The Theory of Innovation & Entrepreneurship: Today's Menu
The Theory of Innovation & Entrepreneurship: Today's Menu
The Theory of Innovation & Entrepreneurship: Today's Menu
Todays Menu .
S6.1. The Cost of patenting
Van Pottelsberghe B. and D. Franois, 2006, The cost factor in patent systems, working paper.
Edwards D. (2002), Patent Backed Securitization: Blueprint for a new asset class, Gerling NCM, 2001. Washington|CORE.
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Objectives :
Whether and to what extent the cost of patenting affect the demand for patent?
Put forward a methodology for comparative analysis of patent systems : the 3-C index The role of cost Non-cost factors
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x3
342,441 169,028
Geographical origins of patent filings (%) USA Japan EPC States Others 27 16 50 7 55 18 15 13 5 88 3 4
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Caveats: EU does not include the domestic priority filings... but Similar percentage of filings from abroad at the USPTO and at the EPO, about 50% (2nd filings) Similar percentage of filings from Japan at the USPTO and at the EPO, about 18% : (2nd filings) They confirm that the US market is three times more attractive that the European market.
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Geographical origins of patent filings (%) USA Japan EPC States Others
Van Pottelsberghe SBS S6
27 16 50 7
55 18 15 13
5 88 3 4
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450000 Japan 400000 350000 U SA 300000 Patent filed 250000 200000 150000 100000 50000 0 0 50 100 150 200 250 300 350 400
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E U3
E U13
E U25
450
500
Population (M)
U SA
400
Number of claims of applications at the USPTO: 23-24 At the JPO: 7 At the EPO: 18. Many other differences
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U SA
7,0 6,0 M of claims fi 5,0 4,0
Japan
3,0
E PO3
2,0
E PO13
1,0 0,0 0 50 100 150 200 Population (M ) 250 300 350
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400
Why no size effect? Why _ so few patents at EPO? EPO = second filings (however Japan) Not a European market for technology: once granted the patent must be validated, translated. In each individual member country A matter of cost?
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Surveys always underline the high cost of patenting perceived by firms Surveys always underline a lack of confidence in the IP system BUT:
No correlation with patenting behavior
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Cost is unique for each patent: Quality of services Number of claims/page Desired geographical scope Desired speed of services Desired route (PCT, Direct)
Hypotheses:
3 or 13 EU member countries Average number of claims To grant, to 10 years, to 20 years
Van Pottelsberghe SBS S6
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RB (2005)1
Euro-PCT
8 15
6,300
All
13 18
6,575
Euro-Direct
6 6
4,400
3 18
4,670
Translation costs
Renewal fees, including:
Fees Attorneys
3,400*
13,600*
7,400
16,000
3,400
10,900
5,600 5,300
2,975
16,597
9,200 6,800
TOTAL, including:
Attorneys and prof. rep.
Van Pottelsberghe SBS S6
23,545
12,500**
56,272
19,500**
46,550
22,100
31,580
17,780
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Process costs Process and translation Process and external serv. TOTAL 10 years TOTAL 20 years
8,070 4,670
EPO3
EPO13
USPTO
|JPO 17
Proposals for comparative cost analysis: Process and translation costs more reliable (but no professional representation costs) Analyse the cost per claim Analyse the cost per claim per market unit (capita) : 3C-index
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EUR
JPO USPTO
PATENTS
EPO3 EPO13 JPO
CLAIMS
EPO3 EPO13 JPO
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10
USA
M of Claim
5,0 4,0
Japan
3,0
E U3
2,0 1,0 0,0 0 200 400 600 R E U 800 1000
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E U13
1200
Millions of claims filed vs. process cost per claim per capita : 3C-index
U SA
Mof claim
Japan E U3 E U13
3,
E U R
11
USPTO
100% 27
JPO
53.8% 31 exam 2.9 Million 170.3* 50.5* 1,195 371* 50% (QW: 64%)
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87% Search: 12 Exam : 38 2.1 Million 34.6 17.8 624.1 326.9 59% (QW: 67%)
Claims filed per examiner Claims granted per examiner Grant rate2 Van Pottelsberghe SBS S6
3 to 4
1,103
64% (QW: 87 to 97%)
Other factors than costs... No perceived Europen market : complexity Longer process, more time per patent More rigor, and hence quality Less domains of patentability
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Patenting Processes
European Patent (Under current EPC)
Filing
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Patent Value
For
corporation
involved
in
technological competition, the value of a patent is best defined as its asset value
(Harhoff et al., 2003)
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Patent Value
If the value of a patent is best defined as its asset value, then the value of the patent is actually the present value of its future cash flows 1- If the patent is exploited by its holder, then it is the value of the margins on the sold products issuing from the patent Share of revenues really due to patent??? 2- If the patent is licensed out by its holder to external companies, than it is the value of the royalty fees generated by the patent Very difficult to observe
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Patent Value
Two different types of value proxies: 1- Indicators of patents value show a direct correlation with observable prices, costs, or sold quantities of the patent-protected product, 2- Indicators operationalize latent determinants of patent value such as novelty, inventive step, breadth, difficulty of inventing around, disclosure, and dependence on complementary assets.
