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Acquisitions and use of patents: A theory and new evidence from the Japanese firm level data

Listed author(s):
  • Nagaoka, Sadao
  • Nishimura, Yoichiro

A significant part of the patents held by a firm are not used. We show that, given the uncertainty of invention quality at the patent application stage and the sunk cost incurred for obtaining and developing a patent, the patent (internal) utilization rate declines with the (anticipated) size of complementary assets, licensing opportunity, and invention quality uncertainty while it increases with the average quality of an invention. We find empirical evidence supportive of these theoretical predictions. Moreover, a firm with larger price cost margin does not have a lower rate of patent utilization, which does not support the view of preemptive R&D and patenting as a primary explanation of unused patents. Finally, a firm with more diversified patent portfolio tends to have more patents but its utilization rate tends to be lower, suggesting that such diversification facilitates appropriation.

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Paper provided by Institute of Innovation Research, Hitotsubashi University in its series IIR Working Paper with number 05-14.

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Length: 32, [9] p.
Date of creation: Jun 2005
Handle: RePEc:hit:iirwps:05-14
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