Research and analysis

Patent incentives

Returns to patenting and the inducement for research & development.

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Patent incentives: returns to patenting and the inducement for research & development

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Patent incentives: returns to patenting and the inducement for research & development (executive summary)

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The UK has one of the oldest intellectual property rights (IPR) regimes in the world and yet policy makers and Intellectual Property Office (IPO) officials would be hard pressed to say what exactly the private returns to patenting are for firms operating in the UK. As more and more countries around the world embrace stronger IPR regimes, precise estimates of the returns to patenting and comparison of these benefits with the costs incurred in the enforcement of patents are likely to become important as an evidence base for policy evaluation.

In this report, we argue that patenting allows firms a price premium in new product revenue thus increasing profitability. At the same time this increased profitability acts as an inducement to research and development (R&D) expenditures made by the firm. Thus, we contribute to two literature streams viz. the literature on the value of patents and the literature on the effect of patents on R&D expenditures.

To make the assessment empirically requires estimates of:

  • the value of new product / service revenue firms achieve and their R&D expenditure (from the innovation survey)
  • the effectiveness of patents in exploiting each firms technology in its market (self assessed within the innovation survey)
  • the ‘propensity to patent’ a term used to capture the proportion of innovations which firms choose to patent. Data on this are currently unavailable for the UK and we were forced to rely on imputation from the US CMU surveys to establish a range for the patent propensity. Thus, we could make only broad predictions (within a range) on the extent of premium and the inducement for R&D

Authors: Ashish Arora, Duke University (USA), Suma Athreye, Brunel University (UK).

Published 15 November 2012