• No results found

Main Determinants of Patent Transfers in Sweden: An Empirical Study of the Market for Ideas

N/A
N/A
Protected

Academic year: 2022

Share "Main Determinants of Patent Transfers in Sweden: An Empirical Study of the Market for Ideas"

Copied!
117
0
0

Loading.... (view fulltext now)

Full text

(1)

IN

DEGREE PROJECT TECHNOLOGY AND ECONOMICS, SECOND CYCLE, 30 CREDITS

STOCKHOLM SWEDEN 2018,

Main Determinants of Patent Transfers in Sweden

An Empirical Study of the Market for Ideas JOHANNA GUSTAFSSON

SARA LODÉN

(2)

Main Determinants of Patent Transfers in Sweden

An Empirical Study of the Market for Ideas by

Johanna Gustafsson Sara Lodén

Master of Science Thesis TRITA-ITM-EX 2018:447 KTH Industrial Engineering and Management

Industrial Management

(3)

Master of Science Thesis TRITA-ITM-EX 2018:447

Main Determinants of Patent Transfers in Sweden

An Empirical study of the Market for Ideas

Johanna Gustafsson Sara Lodén

Approved

2018-05-30

Examiner

Hans Lööf

Supervisor

Almas Heshmati

Abstract

What patents are traded and who trades them? This research aims to determine the main

factors affecting a patent's propensity to be traded on the Swedish Market for Ideas, and

to what extent. Theories of the Economics of Intellectual Property Transfers constitute

the foundation of the research focus, in combination with earlier research. The factors

being studied are divided into patent characteristics and firm characteristics. To the

extent of our knowledge, this is the first attempt to provide empirical evidence of

determinants of the Swedish market for patent transfers. Data is triangulated from three

data sources (legal data from EPO, patent data from PATSTAT and firm data from

Serrano Database). Hence, a combined data set with extensive information is analyzed by

both descriptive statistics and regression analysis to approach four Hypothesis. Through

the use of Logit regression model the binary outcome of whether a patent is traded or not

is assessed. Furthermore, Negative Binomial estimators and Poisson model address the

likelihood of the number of times a patent is being traded. The main findings are; (1a)

patents of higher value, indicated by the number of citations, have a higher likelihood to

be transferred, (1b) patents of a younger age are more frequently traded. Additionally,

(2a) larger firms, to a higher extent, engage in patent transfers. The results are however

mixed concerning the effect on firm size on the propensity to change owner. Lastly (2b),

transferred patents are mainly within information technologies. In a competitive

environment where the share of intangible assets is increasing and a large fraction of

patents remain unused, there are efficiency gains to be realized by a developed Market

for Ideas. This research, therefore, provides a contribution to a novel research area, with

implications for both policy makers and managers, regarding the increased importance of

the strategic use of intellectual property.

(4)

Acknowledgements

We would like to thank Professor Hans Lööf and Assisting Professor Ali Mo- hammadi at the School of Industrial Engineering and Management, the Royal Institute of Technology, for their motivation and valuable knowledge. Moreover, for giving us access to rich data sets, which made this study possible. Additional gratitude is devoted to Professor Almas Heshmati, at Jönköpings University, for his support and feedback.

(5)

Contents

1 Introduction 1

1.1 Background . . . 1

1.2 Problem Formulation . . . 3

1.3 Earlier Research . . . 4

1.4 Purpose of the Thesis and Summary of Findings . . . 6

1.5 Limitations . . . 6

1.6 Outline . . . 7

2 Theoretical Framework 9 2.1 Economics of Patents . . . 9

2.1.1 Determining a Patent’s Value . . . 10

2.2 Institutional Environment . . . 12

2.2.1 The Patent System . . . 12

2.2.2 Determinants of National Innovative Capacity . . . 14

2.3 Firms’ Strategic use of Patents . . . 16

2.3.1 Profiting from Innovation . . . 17

2.3.2 Implications of Firm Size and Economies of Scale . . . 18

2.4 Economics of Intellectual Property Transfer . . . 20

2.4.1 The Market for Intellectual Property . . . 20

2.4.2 Adam Smith’s Division of Innovative Labour . . . 22

2.4.3 Supply and Demand in the Patent Market . . . 23

2.4.4 Asymmetric information and Transaction costs . . . 24

2.4.5 Horizon effect and Selection effect . . . 24

2.5 Sustainability . . . 25

2.5.1 Implications on Private returns and Social Welfare . . . . 25

3 Review of Previous Findings of Trade of Patents 26 3.1 Gains from the Transfer of Patents . . . 27

3.2 Propensity of Patents to be Traded . . . 28

3.2.1 Patent Characteristics of Traded Patents . . . 29

3.2.2 Firm Characteristics of Buyers and Sellers . . . 30

4 Hypotheses 32 5 Data Sample 33 5.1 Data Sources . . . 33

5.2 Description of variables . . . 34

5.2.1 Patent variables . . . 34

5.2.2 Legal event variables . . . 35

(6)

5.2.3 Firm variables . . . 36

5.3 Descriptive Patterns . . . 38

5.3.1 Description of Patent Characteristics on an Aggregate Level 38 5.3.2 Description of Patent Characteristics on a Firm Level . . 43

5.3.3 Description of Firms’ Patenting Activity . . . 47

6 Methodological Steps 49 6.1 Data cleaning . . . 49

6.2 Model . . . 50

6.3 Data Limitations . . . 53

7 Empirical Analysis of Transferred Patents 57 7.1 Summary statistics . . . 57

7.2 Trends in the Swedish market for Patent Transfers . . . 60

7.3 Patent characteristics . . . 65

7.4 Firm characteristics . . . 71

7.5 Result from Regression Analysis . . . 79

8 Discussion 85 8.1 Discussions from Hyothesis testing . . . 86

8.1.1 Patent characteristics . . . 86

8.1.2 Firm characteristics . . . 88

8.2 Other Factors that affect the Propensity of Patent Transfers . . . 91

9 Conclusion 93 9.1 Implications for Policy Makers and Managers . . . 94

9.2 Opportunities for Future Research . . . 95

(7)

List of Figures

1 Patent Quality (Citations) . . . 39

2 Top filing authorities . . . 40

3 Geographical Distribution . . . 41

4 Top filing IPC-sectors . . . 42

5 Application per Industry Sector . . . 43

6 Firm size and patent application shares . . . 45

7 Company Group and Patent Application . . . 48

8 Legal Transfers . . . 60

9 Patent Authority and Transfers . . . 61

10 Patent Authority and Transfers, Time Trend . . . 61

11 Patent Authority Average . . . 62

12 Patent Sales . . . 63

13 Patent Buyers . . . 64

14 IPC Share, Comparison . . . 66

15 IPC Share, Time Trend . . . 67

16 Patent Age . . . 68

17 Claims and Transfers over Time . . . 69

18 Firm size, Citations . . . 70

19 Firm Size and Transfers over Time . . . 74

20 Industry Sector Share of and Transfers . . . 76

21 Corporate Group Shares of Transfers . . . 77

22 Citations and Industry Sector . . . i

23 Citations per Firm Size . . . i

24 Forward Citations per Firm Size . . . i

25 Normalized citations, Corporate group . . . ii

26 Corporate Group and Transfers . . . ii

27 Grants . . . iii

28 Geographics of Grants . . . iii

29 Geographics of Transfers . . . iv

30 Citations and Firm Size (Normalized) . . . iv

31 Citations and Industry Sector (Normalized) . . . v

32 Corporate Group and Transfers (Weighted) . . . v

(8)

