Wednesday, February 5, 2014

Added Value

Do patents add value to a company?   In September 2007, Bronwyn Hall, Gird Thoma, and Salvatore Torrisi published an article titled The Market Value of Patents and R&D:  Evidence from European Firms, which measures the impact of patents on market valuation.

The study looked at 1,060 firms from 1991 through 2002.  The sample consisted of publically traded companies that reported consolidated R&D spending through the period and had not had major changes in equity structure.  The companies selected were middle to large size companies from 15 different countries.  The companies do business in 35 different patent classifications with median annual sales of 306 million Euros.  Approximately half the companies held at least one patent issued by either the European Patent Office (EPO) or the US Patent and Trademark Office (USPTO).

Using the information from these firms the authors built a statistical model that estimated the ratio of market value to replacement value (net book value less intangibles) for each company.  Controlling for size, country and industry variations the study estimated the impact of cumulative R&D spending and patent ownership on the market value ratio.  

From this model, the authors were able to conclude that compared to companies without patents:

There was no significant difference in the expected market value ratio for companies that held patents that were only issued by the EPO.

There was a 10% increase in the expected market value ratio for companies that held patents that were only issued by the USPTO.

There was a 20% to 30% increase in the expected market value ratio for companies that held patents where the same invention was protected by patents issued by both the EPO and the USPTO. 

For companies with the double patent protection, an additional Euro of R&D spending would yield an extra 0.035 Euros of market value compared to companies with no patent protection.  This works out to be about a 17% premium.

While the study measured the ratio of market value to replacement value, the results apply directly to market value since replacement value can be considered fixed.  The study was also reasonably robust with cumulative R&D spending and patent ownership being able to explain about 27% of the total market value variations.  That is not bad for a valuation model that doesn’t take profitability into account.

As with all studies of this type, the results have to be taken with caution.  First, no conclusion can be reached about causality.  One cannot conclude that owning patents will improve the value of R&D efforts.  It is just as likely, and common sense might say more likely, that companies with more valuable R&D organizations are more likely to apply for patents.  Second, while the companies in the study represent a broad spectrum of organizations, they were not randomly selected because one of the primary selection criteria was reporting R&D expenditures in the financial statements.  

But this does study shed some light on where the value of patents might lie.

Below is a summary of selected patents that have been recently issued in textile related classification codes:
Siped Wetsuit:  A wetsuit with sipes cut into the material to help comfort and flexibility of the wet suit.  Patent #:  8578512.  Inventors:  Moore, et al.  Assignee:  Nike, Inc.

Deltoid Arm Protection for Ballistic Body Armor:  An attachment for body armor that protects the upper arm of the wearer.  Patent #:  8578513.  Inventors:  Carlson and Thompson.  Assignee:  Safariland, LLC.

Garment:  This is a sports performance garment with elastic regions incorporated into it.  The function of the regions are to limit and divert some of the energy put into a motion (preventing muscle pulls), store this energy and the return it to the athlete later in the process.  Patent #:  8578514.  Inventors:  Callibotte and Rouiller.  Assignee:  Addidas International Marketing B.V.

Child’s Robe and Sleeping Bag:  A sleeping bag manufactured to convert into a robe.  Patent #:  8578515.  Inventor:  Peterson.  No Assignee.

Insulating Product and Method:  A valve type device placed in the baffling of an insulating fabric that further controls movement of the insulating material.  The valve replaces meshing which reduces fabric weight.  The patent claims the final garment is more comfortable.  Patent #: 8578516.  Inventor:  Li.  Not Assigned.

Athletic Garment:  A garment for weight lifting.  Seams in the arms and legs of the garment twist as a weight is lowered.  This twist stores energy which is returned to the lifter when the weight is moved in the reverse direction.  Patent #:  8578517.  Inventor:  Alaniz and Alaniz.  Not Assigned.

Stay Tuck Shirt:  An undershirt that has a notch in the pelvic region that helps the shirt stay tucked into the pants.  Patent #:  8578518.  Inventor:  Pflug.  Assignee:  Manmade Concepts, LLC.

Inflatable Member:  An inflatable member for fitting in a shoe.  The interior size and volume can be adjusted to match the size of the shoe.  Patent #:  8578534.  Inventors:  Langvin and Rapaport.  Assignee:  Nike, Inc.

Decoupled Foot Stabilizer System:  The shoe consists of an upper, sole sections and an optional inner boot that are decoupled. The shoe includes multiple straps that connect through the shoe laces.  By running the lace through the ends of the straps, when the lace is tightened and causes the shoe to conform to the wearer's foot.   Patent #:  8578632.  Inventors:  Bell, et al.  Assignee:  Nike, Inc.

Jim Carson is a principal of RB Consulting, Inc. and a registered patent agent.  He has over 30 years of experience across multiple industries including the biotechnology, textile, computer, telecommunications, and energy sectors.  RB Consulting, Inc. specializes in providing management, prototyping, and regulatory services to small and start-up businesses.  He can be reached via email at or by phone at (803) 792-2183.

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