The $70 million reason that companies don’t want to share their patents

July 3, 2012

Companies that make new discoveries often jealously guard their patents, reluctant to share the fruits of their R&D investments with others. When they do share them, they often charge high premiums, in part to compensate for projected losses from new competition or research that will make their original findings obsolete. Sharon Belenzon, a Duke University researcher, discovers that this may be for good reason — at least for a company's bottom line.

Belenzon details his recent findings for VoxEU: He examined 1,200 U.S. firms that issued patents between 1981 and 1997, finding there was a divide between firms that tended to keep their innovations to themselves — building upon them through further in-house research — and those whose innovations tended to help other firms make new breakthroughs. He points out that there is a potential upside when firms allow other firms to capitalize upon their research: It can spur innovation by outside firms, providing the basis for further R&D by the original firm, creating a virtuous feedback loop that benefits everyone.

Belenzon finds, however, that it's more profitable for firms to keep their work to themselves: Firms whose patents have more internal citations — that is, that build upon their own existing patents — have a $70 million increase in market value compared to those whose scientific breakthroughs are primarily cited by other companies' patents. Whether or not it's good for science, keeping patents in-house tends to help a company's bottom line.

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