Patent portfolios for strategic R&D planning

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Patent portfolios for strategic RD planning
Journal of engineering and technology management

• ??Holger Ernst
• ??????

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outline

• Introduction
• Patent portfolios on the company level
• Patent portfolios on the level of technology
  fields
• Discussion
• Conclusions and implications for further research

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Introduction

• A cornerstone of technology management is the
  establishment of technology monitoring systems,
  which allow a company to timely anticipate
  technology changes within its competitive
  environment, which can, at the same time, yield
  either chances for new business opportunities or
  risks for existing businesses.
• However, empirical evidence shows a discrepancy
  between the perceived importance and the actual
  level of information on competitors RD
  strategies.

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Introduction

• This information deficit can first be attributed
  to the fact that RD figures are either not at
  all published by companies or, if published, are
  only available on an aggregate level and are
  almost impossible to compare due to measurement
  differences.
• Second, empirical studies reveal that most
  companies rely on sources of information for
  technology monitoring, which allow to detect
  technological changes only, when the new product
  has already been introduced into the market,
  e.g., trade fairs, product analyses.
• Consequently, the time to effectively react to
  technological challenges is often not sufficient.

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Introduction

• Therefore, several authors have called for the
  use of information contained in patent data in
  technology monitoring.
• Major support for the use of patents as a measure
  for RD activities comes from quantitative
  empirical research, where the lagged relationship
  between RD activities, patents and market
  changes on the company level has been examined.
• This result supports the use of patent data even
  as an output measure of RD, since they indicate
  those technological activities which lead to
  subsequent market changes. This information
  proves to be very valuable, since it goes far
  beyond the input-oriented measure of the level of
  RD spending by patents (Ernst, 1996).

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Introduction

• Several studies show that many companies have not
  yet recognized the benefits of patents as a
  strategic information source and therefore rarely
  use patent information for strategic planning
  purposes.
• This paper picks up this issue and introduces
  patent portfolios to be simultaneously used for
  the strategic planning of RD.
• Based on patent data from 21 German, European and
  Japanese mechanical engineering companies.

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Patent portfolios on the company level
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Patent portfolios on the company level

• We use the patent portfolio, as described above,
  to evaluate the overall patenting strategy of the
  21 companies in our sample.
• For this purpose, we gathered patent data, which
  had been published between 1981 and 1992 by the
  German Patent Office.
• Based on this patent data, we calculated five
  different patenting indicators per firm with
  respect to patent activity and patent quality.

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Patent portfolios on the company level

• Five different patenting indicators per firm with
  respect to patent activity and patent quality.
• Patent applications (PA)
• This patenting indicator measures the total
  number of patent applications at the GPO. The
  number of patent applications measures the patent
  activity of a company.
• Share of granted patents (Share of GP)
• A patent will only be granted, if the
  technological invention consists of new
  technological elements. Share of GP granted
  patent/(patent applications -patents under
  examination)

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Patent portfolios on the company level

• Share of valid patents (Share of VP)
• Patents are valid, if they have been previously
  granted and the protection fee is still paid for
  by the patent applicant. It can be argued that
  valid patents are still economically valuable for
  the company, i.e., the economic benefit is larger
  than the cost of maintaining the patent. (Share
  of VPvalid patents/granted patents)
• Share of US patents (Share of USP)
• International patent applications are considered
  to be more valuable, since the cost of obtaining
  an international patent is substantially higher
  than that of a national patent application.
  (Share of USP US patents/patent applications)

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Patent portfolios on the company level

• Citation ratio (Cit-Ratio)
• The number of citations received by a patent in
  subsequent patent documents can also be viewed as
  a sign for an economically important invention.
  (Cit-Ratio patent citations/patent
  applications)
• Based on the five individual patenting
  indicators, two additional indicators of patent
  quality and patent activity per firm need to be
  defined
• Patent Quality
• Patent quality is calculated as an index, which
  consists of the sum of relative measures for each
  of the above described individual indicators of
  patent quality, i.e., the shares of granted,
  valid and US patents and the citation ratio.
• Patent Activity
• Similarly to patent quality, the companys patent
  activity is measured by the number of its patent
  applications relative to the average number of
  patent applications over all 21 companies.
  (Patent activity per firms number of patent
  applications per firm/mean number of patent
  applications over all 21 firms)

