Markus Reitzig

What determines patent value?: Insights from the semiconductor industry

Abstract This paper contributes to an understanding which impacts certain patent characteristics have on the value of patent rights. In an exploratory study, 127 individual patents from a semiconductor company were evaluated comprehensively by technical and marketing representatives. The analysis of this rare data shows that for patents used as “bargaining chips”, novelty and inventive activity are most important. Difficulty of inventing around and disclosure turn out to be of limited importance. Due to a selection bias the influence of patent age on its value cannot be determined. The results hint at a differentiated theoretical plausibility of value indicators.

The private values of ‘thickets’ and ‘fences’: towards an updated picture of the use of patents across industries

On the basis of a novel data set of 612 European patents and related inventions from five different industries, it is shown that multiple patents per invention are filed in both discrete and complex technologies. Multivariate analysis of the data suggests that in selected discrete technologies, patent ‘fences’ may serve to exclude competitors whereas in complex technologies, ‘thickets’ represent exchange forums for complementary technology. The results expand on traditional views of profitable patent exploitation across industries and elaborate on the most recent findings by Cohen et al. (Cohen, W.M., Nelson, R.R. and Walsh, J.P. (2000) Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or not). Cambridge, MA: NBER.) The analysis suggests that different legislative issues arise from multiple patenting per innovation in complex and discrete technologies depending on the degree of technological complementarity. The results have unexpected policy implications in that they illustrate how patentees could eliminate competition in the form of substitute technologies through fencing. They have wide managerial implications regarding the valuation of patent portfolios and the design of corporate IP strategies.

Private-Collective Innovation, Competition, and Firms’ Counterintuitive Appropriation Strategies

We extend theory on private–collective innovation by studying the role of exclusion rights for technology in the competition between private–collective and other innovators. We argue that private–collective innovators both pledge their own and invest in orphan exclusion rights for technology as a subtle coordination mechanism to compete against firms proposing alternative proprietary solutions. We discuss implications of our findings for theories of innovation, particularly appropriation strategy, ownership and control, and coordination and industry self-regulation.

Intra-Organizational Provincialism

In contrast to prior studies, which have generally argued that the failure of innovations to diffuse within an organization stems from informational or motivational difficulties, we propose that the failure to adopt an innovation can also arise from a form of organizational provincialism. Individuals identify with their subunits within the organization and therefore tend to have biased perceptions against ideas that emerge from other parts of the organization. To explore this idea, this study uses data on innovations inside a large, multinational consumer goods firm to analyze the effects of evaluator and innovator identities on the probability that the evaluator considered the idea of high potential. The results reveal that evaluators are biased in favor of ideas submitted by individuals that work in the same division and facility as they do. The strength of this bias, moreover, decreases with the size of the evaluator’s subunit and with the size and status of the submitter’s subunit.

Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms

Patent trolls appropriate innovation rents by threatening to block other players’ R&D-related value creation. Legal loopholes and inefficiencies in court practice have been identified as drivers of these ‘locking-in-to-extort’ strategies, which might suggest that policy changes can eradicate the troll business. Through modeling interactions between trolls and manufacturers, we show that this is not the case. Patent extortion will remain viable in technologically crowded industries as long as trolls choose patents that are sufficiently sophisticated to be upheld in court and produce significant long-term switching costs for manufacturers after infringement. We analyze how innovating firms may react to the continued presence of patent trolls, and discuss adjustments to their R&D strategies regarding product design, interaction with trolls, coordination with competitors, and patenting activity overall.

How much to Integrate?-Firms’ Profit-Maximizing R&D Allocations in Emerging Standard Settings

We formalize firms’ research and development (R&D) diversification decisions during the pre-market phase of an emerging standards setting. Capturing transaction costs, resource-based considerations, and network effects in a two-player model, in which both agents are fully diversifiable and must trade-off the expected benefits from co-operating on a joint standard vs establishing their own, we can show that transactional hazards and knowledge-based complementarities from in-house production lead to expected increases in diversification. Contrary to established wisdom, however, increasing network effects also reduce firms’ co-specialization. We motivate our study and elaborate on our findings from two related perspectives: a corporate strategy perspective on the optimal degree of specialization and the technology scholar’s viewpoint on firms’ anticipation of standard-related bargaining considerations to the pre-market phase.

Hierarchies, Polyarchies, and Endogenous Screening

Established theory predicts that polyarchical organizations produce fewer omission errors than hierarchical ones do, and that hierarchies produce fewer commission errors than polyarchies do. However, in flat hierarchies in which peers re-check each others’ decisions, these effects are deemed to be less pronounced for endogenous than for exogenous screening functions. In this paper I propose and empirically test that results are reversed in part in uneven hierarchies in which agents are connected by lines of command, a structure typical of real-world organizations. I argue and show that such hierarchies can induce behavioral biases among lower-level agents, notably psychological withdrawal and evaluation apprehension, that may lead to even more omission errors than one would expect to find if agents were not affected by their hierarchical environment at all.

Who Do You Trust While Shares are on a Roller-Coaster Ride? Balance Sheet and Patent Data as Sources of Investor Information During Volatile Market Times

We originally investigate the comparative usefulness of patent data as a source of investor information depending on the market cycle (bull/bear market). Based on comprehensive data for firms listed on German exchanges between 1997 and 2002, we demonstrate that patent data contain complementary explanatory power to accounting data irrespective of the standard used to prepare the financial statement (German GAAP, IAS and US GAAP). Moreover, we provide original evidence that only patent data are able to provide plausible investor information in both bull-market and bear-market periods, whereas accounting information overvalues intangible assets in bull markets and undervalues them in bears.