Are Litigated Patents More Valuable? The Case of Light Emitting Diodes

Abstract

Recently the LED sector has been growing very rapidly, with an expanding knowledge base and an increasing array of markets in which LEDs are used. Consequently, the number of LED-related patents has increased exponentially, as well as the amount of patent litigations. One of the factors that can hamper innovation in such high growth fields is when incumbent firms use their patent pools to deter innovation by competitors, especially by smaller firms. If so, patents would undermine innovation instead of supporting it, and thus undermining the LEDs huge potential of energy savings. To shed light on the extent to which LED patents might be used to deter innovation in the sector, we examine the nature of litigated patents, compared with non-litigated patents, and explore the main drivers of patent lawsuits. The results indicate that litigated LED patents are significantly higher quality scientifically than non-litigated ones. This has two implications. First, LED incumbent firms do not seem to be using strategic maneuvering, and that patent litigations in the LED sector are the result of innovation-related factors, rather than being guided by mere profiteering. Second, this conclusion does not imply that patent protection fosters innovation in the LED sector, because a concentration of patents in the hands of incumbent firms reduces technological variety, which mainly comes from small and innovative firms.

Keywords: patents, litigations, LED, lighting, eco-innovation, barriers

JEL Classification: O31, O34, P14, D23