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  • 1.  question about patents as a portion of R&D spending

    Posted 04-28-2009 15:05

    BPS netters,

     

    Has anyone written or read studies examining the amount of money firms spend on patenting as a portion of their total R&D budgets?  This inevitably varies by industry but information regarding single industry and multi-industry studies would be greatly appreciated.

     

    Thanks

    Ed

     

    ****************************************

    Edward Levitas, PhD

    Associate Professor

    <st1:place w:st="on"><st1:placename w:st="on">Sheldon</st1:placename> <st1:placename w:st="on">B.</st1:placename> <st1:placename w:st="on">Lubar</st1:placename> <st1:placetype w:st="on">School</st1:placetype></st1:place> of Business

    University of Wisconsin-Milwaukee

    <st1:street w:st="on"><st1:address w:st="on">3202 N. Maryland Ave.</st1:address></st1:street>

    <st1:place w:st="on"><st1:city w:st="on">Milwaukee</st1:city>, <st1:state w:st="on">WI</st1:state>  <st1:postalcode w:st="on">53211</st1:postalcode></st1:place>

    ph: (414) 229-6825

    fx: (414) 229-6957

     



  • 2.  question about patents as a portion of R&D spending

    Posted 04-28-2009 17:01
    Ed,
     
    Here is a useful study:  Pakes, A. (1985) "On Patents, R&D, and the stock market rate of return,' Journal of political economy, 93(2): 390-409
    - 1% increase in R&D leads to 1.18% increase in patents, p. 404
    - 70% patents applied w/in lag 3 years of firm funding, p, 404
    - 76% of patents are result of research efforts, page 405
     
    It isn't exactly what you asked about, but I hope it helps.
     
    Respectfully,
     
    Dave King, Ph.D.
     
    In a message dated 4/28/2009 4:46:16 P.M. Eastern Daylight Time, levitas@UWM.EDU writes:

    BPS netters,

     

    Has anyone written or read studies examining the amount of money firms spend on patenting as a portion of their total R&D budgets?  This inevitably varies by industry but information regarding single industry and multi-industry studies would be greatly appreciated.

     

    Thanks

    Ed

     

    ****************************************

    Edward Levitas, PhD

    Associate Professor

    <st1:place w:st="on"><st1:placename w:st="on">Sheldon</st1:placename> <st1:placename w:st="on">B.</st1:placename> <st1:placename w:st="on">Lubar</st1:placename> <st1:placetype w:st="on">School</st1:placetype></st1:place> of Business

    University of Wisconsin-Milwaukee

    <st1:street w:st="on"><st1:address w:st="on">3202 N. Maryland Ave.</st1:address></st1:street>

    <st1:place w:st="on"><st1:city w:st="on">Milwaukee</st1:city>, <st1:state w:st="on">WI</st1:state>  <st1:postalcode w:st="on">53211</st1:postalcode></st1:place>

    ph: (414) 229-6825

    fx: (414) 229-6957

     



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  • 3.  question about patents as a portion of R&D spending

    Posted 04-29-2009 02:32
    Ed
     
    two comments from my recent empirical work with a number of US and European research-based life-science companies (pharma, biotech):
    - the patent function is typically (>60%) part of the legal and administrative function, ultimately reporting to the CFO. Patent costs are thus part of General & Administrative expenses, not R&D costs. Furthermore, the recent shift in patenting activity away from active pharmaceutical ingredients to formulation, mixture, application, method of use, delivery method, and production process patents implies that an increasing share (30%->50%) of patenting expenses is not R&D driven, but increasingly marketing and production driven. Thus calculating patenting expenses as % of R&D costs may not yield too much insight.
    - My recent data (2007) tell that as a % of sales, patent costs in research-driven environments are typically between 0,3% and 2%.   
    Cheers
    Andreas
     

    Andreas Hinterhuber
    Partner, Hinterhuber & Partners
    Strategy Pricing Leadership
    Innsbruck, Austria

     

    Visiting Professor, Bocconi University
    Milan, Italy
    Phone:  +43 664 402 7 402

     

    andreas@hinterhuber.com  
    www.hinterhuber.com 




    From: Ed Levitas <levitas@UWM.EDU>
    To: BPS-NET@AOMLISTS.PACE.EDU
    Sent: Tuesday, April 28, 2009 9:05:21 PM
    Subject: question about patents as a portion of R&D spending

    BPS netters,

     

    Has anyone written or read studies examining the amount of money firms spend on patenting as a portion of their total R&D budgets?  This inevitably varies by industry but information regarding single industry and multi-industry studies would be greatly appreciated.

