Patents are central to innovation – they have a signalling function to investors and licensing mitigates the expense of R&D
Cecilia Maronero and Annika Bichlmayr, 2024 - *Postdoctoral Researcher at the Department of Economics and Statistics “Cognetti de Martiis” of the University of Turin and an Affiliate Researcher at the Bordeaux School of Economics and **Annika Bichlmayr studied Management & Technology at the Technical University of Munich with a focus on IP. She currently works as an IPR Manager at a measurement technology and telecommunications company. “Flipping the paradigm of weak patent rights: from theories to evidence” Journal of Intellectual Property Law & Practice, 2024, Vol. 19, No. 3 online at Oxford Academic, Accessed via University of Michigan //DH
On the other hand, academic research offers evidence of the rewarding function provided by the patent system and confirms the centrality of patents in the innovation policy toolbox. A recent empirical study suggests that not
only are patents an effective tool against competition, but also that the temporary monopoly they confer generates a measurable monetary gain to innovators. In fact, there is evidence that patents provide a tangible mark-up on a broad range of consumer products across all industrial sectors.47 There is also large evidence that for smaller players—such as start-ups and SMEs—patents are a valuable resource, as they bring value through three crucial channels: (i) patents can be used to reduce information asymmetry between the company and the potential investors, (ii) they provide a licensing stream of revenues that helps mitigate the financial constraints associated with R&D investments and finally (iii) patents can be used as collateral to secure financing.48
More specifically, patents play a central role in all stages of the start-up lifecycle. For instance, during the infancy of a company, when it is crucial to secure venture capital, patents have a vital signalling function. They act as reliable identifiers that convey information on both the company and its technology to investors.49 Likewise, during the maturity phase, patents enable cross-licensing, while during the old-age phase they greatly increase the chances of a successful market exit capitalization rate.50 Regarding small and medium-sized enterprises (SMEs), a recent empirical study found that they exhibit a much stronger reliance on patents for monetization purposes compared to large firms51 More specifically, the key finding of the study was that SMEs do not patent solely to
protect their innovations from imitation: about half of the SMEs analysed engaged in patenting specifically for monetary reasons, thus with the purpose of both attracting investors and generating licensing revenues. In this respect, SMEs were found to licence their patents way more actively than large firms52