The Impact of Uncertain Intellectual Property Rights on the Market for Ideas: Evidence from Patent Grant Delays

Abstract

This paper considers the impact of the intellectual property (IP) system on the timing of cooperation/ licensing by start-up technology entrepreneurs. If the market for technology licenses is efficient, the timing of licensing is independent of whether IP has already been granted. In contrast, the need to disclose complementary (yet unprotected) knowledge, asymmetric information or search costs may retard efficient technology transfer. In these cases, reductions in uncertainty surrounding the scope and extent of IP rights may facilitate trade in the market for ideas. We employ a data set combining information about cooperative licensing and the timing of patent allowances (the administrative event when patent rights are clarified). Although preallowance licensing does occur, the hazard rate for achieving a cooperative licensing agreement significantly increases after patent allowance. Moreover, the impact of the patent system depends on the strategic and institutional environment in which firms operate. Patent allowance plays a particularly important role for technologies with longer technology life cycles or that lack alternative appropriation mechanisms such as copyright, reputation, or brokers. The findings suggest that imperfections in the market for ideas may be important, and that formal IP rights may facilitate gains from technological trade. ABSTRACTThis paper considers the impact of the intellectual property (IP) system on the timing of cooperation/licensing by start-up technology entrepreneurs. If the market for technology licenses is efficient, the timing of licensing is independent of whether IP has already been granted. In contrast, the need to disclosure complementary (yet unprotected) knowledge, asymmetric information, or search costs may retard efficient technology transfer. In these cases, reductions in uncertainty surrounding the scope and extent of IP rights may facilitate trade in the market for ideas. We employ a dataset combining information about cooperative licensing and the timing of patent allowances (the administrative event when patent rights are clarified). While pre-allowance licensing does occur, the hazard rate for achieving a cooperative licensing agreement significantly increases after patent allowance. Moreover, the impact of the patent system depends on the strategic and institutional environment in which firms operate. Patent allowance seems to play a particularly important role for technologies with longer technology lifecycles or that lack alternative mechanisms such as copyright, reputation, or brokers. The findings suggest that imperfections in the market for ideas may be important, and that formal IP rights may facilitate gains from technological trade.

Retracted: The Impact of Aligning Product Development and Technology Licensing: A Contingency Perspective

“…A growth in transaction frequency strengthens the positive effects of aligning licensing and product development because it reduces some of the market inefficiencies, which again will lead to more frequent transactions (Gans, Hsu, and Stern, 2008). In a similar vein, the moderating effect of competitive intensity may be interpreted in the way that high competitive intensity in the technology markets strengthens a firm's benefits from an integrated strategy although competitive intensity increases some managerial challenges (Arora et al, 2001).…”

How Do Patents Affect Research Investments?

“…To name but a few examples, researchers have investigated what role patents play in encouraging the international diffusion of new pharmaceutical drugs (Cockburn, Lanjouw and Schankerman, 2016; Duggan, Garthwaite and Goyal, 2016; Kyle and Qian, 2014), the role of patents in enabling technology licensing (Gans, Hsu and Stern, 2008), how to set royalties for standard-essential patents (Lemley and Shapiro, 2013), and whether the establishment of the US Court of Appeals of the Federal Circuit caused growth in patenting (Kortum and Lerner, 1999). The well-known paper by Hall, Jaffe and Trajtenberg (2001) documenting a linkage between the Compustat data and granted US patents has almost 3,000 citations (Google Scholar, August 6 2016), one summary indicator of the volume of patent-related research using that data set alone.…”

The Collaboration of Innovation Intermediaries and Manufacturing Firms in the Markets for Technology

“…Despite the growing importance of technology markets, however, manufacturing firms usually still develop and apply most technological knowledge in‐house, i.e., in internal R&D and product development (Barczak, Griffin, and Kahn, ; Chesbrough, ; Cooper, ; Frishammar and Hörte, ; Lichtenthaler and Lichtenthaler, ; Spanjol, Qualls, and Rosa, ; Teece, ). Consequently, transactions in the markets for technology have remained uncommon relative to the markets for most products (Dittrich and Duysters, ; Gans, Hsu, and Stern, ).…”