Patents to products: innovation and company growth

How do patents relate to product innovation? A study by several American economists.

The academics of several American universities combined patent data from USPTO with detailed product and company data for the consumer goods sector (data from Nielsen Retail Measurement Services (RMS). Using textual analysis of patent documents together with product descriptions, they link specific patents to finely defined product categories within companies and time periods. They constructed empirical patterns and then a theoretical framework to provide possible answers to the question of the link between patents and innovation in product terms.

Some significant conclusions:

  • A large amount of product innovation comes from companies that do not patent.
  • For companies that file patents, this is positively associated with new product quantity and quality.
  • Patents and products with high sales potential are correlated.
  • Market leaders use patents differently from market followers. Larger companies have lower product innovation rate, but higher patents per new product.
  • Major companies use patents to block competition, and the value of these patents increases as they impose on the market.
  • This increase is mainly attributed to increased value stemming from the fact that they patent to protect themselves, not necessarily to produce.


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