The impact of intellectual property protection on firm outcomes

Globally, firms spend approximately $1.7 trillion on R&D, much of which is aimed at producing patentable innovations. But using patents to cut off competitors’ access to an innovation is expensive to get and to maintain, costing an average of $1–2 million for global protection. That expense is only worthwhile if the exclusivity generated by the patent provides enough commercial value for the firm, principally through higher sales or profitability in the product market. In practice, making decisions whether to get or maintain patents is difficult because firms often can’t quantify the commercial value of a patent, even after the fact, because they never observe the performance of an equivalent innovation that is unpatented. Academics have been similarly stymied in quantifying the commercial value of patents because of (1) strong selection into which innovations are patented, (2) the difficulty in connecting patent protection to specific products, and (3) the commercial sensitivity of product-level financial data. This paper presents the first randomised control trial to evaluate the commercial value of maintaining patent protection. In collaboration with a large multinational company, patents covering products in the marketplace were either abandoned or maintained at random. We then traced the effects of patent protection on product-level commercial outcomes using confidential internal data. On the margin, products protected by patents generated 35% more revenue for the firm, primarily through higher unit sales. Maintaining these patents was highly cost effective, yielding $67 in additional benefits for each dollar spent. Insomuch as the patenting behaviour of the firm in our study is representative, our results suggest that firms should be maintaining more patent protection on products.

Key facts

Stage: Abstract published
Year: 2023
Location: China, France