Exploring the Patent Explosion

This paper looks more closely at the sources of patent growth in the United States since 1984. It confirms that the increase is largely due to US patenters, with an earlier surge in Asia, and some increase in Europe. Growth has taken place in all technologies, but not in all industries, being concentrated in the electrical, electronics, computing, and scientific instruments industries. It then examines whether these patents are valued by the market. We know from survey evidence that patents in these industries are not usually considered important for appropriability, but are sometimes considered necessary to secure financing for entering the industry. I compare the market value of patents held by entrant firms to those held by incumbents (controlling for R&D). Using data on publicly traded firms 19801989, I find that in industries based on electrical and mechanical technologies the market value of entrants’ patents is positive in the post-1984 period (after the patenting surge), but not before, when patents were relatively unimportant in these industries. Also, the value of patent rights in complex product industries (where each product relies on many patents held by a number of other firms) is much higher for entrants than incumbents in the post-1984 period. For discrete product industries (where each product relies on only a few patents, and where the importance of patents for appropriability has traditionally been higher), there is no difference between incumbents and entrants. 1 Correspondence address: Department of Economics, 549 Evans Hall, University of California at Berkeley, Berkeley, CA 94720-3880. email: [email protected] This paper was written for a special issue of the Journal of Technology Transfer in memory of Edwin Mansfield. The preliminary draft was presented as an invited lecture to the ZEW Workshop on Empirical Economics of Innovation and Patenting, Mannheim, Germany, March 14-15, 2003. I am very grateful to Josh Lerner and Cecil Quillen for extremely helpful comments on the first version of the paper, and to the Centre for Business Research and the Judge Institute of Management, University of Cambridge, for hospitality while the revision was being prepard. My first meeting with Ed Mansfield was in 1980, when he discussed the paper I presented on patenting in the computer and drug industries (which was ultimately published with data on all manufacturing industries, as Bound et al 1984, in the volume from that conference edited by Zvi Griliches). At that time, his unpublished discussion emphasized the difference between these two industries in the importance and relevance of patents as a measure of innovation. This was the first time I learned about what is now called the distinction between discrete and complex product industries. Although the use of patents in the two types of industries has certainly changed since that time, they are still quite different in their patenting behavior, as I hope this paper shows. I think Ed would have particularly liked the fact that this paper was motivated by interviews with those in the electronics industry (Hall and Ziedonis 2001; Ziedonis and Hall 2001), something he always encouraged me to undertake.