List of Tables

1 Sweden’s Main Patent Holders . . . 47

2 Summary statistics . . . 57

3 Correlation matrix . . . 58

4 Intra group transfers . . . 59

5 IPC shares . . . 65

6 Transfer frequency by County . . . 72

7 Logit Regression . . . 79

8 Negative Binomial Regression . . . 81

9 Poisson Regression . . . 83

10 Hypothesis Testing . . . 90

11 Probit and Margins . . . vi

(9)

Abbreviations

The following abbreviations are used throughout the study IP Intellectual Property

PRV Swedish Patent and Registration Office EP European Patent

EPO European Patent Office

USPTO United States Patent and Trademark Office INPADOC Worldwide legal status database, from the EPO NACE Statistical classification of economic activities

(10)

1 Introduction

1.1 Background

Advances in knowledge creation, which generate product and process innova- tions as well as disruptive technologies, contribute to economic growth, regional development, and international trade. Thus, accurate measurement of knowl- edge output, as well as knowledge inputs, are of great importance (Acs et al., 2002). Generally, the knowledge input is measured by the spending on research and development (R&D), in terms of the time, labour and cost devoted to inven- tive output. Successful research efforts subsequently generate inventions which, given the requirements are fulfilled, can be protected by patents1. Patents are thus commonly approximated as a knowledge output. Patents are moreover generally used as an indicator of inventive activity and innovation (Griliches, 1998). Firms’ or individual inventors’ patent applications are therefore inter- preted by governments as a measurement of the technological capability of a nation. (Harhoff et al., 2003)

The patent system aims to encourage technical progress and new invention.

This is done twofold; initially by granting a temporary monopoly right to the inventor and secondly, by forcing disclosure of the technical information of the product or process invention. Disclosure refers to the detailed description of the invention included in the patent document (Griliches, 1998). By granting a patent, the government faces a trade-off. The patent authority trades off the exclusive, short-term rights of using the invention, against creating incentives for investing in R&D. Given the existence of a patent system inventors and firms know that, in return for the research efforts spent, it is possible to extract economic returns from the exclusive right of using the inventive output. The alternative of technology disclosure enabled by patent protection is where the invention is protected from misappropriation2by the use of firm secrecy, among other alternative informal means of intellectual property protection. (Hall and Harhoff, 2011)

When granted by an authorized governmental agency, a patent document, gives the applicant an exclusive right to use the new technology, including the right to exclude others from producing and using the invention, for a certain time period3. The percentage rate of applications being granted and the strength of

1In order to be granted patent protection, an invention needs to fulfill the following re- quirements; novelty, being non-obvious, involve an inventive step and utility (applicability to an industry) (Griliches, 1998)

2Misappropriation refers to the misuse of the underlying technology or invention by other firms who do not have the right to use the technology

3The maximum life time for a patent in Sweden is 20 years, according to the Swedish Patent and Registration Office (PRV), and a patent needs to be renewed each year, starting from the 3rd year, otherwise it is left to expire. Annual renewal fees for patents and patent

(11)

examination can vary between countries, industries and over time. (Griliches, 1998)

Based on a framework developed by Teece (1986) called Profiting from Inno- vation (PFI), one can assess the factors that determine which firms that capture the economic returns from innovation. Is it the firm who is first to introduce a new invention to the market? Or, alternatively, is it a follower firm, who imitates the inventive firm, that will capture the returns from innovation? A follower firm can in fact overcome an incumbent’s first-mover advantage and then become the one who seizes the profits from an innovation instead. Oth- erwise, is it the firms with access to the capabilities the imitators need who will profit from innovation? The PFI framework asses the determinants of the profits made from patenting new inventions. PFI has highly influenced the field of innovation, particularly by converging the economics of innovation with the field of strategic management, i.e. by introducing a strategic aspect of innova- tion. (Pisano, 2006) The conclusion that innovative firms may fail to capture the economic returns from innovation unless they establish a position in requisite ca- pacities and manufacturing, highlights the importance of business strategy and the choice of integration and collaboration. In addition, when it is easy to imi- tate the invention, the profits may go to firms with ownership of complementary assets, instead of the developer of the innovation. (Teece, 1986)

In today’s society, firms face global competition to a greater extent compared with the environment in which the PFI framework was developed. In addition, it is nowadays common with complex webs of collaborative arrangements and contractual relationships across firms. Moreover, the importance of innovation has increased in the presence of globalization and digitization, followed by an increasingly competitive market that challenges today’s firms. (Gans and Stern, 2017). The majority of patent applications are generated by firms. However, most patent rights are found to remain unused within the company who owns the patent. Given the legal right to exclude others from using the underlying technology, patents that not are used are thus socially wasteful and constitutes an inefficient use of intellectual property (IP). On the other hand, there is rising evidence of a secondary market for patent exploitation. A market where patents can be reassigned or licensed to firms with better capacity to use the underlying technology, which can stimulate that smaller fractions of patents remain unused.

(Chesbrough, 2006)

Expanding the framework of Teece (1986), i.e. that the value of a technology is realized first when it is "matched" with key complementary assets, a market where the matching and distribution of ideas can take place will thus generate

applications is 1400 SEK the 3rd year and then increases gradually for each year, ending up at a renewal fee of 7000 SEK on the 20th and last year.

(12)

a more efficient allocation of technology and consequently result in positive social returns. However, trade in technology rarely occurs under exchanges categorized as, from an economic view, "organized market". This means that trading takes place under bilateral negotiations between seller and buyer rather than under the conditions generally present in markets driven by supply and demand. Therefore, an equilibrium price is seldom reached. Consequently, the potential of an even and efficient distribution of gains from technology trade is limited. (Gans and Stern, 2010). This renders the market for patents in some sense into a "blind" market (Lemley and Myhrvold, 2007). Absence of a transparent price of patents on the patent market, given the difficulty in valuing patents, can cause distortion and inconsistency in the incentives of producing and commercializing ideas. In other words, market frictions in the transfer of patent rights, can thus limit the willingness of firms to engage in the Market for Ideas. Furthermore, an underdeveloped secondary patent market can lead to an inefficient use of knowledge resource, given the patent could have been put to a more efficient use within a new owner (Gans and Stern, 2010).

1.2 Problem Formulation

It is documented that a majority of patents is unused or under-used by firms, causing market failure in the form of a dead weight loss for society. This happens because the granting of monopoly rights to use the underlying technology leads to innovative output that are not put to efficient use (Chesbrough, 2006). A secondary market where patents can be sold and bought is thus expected to generate efficiency gains by the reallocation of patents to a new owner who values the patent higher (Serrano, 2011). Social gains can be realized by the transfer of technology to a firm who can use the patent more efficiently. It is therefore hypothesized that the market for innovation, ideas, or intellectual property, can improve the allocation of patents (Galasso et al., 2013).

