Patent Markets in the Global Knowledge Economy : Theory, Empirics and Public Policy Implications

The development of patent markets should allow for better circulation of knowledge and more efficient allocation of technologies at a global level. However, the beneficial role of patents has recently come under scrutiny by those favouring 'open' innovation, and important questions have been asked, namely: How can we estimate the value of patents? How do we ensure matching between supply and demand for such specific goods? Can these markets be competitive? Can we create a financial market for intellectual property rights? In this edited book, a team of authors addresses these key questions to bring readers up to date with current debates about the role of patents in a global economy. They draw on recent developments in economic analysis but also ground the discussion with the basics of patent and knowledge economics. Striking a balance between institutional analysis, theory and empirical evidence, the book will appeal to a broad readership of academics, students and practitioners Contents 6 Figures 8 Tables 9 Boxes 10 Contributors 11 Introduction 18 1 Markets for patents: actors, workings and recent trends 26 1.1 Introduction 26 1.2 Trading patents: conceptual issues 27 1.2.1 Patent markets encompass a large variety of transactions 27 1.2.2 Social benefits and costs of patent markets 28 1.2.3 Patent markets are hampered by high transaction costs 31 Screening costs 31 Information costs 32 Contracting costs 32 1.3 Quantitative evidence on patent markets 33 1.3.1 Volume of patent markets 33 1.3.2 Origins of traded intellectual property 35 1.3.3 Potential for enhanced patent trading 36 1.4 From casual transactions to organized markets: the growing role of intermediaries 38 1.4.1 Intellectual property brokers and technology transfer offices 39 IP brokers 39 Technology transfer offices 40 1.4.2 Trading platforms 40 Internet platforms 40 Intellectual property auction and intellectual property licence-right trading market 41 Patent pools 41 1.4.3 Patent funds 42 Defensive patent funds 43 Patent trading funds and royalty funds 44 Technology development funds 45 1.5 Conclusion 47 References 48 2 Strategic intelligence on patents 50 2.1 Introduction 50 2.2 Recent analytical and visualization methodologies enable a much deeper exploitation of patent information 52 2.2.1 Mapping by topographic visualization 52 2.2.2 Competitive patent environment: impact on strategic decisions 54 Map of operators within a field 54 Map of a countrys technologies 55 Analysis of competitors RandD strategies 56 Selecting the most suitable partner 56 2.2.3 Impact on the companies and public research organizations 59 2.3 How is the quality of a patent portfolio analysed? 60 2.3.1 The traditional method 61 2.3.2 The statistical methods 63 Generality and Originality Indices 64 The acceleration coefficient 65 Company-specific patent signature 65 Cross-citations 66 2.3.3 Automated tools 67 2.3.3 Impact of the patent rating potential on companies 68 2.3 Conclusion 70 References 71 3 Microeconomic foundations of patent markets: the role of intermediaries, auctions and centralized markets 72 3.1 Introduction 72 3.2 Properties of the various exchange mechanisms 74 3.2.1 Markets and hybrid forms 74 3.2.2 Auctions and intermediation 76 Auction mechanisms 76 Intermediation mechanisms 77 3.2.3 The choice of optimal coordination 78 3.3 Characteristics of patents 81 3.3.1 Uncertainty on the intrinsic value of patents 82 3.3.2 Uncertainty on agents and transactional environment 83 3.4 What are the lessons for patent markets ? 86 3.4.1 Limits of price signal and auctions 86 3.4.2 Securing transaction with intermediation mechanisms 87 3.5 Conclusion 88 References 88 4 Structuring the market for intellectual property rights: lessons from financial markets 92 4.1 Introduction 92 4.2 Model of the IPR market 93 4.2.1 IPR asset market 95 4.2.2 IPR financial market 96 4.3 Structuring the IPR market 96 4.3.1 Liquidity 97 4.3.2 Transaction costs 99 4.3.3 Homogeneity 100 4.3.4 Simplicity 100 4.3.5 Predictability of cash flows 101 4.4 The challenges 101 4.4.1 Access 102 4.4.2 Taxation and location 102 4.4.3 IPR quality and measurement 102 4.5 Financial products related to IPR markets 103 4.5.1 Private vehicles 103 4.5.2 Public-private vehicles 105 4.5.3 Commoditisation vehicle 105 4.6 Lessons learned 107 References 109 5 Valuation and rating methods for patents and patent portfolios 112 5.1 Stated value approaches 114 5.1.1 General background 114 5.1.2 What do stated values encompass? 