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Optimal Patenting and Licensing of Financial Innovations

Author

Listed:
  • Praveen Kumar

    (C. T. Bauer College of Business, University of Houston, Houston, Texas 77204)

  • Stuart M. Turnbull

    (C. T. Bauer College of Business, University of Houston, Houston, Texas 77204)

Abstract

Recent court decisions, starting with the State Street decision in 1998, allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations. This new patentability paradigm and the heterogeneity of characteristics associated with financial innovations pose an immediate decision problem for senior management: what to patent. We present a parsimonious decision framework that answers this question. We show that for innovations with certain characteristics, it is optimal not to patent, even if the option of patenting and licensing is available. Our model emphasizes the role of embedded real options that arise from certain types of financial innovations. The model provides an explanation of observed patenting behavior of financial institutions and the success of a wide class of innovations, including swaps, credit derivatives, and pricing algorithms.

Suggested Citation

  • Praveen Kumar & Stuart M. Turnbull, 2008. "Optimal Patenting and Licensing of Financial Innovations," Management Science, INFORMS, vol. 54(12), pages 2012-2023, December.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:12:p:2012-2023
    DOI: 10.1287/mnsc.1080.0898
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    References listed on IDEAS

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    Cited by:

    1. Bronwyn H. Hall, 2009. "Business And Financial Method Patents, Innovation, And Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(s1), pages 443-473, September.
    2. Peter M. Bican & Dirk Caspary & Carsten C. Guderian, 2023. "Cross-Border Dynamics of IP Modularity: International Patenting in LEDs and Lithium-Ion Secondary Battery Technology," Management International Review, Springer, vol. 63(2), pages 347-376, April.
    3. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
    4. Li, Qing & Zhang, Huaige & Hong, Xianpei, 2020. "Knowledge structure of technology licensing based on co-keywords network: A review and future directions," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 154-165.
    5. Bronwyn H. Hall, 2009. "Business And Financial Method Patents, Innovation, And Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(4), pages 443-473, September.

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