     

    Thanks

    Ed

     

    ****************************************

    Edward Levitas, PhD

    Associate Professor

    Sheldon B. Lubar School of Business

    University of Wisconsin-Milwaukee

    3202 N. Maryland Ave.

    Milwaukee, WI   53211

    ph: (414) 229-6825

    fx: (414) 229-6957

     



  • 4.  question about patents as a portion of R&D spending

    Posted 04-29-2009 07:02

    Hi Ed:

    In two of my recent books with Al Link we summarize some of these studies:  

    1)      Albert Link and Donald S. Siegel (2007). Innovation, Entrepreneurship, and Technological Change, Oxford, U.K.: Oxford University Press.

    2)      Albert Link and Donald S. Siegel (2003). Technological Change and Economic Performance, London and New York, NY: Routledge.

    The Oxford book also has a fairly extensive chapter on R&D and firm performance.  I reproduce some of these tables below.  Bronwyn Hall at UC-Berkeley has conducted most of the recent research on this topic (and she has also constructed a great data set at the NBER that is publicly available, in addition to the NBER Patent Citation Database)

    Best regards,

    Don

     

    Dr. Donald S. Siegel

    Dean and Professor

    School of Business

    University at Albany, SUNY

    1400 Washington Avenue

    Albany, NY 12222

    Tel: (518) 442-4910

    DSiegel@uamail.albany.edu

    http://www.albany.edu/business/

    http://www.albany.edu/business/news_and_events/DonSiegel-CV.pdf

    http://econpapers.repec.org/RAS/psi32.htm

     


    Table 5.2  Selected studies examining the relationship between R&D expenditures and patent activity

    Author

    Findings

    Scherer (1965a)

    Calculated the elasticity of patenting with respect to R&D employment as near unity, based on a study of Fortune 500 firms in 1955

    Schmookler (1966)

    Using 1953 data for selected manufacturing industries, determined that large firms spend more than twice as much R&D per patent than small firms

    Bound et al. (1984)

    Verified Scherer's (1965a) elasticity of patenting with respect to R&D of unity using a 1976 cross section of firms

    Hall, Griliches, and Hausman (1986)

    Concluded from a study of manufacturing firms that, based on activity from the 1970s, patents are not the only measure of the output of R&D, and the fraction of R&D output represented by patents varies across industry and over time; there is a positive and contemporaneous relationship between patenting and R&D and lagged historical R&D has little relationship to current patenting behavior

    Acs and Audretsch (1989)

    Demonstrated at the U.S. industry level that patents are a reliable proxy for innovative activity in the late 1970s, and patenting activity is positively related to the level of R&D

     

    Table 5.3  Selected findings using patents as an output indicator


    Finding

    Author

    Strong positive correlation between R&D expenditure (or employment) and patents

    Scherer (1965)

    Schmookler (1966)

    Scherer (1983)

    Bound et al. (1984)

    Pakes and Griliches (1984)

    Hall, Griliches, and Hausman (1986)

    Acs and Audretsch (1989)

     

    Positive correlation between patents and market value (stock market rate of return and Tobin's q) 

    Griliches (1981)

    Hirschey (1982)

    Ben-Zion (1984)

    Pakes (1985)

    Cockburn and Griliches (1988)

    Austin (1993)

     

    Value of patents is highly skewed, where value is determined by citations 

    Trajtenberg (1990a)

    Jaffe, Trajtenberg, and Henderson (1993)

    Henderson, Jaffe, and Trajtenberg (1998)

    Jaffe, Fogarty, and Banks (1998)

     

    Citation-weighted measures of patents are more highly correlated with market value than unweighted measures.   

    Hall, Jaffe, and Trajtenberg (2000)

     

     

    Donald S. Siegel, Ph.D.

    Dean and Professor

    School of Business

    University at Albany, SUNY

    1400 Washington Avenue

    Albany, NY 12222

    Tel: (518) 442-4910

    Fax: (518) 442-4975

    DSiegel@uamail.albany.edu

    http://www.albany.edu/business/

    http://www.albany.edu/business/news_and_events/DonSiegel-CV.pdf

    http://econpapers.repec.org/RAS/psi32.htm

    http://ssrn.com/author=33607

     

    From: Business Policy and Strategy List [mailto:BPS-NET@AOMLISTS.PACE.EDU] On Behalf Of Ed Levitas
    Sent: Tuesday, April 28, 2009 3:05 PM
    To: BPS-NET@AOMLISTS.PACE.EDU
    Subject: question about patents as a portion of R&D spending

     

    BPS netters,

     

    Has anyone written or read studies examining the amount of money firms spend on patenting as a portion of their total R&D budgets?  This inevitably varies by industry but information regarding single industry and multi-industry studies would be greatly appreciated.

