Friday, 26 March 2010: 15:50
In the past few decades, technological innovations and inventions have become extremely important to firms for their survival in competitive markets. As a result, the management of intellectual properties has become a high priority for innovating firms. Among the various methods of intellectual property management, patenting is considered the most effective legal protection from outsiders (competing firms) as well as insiders (departing research personnel).
In general, patent portfolio management involves two activities: the patenting of new innovations and the maintenance (or renewal) of existing patents. Upon the arrival of a new innovation, a firm decides whether to file for a patent or to rely on secrecy. When filing a patent application, it is required to pay application filing fees. Every patent grant is subject to payment of maintenance fees, which must be paid to maintain the patent in force. In this paper, we examine theoretically and empirically how factors such as application filing fees and maintenance fees affect a firm’s patenting and renewal decisions on the firm's sequential innovations. In particular, we investigate the own-price effects of those fees on patenting and renewal as well as their cross-price effects, where the latter effects provide us a testable implication to identify complementarity or substitutability across sequential innovations.
Using records of patents’ renewals and expirations, Pakes (1986), Schankerman and Pakes (1986), Lanjouw (1998), Schankerman (1998) have attempted to estimate the private pecuniary values of patents under the premise that a patent will not be renewed unless its value exceeds the cost of maintenance or renewal. Unlike our paper, these papers do not consider a firm's patenting decisions jointly made with renewal decisions and thus ignore the interrelationship of renewal and patenting. Nor do they consider sequential innovations within a firm. In contrast to our paper, all these papers do not directly estimate the sensitivity of renewals to renewal fees. Furthermore, they assume that the revenue across innovations is independent and identically distributed while our model allows for revenues across sequential innovations to be correlated and a firm's patenting and renewal decisions on two different innovations are therefore jointly made.
We test the theoretical implications on renewal and patenting decisions against patent-level and firm-level panel data, respectively. In the estimation of renewal decision, we utilize a logit model with the indicator variable for renewing a patent as the dependent variable. A panel-data regression model is employed for the firm’s patenting decision, where the dependent variable is the firm’s patent count per R&D dollar. The explanatory variables in both models include patent maintenance fees and application filing fees, in addition to firm-level characteristics, such as R&D expenditures and the capital-labor ratio. Our regression results show that the probability of patent renewal and maintenance fees are correlated negatively and that the patent propensity and application fees are correlated negatively. We also demonstrate that higher application fees are associated with lower probability of patent renewal, which corroborates the case of complementarity in sequential innovations.
In general, patent portfolio management involves two activities: the patenting of new innovations and the maintenance (or renewal) of existing patents. Upon the arrival of a new innovation, a firm decides whether to file for a patent or to rely on secrecy. When filing a patent application, it is required to pay application filing fees. Every patent grant is subject to payment of maintenance fees, which must be paid to maintain the patent in force. In this paper, we examine theoretically and empirically how factors such as application filing fees and maintenance fees affect a firm’s patenting and renewal decisions on the firm's sequential innovations. In particular, we investigate the own-price effects of those fees on patenting and renewal as well as their cross-price effects, where the latter effects provide us a testable implication to identify complementarity or substitutability across sequential innovations.
Using records of patents’ renewals and expirations, Pakes (1986), Schankerman and Pakes (1986), Lanjouw (1998), Schankerman (1998) have attempted to estimate the private pecuniary values of patents under the premise that a patent will not be renewed unless its value exceeds the cost of maintenance or renewal. Unlike our paper, these papers do not consider a firm's patenting decisions jointly made with renewal decisions and thus ignore the interrelationship of renewal and patenting. Nor do they consider sequential innovations within a firm. In contrast to our paper, all these papers do not directly estimate the sensitivity of renewals to renewal fees. Furthermore, they assume that the revenue across innovations is independent and identically distributed while our model allows for revenues across sequential innovations to be correlated and a firm's patenting and renewal decisions on two different innovations are therefore jointly made.
We test the theoretical implications on renewal and patenting decisions against patent-level and firm-level panel data, respectively. In the estimation of renewal decision, we utilize a logit model with the indicator variable for renewing a patent as the dependent variable. A panel-data regression model is employed for the firm’s patenting decision, where the dependent variable is the firm’s patent count per R&D dollar. The explanatory variables in both models include patent maintenance fees and application filing fees, in addition to firm-level characteristics, such as R&D expenditures and the capital-labor ratio. Our regression results show that the probability of patent renewal and maintenance fees are correlated negatively and that the patent propensity and application fees are correlated negatively. We also demonstrate that higher application fees are associated with lower probability of patent renewal, which corroborates the case of complementarity in sequential innovations.