Economic and Social Value of Patents in the EU

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1 Economic and Social Value of Patents in the EU Alfonso Gambardella, Università Bocconi, Milan Paola Giuri, Sant Anna School of Advanced Studies, Pisa Myriam Mariani, Università Bocconi, Milan

2 Outline Preliminary results of a 2 year study based on large scale survey of inventors listed in patents (PatVal-EU, see Giuri, Mariani et al. 2006, CEPR Working Paper #5752) Topics: Monetary value of patents Share of use Patent licensing Creation of new firms (Patents & R&D) (Interindustry differences) Policy conclusions Details in our Final Report

3 Monetary Value of Patents Value of Patents = Value of an Asset Scherer & Harhoff (2000) and PatVal-EU: How much would you be willing to sell the patent for at the moment of grant? Value of Patents is not Value of Patented Invention

4 Patent Values Very Skewed Distribution of Patent Values for 772 German Patent Applications filed in 1977, from Scherer and Harhoff (2000) In Scherer and Harhoff (2000) 54% of the total value of the 772 German patents comes from 5 patents worth more than 50 million DM

5 Similarly in PatVal-EU Average and median patent value by country (PatVal-EU Survey , Patent application years ) HU UK ES DE EU8 DK IT FR NL Median Average Patent value (thousands Euros) High average determined by few very valuable patents

6 Share of GDP and growth Value of patents / GDP by country Germany Netherlands EU8 Denmark France United Kingdom Italy Hungary Spain 0.36% 0.25% 0.18% 0.43% 0.55% 0.63% 0.73% 0.87% 0.81% 0.99% 1.16% 0.96% 1.03% 1.01% 0.99% 1.40% 1.44% 2.10% % 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% Value of patents has increased faster than GDP in practically all countries

7 Patents are valuable, yet quite a few not used Share of unused patents by country (PatVal-EU Survey , Patent application years ) HU NL DE UK IT EU8 ES DK FR 21.6% 27.4% 51.0% 22.4% 16.5% 61.2% 14.1% 24.6% 61.3% 23.0% 15.1% 61.9% 22.3% 13.4% 64.3% 16.9% 17.1% 66.0% 19.4% 12.1% 68.5% 17.5% 11.0% 71.4% 12.6% 12.4% 75.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % Unused Blocking patents % Unused Sleeping patents % Used patents

8 SMEs = higher utilization rates Share of unused patents by firm size 100% 90% 80% 70% 19.3% 21.8% 12.7% 12.1% 11.0% 8.8% Unused Sleeping patents Unused Blocking patents 60% Used Patents 50% 40% 30% 58.9% 75.2% 80.2% 20% 10% 0% Large firms Medium firms Small firms (>250 empl.) ( empl.) (<100 empl.)

9 Policy question How to increase the rate of use of patents? Patent Licensing and Markets for Technology More effective than other means (e.g. differentiating patenting costs by firm size)

10 Advantages of Patent Markets Technology producers may not be the best users However, markets for technology have transaction costs (Razgaitis, 2004)

11 Potential of Markets for Patents is High Share of licensed patents by country (PatVal-EU Survey , Patent application years ) HU UK DK NL ES EU8 FR DE IT 20.1% 27.8% 52.1% 18.4% 18.5% 63.1% 18.2% 11.1% 70.7% 15.8% 12.8% 71.5% 16.2% 7.7% 76.0% 14.2% 9.3% 76.5% 14.0% 8.7% 77.3% 12.2% 5.5% 82.3% 11.7% 5.2% 83.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Licensed Willing to license but not licensed Not willing to license Willingness to license with no license suggests that the market can be larger These patents are not less valuable than the licensed ones, which suggests that transaction costs limit technology trade Germany vs UK model

12 Policy for New Member States? Hungary = high share of licensed and willing-tolicense patents (also of unused patents) Resources for developing ideas can be quite more costly NMS can become active suppliers in technology markets in areas in which they are specialized With no such markets they may not engage in innovation in the first place Examples: Israel, Ireland, India

