 Good afternoon ladies and gentlemen. I'd like to welcome you to today's edition of our economic seminar. We're very fortunate to have a great speaker who will talk about patent related research and present a research paper with a title access to intellectual property for innovation evidence on problems and coping strategies from German firms. The paper deals with a topic that we at WIPO are quite familiar with and indeed we have had at least two or three seminars on this topic in the past. The basic topic of the paper and the basic question concerns how firms navigate complex patent landscapes. I think we all know that with a large number of patents that have been filed in recent decades, patent landscapes are increasingly clouded especially for so-called complex technologies where technologies consist of many separately patentable elements and where patent ownership is often quite diffused. That has raised the question I guess in the legal community but also in the economics community, what are the implications of crowded patent landscapes for innovation and in particular to what extent may firms have difficulties accessing the kinds of intellectual property and they need to commercialize their own innovations and to what extent may they be reluctant to commercialize innovations for fear of violating someone else's intellectual property. So this paper deals with this broad topic and sheds light empirical light on this question using data that comes from German firms. Just a note on the speaker, Professor Müller is a Professor of Innovation Management at the Frankfurt School of Finance and Management in Germany. She has a long track record of academic research in the field of innovation economics. She previously worked at the Center for European Economic Research in Mannheim in Germany. She got her PhD at the London School of Economics and she studied economics at the London School of Economics at the University of Mannheim and at UC Berkeley in the United States. Usually we present for maybe 40 to 50 minutes if you want to take questions during the presentation that's up to you. Usually we take sort of questions for clarification and then leave sort of the more existential questions to the questions and answer period but it's really up to you. So the floor is yours. Thank you very much for giving me the opportunity to present my work here at WIPO. It's a great honor to be here. The paper I'm going to present has the title Access Intellectual Property for Innovation, Evidence on Problems and Coking Strategies for German Firms. In the introduction it was mentioned that firms find it nowadays difficult sometimes to commercialize their technologies because they face a complex patent landscape and therefore they will need to find strategies to deal with this landscape. For example by modifying their products or also by licensing in technology they do not have developed in-house and these activities are the topic of this research. We want to see what problems do German firms face, how frequent are these problems and what coping strategies can those firms employ. I do not need to say here that a patent system was designed to give incentives for innovation in response of a monopoly right in the product market so that's the idea in theory and it works so well in practice that nowadays we have a flood of patent applications that it's quite difficult for companies to navigate the patent system and therefore the patent system has also unintended consequences of making it more difficult for companies to commercialize their technology. Especially in the recent years and decades we observed that products become more complex that in many industries it's necessary to use technologies from different industries so it's more likely that a single company will not have developed all technologies. This means that the companies need to acquire intellectual property from other companies or at times they will need to modify their products and of course all this has to do with costs. On the one hand there are transaction costs to get access to the rights of others but on the other hand if a company has developed a product and then learns that it cannot commercialize it and has to abandon it those are huge costs for the company. So these are the issues that we want to investigate here how prevalent are these problems actually. I give you three examples before I start with the empirical analysis an example you are probably familiar with is the legal disputes we saw in the smartphone industry. It's an industry where patent protection is very important where the product is complex technologies come from many industries and so it's necessary for the companies to agree on mechanisms on how to use the IP of others and in this industry unfortunately this has led to many costly lawsuits. I've brought you also two probably lesser known examples one is a small software company in Berlin their approach to IP was we first develop our product we do not do a patent search we will just see what happens and in this company the company was approached by a US company the US company asked for royalties and then the German company agreed to pay the royalties for the patent and there was no major problem ensuing. Another example of how companies can deal with access to IP is the one of Microsoft it was sued by Eulas another US-based company for infringement and then Microsoft modified the product. So this is also a strategy we will look at in the paper whether companies need to modify their products in order to comply with the IP landscape. These are the questions that we want to address in this research how widespread our problems is access to IP how often does it happen that companies need to abandon projects or how often does it happen that companies just disregard IP and innovate without the necessary rights and then we will also look what is the prevalence of strategies companies used to get access to rights this would mean acquiring for example patents licensing in technology but also cross licensing technology we would count informal negotiations about access but also the legal proceedings of filing an opposition against patents held by competitors. What we have here is a representative study for Germany so you will get an idea of how prevalent these problems and coping strategies are for the German economy. I should point out that this is joint work together with Ian Coburn and Megan MacGavi both are from Boston University and I learned from your program that Megan MacGavi will give a talk here I think in November so you can enjoy her as well. Yeah what do we know so far is the patent system can it be hindrance on innovation there are so far conflicting evidence they're mostly from science a lot from the biomedical field one study found that biomedical scientists do not report gaining any access to patented material so there seems to be no problem but then there is also a study that says that patented biomedical inventions get cited less frequently later on so maybe there is problem that if something is patented that others do not have access to it and it might hinder innovation what we also know from previous work with the same also team is that if the patent rights are