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Patent Value
Inventions 1
Applic. 2
Grants 3
High value 4
Increasing value
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Patent Value
Little theoretical understanding and even less empirical evidence on the complex interaction between indicators, determinants and prices, costs, and quantities of protected products sold. Until today, a variety of variables have been tested as indicators of patent value. Amongst them, Reitzig (2002) analyzes the appropriateness of 13 indicators. The 3 evaluation criteria are: -The validity of the indicator variable -The point in time at which the information to compute the indicator becomes accessible -If the information is available electronically or has to be collected manually.
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Patent Value
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Patent Value
State of the Art
Three generations of indicators of patent value: 1. The authors of the 1st generation validate indicators which are linked to patent value by rationales that speak to rather general economic considerations (i.e., family size, market value, forward & backward citations) it does not involve in-depth knowledge of institutional details of the patent system. 2. The 2nd generation indicators use patent-specific procedural information and link it to patent value (i.e., referring to the filing strategy or the legal contents of backward citations). 3. The 3rd, new generation: using the patent-full text documents (i.e., correlation between nber of claims & macro indices of a nations technological performance)
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Patent Value
State of the Art Generation What the indicators Research of a generation have in common:
1st General economic considerations Pattern-specific economic considerations Patent full-text documents (vs making use only of 1st page info) Empirical evidence
2nd
3rd
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Patent Value
Assessing the value of patent rights is difficult (distribution is skewed) Skewness property (Griliches) : These findings, especially
the large amount of skewness in this distribution, lead to rather pessimistic implications for the use of patent counts as indicators of short-run changes in the output of R&D.
Need additional information which is correlated with the true value of the patent right Allow much greater accuracy than unweighted count statistics Attempt to solve the problem : use of the information contained in renewal decisions of patent holders (Schankerman and Pakes)
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Patent Value
Survey of Harhoff, Scherer & Vopel (1999) Others correlates of patent value that have been studied are : Market value of biotechnology firms (Lerner 1994) Social returns to innovation in the computertomography scanner industry (Trajtenberg 1990) Number of juridictions in which patent protection is sought (Putnam 1996) The value of patent rights can be approximated by combining these indicators This survey uses a broad set of indicators which are :
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Patent Value
Survey of Harhoff, Scherer & Vopel (1999) Forward citations (citations received from subsequent patents) Backward citations (references to other patents) The number of references made to the non-patent literature, i.e. mostly to scientific journals. The outcome of opposition proceedings Patent "family size (the number of countries in which patents were granted for the same invention) The scope of the patent (that has as proxy the number of different four-digit IPC classifications)
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Patent Value
Theoretical Issues in Measuring the Value of Patent Rights They focus on the private value of patent rights and consider two concepts : the value of renewed patent protection the asset value of the patent right
Three scenarios:
I. In the first scenario, the patent protects a quality improvement of a product, but there is no interaction between this particular and other patent rights. II. They allow for such interactions as they occur in cumulative research processes. In such cases, control over one patent may affect the value of other patent rights as well if the owner of one patent can block the use of the other. III. They consider the case of multiple patents covering technologies that are perfect substitutes for each other.
