The Option Value of Patent Licenses

Abstract

Patent valuation is one of the most relevant issues within the studies on the management of intellectual property rights. As firms rely more and more on external sources of innovation, the need for reliable measurements of what is traded becomes essential. Patent valuation is especially challenging primary because of the great uncertainty affecting their returns and for the lack of market-based data. The most recent and promising attempts in this research field have been developed within the real option theory (ROT), which recognizes the effect of uncertainty on patent value, and they have taken advantage of the increasing amount of information available about licenses. The aim of this paper is to propose and empirically test a valuation model of licensed patents based on ROT. According to our model, the initial fee paid by the licensee is considered analogous to the premium she is willing to pay to buy an option to commercialize the licensed patents in the future. A fundamental prediction of ROT is that this option value increases with volatility. In order analyze the relationship between volatility and the initial fee of the license, we assume that volatility is primarily determined by market and technological uncertainty. We analyse 105 patent licenses. The results of our regression model show that both market and technological uncertainty positively affect the initial fee paid for a patent license.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 7 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.