more fragmented which means more dispersed among companies then we see a higher incidence of in licensing so companies need to use the market for technology more frequently and we also found a lower innovation performance for firms that were in need of in licensing so overall it could be that a patent system also has its downsides for innovation now let me present to you the data that we are using to investigate these issues it's an innovation survey done by my previous employer the center for european economic research it was conducted in 2008 and included specifically questions for the companies about their problems with access to ip we got responses from more than 2500 companies they are from a wide coverage of industry manufacturing and service sector and i should know that there is a minimum size requirement for at least having five employees but then it's representative for the population of german companies and we use information from the patent data from the european patent office to get information about the technologies in which the companies are active in and to know how many patent applications the companies have okay so this slide here should give you just an indication on the size of the companies that's the most relevant part here you see that for firms with innovative activities there's a median size of 82 employees so the companies are quite small and this reflects the overall company structure we have in germany and for firms with patent applications the median size is 270 employees as expected these companies are larger but we also have the very large companies included here in the survey okay then i can immediately come to the main part of the paper namely the questions that we asked the companies we had a set of eight questions that asked companies about their problems they faced with access to ip and their coping strategies and you see the first four aspects those are the problems it's possible that companies are not able to start an innovation project because they have no access to ip it could be that they have to abandon a project they have already started that they need to modify a project or that they need to conduct innovation projects without access to all necessary ipr this is the fourth question we were a bit reluctant to put it into the questionnaire uh because it asks for illegal behavior but we were surprised that quite a few companies actually said yes this is what we are doing and then from five to eight you have the coping strategies of the companies they could acquire ipr so licensing in or purchasing exchanging ipr they can try to get rid of the patents hold by competitors by opposing or litigating and they could also on a more friendly manner try to negotiate with the other companies in this graph you see the frequency of those activities so let me comment on these aspects here first of all you see that for not started or abandoning projects there's not a lot of incidents maybe three to four percent of companies with innovative activities that that they actually face this most severe problem that they had to abandon a project or could not start at all so i would say this is quite good news for the patent system that these uh severe problems are not too frequent but if you look at uh modifying products you see for the manufacturing sector that here between 15 to 20 percent uh of the german companies with innovation activities and more than five employees had to modify and i think this is quite a large figure and it shows how important patenting is for german companies and how actively the german companies work with the patent system and also react to the patent system then for this illegal strategy of commercializing without access to all ip we see in the manufacturing sector that 10 percent of companies confess to this strategy so we were quite surprised to see such a high percentage here and then if we go to the coping strategies acquisition of ip is quite frequent then exchanging is only done by a minority of companies and it is clear if you want to exchange uh ip exchange the rights to use patent portfolios then you need to have a minimum size there are not so many players in germany that can use this strategy on the not so good side we also found a high a high incidence of the legal mechanisms of opposition litigation and also of the informal negotiations those are strategies that can be quite costly for the companies and if you consider that in the manufacturing sector 10 of companies need to use these strategies then you can say that the patent system is also imposing some costs under companies so i think this is one of the main results here that we have found that more severe problems are quite rare but when it comes to modification to legal problems then we see higher rates of problems and coping strategies then we could break down these results according to some company characteristics as expected we see that for all the strategies there is a size effect the large companies have more problems they also use more coping strategies this is because the large companies have more innovation projects therefore they are also more likely to run into trouble we were interested to look at the breakdown with respect to age because it has been said that the young companies are at a disadvantage they are inexperienced so they are probably facing more problems but here on a positive note if we define young companies as younger than 10 years we see almost no differences between the young and the old companies we can also break it down with respect to patent applications so here we look at whether companies who actively participate in the patent system who benefit from the patent system if those are the companies who also face problems and it is quite clear that for companies without patent applications we would say they are out of the game they do not they have fewer problems and the more applications the company has itself the more relevant is the patent system for this company and also the more problems it is facing one can say that the companies who benefit themselves from patent protections are also the ones who face the difficulties and in this sense it would be a just system it's not a case that would be innovators who have so far not applied for own patents would be the ones who suffer a lot what can also already be cleaned from here is that we also have have it to do with experienced and yeah not so experienced players if you look at abandoning projects then you see that there are there is no size effect the companies with the larger patent portfolio they are not more likely to abandon a project and this means that those companies those are the more professional ones they can spot problems in advance and for the other problems and coping strategies you typically see that the larger companies with the larger patent stock also have more problems okay then we also broke it down with respect to the performance the innovation performance what is the share of sales new to the market for the firms and here also the ones who are more innovative the ones who have products that are new to the market they have a tighter relationship to the patent system they face problems and they also use coping strategies