INNOVATION, PATENTS AND ECONOMIC GROWTH - Innovation in the Biopharmaceutical Industry - page 70

effective IP protection is critical to maintain competitiveness and to recoup costs of
innovation.
Earlier studies that analysed benefits of patenting and the ways in which these
benefits created incentives for companies to invest in R&D and innovation, produced
mixed results (Taylor and Silberston, 1973; Mansfield, 1986; Levin et al. , 1987),
while other studies argued that rigid patent protection regimes may hinder innovation
(Merges and Nelson, 1990; Scotchmer, 1991). But in most contexts patent regimes
allow researchers to use IP for research purposes or licence IP from others (Walsh
et al. , 2003). More recent studies substantiate the value and benefits of IP and
patents. Strong IP protection improves chances of success for small companies
(Gans and Stern, 2003), enhances their bargaining position when negotiating with
larger organisations for licencing or collaboration deals (Grindley and Teece, 1997),
and increases their chances of securing financing from investors (Rivette and Kline,
2000). For larger companies, better exploitation and effective management of IP,
through in- or out-licencing or defending, can lead to substantial benefits (Kalamas
et al. , 2002; Hillery, 2004)
The OECD (2005b) report on “Intellectual Property as an Economic Asset”,
which draws on Kaplan and Norton (2004), highlights the fundamental role IP plays
in business performance and economic growth in knowledge-based economies. The
report points out that, increasingly, a large proportion of the market value of a
company is determined by its intellectual assets — which, as intangible assets, have
monetary value and add to the company's balance sheet to increase enterprise value.
Indeed, substantial value placed on patents (Gambardella et al. , 2005) and patenting
innovations significantly increases (up to 47%) the value realised from them (Arora
et al. , 2003).
Hence, strategic management of IP is important to companies. Yet, many studies
show that most companies in knowledge-based economies do not manage their IP
strategically or adequately invest in IP generation and management (Arora et al. ,
2001; Roland Berger Market Research, 2005). This might be because varied val-
uation techniques produce different values for patents — sending mixed signals
to inventors and firms that have invested resources to generate and manage IP
(Schankerman and Pakes, 1986; Schankerman, 1998; Hall et al. , 2000; Smith and
Parr, 2000; Loch and Bode-Greuel, 2001; Harhoff et al. , 2004).
Legal protection of the IP rights of the innovators stimulates innovation, as
shown by studies demonstrating a positive correlation between the strength of the
IP protection and intensity of patenting (OECD, 2005a).
Nonetheless, the relationship between the IP systems, patenting and innovative
activity remains complex and the current measures, which focus on investment in
R&D, the number of patents filed or granted and the number of citations, are not
adequate to capture the extent of innovation activity at firm or national level.