The transfer of patent rights is a field within patent research with implica- tions both for policy makers and decision makers within firms, since the insti- tutional environment both affects the propensity of filing for patent protection (Cohen et al., 2000), and is found to have implications on the will to engage in technology licensing (Gambardella et al., 2007). Policy makers can thus serve as mediators by providing a secure secondary market for patents and the existence of facilitating intermediaries. Firm managers are then positively affected by the existence of a developed market for ideas where they are able to make strategic use of patents and receive appropriate returns from intellectual property (Ches- brough, 2006), including the ability to choose between buying, keeping or selling a patent (Akcigit et al., 2016).

(13)

However, the market for ideas is considered to be underdeveloped (Akcigit et al., 2016) and suffering from transaction failures and imperfections (Gans and Stern, 2010). This has partly to do with the presence of information bias, transaction and search costs and difficulties in reaching a transparent market price. In addition, the difficulty in assigning a correct value of a patent increases the friction and lack of transparency on the market for patents (Serrano and Ziedonis, 2018). However, the market for intellectual property, with focus on the market for patent, is emerging. As reviewed by (Monk, 2009, p. 36), "we may be witnessing the birth of an important and transformative new economic geography. The patent market is already altering competition in the high tech industry, both at the regional and corporate levels."

Given the potential for economic and social gains enabled by an improved distribution of resources and efficiency gains from an improved allocation of in- vention, the market for ideas is a promising area of research. Although empirical studies on patent transfers are currently rather infrequent, studies on patent li- censing are nevertheless relatively profound and can serve as a benchmark for the present study. Patent licensing and reassigning of patent ownership are how- ever separate phenomena which necessarily do not imply that empirical findings of licensing are applicable on patent trades (Figueroa and Serrano, 2013).

1.3 Earlier Research

This study constitutes one of few studies on the European region, and one of the first studies using reassignment data on Swedish patents. During the past decade there has been an increasing development of trade in patents and transfers of patent portfolios. However, studies on markets for innovation focusing on determinants of changes of patent ownership are recent and limited. This study therefore adds to the existing literature on changes of ownership of patents, which in itself is a novel research area within patent data, by using data from transfers within Sweden’s market for patents for the first time.

Empirical evidence from previous studies is primarily based upon US patent data, from the US market for patent transfers (Ciaramella et al., 2017). The first systematic work of the market for intellectual property using US data on patent transfers was presented by Serrano (2005), concluding that a large fraction of patents is indeed being traded. Subsequent studies relying on European patent data include Ménière et al. (2012)’s study on French patents, and Gäßler (2016)’

research of German patents. Furthermore, Ciaramella et al. (2017) focus on the European market, studying granted patents within the European Patent Office (EPO), based upon the countries; the Great Britain, France, Spain, Switzerland, Germany and the Netherlands.

(14)

The empirical work of changes of ownership of US patents is however richer.

Stylized facts indicate that over the life cycle of a patent, approximately 20 percent of the US patents, produced by small firms, change ownership at least on one occasion (Serrano, 2005). Between 1980 and 2001, Serrano (2010), shows that 13.5 percent of all US patents have been traded. In addition, the empirical findings generally show a tendency that patents which have changed ownership are of higher quality (Serrano, 2010, 2005). Moreover, it is found that the tech- nological fit of a patent with the owner’s patent portfolio, affects the likelihood of the patent to change owner. In other words, a low technological fit with the original owner leads to a higher likelihood of a patent to be sold. Patents are found to be technologically closer with the buying firm’s technological area, compared to the selling firm’s technology class. (Figueroa and Serrano, 2013).

Thus, patents with low fit to the inventing firm’s business or technology field have a higher propensity to be sold on the market for ideas (Serrano, 2010, Akcigit et al., 2016). Additionally, patents that previously have been traded are found to have a higher propensity to be re-traded, and are more likely to be renewed (Serrano, 2005).

Gains from patent transfers tend to be a more efficient labour distribu- tion among technology inventors, technology specialists and manufacturing firms (Ciaramella et al., 2017). The market for ideas is also considered to facilitate productivity growth and the allocation of ideas between firms (Akcigit et al., 2016). Moreover, to realize social gains (Galasso et al., 2013) and stimulate in- centives for R&D investments (Gans et al., 2000). However, patent acquisitions can also be of strategic nature, where firms acquire patent rights as a mean to beat or impede patent disputes in complex overlapping technology fields (Cia- ramella et al., 2017). A risk with patent acquisitions is that the patents end up in the hands of large firms, and thus creating a tougher environment for small and young firms to compete within. Increased patent portfolios in the hands of large firms could increase barriers to entry Monk (2009). However, transfers of ownership of patents are not found to cause a significant concentration of patent rights in large firms (Figueroa and Serrano, 2013).

Reassigning the ownership of a patent differs from patent licensing given the transfer of the responsibility to fulfill patent obligations. For example, payment of the patent’s renewal fees is made by the owner, not the licensee. Studying the effects of ownership changes is quite similar to the effect of having exclusive license rights to a certain patent. However, the licensee who owns exclusive rights to use the patent does not have the right to transfer or licensing the patent further to a third party. (Ciaramella et al., 2017) Thus, transfers of patents rights constitute a specific area within the market for ideas, even though both of the phenomena are part of what can be referred to as technology transfers.

(15)

1.4 Purpose of the Thesis and Summary of Findings

The purpose of the study at hand is to clarify the determinants of patent trans- fers in the Swedish market, focusing on the patent characteristics of the traded patents and the firm characteristics of the firms taking part in the transaction. Given the novelty of the intended research purpose, the aim is to present a general mapping of the determinant factors of the market for patent transactions in Sweden.

The research purpose is enabled by the access to rich data sources of legal data, patent data and firm data. Descriptive statistics serve the main building block in order to approach the findings, combined with regression analysis. Esti- mations by the Logit model, addresses the likelihood of a patent to change own- ership, and estimations applying Negative Binomial model and Poisson model, serves as a means for analysis of the factors affecting the likelihood of the num- ber of times a patent is traded. Based upon this methodology four hypothesis concerning the patent- and firm characteristics determining the transfer rates of Swedish patents are approached.

The general empirical findings in this study is that traded patents in Sweden generally have a higher value, and that patents are most frequently traded at a younger age. Moreover, the firm characteristics of the buyers and sellers of patent rights are found to be constituted mainly of large firms. However, the likelihood of patent transfers is partly found to decrease with firm size, implying a growing importance of small firms in the Market for Ideas. Lastly, the technological sector of the firms and the technical content of the traded patents are mainly, and to a rising extent, within information technologies. The findings from the Swedish market for patent transfers thus align with previous research of ownership changes of patents in the larger patent markets of the US and other European countries.

1.5 Limitations

The largest limitation in the present study is time, and the study is thus de- fined to include solely registered ownership changes in Sweden filed to European patent office, US patent office and Sweden’s patent office. Ownership changes refers to transfers of patents both as a result of an reassignment and the result of a merger, given the limited time to restrict the legal data to solely assignments.

