TII Innovation Journal

The Market for Patents

The Market for Patents: "

How large is the market for the sale of patents? A robust market could be an important way for inventors to realize value from their patents. But while there is strong evidence of a large trade in patents during the 19th century, evidence about the modern trade in patents is more limited. Carlos Serrano uses a new data source to obtain estimates of the market for patents in the US.

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The Market for Intellectual Property: Evidence from the Transfer of Patents

By Carlos J. Serrano (University of Toronto)
Full Text

Summary by James Bessen

How important is the market for the sale of patents? Economic historians have shown that during the late 19th century there was a large and robust trade in patents [Khan 2005, Lamoreaux and Sokoloff 1997, 1999]. Scholars have also shown that trade in patent licenses, if not actual transfer of patents, has been important in some modern case studies [Arora et al. 2002]. But there has been little solid evidence about the extent of the modern trade in patents.

This paper by Carlos Serrano uses a new data source to obtain basic empirical facts about that market in the US and it develops an innovative model to estimate the value of that trade.

Data

Patents are not necessarily owned by the inventor, but are typically assigned to an individual or organization when the patent issues. Patents may then be re-assigned to a different owner during the life of the patent. The US Patent and Trademark Office (USPTO) maintains a registry of such re-assignments, which the author obtained for years 1981 through 2002. Some of these re-assignments are made when corporate names change or for other reasons not related to trade. Serrano excludes these, leaving just over a half-million records of patent re-assignments. Re-assignment data do not, of course, capture patent licensing activity nor trade and licensing in technology that does not include patents.

In order to limit his study to ‘small innovators,’ Serrano includes in his data set only patent assignees who obtained 5 or fewer patents per year, studying a total of 453,683 patents for their trading activity. Serrano also studied which of these patents expired for failure to pay renewal fees, which are required to be paid under US law  six months before the end of the fourth, eighth and twelfth years in order to keep the patent in force.  Using this data, as well as the transfer data, Serrano estimated the patents’ value.

As Serrano notes in his article, not all of these patent re-assignments represent trade in individual patents. Many transfers occur when companies are merged or acquired. The author hopes that by limiting the study to small innovators, more of the activity will represent trade in individual patents. This may mean that estimates of the magnitude of trade are overstated. On the other hand, some patent trades may not be reported to the USPTO, understating the size of trade. Despite these problems, the estimates provide an initial benchmark and the author’s estimates of the value of trade may be robust to these considerations.

Stylized Facts about the Trade in US Patents

Serrano finds that the proportion of patents traded each year starts at about 2.5% and generally drops over time. The exception occurs right after a patent is renewed, when the percentage traded temporarily increases.

Serrano suggests that valuable patents are the most likely to be traded because only these patents have gains from trade that are large enough to offset transaction costs. In general, the value of patents decreases over time with obsolescence, so it is logical that the proportion traded decreases over time. On the other hand, only the more valuable patents are renewed; patents of lesser value do not justify their maintenance fees. This means that the average value of patents in force will increase right after a renewal fee is paid, leading to a temporarily higher rate of trade.

Patents that are cited more frequently by subsequent patents are more likely to be renewed and are also more likely to be traded. This provides some additional support for Serrano’s idea that these are more valuable patents.

Among patents of the same age, those that have been previously traded are more likely to be re-traded and less likely to expire. Again, this supports the idea that these are more valuable patents.

Estimates of Value

Making assumptions about the distribution of patent values, their change over time and the costs of trade, Serrano builds a mathematical model that describes patent owners’ decisions to trade and to renew patents. Then, using his data on transfer and renewal rates, he is able to fit the parameters of the model.

Using these fitted parameters, Serrano makes preliminary estimates of patent value. He estimates that the median value of a freshly-issued patent in his data set is about $21,000 and the mean value is $58,000 (in 2003 dollars). As other researchers have found, the distribution of patent values is highly skewed; there are a few highly valuable patents and numerous low-value ones. Serrano’s mean and median estimates are significantly higher than most of the estimates by researchers who have used European patent renewal data. This is not surprising since the size of the US market is much larger than the markets in individual European countries.

Serrano also estimates the gains from trade. Under some additional assumptions, he finds that about 14% of a patent’s initial value can be attributed to gains from trade. In other words, if there were no trade, patents would be a bit less valuable. Thus, the alienability of patents is a factor in their value even among small innovators, albeit a small part of the total private value realized through patents.

References

Arora, Ashish, Andrea Fosfuri and Alfonso Gambardella (2002), ‘Markets for Technology: The Economics of Innovation and Corporate Strategy.’ Cambridge, Massachusetts: The MIT Press.

