Luigi; Cincera, Michele
    Abstract: This paper aims at assessing the magnitude of R&D spillover effects on large international R&D companies’ productivity growth. In particular, we investigate the extent to which R&D spillover effects are intensified by both geographic and technological proximities between spillover generating and receiving firms. We also control for the firm’s ability to identify, assimilate and absorb the external knowledge stock. The results estimated by means of panel data econometric methods (system GMM) indicate a positive and significant impact of both types of R&D spillovers and of absorptive capacity on productivity performance.
    Keywords: absorptive capacity; firms’ productivity growth; Geographic and technological R&D spillovers
    JEL: O33 O47
    Date: 2009–01
  14. By: Hirukawa, Masayuki; Ueda, Masako
    Abstract: Policy makers typically interpret positive relations between venture capital investments and innovations as an evidence that venture capital investments stimulate innovation ('VC-first hypothesis'). This interpretation is, however, one-sided because there may be a reverse causality that innovations induce venture capital investments ('innovation-first hypothesis'): an arrival of new technology increases demands for venture capital by driving new firm startups. We analyze this causality issue of venture capital investments and innovation in the US manufacturing industry using both total factor productivity (TFP) growth and patent counts as measures of innovation. Using a panel AR regression as well as industry-by-industry AR regressions, we find that TFP growth is often positively and significantly related with future VC investment, which is consistent with the innovation-first hypothesis. We find little evidence that supports the VC-first hypothesis. More surprisingly, one-year lagged VC investments are often negatively and significantly related with both TFP growth and patent counts.
    Keywords: Innovation; Venture Capital
    JEL: D24 G24 O31 O32
    Date: 2008–12
  15. By: Annamaria Conti (Chaire en Economie et Management de l'Innovation, Collège du Management de la Technologie, Ecole Polytechnique Fédérale de Lausanne); Patrick Gaulé (Chaire en Economie et Management de l'Innovation, Collège du Management de la Technologie, Ecole Polytechnique Fédérale de Lausanne)
    Abstract: Europe is perceived to lag behind the US in converting its academic results into economic outcomes. Using new survey data and controlling for standard factors affecting the productivity of Technology Transfer Offices (TTOs), we find that European TTOs do not execute less licenses than US TTOs. However, they earn significantly less revenue from licenses. We relate the difference in licensing income to differences in the organization and staffing of TTOs. Specifically, US TTOs employ more staff with experience in industry and appear to have greater flexibility in managing their budget.
    Keywords: technology transfer office, technology licensing, European paradox
    JEL: L3 O31 O38
    Date: 2009–02

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