13 Share of licensed patents by type of organisation 100% 90% 80% 70% 60% 84.4% 83.6% 61.2% 51.8% 50% 40% 30% 20% 10% 0% 7.1% 8.6% 7.2% 9.2% 12.9% 25.9% 13.8% 34.4% Large Firms Medium Firms Small Firms PublicRes&Universities (>250 empl.) ( empl.) (<100 empl.) Not willing to license Willing to license but not licensed Licensed Small firms most active in licensing. Market for Technology policies hinge on them as technology suppliers

14 Value of the Actual and Potential European Market for Patents Value of Market for Patents annual average, thousands Euros DE 4,011,921 5,648,377 6,888,072 DK 235, , ,658 ES 161, , ,455 FR 1,794,026 2,270,936 2,619,226 HU 26,225 30,768 50,388 IT 724, ,290 1,171,929 NL 577, ,525 1,178,859 UK 1,898,447 2,398,219 2,887,333 EU8 9,429,348 12,753,377 15,583,921 Value of Potential Market for Patents annual average, thousands Euros DE 5,674,704 7,974,081 9,754,762 DK 355, , ,091 ES 239, , ,670 FR 2,800,123 3,542,511 4,098,987 HU 62,571 77, ,307 IT 1,031,054 1,369,557 1,668,952 NL 995,162 1,479,591 2,038,278 UK 3,620,035 4,561,443 5,491,941 EU8 14,779,041 19,886,269 24,375,989 Potential Market includes willing but not licensed. Market could be 50% larger.

15 Licensing of Large Firm Technologies We also find that while large firm license a lower % in absolute terms they have many patents that can be licensed (see also Rivette & Kline, HBR, 2000) But they seem to resist licensing even when their technologies are of no interest internally others hesitate buying from large firms How to enhance licensing by large firms in the interest of both buyers and sellers?

16 Share of Patents Leading to the Creation of New Firms Share of new firms by country (PatVal-EU Survey , Patent Application Years ) HU 13.07% ES UK DK 10.43% 9.84% 10.67% IT 7.43% EU8 NL 4.80% 4.79% DE 3.34% FR 1.19% 0% 2% 4% 6% 8% 10% 12% 14% Hungary again

17 Share of new firms by type of organisation 25% 20% 15% 14.79% 20.69% 24.23% 10% 7.09% 5% 2.10% 4.16% 0% Large Firm Medium Firm Small Firm Public Org Universities Individual (>250 empl.) ( empl.) (<100 empl.) Individuals and small firms spawn more new firms, but in absolute terms contribution by large firms is substantial

18 Other findings In Germany in the 1990s increase in Patents/R&D is driven mostly by genuine increases in innovation productivity rather than strategic patenting Chemical-based industries have higher average patent values, but ICT and Electronics have sizable aggregate values

19 Some concluding remarks for policy Many policy issues about patents, here we focus on a few ones Patents are valuable but rate of their use for economic purposes can be improved Markets for technology (patent licensing) seem to be an important way to go Many willing to be licensed patents in Europe, they could increase the size of the market for patents by almost 50%

20 Policy Reduce transaction costs in markets for technologies/patents More information on technologies, their costs, prices Start collecting official data systematically, like for physical goods this helps forming markets by allowing agents to make more informed actions and choices Standard technology contracts. Guidelines on how they should be written Formation of institutions for supporting these markets

21 Policy Since large firms are important reservoirs of unused technologies, how to enhance licensing by large firms? New company culture? Licensing consortia (yet2.com)? MFT can encourage more advanced NMS (e.g. Hungary, Czech Republic) to invest in specialized areas in which they are competent Policies for technology-based SMEs important in this respect as well. They use & license more patents, spawn more firms All this also leads to a better use of patents as a means for technology diffusion