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Estimating the economic value of Intellectual Property (Brunel Business School)

The ownership of Intellectual Property and the social utility of the patent system are central to the success of technology markets.

But scholars and policymakers have long worried that the current system only leads to increased monopoly power, reducing profits and restricting the free movement of knowledge and so there have been widespread calls for an overhaul of the system.

Brunel’s Professor of International Strategy, Suma Athreye, puts this fear down to lack of good evidence about what patents actually do. Over the last two decades, she has examined the economic benefits of the patent system for technology companies and the wider technology market.

Patents allow innovators to licence their technology to others, which helps to generate wider innovative activity in economic sectors beyond those where the patents first originated. This idea underlies the concept of ‘distributed innovation’, championed by the World Intellectual Property Organisation, which used Prof Athreye’s models of world-wide licensing markets to put Intellectual Property at the forefront of world innovation policy: http://www.wipo.int/export/sites/www/econ_stat/en/economics/pdf/wp3.pdf

In work commissioned by the UK Intellectual Property Office (IPO), Professors Athreye and Arora (Duke University, USA) found that firms which invest in intellectual property rights increased net profits by 30 – 62%, leading to 18% more investment in research and development: http://www.ipo.gov.uk/ipresearch-patincentive.pdf

They estimated that the value of the UK’s technology licensing market is about £6.9 billion. From 2009 – 2012, this amounted to 40% of all private expenditure on research and development. Furthermore, as predicted in distributed innovation, one-third of the technology market consisted of non-innovating firms - the best measure of the social utility of patents.

The UK’s IPO has taken this research on board in its response to the EU’s proposals on patent use legislation. Together with Prof Athreye, the IPO has now developed a survey that can be updated to investigate the UK’s technology market and the ongoing use of patents.