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Patent Value
Estimates of patent value the left hand side, explained variable Purpose: In what extent patent value is explained by observables (citations, scope,)? First step: a survey to obtain value estimates that were meant to capture asset values of patent rights. The survey was directed at German patent-holders and conducted in 1996. It considered all patent grants with a 1977 German priority date which were renewed to full term, i.e., expired during 1995. Data on 4349 patents that were applied for in 1977 and renewed to full term.
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Patent Value
Estimates of patent value the left hand side, explained variable Sample was asked a single question : If in 1980 you had known how its contribution to the
future profitability of
Respondents were asked to place their patent within one of 5 broad minimum selling price ranges: less than DM 100,000, DM 100-399,999, DM 400-999,999, DM 1-5 million, and more than DM 5 million.
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Patent Value
Positive responses were obtained on 772 patents (57.1% of the total on which contacts were made) held by 394 organizational entities and individual inventors (+ or 10).
The distribution of the value of patent rights is summarized in the following Table.
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Patent Value
Note: the survey also produced data for 20 other patents which were assessed by respondents of our written survey to be worth more than DM 5 million. In these cases, no additional information was available.
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Patent Value
Correlates of patent value - the right hand side, explaining variables
1. Patent Scope : The scope of a patent is difficult to assess and measure - use of Lerners approach (number of four digit IPC) 2. Citations Received from Subsequent Patents : Looking at the frequency of citations that a particular contribution receives from subsequent patents. 3.References to other Patents (Backward Citations): A relatively small scope and low monetary value should characterize a patent whose examination report contains a large number of backward citations.
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Patent Value
Correlates of patent value - the right hand side, explaining variables 4. References to the Non-Patent Literature: Patents may be based in part or fully on new scientific knowledge. A relatively high number of references to the scientific literature may therefore indicate patents of relatively high value (PATDPA database) 5. Family Size : The size of a patent family (measured as the number of jurisdictions in which a patent grant has been sought) and the survival span of patents are highly correlated (Putnam and Lanjouw) 6. Outcome of Opposition Cases : On average, 8% of all EPO patents are opposed, and 14 % of the patents thus attacked are revoked. However, opposition rates and outcomes for EPO patents vary considerably. Leading companies have their patents opposed far more often than on average. (van der Drift 1989)
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Patent Value
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Patent Value
Data The 1977 sample of applications Of the total of 57 782 patent applications (comprising patents renewed to full term), only 24 116 (41.7%) were initially granted. Since obtaining patent protection in other than the own jurisdiction is expensive, applicants will seek international protection only for their more valuable inventions (Putman 1991). Foreign patents should examination process. be more likely to pass the
Patents owned by non-German applicants are attacked less frequently than German patents (exception: US Patents). 13.3% of the German-owned patents are renewed to full term, while non-German are more often renewed to fullterm.
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Patent Value
Data The 1977 sample of applications
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Patent Value
Focus on the 11 475 patents that were initially granted. Description of the mean values and standard errors for the 6 indicators according to different groups of patents. Study of the following table:
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Patent Value
Data Descriptive statistics
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Patent Value
Patents which defeated opposition turn out to differ with respect to most indicators from patents that were held invalid or never opposed. Comparison column 3 & 4: unopposed full-term patents receive more citations, contain more references and are part of larger patent families than unopposed patents which were not renewed to full term (same result holds for a comparison of patents that were opposed and subsequently upheld).
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Patent Value
Data Descriptive statistics
Focus on the moments, range and distribution of the scope and citation measures.
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Patent Value
Data Descriptive statistics - Interpretation Most of the indicator variables have skew distributions, with the mean always larger than the median. Citation counts both in the German and the European systems are spectacularly low by USPTO standards. 2 potential reasons: 1. Both the EPO and the DPA systems contain fewer applications and granted patents/year than the USPTO. 2. Best-mode practice in the USA: applicants have to provide an exhaustive list of patents that could be considered prior art. In Europe, all of the citations in the patent report come from the examiner, not the applicant. 3. The examiners approach to referencing prior art is more conservative and targeted in Europe than in the USA.