Khan, B. Zorina (2005). The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920, Cambridge University Press.

Lamoreaux, N. and Sokoloff, K. (1997). ‘Inventors, Firms, and the Market for
Technology: U.S. Manufacturing in the Late Nineteenth and Early Twentieth
Centuries.’ NBER Working Paper H0098.

Lamoreaux, N. and Sokoloff, K. (1999). ‘Inventive Activity and the Market for
Technology in the United States, 1840-1920.’ NBER Working Paper 7107.

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(Via Technological Innovation and Intellectual Property.)

New Model for Tech Transfer

New Model for Tech Transfer: "Inside Higher Ed: Every university longs to have the next mega-deal on patent rights or royalties for a product or service based on an idea hatched in academe. Stanford University earned $336 million this year on the sale of Google stock it held because it allowed the company’s founders to use..."

(Via Blogdigger Search: technology transfer.)

Yearender: China to strengthen IPR protection to encourage

Yearender: China to strengthen IPR protection to encourage innovation: "The Chinese government has shown strong determination to enforce the protection of intellectual property rights (IPRs) in the next few years, as IPR protection has been repeatedly underscored by top leaders this year."

(Via People's Daily Online.)

Research In Motion Vows to Fight NTP on Patents

Research In Motion Vows to Fight NTP on Patents: " Suggesting the patents at the heart of an adverse court ruling that could force it to shut down or alter its BlackBerry e-mail service are without merit, Research In Motion said it would continue to battle NTP in the courts and at the U.S. Patent and Trademark Office. The defiant tone sounded by RIM Chairman and Co-CEO Jim Balsillie suggests RIM may be less inclined than some analysts believe to settle its longstanding feud with NTP, which won a patent infringement case against RIM."

(Via TechNewsWorld.)

Open Collaboration to Accelerate Innovation

Open Collaboration to Accelerate Innovation: "

Twelve leaders from four IT companies, seven American universities and the Kauffman Foundation have adopted a set of guiding principles to address how to approach open collaborative research between universities and the IT industry. The expectation is that the principles will promote and accelerate innovation, shortening the time it takes to move from concept to development.

According to their press release, the companies and universities agreed:

• That intellectual property arising from selected research collaborations will be made available free of charge for commercial and academic use.
• To an established set of guidelines that address the rights of the participants and the public.

These twelve enterprises believe the principles will accelerate innovation and contribute to open software research across a breadth of initiatives, thus enabling the development of related industry standards and greater interoperability, while managing intellectual property in a more balanced manner.

Open source software and open standards jointly developed by universities, government and industry can create a powerful platform for collaborative innovation,

said Dr. John E. Kelly III, senior vice president of Technology & Intellectual Property for IBM.

These principles are based on a balanced approach to IP management and should stimulate additional joint industry and university research projects.

In August, IBM and the Kauffman Foundation, a private foundation that focuses on advancing innovation and entrepreneurship, cosponsored a University and Industry Innovation Summit at the Georgetown University Law Center in Washington, DC. To accelerate collaborative innovation, current intellectual property barriers were evaluated and plans were drafted to support a variety of research relationships. Recognizing the existence of a complex continuum of possible research partnerships, the Summit team agreed to address open collaboration models, in particular instances where researchers will create and disseminate software knowledge freely to the public.

Pervasive acceptance of the open collaboration principles by other universities and the IT industry, as well as the development of guiding principles for other research agreements remains at the core of the Summit team’s continuing agenda. The goal is to shorten the time from the first spark, or idea, to the commencement of research on that idea.

Summit participants developing and adopting these principles include the Kauffman Foundation, Carnegie Mellon University (Penn.), Georgia Institute of Technology, Rensselaer Polytechnic Institute (N.Y.), Stanford University (Calif.), University of California at Berkeley, University of Illinois - Urbana-Champaign, The University of Texas at Austin, Cisco, HP, IBM and Intel. Additional collaborators include the National Science Foundation, the Office of U.S. Senator Joseph Lieberman and the National Academies’ Government University Industry Research Roundtable (GUIRR).

Sources

   
• IBM, Kauffman Foundation press releases
   
• Open Collaboration Principles, PDF file

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(Via URENIO Portal: Innovation, Environments of Innovation, Intelligent Cities and Regions.)

