The economic value of patent
protection and rivalry in the
Spanish electrical sector
Ricardo Sellers-Rubio, Juan L. Nicolau-Gonza
´
lbez
and Francisco Mas-Ruiz
University of Alicante, Alicante, Spain
Abstract
Purpose – The purpose of this paper is to estimate the economic value of patent protection and the
resulting rivalry.
Design/methodology/approach – An event-study is applied which uses the daily returns of shares
on the stock market as an output; and a model is estimated which bases its output on Tobin’s q with
annual observations.
Findings – The results are determined by the methodology used and the measurement of the output
dimensions of company performance. Both methodologies conclude that the patent application date is
the determiner of the value of an innovation. The event study methodology reflects the positive value
of patent protection.
Research limitations/implications – The generalisation of the conclusions of the study to other
economic sectors should be made with caution, given the fact that only the electrical sector was
analysed.
Originality/value – The literature available on this subject suggests that empirical evidence can be
affected by operational problems related to the measurement of inventive input and output. As a new
contribution to the field, the paper discovers the date of input (application or grant of the patent or
both) on which the company manifests innovation.
Keywords Patents, Research and development, Spain, Economic returns
Paper type Research paper
Introduction
The patent is a method used by companies to protect their inventions, an alternative to
secrecy, know-how, licensing agreements and other ways of attaining the advantage of
being the first to act (Levin et al., 1987). The patent represents the legal right to prevent
a third party from using an innovation. The value obtained by inventors from the
protection of a patent is determined by the difference between the returns of the
innovation with and without patent protection or more specifically, by the additional
returns that the inventor can obtain with a patent as opposed to that which he can
obtain by using other methods of appropriation (Lanjouw, 1998).
One of the approaches to estimating the economic value of a patent consists of
econometrically modelling the relationship between an output reflecting firm value and
intangible capital inputs such as the number of patents and R&D expenditure, among
others. Likewise, one research stream uses this causal relationship to look for the effect
on rivalry derived from patents as this could determine the future structure of a
market. Its logic stems from the fact that the patents of one firm can also be relevant to
other companies in the same sector, provided that patents are considered as a proxy for
the increase of technical knowledge (Ben-Zion, 1984).
The current issue and full text archive of this journal is available at
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EJIM
10,4
434
European Journal of Innovation
Management
Vol. 10 No. 4, 2007
pp. 434-452
q Emerald Group Publishing Limited
1460-1060
DOI 10.1108/14601060710828763