funda14 Flashcards
What is the signaling role of patents for startups in raising capital?
Patents serve as a signal of quality to potential investors, especially venture capitalists (VCs).
Startups often lack other means to convey the quality of their innovation to outside investors, making patents an important signal.
Patents indicate innovation, helping startups attract funding, but the quality of the innovation behind the patent is crucial.
What do recent studies show about startups with patents?
Startups with patents have a 60% higher probability of receiving venture capital after their first patent application.
These startups experience 55% higher employment growth and 80% higher sales growth five years after patent approval.
Patents contribute to long-term success, enhancing both employment and financial performance.
How do startups strategically file patents, and what impact does this have?
Startups tend to file more patents closer to their first venture capital round.
Patents filed just before seeking VC funding tend to be of lower quality, as they are less likely to be granted, cited, or linked to scientific research.
This behavior may be a strategy to attract investors, though these patents may not reflect genuine innovation
What is Evergreening in Patents?
Strategy where companies file additional patents (e.g., 140+ per drug) to prolong exclusivity.
66% of patents filed post-FDA approval to delay generics.
Results in higher costs for consumers and delayed access to affordable alternatives.
Why do we care about patents?
Patents encourage innovation by granting temporary monopolies.
Require innovators to disclose inventions, advancing further innovation.
Facilitate trade and licensing of technology.
Costs of patents include monopoly power, high prices, and litigation expenses
What is Patent Expropriation?
Government takes control of a patent without the holder’s consent.
Suggested as a solution to societal costs of monopoly power, especially during emergencies.
Controversial and often used sparingly.
What are Cumulative Innovations?
Innovations that build on previous ones. Examples:
Touchscreens → App ecosystems → Biometric security.
Weak patent protection: Early innovators may lack incentives to invest.
Strong patent protection: Later innovators may face high costs, stalling progress.
Challenges with Cumulative Innovation in Patents
Weak patents: Initial innovators may not invest if later developments reduce their profits.
Strong patents: Later innovators may avoid R&D if licensing fees are excessive.
Ex-ante contracts could resolve issues but are difficult to implement in practice.
What is the central research question of Ziedonis (2004), and why is it important?
Research Question: Why do firms expand their patent portfolios in response to potential “hold-up” problems in technology markets? The study examines how firms avoid being “fenced in” by other patent owners.
○
Relevance:
■Explores strategic motives for patenting beyond simply protecting inventions.
■Addresses how the allocation of property rights shapes firms’ patenting strategies.
■Examines the conditions under which firms increase their patenting activity.
■Provides insights into the patent system and its impact on innovation.
■Offers a novel measure of fragmentation in external technology markets.
■Helps to understand the complexity of knowledge transfer and property rights.
What is the “hold-up” problem, and how does a fragmented patent landscape impact innovation?
Hold-Up Problem: When a firm makes specific investments, it can be “held up” by a patent owner demanding high licensing fees.
○
Impact of Fragmentation:
■Increases transaction costs by requiring negotiations with multiple patent holders.
■Increases strategic behavior and uncertainty as firms engage in defensive patenting.
■Can lead to a “tragedy of the anticommons,” where many owners have exclusionary rights, hindering technology use.
■Reduces incentives for investment due to the risk of being held up by patent owners.
■Makes it more challenging to use ex-ante mechanisms such as joint ventures or patent pools.
○Overall, it can retard innovation by increasing costs and uncertainties
What are the main hypotheses tested in the paper?
Hypothesis 1: Greater fragmentation of technology markets leads to more patenting by firms.
○Hypothesis 2: The impact of fragmented external rights on patenting incentives is more pronounced in capital-intensive firms.
○Hypothesis 3a: The effect of fragmented external rights on incentives to patent will be greater in magnitude following the “propatent” shift in the U.S. legal environment.
○Hypothesis 3b: The interaction effect between fragmented rights and capital-intensity will be greater in magnitude following the “propatent” shift i
What is the key difference between a fragmented landscape and a patent thicket?
Fragmented Landscape: Describes the distribution of patent ownership, where many different entities own patents in a technology area.
■Focuses on who owns the patents and how dispersed that ownership is.
■A precondition for patent thickets.
○
Patent Thicket: Describes the complex web of overlapping patent claims that arises in a fragmented landscape.
■Focuses on the density of patent claims and the difficulty of navigating them.
■A consequence of a fragmented landscape.
In short: A fragmented landscape is about dispersed patent ownership, while a patent thicket is about a complex web of overlapping patent claims
What are the benefits of using vague language in patents?
Prevents imitation efforts by rivals.
Avoids rivals from developing follow-on innovations.
Reduces knowledge spillovers to competitors.
What are the costs of using vague language in patents?
Increased litigation risks (36% higher).
Average financial loss of $19M per lawsuit.
Risk of invalidation in court (e.g., Nautilus v. Biosig Instruments).
How is patent vagueness measured?
FOG Index: Combines sentence length and complexity to determine readability.
Dictionary-Based Approach: Counts vague words relative to the total words in the document.
What are the key findings on vague patents?
Vague patents take longer to be granted.
They are more likely to be litigated.
Filed by companies with short-tenure CEOs or short-term goals.
Firms with long-term horizons favor more readable patents.