Who Patents & Why

Who Patents & Why: " Why Patent? And yet, most firms continue to patent. In the Carnegie Mellon survey, respondents were asked to rank the effectiveness of the different methods for maintaining overall competitive advantage. Both the question and the responses reveal that there are multiple reasons for patenting. Firms patent their innovations to prevent copying, to block competitors from patenting, to collect license revenue, to strengthen their position in negotiations, to prevent infringement suits unrelated to the patent in question, as measure of technological performance, and to enhance their reputation. Patent blocking and copy prevention were the most popular reasons; license revenue was one of the least popular. The firms that patent the most, most often do it to prevent infringement suits and to use the patents in negotiations. Moreover, the authors show that these diverse reasons to patent differ systematically across industries." "

READ MORE (Via Technological Innovation and Intellectual Property.)

AlphaSummitEurope - background

AlphaSummitEurope - background: " the leading place for technopreneurs The Alpha Consortium is a pan-European group of organizations fostering technology entrepreneurship. Among others, the Alpha Consortium comprises the Cambridge Network (UK), Munich Network and The Entrepreneurial Group as founding members. Its goal is to establish a clear 5 year strategy to stimulate economic growth in the European Technopreneurial Community. Innovation through technopreneurship in Europe is currently at a crossroads. There exists tremendous potential here for technological innovation and there is no shortage of entrepreneurial opportunities. However, the initiatives to address this from the highest levels of industry and g"

(Via .)

IBM and Open Innovation

IBM BRINGS UNIVERSITIES INTO ITS BIG, BIG TENT: I...: "

IBM BRINGS UNIVERSITIES INTO ITS BIG, BIG TENT: In what seems to be a never-ending quest by IBM to trade patent enforcement for market penetration (and possibly even more patents), an announcement was made today that IBM and several other companies were teaming with universities to establish collaborative software projects for commercialization.

See IBM's online patent commons participation here.

See IBM's creation of 'Ventures in Collaboration' for startups here.

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(Via Peter Zura's Two-Seventy-One Patent Blog.)

Patent Reform

Patent Reform: "

Of course, Patent reform will continue in 2006.  In a recent four-page magazine style article, Professors Lemley (Stanford), Lichtman (Chicago), and Sampat (Columbia) present their proposal for patent reform.  The professors argue that we should not waste money worrying about the patent office doing poor examinations on unimportant patents.  Rather, they argue, we should focus on the inventions that are economically important.  Their proposals allow market participants to identify the important issues:

• For standard examination, courts should have weakened or no presumption of validity;
• Applicant can pay for ‘gold plated’ examination which would then be given presumption of validity; and
• Allow post-grant opposition for newly issued patents — opposer would fund a new examination.

Read the proposal here: What To Do About Bad Patents?

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(Via Patently-O: Patent Law Blog.)

RIM Appeals to the Supreme Court

RIM Appeals to the Supreme Court : "

Research-In-Motion v. NTP (Supreme Court). [Updated 12/19/05]

The BlackBerry patent battle continues.  In a well written petition, RIM has requested that the Supreme Court hear its appeal from the Federal Circuit’s decision that that was decided in NTP’s favor in August, 2005.

The appeal involves the question of territoriality of the patent laws.  Specifically, RIM poses the following question to the Court:

Under § 271(a) of the Patent Act, 'use' infringement is expressly limited to use of a patented invention 'within the United States.' The question presented is: Whether an Internet-based global telecommunications system, such as the BlackBerry wireless email system, is used 'within the United States,' where components crucial to the system’s operation are located outside the United States.

RIM, a Canadian company, maintains its routers in Canada and has argued that because a portion of its allegedly infringing system was outside of the US that it could not infringe a US patent.  NTP argued the other side — that the mere fact that some servers were located abroad (while many others were within the US) cannot let RIM escape judgment.  For its part, the Court of Appeals for the Federal Circuit split-the-baby and differentiated between system claims and method claims. 

• For infringement of method claims, each and every step must be performed in the US.


• For infringement of system claims, the US must be the place where control of the system is exercised adn beneficial use of the system obtained..

In the past two years, the Court has turned down at least two cases involving extraterritorial application of the patent laws.*  Perhaps setting the stage for certiorari here. (odds are still low).

More Info:

• Download RIM's Petition for Cert (PDF).


• According to news reports, all five of NTP’s patents have received office action rejections at least once in the reexamination proceedings, and three of them have received two non-final rejections. [Link]


• Crouch, BlackBerry Settlement Found Unenforceable, Patently-O: Patent Law Blog (November 30, 2005).


• Crouch & Kafadar, Pushing The Boundaries, 176 Patent World 10 (October 2005) [Link]


• * Pellegrini v. Analog Devices and Microsoft v. Eolas.

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(Via Patently-O: Patent Law Blog.)