Moreover, other intellectual properties than patents, both formal and informal, have been excluded to delimit the study. Thus, all events where patents are transferred in bundles with other intellectual properties, or serve as a fractional means of protection for an invention with other types of intellectual properties is not within the intended research boundaries. Hence, throughout the study,

(16)

intellectual property is thus reserved to allude on patents alone.

Throughout this study, patents are generally held as an adequate measure of inventive output and innovation, despite the numerous pitfalls in patent statis- tics, but motivated by the close link between patenting and innovation. How- ever, patent as innovation indicators is limited in the sense that valuable infor- mation on new inventions or innovation may not be covered by patent statistics.

Hence, not represented in the findings. Typical examples of innovation that will be excluded due to measurement limitations are computer software or mathe- matical formulas. This can potentially lead to a skewed distribution of obser- vations which should be kept in mind when analyzing the empirical findings;

there may be more to the scope of innovation than shown in patent data.

Furthermore, limitations in the study of patent ownership changes in Swe- den includes the difficulty in matching legal records of ownership changes with the accompanied firm and patent information, in order to study the factors de- termining the transfer of ownership. This is troublesome and calls for caution since the legal data of ownership changes of patents includes duplicates, and thus implies several areas of mistakes. Fortunately, the information available in the patent document, and the information available through Patstat database, provided by EPO, and EPO’s worldwide legal status database (INPADOC) pro- vides rich information, in most of the cases. However, the matching process is still erroneous. Additionally, as stated by Ciaramella et al. (2017), among other previous researchers within the area of ownership changes of patents, to build statistics from raw information on registered ownership is a challenging task.

1.6 Outline

Throughout the study, the concept of Market for Ideas is used interchangeably with the Market for Innovation, Market for Intellectual Property Transfers and market for patents, and refers to the transfer of patent rights. The study is outlined as followed; section 2 presents the theoretical framework, initially in- troducing a walk-through of the Economics of Patents and patent statistics, followed by an aggregate perspective of implications of the Institutional Envi- ronment on the patenting output, to get a general understanding of theoretical aspects of patents. Thereafter, theories concerning the interactions of firms and strategic use of patents, including means to appropriate returns from innovation and the implications of having access to resources, is presented. The theoretical framework is then concluded by a thorough examination of the Economics of Intellectual Property Transfer, by theories concerning the working of the Market for Ideas, or Market for Intellectual Property, the supply and demand factors and inherited frictions in the market for patents. Before introducing an exami-

(17)

nation of previous research of determinants of ownership changes of patents, the theoretical section is concluded with implications for sustainability, and the as- pects of private returns and social welfare concerning transfers of patents. Next, a review of previous findings of trade of patents is presented in section 3, includ- ing previous findings concerning which patent and firm characteristics are found to impact the propensity of patents being traded. The theoretical framework and literature review then round off into the formulation of four Hypothesis in Section 4, concerning the determinants for patent transfers in Sweden.

Subsequently, the data sample applied in the study is presented in section 5, including the data sources, description of the variables, and a presentation of early descriptive patterns of Sweden’s patent activity in Section 5.3. Then, the Methodology applied is described in section 6, including the data cleaning pro- cess, motivations behind the choice of econometric models and limitations in the empirical data. Thereafter, Section 7, presents the study’s empirical findings, by summary statistics, descriptive results of patent and firm characteristics, and the output from the regression analysis. Lastly, the results are discussed in Sec- tion 8 followed by concluding thoughts and comments regarding implications for policy makers and managers and opportunities for future research in Section 9.

(18)

2 Theoretical Framework

Theoretical framework for the intended research purpose is based upon the Eco- nomics of Patents, Institutional Theory and theory of the Market for Intellectual Property Transfers, i.e. the market for ideas. The structure of the theoretical review begins with a fundamental walk-through of the use of patent statistics and is followed by a section of how patents are valuated, thereafter upon frame- works of determinants of national innovation capacity and the patent system.

Afterwards, the reader is presented with a description of the strategic use of patents and how to profit from innovation. The section concludes with a review of Economics of Intellectual Property Transfers, including the market for ideas.

The theory behind the licensing and sales of patents is thus described, including theories of transaction costs, selection and horizon effects, technology fit and the importance of complementary assets. The theory section thereafter paves way for the subsequent section 3 which presents the existing literature and previous findings of the transaction of patents.

2.1 Economics of Patents

Patent indicators are among the most frequently used indicators of technology output (OECD, 2009). Empirical findings by Acs et al. (2002) imply that in- novative activity and technological change can be fairly measured by patent counts, although the representation is not perfect. Patent data serves as an economic indicator of firms’ inventive activity, given the close to proportional and solid, relationship between the number of patents and cross-sectional R&D expenditures. However, the propensity of firms’ to patent their successful R&D outcome varies across industries (Griliches, 1998). Moreover, due to heterogene- ity in patents and the lack of accounting for patent quality, using merely patent counts as a proxy for innovation performance has its limitations (Gambardella et al., 2008).

Nevertheless, advantages of patent data as indicators of inventive activity include; the broad coverage of patent data across technological fields, the huge coverage of countries, and the coverage of time periods dating back as far as the 19th century. Second, there is a close link between patents and inventions (since few significant inventions lack patenting). Third, patent data includes detailed information of the invention process and the invention disclosed in the patent document. Lastly, there is a high availability of patent data, sampled from regional and national patent offices. (OECD, 2009)

However, there are also drawbacks of patent data as a proxy for technologi- cal activity and for statistical purposes. First, not all inventions are protected

(19)

by a patent, since the cost4 and the time of filing for a patent might not be justified for inventions with a trivial economic contribution. In addition, for strategic reasons, firms’ may choose alternative intellectual property protec- tion, for example the use of secrecy. Second, the propensity to file a patent application varies across technical fields. The result may be "patent flooding"

strategies in certain industries where patents are of highest importance, where inventions are protected by patents on incremental innovations as well, with the purpose of cross-licensing with competitors and deterring new firms from entering. Patenting can also vary between firms, depending on firm size, their access to complementary assets and finance, and the ability to cover the costs of patenting. (OECD, 2009) Third, the value of patents is found to be highly skewed, where some inventions are of high economic value and others lack in- dustrial application and thus are of little value to society (Hall et al., 2001, Griliches, 1998). Given inter-firm differences in patenting activity, patents are found to increase with firm size. (Scherer, 1965)

In addition, the complexity of the legal systems and variations and changes in patent law can call for caution. Patent counts may also suffer from reverse causality, since the output of successful research can be patents, but also ad- ditional investments in research efforts to develop the resulting ideas further (Griliches, 1998).

2.1.1 Determining a Patent’s Value

Previous literature on patents register patent value as a factor affecting the propensity of a patent to be acquired by other parties. A patent’s value affects the probability of a patent being licensed to a second party or to change owner.

This section is therefore dedicated to present determinants explaining patent value.

