Valuing Patents and Trademarks in Complex Production Chains
38 Pages Posted: 12 Dec 2015 Last revised: 10 Jan 2019
Date Written: December 13, 2018
This article presents a new theoretical framework for evaluating the proportion of a product's surplus attributable to intellectual property (IP, such as patents or trademarks). It is used to explain the empirically observed differences between the use patterns of IP in industries based on discrete products, where patents are typically used to maintain monopolies; versus industries based on complex products, where patents are primarily licensing tools. In a complex production process, learning by doing allows a leading firm to gain some surplus without IP. As the number of steps approaches infinity, the surplus attributable to IP approaches zero. The value of the same patent held by a lagging producer for licensing to the leader does not approach zero, so the ratio of value for licensing to value for maintaining a leading monopoly diverges to infinity. Conversely, for a discrete product, these results do not hold and the traditional use to maintain a monopoly may remain the highest-value use.
Keywords: intellectual property, patent valuation, trademark valuation, production chains, learning by doing
JEL Classification: C65, D450, K110, O340
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