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The market value of patents and R&D: Evidence from European firms

  • Bronwyn H. Hall
  • Grid Thoma
  • Salvatore Torrisi

This paper provides novel empirical evidence on the private value of patents and R&D in European firms during the period 1991-2004. We explore the relationship between firm's stock market value, patents, and "quality"-weighted patents issued by the European Patent Office (EPO) and the US Patent and Trademark Office (USPTO). We find that Tobin's q is positively and significantly associated with R&D and patent stocks, but that only those patents taken out in both patent offices or at the USPTO alone seem to be valued. Either forward citations or a composite quality indicator based on forward citations, family size and the number of technical fields covered by the patent are modestly informative for value. Software patents account for a rising share of total patents in the USPTO and EPO. Moreover, some scholars of innovation and intellectual property rights argue that software and business methods patents on average are of poor quality and that these patents are applied for merely to build portfolios rather than for protection of real inventions. We found that such patents are considerably more valuable than ordinary patents, especially if they are taken out in the U.S. However their quality indicators are no more valuable than those of other patents, suggesting that their primary purpose may be to increase the size of the patent portfolio.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13426.

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Date of creation: Sep 2007
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Handle: RePEc:nbr:nberwo:13426
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  1. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Hall, Bronwyn H. & Oriani, Raffaele, 2006. "Does the market value R&D investment by European firms? Evidence from a panel of manufacturing firms in France, Germany, and Italy," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 971-993, September.
  4. Arundel, Anthony, 2001. "The relative effectiveness of patents and secrecy for appropriation," Research Policy, Elsevier, vol. 30(4), pages 611-624, April.
  5. Bronwyn H. Hall, 1999. "Innovation and Market Value," NBER Working Papers 6984, National Bureau of Economic Research, Inc.
  6. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343 National Bureau of Economic Research, Inc.
  7. Joshua Lerner, 1994. "The Importance of Patent Scope: An Empirical Analysis," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 319-333, Summer.
  8. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
  9. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
  10. Teece, David J., 1986. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 15(6), pages 285-305, December.
  11. Bronwyn H. Hall & Megan MacGarvie, 2006. "The Private Value of Software Patents," NBER Working Papers 12195, National Bureau of Economic Research, Inc.
  12. Dietmar Harhoff & Francis Narin & F. M. Scherer & Katrin Vopel, 1999. "Citation Frequency And The Value Of Patented Inventions," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 511-515, August.
  13. Griliches, Zvi, 1981. "Market value, R&D, and patents," Economics Letters, Elsevier, vol. 7(2), pages 183-187.
  14. Bronwyn H. HALL & Raffaele ORIANI, 2004. "Does the Market Value R&D Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France," Economics Working Papers ECO2004/13, European University Institute.
  15. Christine Greenhalgh & Mark Rogers, 2004. "The Value of Innovation: The Interaction of Competition, R&D and IP," Economics Series Working Papers 192, University of Oxford, Department of Economics.
  16. Bronwyn H. Hall & Jacques Mairesse, 1992. "Exploring the Relationship Between R&D and Productivity in French Manufacturing Firms," NBER Working Papers 3956, National Bureau of Economic Research, Inc.
  17. Cynthia A. Montgomery & Birger Wernerfelt, 1988. "Diversification, Ricardian Rents, and Tobin's q," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 623-632, Winter.
  18. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
  19. Toivanen, Otto & Stoneman, Paul & Bosworth, Derek, 2002. " Innovation and the Market Value of UK Firms, 1989-1995," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(1), pages 39-61, February.
  20. Guellec, Dominique & Pottelsberghe de la Potterie, Bruno v., 2000. "Applications, grants and the value of patent," Economics Letters, Elsevier, vol. 69(1), pages 109-114, October.
  21. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
  22. Zvi Griliches, 1979. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 92-116, Spring.
  23. Jacques Mairesse & Mohamed Sassenou, 1991. "R&D Productivity: A Survey of Econometric Studies at the Firm Level," NBER Working Papers 3666, National Bureau of Economic Research, Inc.
  24. Jean O. Lanjouw & Mark Schankerman, 2004. "Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators," Economic Journal, Royal Economic Society, vol. 114(495), pages 441-465, 04.
  25. repec:fth:harver:1473 is not listed on IDEAS
  26. Zvi Griliches & Bronwyn H. Hall & Ariel Pakes, 1988. "R&D, Patents, and Market Value Revisited: Is There Evidence of A SecondTechnological Opportunity Related Factor?," NBER Working Papers 2624, National Bureau of Economic Research, Inc.
  27. Lanjouw, Jean O & Pakes, Ariel & Putnam, Jonathan, 1998. "How to Count Patents and Value Intellectual Property: The Uses of Patent Renewal and Application Data," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 405-32, December.
  28. Fabio Montobbio & E. Bacchiocchi, 2004. "EPO vs. USPTO Citation Lags," KITeS Working Papers 161, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Sep 2004.
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