Patent Thickets, Stock Returns, and Conditional CAPM

Patent thickets, a phenomenon of fragmented ownership of overlapping patent rights, hamper firms’ commercialization of patents and thus deliver asset pricing implications. We show that firms with deeper patent thickets are involved in more patent litigations, launch fewer new products, and become less profitable in the future. These firms are also associated with lower subsequent stock returns, which can be explained by a conditional Capital Asset Pricing Model (CAPM) based on a general equilibrium model that features heterogeneous market betas conditional on time-varying aggregate productivity. This explanation is supported by further evidence from factor regressions and stochastic discount factor tests. This paper was accepted by Karl Diether, finance.

Technology entry in the presence of patent thickets

We analyse how patent thickets affect entry into patenting. A model of entry into patenting that allows for variation in technological opportunity, technological complexity and the extent of patent thickets is developed and analysed. Using UK data we then show that patent thickets are associated with a reduction of first time patenting in a technology controlling for the level of technological complexity and opportunity. Technologies characterized by more technological complexity and opportunity attract more entry into patenting. Our evidence indicates that patent thickets raise entry costs, which leads to less entry into technologies regardless of a firm’s size.

Software Patent Manoeuvres

This chapter explores the politics and geopolitics of software patents. Beginning with an introduction to patents as intellectual property (IP), it explores its conflictual nature, especially in the context of free and open source software. This chapter deals with the Indian State’s ambivalent attitude towards the patenting of software, the pressure brought by the Business Software Alliance and others to harmonize India’s patent laws with US requirements, and the consequences of ‘patent thickets’ and its impact on creativity and innovation. It highlights the fact that there is growing recognition of the need for software sovereignty in India, illustrated by the fact that the Indian government has invested in a number of organizations that are committed to local solutions in software, although this ethos is contested by the IP and patent lobbies.

PATENT OWNERSHIP FRAGMENTATION AND MARKET VALUE: AN EMPIRICAL ANALYSIS

Patent ownership Fragmentation following the U.S. pro-patent shifts has built overlapping intellectual property rights or patent thickets. This has made the use of others’ innovations costlier due to transaction costs, licensing fees, and hold-up. Using panel data on 2,441 public U.S. manufacturing firms for 1976–2002, I find that patent thickets lower firms’ expected profit and their market value. I also find that firms with a large patent portfolio experience a smaller effect, likely because stronger bargaining position lowers the hold-up likelihood. There is no systematic time effect from patent thickets on firms’ market value with a large patent portfolio size.

SEP Litigation and Huawei

In the 2015 case Huawei/ZTE, the Court of Justice of the European Union took one of its rare opportunities to rule on the interface of antitrust and patent law. The question before the Court was whether the holder of a standard-essential patent abuses a dominant position by seeking an injunction against a potential licensee. Regarding a previous line of cases under European law, the Court took a surprisingly easy solution by forcing the companies to get back to the negotiation table. This may be attributed to a new methodological balancing approach of the Court. While acknowledging the problem of patent thickets, the Court restrains the role of antitrust authorities in this field.