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The Economic Value of Intellectual Property Rights

The Economic Value of Intellectual Property Rights. Professor Derek Bosworth Intellectual Property Research Institute of Australia Melbourne University. Coverage of the presentation. Components of value Counterfeiting and infringement Borrowing against assets

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The Economic Value of Intellectual Property Rights

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  1. The Economic Value of Intellectual Property Rights Professor Derek Bosworth Intellectual Property Research Institute of Australia Melbourne University

  2. Coverage of the presentation • Components of value • Counterfeiting and infringement • Borrowing against assets • Distribution of values/risk in investment • Conclusions

  3. Components of value

  4. Components of value: private • Value of the underlying IP • an invention may have value without IPRs • e.g. “protection” by being first to market • Value of the IPR to the company • value of the IPR is the difference in value of the IP with and without IPR protection • the value of IP would be severely eroded in the absence of IPRs • incentive to invent or maintain quality would be severely undermined

  5. Components of value: public • Positive impact of IPRs on dynamic welfare, i.e. • creativity (i.e. incentive to invent, incentive to maintain or increase product quality, etc.) • accessing high technology of others • ability to licence/cross licence • Negative impact of IPRs on static welfare, i.e. • higher prices for goods

  6. Effects of IPRs on value: inventions • Inventions • expensive to produce • cheap to reproduce? • Investments in R&D not recouped in absence of IPRs • As expenditure on R&D cannot be recouped, there is no incentive to invest • Countries such as China introduced IPRs in order to access foreign technology

  7. Effects of IPRs on value: trade marks • Trade names and brand value • expensive to build • cheap to reproduce (counterfeit/pirate) • Investments in advertising, R&D, etc. not recouped • Perceived product quality is undermined by counterfeit goods • Incentives to maintain or improve quality are affected by counterfeit goods

  8. Counterfeiting and infringement • Counterfeiting and piracy relate to the actions of one company in attempting to pass-off their goods (or services) as those of another company.

  9. Software Information Industry Piracy Study, 1999

  10. Market size population brand popularity income and income distribution Distance physical cultural language technological distance (ability to produce accurate replicas, including marks) Unit costs labour costs capital costs IPR and costs of protection (risks to originator/counterfeiter) IPR regime (weak, moderate, strong) extent and efficiency of policing Drivers of (Cross-border) Counterfeiting

  11. Origin of Counterfeits in EU (% cases)

  12. Patent Infringement Damages

  13. Borrowing against assets

  14. Intangible assets as collateral • In some firms/sectors intangibles significantly exceed the value of tangibles • Borrowing against tangible assets disadvantages firms with higher proportions of intangibles • Knowledge-based firms need to borrow against intangible assets • Such firms must • account for their intangibles • protect their intangibles using IPRs • police their intangibles and • punish IPR infringers

  15. Borrowing against IP

  16. Distribution of values

  17. Distribution of values • All the empirical literature points to a highly-skewed distribution of values of IP/IPRs • Most IP is worth little if anything • But a small proportion of IP is extremely valuable • This result is consistent with (though not proof of) the risks of investments in IP • Basic R&D is a highly risky activity • New product launches are highly risky

  18. Identifying value distribution of patents • Main methods: • patent renewal information • patent citation information • surveys of commercial value • Consistent findings: • most patent lives are short/relatively few very long lived • most patents receive very few citations/very small proportion receive a large number of citations • surveys show only a very tiny proportion of patents are worth large amounts/most are worth little if anything

  19. Example of a highly cited patent • Bristol-Myers Squibb patent 4105776 • Invented by Ondetti and Cuslunan • granted in 1978 • cited 165 times from the date of its issue in 1978 through September 1995 • single most highly cited patent issued in 1978, out of 70,590 patents issued in that year • 101 times by later Bristol-Myers Squibb patents • 16 times by American Home Products patents • 48 times by patents assigned to 20 other companies or inventors

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