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Acquisitions and use of patents: A theory and new evidence from the Japanese firm level data

Sadao Nagaoka and Yoichiro Nishimura

No 05-14, IIR Working Paper from Institute of Innovation Research, Hitotsubashi University

Abstract: A significant part of the patents held by a firm are not used. We show that, given the uncertainty of invention quality at the patent application stage and the sunk cost incurred for obtaining and developing a patent, the patent (internal) utilization rate declines with the (anticipated) size of complementary assets, licensing opportunity, and invention quality uncertainty while it increases with the average quality of an invention. We find empirical evidence supportive of these theoretical predictions. Moreover, a firm with larger price cost margin does not have a lower rate of patent utilization, which does not support the view of preemptive R&D and patenting as a primary explanation of unused patents. Finally, a firm with more diversified patent portfolio tends to have more patents but its utilization rate tends to be lower, suggesting that such diversification facilitates appropriation.

Keywords: patent; unused patents; uncertainty; complementary assets (search for similar items in EconPapers)
JEL-codes: L20 O31 (search for similar items in EconPapers)
Date: 2005-06
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