     

    Thanks

    Ed

     

    ****************************************

    Edward Levitas, PhD

    Associate Professor

    Sheldon B. Lubar School of Business

    University of Wisconsin-Milwaukee

    3202 N. Maryland Ave.

    Milwaukee, WI  53211

    ph: (414) 229-6825

    fx: (414) 229-6957

     



  • 5.  question about patents as a portion of R&D spending

    Posted 04-30-2009 12:49
    I assume you are talking about the costs of prosecution (application) rather than enforcement
    (litigation). The former averages about $20K per patent; the latter is harder to estimate because
    most cases settle; those that go to trial may average $10mm, and in specific cases costs may
    reach tens or even hundreds of millions. See Bessan and Meurer, Patent Failure (Princeton 2008)
    for data on patent costs v patent "profits" in various industries.

    Mowery, Nelson et al, Ivory Tower and Industrial Innovation (Stanford 2004) include a table on
    university patents/dollar of R&D spending for 1963-1993. This can be calculated currently using
    AUTM 2007 data on patent filings and total federal and commercial R&D dollars: 60% of 20,000
    disclosures filed, or 12K; times $20K each filing; divided by $48b total R&D expenditure (of which
    less than 9% comes from industry). Alternatively, you could just look at the number of patents
    issued to universities in a year, around 3600, and/or just at the industrial portion of the R&D
    spending ($3.4 billion). As in industry, in academia the cost is considered an administrative, or
    even marketing, cost, not an R&D cost. Costs do not include litigation. University patenting is a
    reasonable way to look at this question because most early-stage research is done in universities
    and licensed to industry; indeed, universities are often called "first-phase pharmaceutical
    companies" because of this--and of course, pharma is the industry with the greatest dependence
    on and benefit from patents.

    Milken Institute does periodic reports on the costs of running technology transfer offices vis a vis
    research spending--the return on tech transfer offices per dollar spent on resesarch, etc.

    Jane Robbins,PhD
    Senior Lecturer, Organizational Leadership
    Department of Leadership, Policy and Organizations
    Vanderbilt Unviersity


  • 6.  question about patents as a portion of R&D spending

    Posted 04-30-2009 14:51
    Interesting thread. A few points:

    1. There is some older data that can answer your question directly. According to one estimate (Lerner, 1995), about $ 1 billion was spent in total legal expenditures on patent law suits begun in 1991 (in 1991 dollars). My own calculations (based on number of suits, stage of disposition, and expected median costs at each stage) work out to about $1.5 billion in 1991, so I think Lerner's number is in the right range. In that year, U.S. industry spent $ 90.6 Billion in privately funded research [National Science Foundation/SRS, Survey of Industrial Research and Development: 1996]. Also, about 85,000 patents were applied for by US corporations in 1991, which would cost about 85k x 12k = $1.02Bn at the time. Things change over time (and note that all litigation is not by US corporations), but my rough metric has always been 2-3% of R&D in pecuniary legal costs for US patent protection in the early-mid 1990s. One needs to add in additional costs for international IP protection, and bear in mind that IP also has significant hidden organizational costs (like the opportunity cost of the time spent in deposition by a company's star researcher).

    2. Things have changed over time, especially with increases in patent "productivity." In a 2007 paper, we find that patenting has been quite sensitive to within-firm increases in patent law "expertise" - patent output has about the same elasticity with # of internal patent attorneys as with R&D - and significant increases in patenting have come from applying this "complementary asset," along with organizational changes that facilitate coordination between R&D and patent attorneys (Somaya, Williamson & Zhang, Org Sci 2007). Historically, law suits per patent have been roughly constant (~ 2%). So, overall, I'd expect the 2-3% of R&D in pecuniary IP costs to be a low estimate at this time.

    Hope this helps,

    Deepak

    Deepak Somaya
    College of Business, 185 Wohlers (MC-706) Email. dsomaya@illinois.edu
    University of Illinois Urbana-Champaign
    1206 South Sixth Street
    Champaign, IL 61820
    http://www.business.uiuc.edu/facultyprofile/faculty_profile.aspx?ID=11941