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Patent portfolios on the company level
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Patent portfolios on the company level
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Patent portfolios on the company level

• Whereas the patent portfolio on the company level
  contains useful information for the evaluation of
  overall RD strategies, it fails to provide
  information about variations in companies
  positions according to specific technological
  fields.
• Thus, differences in technological emphasis
  cannot be identified and evaluated, i.e.,
  companies technological strengths may vary
  depending on the respective technological field.
• Therefore, in the following section a patent
  portfolio on the level of technology fields is
  presented, which can serve as a basis to support
  strategic RD allocation decisions.

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Patent portfolios on the level of technology
fields
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Patent portfolios on the level of technology
fields

• On the abscissa the relative patent position is
  measured, which is derived from the number of
  patent applications by the firm relative to the
  number of patent applications of its most active
  competitor.
• The abscissa values are predominately determined
  by the behavior of the firm under consideration.
• On the ordinate the attractiveness of each
  technological field is assessed by using growth
  rates of patent applications. Here, the growth
  during the past 4 years relative to the growth in
  the preceding 16 years is measured, which covers
  the 20 year patenting period and stresses recent
  changes in patent growth.
• The ordinate values are largely influenced by all
  companies that file patents in the respective
  technological fields.

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Patent portfolios on the level of technology
fields

• From Fig. 3 it becomes obvious that the company
  holds strong patent positions in many of the
  considered technological fields.
• Basically, the patent portfolio can be used to
  evaluate technological strengths and weaknesses
  of competing companies with respect to different
  technological fields.

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Patent portfolios on the level of technology
fields

• Definition of technology fields
• Five technological fields were identified in
  intensive talks with company experts.
• Data retrieval
• Patent data were derived from the database PATDPA
  for the time period between 1981and 1992.
• Since the case study was carried out at the end
  of 1994, patent applications, which had been
  filed until the end of 1992 could only be
  included, due to the 18-month time lag between
  priority date of the patent application and its
  publication.
• For the years 1988 to 1992, patent applications,
  which are assumed to mirror the latest
  technological developments were retrieved.

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Patent portfolios on the level of technology
fields
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Patent portfolios on the level of technology
fields

• The total number of patents can be allocated
  according to each patents classification with
  respect to the IPC classification scheme.
  However, this approach turned out to be
  problematic, since the respective IPC-classes did
  not always gave a clear picture of the main
  technological content of the individual patent.
• Based on all pieces of information contained in a
  patent document and with the inclusion of company
  expertise, patents were assigned to the five
  technological fields.
• Here, it became obvious that the essence of the
  technological invention did not always coincided
  with the assigned IPC-class. Furthermore, in a
  substantial number of patents only the
  supplementary IPC-class provided the decisive
  piece of information for allocating the
  respective patent to the correct technological
  field.

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Patent portfolios on the level of technology
fields

• The drawing of patent portfolios comprehends
  three elements, the relative patent position, the
  technology attractiveness and the technology
  importance.
• The relative patent position of a company in a
  particular technological field measures the
  number of patents owned by the company relative
  to the number of patents of a competitor in a
  particular technological field.
• number of firms patents in the technological
  field / number of patents in the technological
  field from the most active competitor.
• Thus, the maximum value for the relative patent
  position in each technological field is 1.

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Patent portfolios on the level of technology
fields

• The technology attractiveness was measured by
  calculating growth rates of patent applications
  at the GPO in the respective main and
  supplementary IPC-classes, which are of relevance
  for each technological field.
• Two different growth rates of patent applications
  were calculated.
• the relative growth rate (RGR)
• measures the average growth of patent
  applications in a technological field relative to
  the average growth of total patent applications
  in all above defined technological fields over
  the entire time period of our analysis between
  1981 and 1992.
• relative patent growth per technological field
  (RGR) average growth of patent applications per
  technological field between 1981 and 1992 /
  average growth of patent applications in all
  technological fields between 1981 and 1992.