okay then next interesting breakdown is to go by industry structure because we know that the patent system is quite of different importance in different industry these results are also representative of German companies in the respective industries and first thing to note is that factors in which patenting is of high importance such as the chemical and pharmaceutical industry those are the industries where companies also have problems if we stay with chemicals pharmaceuticals 26 percent of the companies report that they had to modify projects you also see from this table that acquisition of ip is actually quite common also in the chemical industry 30 percent of companies are doing it so they are quite professional here but of course you'll also see that in industries where patents are of lower importance such as mining and quarrying but also electricity gas water supply the companies are less involved in the patent system no problems and also fewer coping strategies okay then i also would like to show you some regression analysis i know that the audience is not made up only of economists therefore i want to be quite non-technical there is no need for you to understand the results i will just highlight for you what i think are the most important results here that we see yeah for those who want to look at the uh uh columns let's focus on column three where we have the modification here a lot as we would expect the larger companies with respect to more employees also the ones with a higher r&d intensity those are the ones who are more likely to modify then also companies who have at least one patent applications are more likely to modify and if you look at the first line this would be the effect of being a young company then you see there is uh never any influence of the age of the company so we can clearly say that age of the company is not related to these problems we can do this analysis also restricted to companies which have at least one patent application and by this we can dig a bit deeper into the technology that the companies are confronted with this would be our last variable here the concentration of ip ownership here we find that in technologies where concentration of ip ownership is more concentrated which means there are more large players we actually see fewer problems and we interpret it that it means that in the industries where there is a concentration of ownership the players know each other they have a some understanding of what is the ip position of the competitors and they are more likely to be able to see problems in advance and there is no need to act later for example with modifications okay then let's go to our coping strategies which companies use coping strategies here we also see for all coping strategies a clear size effect the larger companies the ones with a higher r&d intensity those are the ones who deal with the patent system but also the ones who have their own patent application they are also more likely to for example exchange ip or to oppose patents hold by others then if we go to the coping strategies again restricted to companies with at least one patent application here i can report also a size effect again the larger companies more likely to do all this but interestingly here we see no effect of the concentration of intellectual property so for the concentration we only found that it is reducing the incidence of problems so that there is some coordination beforehand but it's not relevant for how successful companies are in solving problems okay also on an interesting note for we know that using all those coping mechanisms is actually costly and here we see that companies who have their own patent applications for them using the coping strategies has presumably a higher value and they are also more likely to use them then so far we did the analysis at a quite disaggregated level at looking at different strategies one by one we now want to look at the aspects at a more aggregate level we say that not starting abandoning modifying these are actually the problems that companies face and acquiring exchanging opposing negotiating those other coping strategies and we know from the data that these two aspects are correlated so companies who face a problem are also more likely to use a coping strategy and therefore use an empirical method that allows us to model this interdependence between the strategies in this result we can confirm empirically that these strategies are related to each other and we can confirm most of the effects that we found previously namely that is the the large innovative companies who are engaged in these strategies and we can also confirm that the concentration of intellectual property is reducing problems the company's face but is not influencing the coping strategies I can also report but it's not on a slide that we looked quite closely at at the data whether the coping mechanisms would be able to solve all problems but this is really not the case no matter how we look at the data we always have very big size effect so that the bigger players they face problems and they use coping strategies so it's also for the sophisticated players not the case that by using those coping strategies they would get rid of all the problems so it seems a fact of life for the larger companies that they always have an active involvement with the patent system and they cannot eliminate all problems altogether yeah okay then I'm already at a conclusion as a summary of the results that we found we can report that it's quite rare for German companies that they need to abandon projects or are not able to start the projects because they let lack access to IP but we see a higher share of firms who have to modify projects and we found no specific problems for young firms so we can say that over all the firms who benefit from the patent system are also the ones who face problems and in our view at least from what we can say from our analysis the patent system works mostly as intended of course there are many other potential problems or ways how to improve the patent system but from this specific set of analysis the problems seem to be contained but of course there is a set of limitations here in this analysis we do not observe the nature of the projects that were not started or abandoned so we do not know whether those were the larger projects that run into those severe difficulties we do not observe the costs of modifying products or the costs of employing the coping strategies so we are not able to do a full cost benefit analysis here and also one has to keep in mind we could only interview the companies who actually made it to the market there might be companies there might have been entrepreneurs with very good ideas but they figured out we cannot go to the market because competitors have patent rights so this is also not included here in this analysis and it's a study that is only done for Germany but we would think that because the increase in patent applications is the same in many countries that other companies in other countries face similar problems and that what we could learn for Germany is applicable to other countries as well okay then I would like to thank you very much for your attention