116 5.1.3 Econometric model 118 5.1.4 Empirical results and perspectives 120 5.2 Indirect market value approaches 123 5.2.1 General background 123 5.2.2 Econometric model 125 5.2.3 Results and perspectives 128 5.3 Revealed value approaches 130 5.3.1 General background 130 5.3.2 Econometric modelling of renewal decisions 133 5.3.3 Results and perspectives 136 5.4 Synthesis 138 References 139 6 Dysfunctions of the patent system and their effects on competition 142 6.1 Introduction 142 6.2 Patent quality and competition in the product markets 147 6.2.1 Two views the reasons for the issuance of bad-quality patents 148 (i) Burden of proof 149 (ii) Incentives 149 (iii) Continuation and divisional patents 150 6.2.2 Choice of protection regime: big secrets and `little patents ́ 152 6.2.3 Private settlements 155 Reverse payments in the pharmaceutical industry 156 Licensing a weak patent under the shadow of patent litigation 157 6.3 Sequential innovations, hold-up and competition in technological markets 159 6.3.1 Injunctions, hold-up and excessive royalties: Shapiros model 160 6.3.2 Criticisms of Shapiros model 161 6.3.3 Role of divisional and continuation patents 163 6.4 Patent pools, standards and competition in innovation markets 164 6.4.1 Competition bias due to the `patent thicket ́ problem 165 6.4.2 Patent pools 166 Arguments in favour of and against patent pools 167 Complementary vs. substitute patents 168 Collective licences and/or individual licences 170 Essential patents and technology standards 171 6.5 Conclusion 178 (1) Many patents of dubious validity are approved by patent offices 179 (2) The usage of patents in sequential innovations enables the hold-up behaviour that affects competition on technological markets 179 (3) The simultaneous usage of many patented inputs in complex technologies imposes limits to the competition for innovation 180 References 183 7 Valorization of public research results and patents: elements of international comparison 189 7.1 Introduction 189 7.2 The necessity to go beyond a too narrow approach of valorization 191 7.2.1 A narrow approach, based on a conception of innovation as a linear process 191 7.2.2 A broader approach encompassing also the newer dimensions of `open innovation ́ 192 7.3 The difficulty of comparing and interpreting the available performance indicators at the micro level 193 7.3.1 Indicators of commercial potential (invention disclosures and patent numbers) 195 7.3.2 Indicators of actual use (spin-offs, licensing activity) and collaborative RandD (contract agreements) 197 7.3.3 Licensing revenue as an appropriate synthetic indicator of valorization performance? 198 7.3.4 Is the ratio of licensing revenue to research expenditure a more accurate productivity measure? 200 7.4 Performance gaps are largely explained by structural and institutional factors 204 7.4.1 Differences persist between institutional contexts, in spite of recent reforms 204 7.4.2 Different missions and organisational structures for the corresponding TTOs 206 7.4.3 A large variety of practices in terms of licensing and spin-offs 208 7.5 Common challenges beyond the difficulty of comparing and assessing performance 210 7.5.1 Which factors are critical for the success of TTOs? 210 7.5.2 The need to clarify the ultimate goals of valorization 214 7.5.3 The need to acknowledge and limit possible negative impacts 218 7.6 Conclusion 220 References 222 8 Openness, open innovation à la Chesbrough and intellectual property rights 226 8.1 Introduction 226 8.2 What does `openness ́ bring to innovation? 228 8.2.1 Different types of openness in innovation studies 228 8.2.2 Open science 230 8.2.3 Open source 232 8.3 Open innovation à la Chesbrough and intellectual property rights 234 8.3.1 A changing paradigm 234 8.3.2 Intellectual property management 235 8.3.3 Role of intellectual property rights in open innovation à la Chesbrough 237 8.4 Institutional challenges 239 8.4.1 Do any institutional challenges exist? 239 8.4.2 Development of the intellectual property market 241 8.4.3 Patent trolls: modality of injunctive relief 242 8.4.4 Universities as partners 244 8.5 Conclusion 246 References 247 Conclusion 252 Question 1 252 Question 2 254 Question 3 255 Question 4 257 References 258 Index 260 Colour plates 264 Long regarded as an essential underpinning of technological innovation in successful capitalist economies, the beneficial role of patents has recently been brought into question by those favouring 'open' innovation. This rigorous book surveys the theory, empirical evidence and public-policy related to the role of patents in a global knowledge economy.