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

Author

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  • Nagaoka, Sadao
  • Nishimura, Yoichiro

Abstract

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.

Suggested Citation

  • Nagaoka, Sadao & Nishimura, Yoichiro, 2005. "Acquisitions and use of patents: A theory and new evidence from the Japanese firm level data," IIR Working Paper 05-14, Institute of Innovation Research, Hitotsubashi University.
  • Handle: RePEc:hit:iirwps:05-14
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15985/1/070iirWP05-14.pdf
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    Keywords

    patent; unused patents; uncertainty; complementary assets;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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