Standard essential patents to boost financial returns

Knut Blind, Berlin University of Technology, Chair of Innovation Economics, Peter Neuhaeusler, Fraunhofer Institute for Systems and Innovation Research, and Tim Pohlmann, Berlin University of Technology, Chair of Innovation Economics

9/02/2015
(Original Publish Date: 5/6/2015)

Companies’ financial performance is strongly connected to their innovative capacity which is often based on the development and implementation of advanced or even leading edge technology. Especially in ICT (information and communication technology) markets where technology often overlaps it is crucial to own IPRs (intellectual property rights) to maintain market positions. We measure several indicators of patent value such as forward citation and family size. We especially focus on information on the technology position of a patent, measured by the patent’s essentiality to a technology standard. Based on these indicators, we then predict their influence on a company’s return on assets. We are able to prove that companies which declare standard essential patents to formal and informal SSOs (standard setting organizations) significantly increase their return on assets. This effect lasts for two years, while coefficients are stronger for patents declared to informal SSOs. We further evidence an inverted U shape distribution and our statistical calculation confirms that there is a threshold for the positive incremental effect of the declaration of essential patents on financial performance.