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The Value of Patented Inventions at the Extensive and Intensive Margin

The Value of Patented Inventions at the Extensive and Intensive Margin. Alfonso Gambardella Joint with Dietmar Harhoff , LMU, Munich Bart Verspagen , Maastricht University, Maastricht . KITeS Conference: New Frontiers in the Economics and Management of Innovation

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The Value of Patented Inventions at the Extensive and Intensive Margin

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  1. The Value of Patented Inventions at the Extensive and Intensive Margin Alfonso GambardellaJoint with Dietmar Harhoff, LMU, MunichBart Verspagen, Maastricht University, Maastricht KITeS Conference: New Frontiers in the Economics and Management of Innovation Bocconi University, 22-23 March 2012

  2. 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

  3. 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”

  4. Value of patent portfolio V increases because of N or ? Determinants of N vs. ? • We focus on • Resources invested in producing the invention (man-months) • Inventor characteristics (past citations, education)

  5. Intensive mg Extensive mg + complementarity – substitution Econ of scope in knowl. Definition Extensive margin = % in V due to 1%  in N given M Intensive margin = % in V due to 1%  in M given N

  6. Plan • Some theory to guide our empirical analysis • Data • Empirical results

  7. 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)

  8. Theory (2 of 4) 1. Screening of expected outcomes Expected values H1 Better screening 2 projects 3 projects H3 H3 H1 threshold (exp costs) H2 H2 Projects 1 2 3 Poorer ability to screen makes the extensive margin relatively more important than the intensive margin

  9. Theory (3 of 4) 2. Spread around expected value 12 (50%) E(V | above thr.) … like worst screening Expected values H1 8 3 projects 2 projects 6 (50%) H3 threshold (if below, you know you won’t comm. patent) 5 4 (50%) H2 4 2 (50%) Projects 1 2 3 More precise information about expected value  fewer patents in the portfolio 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

  10. 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)

  11. 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

  12. 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

  13. 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

  14. Patent Portfolio: Inventors vs Managers

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

  16. 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

  17. Thank You!www.alfonsogambardella.it

  18. Robustness check 1

  19. Robustness check 2

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