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Archived updates for Monday, August 02, 2004

Exploring the Patent Explosion

According to Economics Professor Bronwyn H. Hall in "Exploring the Patent Explosion," there is clear evidence of a structural shift to a higher growth rate in overall patenting in the United States between 1983 and 1984. That shift was driven mostly by U.S. firms, but with some contribution from Asia and Europe. Although patenting by U.S. inventors has risen in all technology classes, the increase is largely due to firms in the electrical and computing technology sectors,

There is limited support for the view that, in established firms, accumulating patents for defensive reasons has little impact on market value because the past history of R&D spending is already a good indicator of the firm’s technology position. In fact, an above average accumulation of patents could be slightly negative for value if it indicates the presence of threatened suits for infringement. However, for new entrants in complex product industries like electronics, where patents were previously unimportant, patent ownership may have become an important signal of viability. That is, patents are essential to venture capitalists for providing a claim on the most important asset of the firm. In the market value equation, this translates into a premium for high patent productivity, especially post-1984.
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