The Importance of Patent Scope: An Empirical Analysis

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . Wiley and RAND Corporation are collaborating with JSTOR to digitize, preserve and extend access to The RAND Journal of Economics. This article examines the impact of patent scope on firm value. I develop a proxy for patent scope based on the International Patent Classification scheme. Using a sample of 535 financing rounds at 173 privately held venture-backed biotechnology firms, I show that the breadth of patent protection significantly affects valuations. A one standard deviation increase in average patent scope is associated with a 21% increase in the firm's value. Broad patents are more valuable when substitutes in the same product class are plentiful, a finding consistent with theoretical suggestions. * Harvard University. I wish to acknowledge comments on earlier versions of this article

Intellectual property rights business management practices: A survey of the literature

“…However, the most frequently cited reason for not patenting is the ease of legally inventing around a patent (65% of respondents) followed by the lack of novelty (55%) and information disclosure (47%). Small firms are deterred from patenting by the cost of litigation (see also Lerner, 1994). In comparison with the earlier survey (Levin et al, 1987), patents appear to be somewhat more central in larger firms in a larger number of industries.…”

“…However, empirical studies supporting this theory are few and inconclusive. Lerner (1994) found that firms with broader patents (measured by the number of International Patent classes (IPC) are valued more by venture capitalists. On the other hand, a survey by Harhoff et al (1998) does not find that the number of IPCs is related to patent value.…”

“…Lerner (1994) examined the impact of patent scope on firm value. Using a sample of privately held venture capital-backed biotechnology firms, he shows that the breadth of patent protection significantly affects valuations.…”

Determinants of patent citations in biotechnology: An analysis of patent influence across the industrial and organizational boundaries

“…Later, Lanjouw and Schankerman [27] The relevance of the scope to enhance patent influence has been also investigated by several empirical works. For instance, Lerner [63] demonstrated that the patent scope has a significant and positive effect on the valuation of venture capitalists financing biotechnology start-ups.…”

Investing in Legal Advice - What Determines the Costs of Enforcing Intellectual Property Rights?

“…The more patent classes are assigned to the patent the broader is the technological scope of the patent (Lerner, 1994). The number of patent classes is used as an indicator of its technological breadth.…”