The Market Value of Blocking Patent Citations

Patent-based measures are the most frequently used indicators in empirical research on innovation and technological change. In particular, patent forward citations have become an established measure for the technological and economic value of patents in the empirical innovation literature. Forward patent citations are found to correlate positively and significantly with patents’ economic value reported in surveys as well as with firms’ market value. Recent studies criticize, however, that forward citations explain only very little of the actual variance in patent value. A possible reason may be that citations to prior art are made for different purposes. While some references to patents are made to define the non-infringing state of the art in a technology field, others refer to infringing documents that could hinder the patent grant decision. The aim of this study is to exploit heterogeneity in patent citation types by examining whether certain types of forward citations correlate more strongly with patent value than others. We suggest and show that blocking patent citations are more highly correlated with the economic value of cited patents than other types of citations. Our empirical analysis is based on a sample of the top R&D spending U.S., European and Japanese firms in three R&D intensive industries. We focus on their triadic patents, i.e. patents that are jointly filed at the U.S., European and Japanese patent offices. Triadic patents reflect a selected group of inventions of which the owner expects most profits as she is willing to incur the relatively high patent filing and patent maintenance costs at all three patent offices. Our patent data is consolidated annually, taking into account annual changes in corporate group structures. Using panel data methods to control for unobserved firm-specific fixed effects we find that an increase of the percentage of blocking citations of one standard deviation yields a higher market value of about 10 percent.

Czarnitzki, Dirk, Katrin Hussinger and Bart Leten (2011), The Market Value of Blocking Patent Citations, ZEW Discussion Paper No. 11-021, Mannheim.