Thursday, June 02, 2005

Patent citations, again?

Somewhat like a weeble wooble, the concept of patent citation as a measure of value, no matter how many times it is knocked down and criticized, keeps trying to right itself.

There are many variations on the theme. At a simple level, a patent which is cited many times is deemed to have high value.

This is somewhat like the "97% of patent applications are granted" story. No matter how much evidence is mustered showing that 97% of all patent applications are NOT granted, there will be some who believe in the 97% number. Anyway -->

from Michael D. Kaminski in Mondaq:

The "Patent Citation" Set

The next three measurements rely on citation analysis, a growing tool for analysis of patent data.

"Technology Cycle Time" of Cited Patents

The measurement considers the median age of patents cited within the company's patent portfolio. This may be a more meaningful measure for relatively larger patents portfolios than smaller one. This measure has already been used by researchers as an indication of the speed with which a company is developing new technology. In fact, at least one "hedge fund" is using this measure of stock performance for individual companies. CHI Research, a private company, perhaps pioneered this measurement.

This measurement reflects the length of time it takes for a given technology to produce additional innovation. Patent citations reference the length of time it takes for a given technology to produce additional innovation. Patent citations reflect the knowledge produced by earlier research and development. Researchers have conducted studies that indicate that the "younger" patent citations have a faster turnover cycle of innovation.22 For example, Japanese patent citations are seven years old on average, compared with 10 to 20 years for U.S. citations. Researchers contend this indicates that Japanese companies tend to be more rapid in their citation of new technology in the companies' patent processes.

This measure could be a good measure of growth in innovation and technological development.

"Technology Strength" Measurement

This is a rather esoteric measurement. However, it actually forms the basis of the "TR Scorecard" described above. This metric was developed by CHI Research but publicly available. The drawback is that availability to the appropriate database is needed. According to the "TR Scorecard," however, "technology strength" is the best measure on how a company is doing as it relates to technology.

There are two calculations that must be done. First, the "Current- Impact Index" must be calculated. This is supposed to measure the broader significance of a company's patents. This index is calculated by how many times a company's patents that issued during the last five years were cited as references in last year's patent of others. A value of 1.0 is an average value.

The second calculation is that of "Technology Strength." This is calculated by multiplying the number of a company's U.S. patents by its "Current Impact Index."

Calculating Value Using Patent Citations

There is a growing body of studies that explores the usefulness of patent citations as a measure of the importance of a company's patents, as indicated by the stock market valuation of the company's intangible stack of knowledge.23 (Patent citations occur when patents are cited as references in other patents of the same company or in the patents of other companies. Such analysis utilize so-called "Tobin q equations" on the ratios of R&D to assets, patents to R&D, and citations to patents. These analyses generally conclude that each citation per patent impacts market value. However, such analyses have generally not been used as patent management tools yet. Therefore, this metric is mentioned but perhaps reserved for future consideration.

Related notes:
22 Francis Narin, "Patents as Indicators for the Evaluation of Industrial Research Output,".Scientometrics 3Y (1995) pp. 484-486 (CHI Research, Inc.).

23 See "Market Value and Patent Citations: A First Look," Bronwyn H. Hall, Adam Jaffe, and Manuel Trajtenberg, (August 2, 2001). Economics Department, University of California, Berkeley, Working Paper E01-304,; "Direct Validation of Citation Counts as Indicators of Industrially Important Patents," M.B. Albert, D. Avery, F. Narin, and P. McAllister, Research Policy, Vol. 20 (1991), pp. 251-259; "Patents, Citation and Innovations: A Window on the Knowledge Economy," Adam Jaffe and Manuel Trajtenberg, Cambridge, MIT Press, 2002.

Of one of CHI's studies, from Lawrence B. Ebert, Say Good-Night, Gracie, Intellectual Property Today (June 2003):

Also, somewhat ironically, on April 21, ran an article "The Innovation Factor: A Field Guide to Innovation," touting the innovation of a company Advanced Tissue Sciences, although not noting it was in bankruptcy. n15

n15 CHI Research had provided a list of businesses with under $ 100 million in revenues, which had accumulated 30 or more patents between 1996 and 2001.


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