Commercialize or sleep? Capturing value from patenting

We develop a sequential model to examine patent litigation, acquisition, and commercialization decisions in innovative industries. The model focuses on potential intellectual property disputes among two patent-holding firms with overlapping technologies and a non-patent-owning producer. We highlight the role of the belief gap, defined as the difference between the patent owner’s and other market participants’ assessments of a sleeping patent’s win rate in potential litigation, in shaping these strategic decisions. Alongside the belief gap, two other factors are also important: the relative strength of the commercialized patent compared with the sleeping patent, and the degree of technological overlap between them. These factors jointly determine whether firms commercialize, retain, or sell a patent, as well as the identity of the acquirer. Our analysis shows that (1) low belief gaps facilitate settlement, whereas high gaps trigger litigation for uncommercialized sleeping patents; (2) higher relative win rate of the commercialized patent promotes post-acquisition settlement; (3) high belief gaps combined with low technological overlap induce patent holders to acquire sleeping patents; and (4) high technological overlap reduces patent commercialization. This framework advances the understanding of patent deployment strategies under market dynamics and offers policy insights for effective patent management.