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Patent portfolios on the level of technology
fields

• the relative development of growth rates (RDGR)
• measures the development of the average growth of
  patent applications in a technological field
  relative to the development of the average growth
  of total patent applications in all technological
  fields.
• relative development of patent growth per
  technological field (RGDR) development of
  patent growth per technological field /
  development of patent growth in all technological
  fields.
• development of patent growth per technological
  fields average growth of patent applications
  per technological field between 1987 and 1992 /
  average growth of patent applications per
  technological field between 1981 and 1986.

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Patent portfolios on the level of technology
fields

• The importance of a technological field within
  the companies portfolio of RD activities is
  measured by the share of patents in a
  technological field relative to the overall
  number of patents owned by the company.
• Number of firms patents in a technological field
  / total number of firms patents.

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Patent portfolios on the level of technology
fields
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Patent portfolios on the level of technology
fields
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Patent portfolios on the level of technology
fields

• Company GE3 is the dominant patentee in TF1. This
  technological field is given the highest priority
  within the companys patent activity. The
  technological efforts seem to be mainly directed
  towards the development of new machining concepts
  and machining components.
• Company GE3 also holds strong patent positions in
  TF2 and TF3, however, these technological fields
  receive less attendance compared to TF1.
• ??????????????????????????
• Contrary to company GE3, the technological effort
  of company GE1 does not vary over the
  technological fields. Each technological field,
  except TF5, is given almost equal importance.
• It is noteworthy that company GE3 captures a weak
  patent position in TF4, which receives a high
  technology attractiveness rating and which is
  dominated by Japanese competitors.
• ???????????????

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Patent portfolios on the level of technology
fields
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Patent portfolios on the level of technology
fields

• TF3 and TF5 receive high attractiveness ratings
  independently of the respective growth rate taken
  to measure technology attractiveness. Therefore,
  strong patent positions in these technological
  fields are to be evaluated positively.
• ??????????????
• According to expert judgments, the development
  potential of TF5 is viewed to be even more
  important, since new technological developments
  in this field are believed to have the highest
  competitive impact.
• ??????????????,??????????
• Thus, competitive moves in this technological
  field have to be recognized immediately and be
  included in strategic RD investment decisions.

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Patent portfolios on the level of technology
fields

• Reliability of positions in patent portfolios
• The evaluation of technology attractiveness has a
  large impact on the strategic recommendations
  derived from the positions in patent portfolios.
• Thus, it should be examined to what degree
  positions in patent portfolios deviate depending
  on the respective attractiveness measure on the
  ordinate.

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Discussion
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Conclusions and implications for further research

• Active patentees of high-quality patents are the
  technological driving forces within the industry
  under consideration and the technological
  potential of selective patentees of high-quality
  patents should not be underestimated.
• Companies positioned in the lower quadrants of
  the patent portfolio should basically question
  the productivity of their RD activities.
• These technological positions were further
  evaluated with regard to the attractiveness of
  each technological field, since it becomes
  essential for the formulation of strategic RD
  investment decisions.
• Based on our experiences made in this case study
  we summarized recommendations for the effective
  use of patent portfolios in further applications.

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Conclusions and implications for further research

• The automatic allocation of patents to
  technological fields according to IPC-classes
  increases the efficiency of the patent portfolio
  method. However, this may come at the expense
  that patents are not assigned to the proper
  technological field.
• It has been suggested to measure both dimensions
  of the patent portfolio as multidimensional
  constructs.

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Conclusions and implications for further research

• In this article, one could attempt to directly
  test the relationship between a companys
  position in the patent portfolios and various
  measures of economic performance.
• The hypothesis to be tested is that companies
  holding strong patent positions in highly
  attractive technological fields are more
  successful than those competitors holding weak
  patent positions in unattractive technological
  fields.