A licence to patent

There is plenty of talk of the importance of patent licensing in the business world, but little in the way of concrete evidence. That, at least, is the view of the OECD which has done something to plug that information gap in a working paper from the Directorate for Science, Technology and Industry (DSTI) Who Licenses Out Patents and Why? Lessons from a Business Survey (360K pdf file).

The OECD, the European Patent Office and the University of Tokyo surveyed businesses on their licensing-out of patents. “The goal was to investigate the intensity of licensing to affiliated and non-affiliated companies, its evolution, the characteristics, motivations and obstacles met by companies doing or willing to license.”

The survey, in the second half of 2007, elicited responses from 600 European firms and 1600 Japanese firms. In both regions, the aim was to see what patent holders were doing, “the questionnaire focuses on licensing out and not on licensing in“.

The working paper describes licensing as a part of a changed landscape in innovation. “A new organisation of industrial research has emerged, less centred on the individual firm, more based on networks and markets, and relying more on new entrants and technology-based firms.” One consequence of this is that innovative firms “are increasingly dependent on external sources of knowledge rather than conducting in-house research”.

Patent licensing is a natural part of this process. Just how much, though, is an open question. As the working paper puts it: “Little is known on licensing transactions from a quantitative perspective: their volume, the profile of companies involved, the sectors where they are more prevalent, the motives for the firms involved, their economic effects and the difficulties they meet with.” This is where the survey comes in. It begins to flesh out some of these issues.

It turns out that 35% of firms in Europe and 59% of Japanese respondents declare having licensed out patents. The licensing activity seems to be less common for “middle-sized” companies: “the share of licensing-out companies is higher among the smallest and notably, among the larger companies, above 1000 employees”.

There are regional differences even within Europe. “The highest proportion of firms license-out in Europe is found in the UK, followed by Nordic countries.”

Why would companies license out patents? They do it to make money. “The first motivation, by far, to license patents to third parties is ‘earning revenue’ for both European and Japanese companies.”

The second motive is to gain access to someone else’s patents through cross-licensing deals. Here the trade is more important for larger companies.

The third reason for dealing in patents, in Europe at least, they didn’t ask the Japanese companies, is to “stop others from infringing your patents”. The report suggests that “This can be seen to a certain extent as forcing a license through: the patent holder has identified an alleged infringer and proposes him/her a license so as to avoid going to court. It is noticeable that this motive is exactly the same in importance for large and smaller firms.”

A final reason is to set a standard based on the patented technology. As the report puts it “licensing boosts the diffusion of the invention, which might therefore become a de facto standard”.

There is plenty of untapped knowledge tied up in patents out there, it seems. “About 24% of firms in Europe declare having patents that they would be willing to license out but could not (53% of firms in Japan).”

The report draws several conclusions that could influence policy makers. For example, the survey shows that “licensing markets are less developed than they could be, in view of the willingness of patent holding companies to license more of their portfolio. Helping suppliers to find partners would substantially increase transactions in patent markets.”

On the other hand, the report suggests that we need more evidence before going too far down that road. “A proper evaluation of the private and public mechanisms that could help solve market failures in patent markets has yet to be made before specific policy implications can be drawn from this study.”