The economic value of patent portfolios
This paper has benefited from comments and suggestions from many scholars and participants in scholarly seminars. We acknowledge in particular the insights that we received from Raffaele Conti, Bronwyn Hall, Karin Hoisl, Pooyan Khashabi, Myriam Mariani, Mark Schankermann, Nikolaos Thumm, and Giovanni Valentini. We also thank the editor of JEMS, Daniel Spulber, an action editor and two anonymous referees for pushing us to make this a better paper. All errors remain, of course, ours.
Abstract
Patent holders may choose to protect innovations with single patents or to develop portfolios of multiple, related patents. We propose a decision-making model in which patent holders allocate resources to either expanding the number of related patents or investing in higher value of patents in the portfolio. We estimate the derived value equation using portfolio value data from an inventor survey at the level of individual inventions rather than the firm as a whole. We find that investments in individual inventions exhibit diminishing returns, and that a good part of the value of a portfolio depends on adding new patented inventions. Also, while diminishing returns to individual inventions are stable across subsamples, the returns to portfolio size vary between complex and discrete industries, and between inventions that are science-based or driven by customer information. When firms seek to strengthen appropriability, the returns to an increase of portfolio size are not different from the sample average. Thus, a higher number of inventions in a portfolio may reflect both stronger appropriability via patents and genuine creation of value.
