Who Needs a Patent in a Dusty Drawer?
Over the last few years, patent registrations have increased. On one side, this signals an increase in innovation, on the other, the number of unused patents has also gone up. A Staff Working Document of the European Commission ("Towards enhanced patent valorisation for growth and jobs",SWD458, December 21, 2012) estimates that the percentage of unused patents varies from as low as 10% to as high as 40-50%.
Some of these patents fulfill a "strategic" role: companies patent to prevent competitors to use an invention or enter a market. Other patents are "dormant", i.e. they lie in the drawer and are used neither for commercial nor strategic ends. They are ideas or inventions that a company patents to motivate its inventors, or because they think the might use them in the future; or because they have an in-house division that patents inventions before understanding whether they will be used; or because they already have other inventions that better serve existing markets. Strategic patents are undesirable from a social point of view, since they limit competition. Dormant patents are instead a reservoir of untapped inventions.
Our research study at Bocconi CRIOS (Center for Research on Innovation, Organization and Strategy), based on a survey of thousands of European inventors (InnoSt), shows that firms beyond 250 or 500 employees leave almost half of their patents unused, while in smaller firms the percentage falls to about 30%. In addition, our study finds that half of unused patents are strategic, while the other half is dormant. Therefore large companies, which have larger volumes of patents than SMEs, are the most important source of unused, and potentially usable, patents.
It's natural that some patents remain unused. Innovating means experimenting with trial and error, so it's not surprising that some inventions lack commercial potential. A 100% patent utilization rate might be detrimental, even if it were attainable.
Also, large firms have a more diverse range of products, so that an in-house innovation is more likely to cannibalize existing products. Conversely, a small firm has higher incentives to bring a patent to the market. Also, large firms have larger market shares and so risk more when they license their technologies, because they have more to fear about creating potential rivals in the markets where they are incumbents.
The document of the European Commission suggests a solution to increase the utilization rate of patents: promoting technology markets where patents can be bought and sold with less friction. These markets do exist and technology exchange has indeed increased. However, most of the supply comes from SMEs. Corporations are still very much focused on manufacturing and selling products. But some companies have understood the economic potential of returns from technology sales. However, as long as these new strategic models do not permeate a significant number of large corporations, technology markets will remain niche markets and the use of patents will remain limited. This means we are all forsaking a piece of economic growth.