Patent incentives: Returns to patenting and the inducement for research & development (R&D)

Abstract

The UK has one of the oldest and best regarded intellectual property rights (IPR) regimes in the world. Yet there is little evidence on private returns to patenting for firms operating in the UK, and on the incentive effects of patenting in encouraging R&D investment in patenting firms. Using available data from the UK innovation survey (known as the Community Innovation Survey or CIS) and linked business performance data the report assesses both the additional returns firms achieve by patenting, and the effects on R&D spending. This report tests an economic model built upon the following intuition. The monopoly power conferred by a patent provides a firm a price premium in new product revenue, thus increasing profitability. At the same time this increased profitability also acts as an inducement to increase R&D spending by the firm. Using this idea we try to jointly estimate the extent of the premium and the inducement to R&D. In this way the research builds and extends work in two literature streams, viz. the economic literature on the value of patents and the literature on effect of patents on R&D expenditures.