Intangible assets, in relation to tangible assets, have been highlighted to be of increasing importance for firms, and especially for smaller firms and start- ups (Carol et al., 2006, Gambardella et al., 2008). Thus, the correct valuation of patents, where patents serve as a form of property right on some of the intangible assets, is of increasing importance (Gambardella et al., 2008, Hall and Harhoff, 2011). The mere count of patents is generally held by scholars as an inadequate measurement of inventive output, unless the patent counts are weighted by indicators that take their respective value or economic importance into account (Harhoff et al., 2003).

4The cost to file a national patent in Sweden, according to PRV, includes payment of a filing fee of 3 000 SEK, including a registration fee and a search fee (and to pursue an international application, an additional filing fee of 3000 SEK is added). Moreover, additional fees for additional patent claims are added, as well as a fee when the patent is granted. Please see www.prv.se/en/patents/ for an extended review of the fees and payments

(20)

In evaluating the quality of patents, empirical evidence shows that the dis- tribution of patent value is highly skewed, with some patents having no market value and others being of incredibly high value (e.g. Griliches (1998)). As reviewed by Lanjouw and Schankerman (2004), aiming to establish a quality- index to determine the value of a patent; the variables often used in determining patent value is the number of claims, the number of citations that the patent receives (Harhoff et al., 1999, 2003) and the size of the patent family (Put- nam, 1997).

In a patent’s specification, the applicant clarifies the property rights that should be under the patent’s protection. The applicant is required to pay a higher fee to include additional claims5, the number of claims therefore serves as an indicator of the innovation’s scope and potential profitability. Citations can be forward or backward, where the former is the number of subsequent patents citing a specific patent in their patent application, and the latter is the previous patents that are cited in the application. Thus, forward citations can be related to the patent’s technological importance, and over the long-run it indicates an innovation’s contribution to future research. Forward citations that appear rapidly indicates that the patent is within an expected valuable technical area. Similar holds true for the number of backward citations, with the difference that a high amount of citations to prior inventions can indicate a less seminal innovation. (Lanjouw and Schankerman, 2004) A patent’s family is measured as the number of jurisdictions where a patent grant has been sought.

Patent family size is thus related to the innovation’s expected value since it is costly to apply for a patent in each country6 (Putnam, 1997).

The number of patent citations has previously been found to have a sig- nificant correlation with the market value of a patent. In fact, one additional citation per patent, is found to increase the market value of the patent stock by 3 percent. Years of renewal of patent rights are also commonly held as having explanatory power of patent value, reflecting the cost of renewal fees required to keep a patent from expiring. However, patent renewal as a measure of patent value may fail to take into account the largely skewed distribution of patent value. (Hall et al., 2005)

Gambardella et al. (2008) have investigated the private value of European patents and generated an estimated mean value of the patents granted by EPO of above three million Euros. However, the median merely is approximately one- tenth of the mean. Hence, in line with the empirical literature, a highly skew distribution of patent value is documented. Moreover, the European patent

5For a national patent application in Sweden that includes more than ten claims, the applicant needs to pay an additional fee of 150 SEK for each claim, according to PRV.

6The fee to be paid to the patent authority is 1000 SEK, for a national patent application, based on payment information from the PRV.

(21)

value is found to be highly correlated with the above mentioned quality indica- tors, namely the number of claims, citations and the size of the patent family.

Where citations are the highest explanatory factor of patent value and are also found to embrace the right tail of the distribution of patents, i.e. the patents with extremely high value. In fact, citations constitute as much as an explana- tion of patent value alone as the other three variables combined.

However, Gambardella et al. (2008) still identifies a large gap in the expla- nations of patent value variance, since citations, even though its use as a proxy for patent value could be justified, are found to explain as little as 2.7 percent of the variance. The findings of these explanatory variables of the value of Euro- pean patents thus calls for caution. Even when other variables are included, e.g.

introducing technology class and country fixed effects, still only 11.3 percent of the patent value variance is explained (Gambardella et al., 2008).

2.2 Institutional Environment

2.2.1 The Patent System

Despite the varying quality of patents, they are still commonly held as a mea- surement of inventive output. It is found that the design of the patent system implicates the incentives to make investments to generate inventive, patentable, output (Hall and Harhoff, 2011). Hence, a description of its functioning helps shed light upon the patenting activities within nations and the strategic use of IP protection by firms.

The patent system has its origin in the 18th century in Britain, and has since the 20th century developed into a system of universal use. Patent granting processes partly varies between different jurisdictions, but the modern patent protection does not differ substantially between different places of the world.

The country, or border of jurisdiction, where a patent has been granted is where the patent rights are granted. Apart from patent applications made by the European Patent Office, EPO, the African region or an international patent application under the Patent Cooperation Treaty, PCT, a patent need to be filed and granted in each state where the applicant wishes to obtain patent protection. (Hall and Harhoff, 2011)

Findings of Lerner (2002) show that the strengthening or introduction of a patent system7 leads to an increase in both patenting activity and firms’ ex- ploitation of patents as a strategic tool. In terms of its effect on the innovative activity the results are mixed, but Moser (2005) indicate that inventive activi- ties tend to be redirected towards activities that can be protected by patents,

7E.g. improving the legal enforcement, or lengthening the patent term, or broadening the available scope or subject matter.

(22)

rather than promoting activities that to a greater extent would be protected by informal IP protection, e.g. firm secrecy.

In light of the growing significance of investing in knowledge, and the growing use of the patent system, the government faces a trade-off. The negative effect of granting monopoly rights, i.e. the exclusive right for the applicant to use the technology, is weighted against the positive effects from technology disclosure, which diminishes the risk of duplication of research efforts. As well as the result- ing incentives for investing in research, which can be motivated by the possibility to be granted a patent protection, if the research is successful. However, the trade-off ignores, among others; (1) the cumulative nature of invention, i.e that inventions build upon past inventions and (2) firms’ and individuals’ strategic use of the legal system. (Hall and Harhoff, 2011) Still, patents main function can be described as a means of enhancing innovation (Chesbrough, 2006).

The patent system can nonetheless be seen as a framework where the costs and benefits of patents’ effect on a nation’s innovative and competitive power are weighted. The positive aspects of the patent system on innovation are the promotion of diffusion of ideas and creating incentives to invest in R&D. On the downside, this can have a negative effect on competition due to the short-term monopolies. Nevertheless, patents tend to inflate negative effect on innova- tion in terms of the increased cost for subsequent innovators, which enhances transaction costs due to the prevention of combinations of new inventions. Ad- ditionally, competition can in fact benefit from patents by facilitating entry of small and new firms, whose assets often are limited. This means that firms with less resources might still find incentive to invest in R&D if they know that there is yield to collect in the future. Moreover, competition may benefit from patents from the markets of technology, where inventive knowledge can be traded and knowledge-intensive industries to a greater extent can be disintegrated. (Hall and Harhoff, 2011) It is assessed that when strong patent systems is present, i.e.

the patent right gives high protection from imitation and strong right to exclude others, this can encourage technology transfer, since it can be a motivator for firms to be willing to license the right of the technology to other users (Gallini, 2002).

Although patent protection is found to work similarly in different countries, most part of the patent literature is based upon US data and the US legal system, and the institutional environment of the European patent systems has thus to a lesser extent been the focus of attention (Harhoff et al., 2003). Which can be kept in mind in the analysis of findings from other countries.