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Patent Value
Estimation multivariate specification Combination of the above indicators to model the mean value of patent rights as a function of observables Complex: no point estimates but only lower & upper bounds => use of an ordered probit framework. That means: - Full-term patents delineated by a lower bound, , the parameter to be estimated - is, at the same time, the upper bound for the value of patents which were not renewed to full-term. The econometric model starts by specifying the logarithm of patent valuation ln(V) as the sum of a linear function Xb of (ex post) observables and of an error term e
ln(V)= Xb + e
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Patent Value
Estimation multivariate specification Assumption that : 1. the error terms are distributed i.i.d 2. the normality of the error terms such that the probability of observing a patent in the value interval between 1 and 2 (where 2 > 1) is given by (ln(2)/ - X/)- (ln(1)/ - X/) where is the standard error of the disturbance and (.) is the cumulative standard normal distribution. The log-likelihood contribution for patents for which we observe finite interval bounds is given by: (1)
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Patent Value
Estimation multivariate specification For observations with value greater than some known amount , but no data on a potential upper bound, the log-likelihood is: (2)
(3)
(4)
Patent Value
Estimation Results
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Patent Value
Estimation Results The scope variable is insignificant in these specifications. All other variables turn out to have some explanatory power. While references to the scientific literature are informative about the patents value, the average effect across all technology areas is smaller than for backward citations of patents. The indicators summarizing the outcome of the opposition is large and highly significant. A patent which has defeated opposition in the opposition procedure is considerably more valuable than a patent that was never attacked.
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Brand Power
Capital Product Human Resource Information KnowHow Technology
When These Management Resources Are Rearranged
On Balance Sheet
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Embedding protected inventions in new products/processes/services Additional revenues from outward licensing Access to new technologies (through inward or cross-licensing)
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Although critical, IP is under-valued Traditional wall between research labs and business needs leeds to unexploitability of inventions e.g. Dow Chemical: 55% utilization rate of patents in 2002 Investors need reliable information on patent value Today, few companies report on the value of their patents Multiple ways of evaluating patents, but no consensus
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Just as the electronics industry was formed when the vacuum tubes were replaced by transistors, and transistors were then replaced by integrated circuits, the financial services industry is being transformed now that securitised credit is beginning to replace traditional lending. Like other technological transformations, this one will take place over the years, not overnight. We estimate it will take 10 to 15 years for structured securitised credit to replace to displace completely the classical lending system -not a long time, considering that the fundamentals of banking have remained essentially unchanged since the Middle Ages.
Lowell L Bryan
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A device of structured financing where an entity seeks to pool together its interest in identifiable cash flows over time, transfer the same to investors either with or without the support of further collaterals, and thereby achieve the purpose of financing. Though the end-result of securitisation is financing, but it is not "financing" as such, since the entity securitising its assets it not borrowing money, but selling a stream of cash flows that was otherwise to accrue to it. Simplest form: Conversion of assets or cashflow into marketable securities Asset-Backed Securities (ABS) Origins: GNMA (1970s), Chrysler Financial Corp. (1981) Estimated market size: $584 billion
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Total asset value of patents worldwide: $1 trillion Revenues from licensing in the US increased by 700% between 1990 and 1998 to more than $100 billion IP-backed securitization is recent Origins:
David Bowie (1997) Dow Chemical (1992)
Recent hype in the field: Companies raising money by selling bonds back from the income they receive from their IP licensing.
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Nevertheless, IP assets can be the strongest assets in a corporate portfolio, they're a potential gold mine Recent examples
Matsushita securitized patents under new Japanese METI system Candies: bond pooling & selling income from its logos and licensing
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Key questions:
Who has the actual ownership of the asset (co-ownership)? What if the patented technology becomes quickly obsolete? If the debtor can grant licenses to the IP, would that significantly diminish its value by transferring the ownership? What related assets (IP Rights) may be needed to exploit a particular piece of IP and are they protected? e.g. Coca-Cola: You can securitize the brand name, but in reality that would not be enough because if a lender would ever have to foreclose, the name Coca Cola without the underlying trade secret formula is going to have diminished value
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