The Value of Patented Inventions at the Extensive and Intensive Margin KITeS Conference: New Frontiers in the Economics and Management of Innovation Bocconi University, March 2012 Alfonso Gambardella Joint with Dietmar Harhoff, LMU, Munich Bart Verspagen, Maastricht University, Maastricht

What determines the economic value of inventions?  Value of innovations depends to a good extent on downstream development, production and commercialization (Rosenberg, Teece)  But what about upstream?  Question is important  Markets for technology  Firms want to understand value created by their labs

 We focus on patents  Closer to inventions than fully developed, manufactured, commercialized products  Value of patents interesting per sé  Inventions cannot be examined in isolations  We study the determinants of the value of a portfolio of related inventions  “patents related in technical ways or in value”

Value of patent portfolio V increases because of N or ? Determinants of N vs. ? We focus on Resources invested in producing the invention (man- months) Inventor characteristics (past citations, education)

Definition Extensive margin = %  in V due to 1%  in N given M Intensive margin = %  in V due to 1%  in M given N Intensive mg Extensive mg + complementarity – substitution Econ of scope in knowl.

Plan  Some theory to guide our empirical analysis  Data  Empirical results

Theory (1 of 4)  Research sequence Ideas Signal about potential value of ideas Patent a subset of ideas ( signal > threshold ) (inventions) Commercialize a subset of patented inventions (innovations)

Theory (2 of 4) 123 Expected values Projects H1 H3 H2 1. Screening of expected outcomes Better screening H1 H2 H3 threshold (exp costs) 2 projects 3 projects Poorer ability to screen makes the extensive margin relatively more important than the intensive margin

Theory (3 of 4) 123 Expected values Projects 2. Spread around expected value E(V | above thr.) … like worst screening H1 H2 H3 threshold (if below, you know you won’t comm. patent) 2 projects 3 projects (50%) 4 (50%) 6 (50%) 2 (50%) 4 H1: 8 – 5 = 3 … H2: 0 (because 4 – 5 < 0) H1: (12 – 5)* *0.5 = 3.5 … H2 (6 – 5)* *0.5 = 0.5 … launch H2 as well More precise information about expected value  fewer patents in the portfolio

Theory (4 of 4)  (N  V) relative to (M  V) : screening (extensive vs intensive margin)  Science  N : precision of info (lower N)  Science  M : more ideas (higher N)  Science  V : net effect  Two models (which one dominates?)  scientific (low N, high M)  empiricist (high N, low M)

Patent Portfolio – Data (PatVal-EU)  Population: all EPO patents with priority date  France (FR), Germany (DE), Italy (IT), Netherlands (NL), Spain (ES), UK (GB) – later addition: Danmark (DK) and Hungary (HU)  questionnaire sent to first inventor (if not available: any other inventor)  questions on inventor biography, employer, invention process, invention characteristics  27,000 questionnaires mailed, about 9,000 responses (17.9% UK, 40.2% DE, 13.8% IT, 1.7% ES, 12.9% FR, 13.3% NL)  For details: Giuri, Mariani et al. (2007) “Inventors and invention processes in Europe: Results from the PatVal-EU survey”, Research Policy, 36 (8),

Patent Portfolio – Data (N)  Define portfolio: “group of patents related technically or in value”  Survey question (to the inventor of the focal patent):  “How many patents in this portfolio”?  Menu: 1; 2; 3-5; 6-10; 11-20; > 20

Patent Portfolio – Data (Value)  Survey question:  “Suppose that on the day at which this patent was granted, the applicant had all the information about the value of the patent that is available today. In case a potential competitor of the applicant was interested in buying the patent, what would be the minimum price (in Euro) the applicant should demand?“  We offer a menu of 10 value intervals: 300M€  Ask same question about portfolio  More intervals: 300M-1B; 1-3B; >3B

Patent Portfolio: Inventors vs Managers

GMM results Many controls (including strategic patenting for N), 4638 obs., N, M endogenous

Conclusions  In the invention process the extensive margin is important  Resources  Inventor’s experience (past successes, education)  Can (almost) compensate the lack of science  Importance of N when screening is hard … early entrepreneurship?  You have to leave with unused ideas … or failed start-ups

Thank You!

Robustness check 1

Robustness check 2