(23)

2.2.2 Determinants of National Innovative Capacity

Apart from the patent system, when addressing a nation’s ability to generate knowledge output, the institutional environment is found to be closely connected to the patenting frequency of a country (Fu and Yang, 2009). A country’s long- term ability to produce international patents and commercialize the innovative technology, is conceptualized by the framework of national innovative capacity (Furman et al., 2002). A nation’s environment for innovation in its industrial clusters and the strength of the country’s innovation infrastructure, and the size of the linkage between these two factors, can explain the nation’s innovative ca- pacity. National variations in the productivity of R&D are found to explain cross-country differences in the production function of international patents.

Namely, the individual country’s knowledge stock, the degree of technological specialization, and the share of research funded by the private sector and per- formed by the academic sector affects the potential location-bias of innovation.

Moreover, country-level innovation depends on policy-makers decisions regard- ing the strength of the Intellectual Property protection and trade openness.

Policy-makers are also in charge of deciding the amount of input dedicated to innovation, in terms of the level of R&D spending and the share of R&D labour.

Lastly, the national innovative capacity is found to affect the downstream com- mercialization of new technology, for example by enabling a large market share of exports of technology goods. (Furman et al., 2002)

Country-specific conditions are found to affect the efficiency of R&D, due to differences in national innovation systems (Johansson et al., 2015). The lit- erature on national innovation systems (e.g. (Nelson, 1993)) characterize the production of economically useful technological knowledge as an outcome of the collective efforts of the system’s actors, including the interconnections and channels of knowledge diffusion. Technology and knowledge can flow between economic actors through firms’ adoption of new technology and through collab- orations. However, studies also stress the importance of location, and spatial proximity, for knowledge spillovers to take place and the significance of regional clusters for knowledge creation.(Acs et al., 2002)

It is concluded that the institutional environment and the design of the legal systems implicate patents’ mediating role in encouraging innovation. Moreover, it is commonly held that patents are most important in certain sectors, espe- cially within pharmaceuticals (Hall and Harhoff, 2011), due to the high cost and uncertainty of R&D within this sector, combined with inventive output with high risk of imitation. In addition, computer hardware, semiconductors and electronics have been technologies for which patents have been extensively used, however, the Information and Communications Technology (ICT) sector

(24)

is constituting a growing share of the number of patents sought for, reflecting the growing significance of the ICT industry in today’s economies (Chesbrough, 2006).

Differences in countries’ innovative activity can to a large degree be explained by the nation’s business environment. That is, innovation takes mostly place in geographical clusters, and the capacity of firms’ to generate innovative output is to a large extent affected by the nation’s institutional environment, in terms of the national innovation capacity. Furthermore, findings by Porter and Stern (2001), concerning the environment for innovation in OECD countries, up to year 1996, show that the U.S. and Switzerland places in the top, but that the OECD countries are converging and Japan, Germany as well as Sweden, in- cluding other Scandinavian nations, are substantially increasing in terms of the nations’ innovative capacity. Sweden is described as "establishing a region of world-class innovation" (Porter and Stern, 2001, p. 32). Recent empirical find- ings (year 1991-2005), studying the efficiency of R&D among European coun- tries, proxied by the amount of granted patents observed at an industry level, and controlling for institutional factors, conclude that Sweden and Finland is in the top both within low-technology and high-technology industries, followed by the Netherlands and Germany (Johansson et al., 2015).

However, when assessing prerequisites for innovation within a country, it is criticized that it is firms rather than nations, that drives innovation and that the conditions for these activities vary by industry (Johansson et al., 2015). Tradi- tionally, knowledge resources and intellectual property have been portrayed as a closed innovation system, where patents and other formal and informal property rights foremost have been regarded as means to protect inventions from imita- tion (Ziegler et al., 2013). However, in an increasing knowledge-based compet- itive environment, firms’ technological processes are gradually becoming more open and decentralized. This is motivated by the observation that few patents are actively used by firms, and an understanding of firms’ strategic use and practices concerning their utilization of patents is thus needed. (Chesbrough, 2006) Hence, a growing literature on open innovation, initiated by Chesbrough (2006) and inspired by the development of open source technologies, includes the flow of innovation over firms boundaries, and the acknowledgement of a growing need for firms to upgrade their patent strategies in order to remain competitive. Upcoming sections will therefore elaborate on firms’ strategic use of patents and the interaction of firms within the market for ideas.

(25)

2.3 Firms’ Strategic use of Patents

In describing the driving factors behind knowledge flows between firms, i.e.

explaining firms’ incentives to engage in the market for ideas (regardless through trade or through licensing), it is relevant to look at the motives behind these actions. Needless to say, firms will base decisions upon current resources and the prospects of future return.

Firms’ motives to patent an invention is commonly driven by the will to protect the product technology as well as assuring ’freedom to operate’. Once a patent is granted, technology commercialization strategies of the underlying invention include the choice of exploiting the patent internally, or to create inno- vative spin-offs or engage in joint ventures to enable exploitation. Furthermore, firms’ IP strategies also include the licensing of the patent to another firm or multiple firms, or alternatively, to take part in technology sales. (Holgersson and Granstrand, 2017) Firms’ market share is found to positively affect the strat- egy of using the patent internally and to simultaneously use the patent while licensing the technology. In addition, market share affects the choice to license the technology to other firms or to patent with the main purpose of blocking other firms from being able to exploit the technology (Choi and Kim, 2017).

Moreover, patents have a signalling value, since the patent is a sign of quality of the underlying technology or intangible asset, and patents can therefore mediate knowledge-intensive firms’, as well as small and young firms’, struggle to raise capital (Hall and Harhoff, 2011).

Present literature often distinguish between the exploitation of patents in- ternally, i.e. using the technology within the firm, and exploitation of patents externally. Internal use refers to protecting the technology from imitation, se- curing freedom to operate, creating entry barriers for competitors etc. (Blind et al., 2009). Whereas external use of patents refers to the use of patents outside the boundaries of the firm, i.e. through licensing, cross-licensing or actual sale of patent rights to an independent organization (Monk, 2009). Additionally, Ziegler et al. (2013) adds another dimension to the analysis by considering the

’locus of initiative’ to the external exploitation, i.e. analyzing whether it is the firm who owns the patent who initiates the transfer of the patent, or on the con- trary, if it is a third party, i.e. an outside firm, who approaches the patent owner and initiates the transaction. External initiation thus generates an assessment by the patent owner of the patent’s value and thereafter a keep-or-sale deci- sion and evaluation of the potential price to be received, or the attractiveness of the licensing deal. Alternatively, in the case of internal initiation, generally the process starts earlier, since it can be initiated by an annual patent portfo- lio review, identifying patents suited for external exploitation and for example

(26)

sorting out patent packages to be transferred, rather than only single patents (Ziegler et al., 2013). One of the difficulties in this case is the identification and choice of partner firm and assessing the commercialization potential of the patent (Arora et al., 2001).

Firms’ specialized processes of combining and coordinating activities can be a source of competitive power, or in other words, a comparative advantage.

