Patent Acquisition, Investment, and Contracting
63 Pages Posted: 17 Nov 2016 Last revised: 24 Jan 2017
Date Written: November 15, 2016
Numerous works have examined the finance-related implications of intellectual property that is generated internally or acquired through M&A activity. The transfer of intellectual property via the secondary market for patents has received less attention. This paper fills that gap by asking how patent acquisitions interact with firm investment policy. I find that patent acquirers subsequently invest in more R&D, increase internal patenting, and eventually make new investments in CAPX. Firms with more technological expertise and investment opportunities acquire more patents. Patent sales are the dominant type of contract and maximize investment incentives; patent licenses frequently contain royalties, which induce under-investment problems. Nevertheless, licensing can be explained in part by financial and strategic considerations. Licensing is more likely when buyers become financially constrained, when revenue can be shifted to low tax sellers, and when the buyer is a competitor acquiring rights to a valuable patent. Overall, these results suggest patent acquisitions are motivated by the pursuit of investment synergies, rather than innovation substitution, commercialization motives, or legal threats.
Keywords: Investment, Innovation, Patents, Markets, Firm Boundaries, R&D
JEL Classification: G31, G34, E22, O32
Suggested Citation: Suggested Citation