18 Intellectual Property: Powerhouse for Innovation and Economic Growth
“Because European competitiveness
builds on the innovation and value
added to products by high levels
of creativity, the protection and
enforcement of intellectual property
go to the heart of the EU’s ability to
compete in the global economy.”
a. Firms use IPR to help develop, value, conduct
trade in and benefit from their works, brands
IP’s function as an ‘intellectual currency’—a mechanism for
valuing and trading otherwise intangible inventions, works and
brands—gives firms many more possibilities to realize value
from their innovations. As the World Intellectual Property
Organization has so eloquently put it: “The bricks and mortar
economy is … being replaced with the economy of ideas in
which IP has become one of the major currencies. In the new
economy, wealth is generated through creating and capturing
the value of knowledge. Throughout the history of human
civilization, wealth was based on the possession of physical assets. Today, however, the paradigm has
changed, and knowledge has become the new wealth.”
The mechanism of ‘intellectual currency’ gives IP rights a value in themselves, which can be quantified,
traded and otherwise taken into account in various ways in investment decisions, market capitalization and
sales and licensing revenues.
• Securing investment and market value. A firm’s ownership of IP rights helps to reassure
investors that they should put money into the company. As described further below, IP can increase the
market value of firms that own them, whether in the stock market or in an acquisition. The use of IP in
encouraging investment is not only important for established firms already reliant on patents, trademarks
and copyrights—protecting their value, innovation and reputation—but especially for new firms seeking
to establish a secure stream of investment and innovation. This is of particular relevance in sectors as
divergent as pharmaceuticals, biotech, film, music and publishing where only a small percentage of the
products, services or works developed may succeed in the market place.
• Developing new markets. IP rights do not need to sit in a firm’s safe under lock and key, but can be
and are actively used by innovative firms in various strategic ways to develop new and profitable markets,
products, services and processes. IP-based products and services thus generate income for the firm.
• Collaborating. Firms also can use their IP to collaborate in many ways—such as to license other
firms to manufacture or use the IP, to set up franchises, to cross-license the technologies of others and
to establish strategic alliances.
The whole concept of ‘open innovation’ in fact depends on intellectual
property rights—as firms seek to supplement their internal development capabilities with those of other
firms having particular specialities and strengths, and as firms seek to license innovations to other firms
better able to manufacture, distribute or otherwise use the innovations they have developed.
b. Firms that rely on IP generally succeed better than those that do not.
• Patent and trademark ownership are positively linked with firms’ market value. Separate
research studies in the UK and elsewhere have demonstrated this effect. Bloom and Van Reenen (2002)
3. Intellectual Property Protection Helps Firms Monetize Their Innovations and GrowIntellectual Property: Powerhouse for Innovation and Economic Growth 19
sampled 236 UK firms that between 1968 and 1996 had registered patents in the US. By each of the
measures of the patent variable used in the study, patents were found to affect market value positively.
Patents were also found to have a statistically significant impact on the firms’ productivity, although this is
realized more slowly than market value gains. The study found that doubling a firm’s citation-weighted (i.e.
robust) stock of patents ‘increases total factor productivity by 3%’.
Similar research by Greenhalgh and Rogers (2006) demonstrated that, while there were some differences
among industry sectors, “on average, higher … EPO patenting and UK trade marking (relative to firm size)
all tend to increase market value.”
With respect to trademarks in particular, Greenhalgh and Rogers (2007)
found that not only were UK and EU Community trademarks positively associated with higher market values
for UK firms that owned them, but also higher productivity (between 10% and 30% across all firms)—with
bigger gains for both seen among firms in the services sector.