Comparative advantage of a firm rests on firm-specific assets, both knowledge and complementary assets, combined with the firm’s historical path. The path dependency of firms’ is of increasing importance when increasing returns to scale is present. The long-term sustainability of the sources of comparative advantages results both from market demand and how easy it is for internal expansion. Firms’ managerial processes, organization and internal technology is thus of importance in explaining firms’ possibility of wealth creation. Lastly, the relative ease of imitation affects the sustainability of a firm’s comparative advantage. Ease of imitation refers to competitors efforts to replicate the com- petitive power. With the framework of the study at hand; patents, and other formal and informal intellectual property rights, will therefore serve as an addi- tional mean for firms to establish barriers for replication and imitation. (Teece et al., 1999) Patents can thus constitute sources of comparative advantage and underlying factors behind firms’ competitive power which in turn can be a driver behind engaging in the market for ideas.

2.3.1 Profiting from Innovation

To analyze where the economic returns from inventive activities and the result- ing innovations are realized, the framework of Profiting from Innovation (PFI) can be applied. PFI, developed by Teece (1986), builds upon the structure of the appropriability regime, which includes the firm’s environmental factors, the efficiency of the legal protection mechanism and the technology-class of the in- ventions. These factors are found to define the relative ease of imitation and the protection of the intellectual property.

Moreover, based on the theory of the product life cycle8the economic returns from an innovation varies between different stages throughout the life cycle of an invention. Namely, there exists various degrees of industry and product maturity affecting the interactions of firms and the relative ease of seizing the economic returns from an invention. Additionally, access to complementary assets affects a firm’s ability to successfully commercialize an innovation. Complementary assets, i.e. services necessary to commercialize an innovation, include the com- petitive manufacturing, distribution and marketing to name a few. These may

8See e.g. Klepper (1996) for theory description

(27)

require contractual solutions like a licensing agreement with manufacturers and suppliers, or an integration of ownership to acquire ownership and control of the specialized assets. (Teece, 1986)

Industry structure is also suggested to influence innovating firms’ choice of boundaries, where a weaker legal protection of innovation is predicted to create larger incentives for integration of relevant assets, rather than contracting. It is found that firm boundaries pose an important strategic variable for firms that innovate. Moreover, ownership of complementary assets can determine which firms that profit from an innovation. (Teece, 1986)

Intellectual property strategies show a presence of an endogenous appro- priability regime, contrary to Teece (1986)’s exogenously given environment, acknowledging the fact that the strategies and behaviours of firms can influence the regime. Equivalently, firms can use their existing boundaries and comple- mentary assets in attempt to shape the regime (by strengthening or weakening it) in order to optimize the value of their assets. (Pisano, 2006). One can high- light the significance of owning critical complementary technology or having control of critical assets in the value chain, as one of the greatest contribution of the PFI framework (Pisano and Teece, 2007). However, the environment of open innovation, where the boundaries of the firms’ IP strategies are in- creasingly involving possibilities to tap external knowledge sources, the market for ideas changes the situation described by Teece (1986) and Pisano (2006).

Namely, there is less need for firms to own complementary assets, and even less need for firms to undertake inventive activities within the firm, when there is a market for producing firms to acquire innovations and where innovators can sell inventions for others to commercialize and produce the technology.

2.3.2 Implications of Firm Size and Economies of Scale

Distinguishing between large and small firms is of importance. As described in Section 2.3.1, resources can affect a firms ability and propensity to commercial- ize an invention. Large firms have to a greater extent complementary products within their boundaries (Teece, 1986). Transaction costs (such as training of staff or other organizational changes) might thus be less painful for large firms (Serrano, 2005). Patents need to provide enough rent to cover "sunk" transac- tion costs, in order to be interesting for acquisition. Meanwhile it is reasonable to believe that, the choice to sell a patent (or not to buy) is a matter of mere cost saving for a small firm. This suggests that large firms have competitive advantage in the market for ideas and have a higher propensity to buy.

It is increasingly acknowledged that the initial patentee of an innovation might not necessarily be the best technological fit (Serrano, 2005). That is, there

(28)

could be other stakeholders who have greater understanding for the potential scope of an innovation. These would most probably be large firms, who, to a greater extent are involved in R&D, can mass produce and have resources to continue the development of the innovation or related innovations so that it fits their own technology better. On the other hand, innovations that were developed internally could have a lower propensity to be sold if their specific purpose is to complement existing technology. (Cassiman and Ueda, 2006)

Moreover, one would expect large firms to buy more than small firms due to the the fact that large firms have comparative advantage in large-scale de- velopment, i.e. economies of scale. Spreading operating costs over more units produced and sold helps reducing fixed and variable costs which is a source of comparative advantage for large firms. Hence, this can increase incentives for large firms to buy a specific patent, given their means to commercialize it.

(Cassiman and Ueda, 2006, Arrow, 1983)

When analyzing small firms prerequisites for patenting, small firms’ patents tend to a larger degree result from employee’s non-formal R&D activities. Addi- tionally, it is weakly presumed that small firms have a higher consciousness for costs when carrying out their research activities, in comparison with larger firms.

On the other hand, Scherer (1965) show no necessary impediment inherited in small firms to generate patentable, inventive output, but rather what may seem as an advantage. Large firms are in fact found to generate, in proportion to smaller firms, less patents, due to a higher fraction of inventive output that are not patented. This is in part explained by smaller marginal benefits of patents for large firms compared with small firms, and a larger share of inventions that do not fulfill the requirements to be patentable. (Scherer, 1965) However, in comparison to historical business environments there is now considered to be less importance of economies of scale, since assets are increasingly becoming more knowledge-based and intangible. Thus, start-ups and small firms who have less of an advantage in achieving increasing returns to scale can poten- tially benefit from the existing competitive environment. (Chesbrough, 2006)

However, as indicated by the actual usage of patents, especially within large firms, the majority of the technologies the firm has developed is neither used within or outside the company. This can partly be explained by, in many in- stances, research units being poorly connected with the business units and a low strategic alignment between what is developed and what is used. Hence, an extension of patent usage over firm boundaries, interacting within the market for ideas to enable an external usage of patent rights, can help solve the low utilization of patents (Chesbrough, 2006).

(29)

2.4 Economics of Intellectual Property Transfer

As described by the PRV, applicants who have no interest, or lacks the ability, to exploit their invention themselves have the possibility to sell, or give away, the patent application or patent. The original owner thus forsakes all rights to the invention, in return for the money from the sale, and the advantage of transmitting the requirements of manufacturing, marketing etc to the new owner.

For patents that are registered in several patent authorities, it is possible to sell patent rights in certain countries while keeping one’s rights in other countries. Registering the change of owner in the PRV register requires a small fee.9

The transactions of patents has a legal basis and include both sales, transfers, reassignments or acquisitions, where the rights to the patent is transferred from the original patentee to the new owner, or assignee. Patent transactions thus constitutes the building blocks for the market for ideas, or the market for patents (Monk, 2009).

2.4.1 The Market for Intellectual Property

"The desire to trade patents is a result of new competitive challenges that have necessitated new IP strategies, which in turn require new economic geographies to support and facilitate them. The patent market appears to be one of these

new economic geographies." (Monk, 2009, p. 11)

Given the increased importance of the knowledge economy, the economic landscape is certainly undergoing changes. One of these changes is the rise of a market for intellectual property. Where the market for patent, in particular, is driven by firms’ strategies regarding IP (Monk, 2009). As summarized by Serrano (2005), there has been several strands of literature within the area of markets for intellectual property. Where (1) some literature aims to provide studies of whether such a market exists or, (2) other literature aims to analyze the possible gains from technology diffusion and specialization and, (3) other studies analyzing the market’s limitations. However, followed by Serrano (2005), a fourth strand of literature has emerged, aiming to characterize the participants of the markets for intellectual property. By analysis of the sellers, buyers and originators of innovation. One important area of focus when identifying traders of patents is the effect of firm size, previously reviewed in section 2.3.2; where small firms are hypothesized to specialize in knowledge creation and large firms

9Please see PRV website for further description of the process of assignments and changes of an applicant or owner; www.prv.se/en/patents/manage-your-patent-interests/

use-your-patent-protection/assignment/

(30)

to a greater extent specialize in acquisition of technology. Another important area of focus is to study the gains from patent trade and the effect of the legal system and appropriability regime posed upon the intellectual property transfers.

The market for ideas is thus to be seen as virtual market places built upon three dimensions; (1) knowledge owners (individuals or organizations), (2) sell- ing their ideas, to (3) knowledge seekers (firms searching for specific innovative solutions) (Natalicchio et al., 2014). The characteristics of ideas10 are hypothe- sized to make an efficient market for ideas difficult, since the required access or ownership of complementary innovations makes the market transactions chal- lenging to coordinate such that the buyers and sellers have the possibility to fairly evaluate their available options. In addition, fully safe markets may be limited, since the relative ease to reproduce ideas make sales of innovations vulnerable for expropriation. (Gans and Stern, 2010)

However, recent findings from Serrano and Ziedonis (2018), studying the ease of patent assets in being redeployed after a failed innovation attempt, i.e.

by documenting failed start-ups in the US, indicate that the patent market in fact is ’surprisingly active’, in terms of the possibility to resale patents that have belonged to entrepreneurial firms that has gone out of business. Thus, the findings that patents within failed start-ups can be sold to other could work as a stimulation of investment in early innovation projects, since the assets, even in case of the inventing firm going out of business, could still be used, but by other firms. Nevertheless, Serrano and Ziedonis (2018) still conclude that the market for patents, in line with common view, are subject to frictions and lack of transparency, and moreover, that the market for buying and selling patents need to be studied further.

Aiming to characterize the driving factors behind the emerging market for patents, Monk (2009) highlights the importance of (1) geography , (2) changing firm behavior, including firms’ increasing importance of IP strategies, and (3) patent intermediates who facilitates firms’ participation in the patent market by mediating coordination problems. The drivers of economic actors serving as patent intermediates (e.g. patent brokers, patent exchanges, patent investment funds etc), acknowledge the contribution of the innovation infrastructure, and facilitate the growth of the market for patents. The geographical distribution of where the transactions take place indicates where the demand and supply for trade of patent rights are most prominent. As reviewed by Monk (2009), this market is most developed in the US, where most intermediaries are located

10Following Gans and Stern (2010) ideas are inherently complex in three ways; (1) the need to combine ideas with other ideas to make its usage valuable, (2) user reproducibility in terms of a decrease in the value of an idea when others have access to the same idea, and (3) low replication costs and thus a risk that potential buyers replicate and spread the innovation.

(31)

(e.g. in the innovation cluster Silicon Valley), and the legal environment and regulations in the US are highly favourable for the patent market. Moreover, high tech firms are explained as being the main buyers and sellers, and thus rendering the high tech industry as the driving force behind the patent market.

Theory suggest that stronger patent protection, which creates an environment where patents are more clearly defined for the buyer, are harder to invent around and reduces transaction costs, is an institutional environment that would induce technology licensing (Gambardella et al., 2007).

A well-functioning market for ideas implies that the conclusion of Teece (1986) regarding the importance for firms’ to have access to co-specialized com- plementary assets in order to capture the value from their innovations, less important. In fact, innovative firms could specialize in generating innovative output, and even without the manufacturing capabilities, could extract value form the IP by participating in the market for patent transfers. Additionally, another implication by a developed market for patents concerns the potential to limit the cases of under-used patents. Thus, facilitating the allocation of patents to firms with ability and interest to use the technology effectively. (Monk, 2009) However, one risk concerns the acquisition of patents with the aim to de- velop a defensive patent shield, where large high tech firms are expected to grow larger patent portfolios, potentially on behalf of small, young firms that either lack patents at all or lack large patent portfolios, and who may become more vulnerable due to increased barriers to entry. Another risk with transfers of patents include the risk of patents being acquired by ’patent trolls’, referring to non practicing entities (NPEs), who have no interest in the underlying knowl- edge, but wishes to take the patent out of the market in order to be able to exclude other from using the technology. (Fischer and Henkel, 2012)

2.4.2 Adam Smith’s Division of Innovative Labour

According to old schools of economic theory, Adam Smith and Joseph Schum- peter draw conclusions about market economy relevant for the study of the market for ideas;

Adam Smith’s theory of division of innovative labor realizes that the market for ideas enables firms and economies to specialize in research and development (Monk, 2009). The theory suggests that if a market for technology encourages trade that increases the efficient allocation of technology, then the economy would be able to increase output, as a result of an outward shift in the produc- tion possibility frontier (Andersson, 2014). An environment where more input is dedicated to innovative labor will encourage the creation of innovative output and patent applications. In Schumpeter’s view, innovation is created in the sec-

References

Related documents

I regleringsbrevet för 2014 uppdrog Regeringen åt Tillväxtanalys att ”föreslå mätmetoder och indikatorer som kan användas vid utvärdering av de samhällsekonomiska effekterna av

Parallellmarknader innebär dock inte en drivkraft för en grön omställning Ökad andel direktförsäljning räddar många lokala producenter och kan tyckas utgöra en drivkraft

Närmare 90 procent av de statliga medlen (intäkter och utgifter) för näringslivets klimatomställning går till generella styrmedel, det vill säga styrmedel som påverkar

• Utbildningsnivåerna i Sveriges FA-regioner varierar kraftigt. I Stockholm har 46 procent av de sysselsatta eftergymnasial utbildning, medan samma andel i Dorotea endast

Den förbättrade tillgängligheten berör framför allt boende i områden med en mycket hög eller hög tillgänglighet till tätorter, men även antalet personer med längre än

På många små orter i gles- och landsbygder, där varken några nya apotek eller försälj- ningsställen för receptfria läkemedel har tillkommit, är nätet av

Figur 11 återger komponenternas medelvärden för de fem senaste åren, och vi ser att Sveriges bidrag från TFP är lägre än både Tysklands och Schweiz men högre än i de

Det har inte varit möjligt att skapa en tydlig överblick över hur FoI-verksamheten på Energimyndigheten bidrar till målet, det vill säga hur målen påverkar resursprioriteringar