The purpose of the paper is to advance a framework that can assess and analyze the value of patent portfolios. On this purpose, the framework develops a conceptual and comprehensive index, the patent portfolio value index (PPVI), to assess the patent innovation level and suggest economic-strategic guidelines.
The authors have designed and applied a framework that synthesizes into a single index the results of a multiple criteria approach, based on information derived from quantitative objective data (claims, citations, and market coverage), information related to qualitative determinants (strategic positioning and economic importance), and information derived from decision makers’ perceptions and judgments.
The authors have applied the PPVI to the 3,532 patent portfolio documents in an Italian worldwide player in aerospace and defense market. The combined analysis, provided by the PPVI and a qualitative synoptic representation, has made it possible to understand the strategic positioning and alignment of patents with the core business of the company. The results of the analysis have provided managers with the necessary suggestions regarding action items to be performed: to reinforce, license, try to dismiss, or sell some of the examined patents of the portfolios.
The PPVI supplies a quick procedure to ascertain the profitability of patents and accounts for the value of a patent portfolio from an internal business perspective.
As it is built and defined, the PPVI shows elements of novelty compared to the other indexes existing in the literature, in that it follows a multiple criteria approach by merging quantitative and qualitative information.
Grimaldi, M., Cricelli, L. and Rogo, F. (2018), "Valuating and analyzing the patent portfolio: the patent portfolio value index", European Journal of Innovation Management, Vol. 21 No. 2, pp. 174-205. https://doi.org/10.1108/EJIM-02-2017-0009Download as .RIS
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In recent years, academics and practitioners have developed a variety of methodologies to assess patent and patent portfolios value as an effect of the increasing importance of intellectual property (IP) rights to technology analysis and innovation management processes (Narin et al., 1987; Trajtenberg, 1990; Hall et al., 2005; Chen et al., 2011). The management of knowledge assets, in general, and of patents and patent portfolios, in particular, is increasingly important, as the value of knowledge intensive companies is partly determined by the value of their patents (Corvello et al., 2013; Michelino et al., 2017). The concept of value is intended here as the capability of patents and patent portfolios to support the company’s value creation process and its strategic business objectives (Sellers-Rubio et al., 2007; Drivas and Panagopoulos, 2016). Indeed, patents constitute an ever-growing valuable driver of technological competitiveness, able to generate considerable profit (Sapsalis and van Pottelsberghe de la Potterie, 2007; Wang and Hsieh, 2015). Therefore, patent portfolios require a continual audit of their suitability to business driven strategies and to changing circumstances (Calabrese and Costa, 2015). Accordingly, it is necessary to verify the constant alignment of patents with the company’s business objective in order to achieve the expected business benefits from a balanced IP portfolio (Scherer and Harhoff, 2000; Jaffe and Trajtenberg, 2002; Hsieh, 2013). Hence, an analysis of patents and patent information can improve their management and help companies take on the competitive landscape.
Patent value depends on many elements, some of them referring to quantitative determinants, such as claims, citations, and market coverage, and others referring to qualitative determinants, such as strategic positioning and economic importance (Ernst et al., 2010; Lagrost et al., 2010). Information about firms’ patents can be gathered from data regarding citations, applicants, inventors, International Patent Classification (IPC) code, patent geographic extent, and from patent texts inclusive of abstracts, inventions and claims. However, as patents and patent portfolios assessment is a business responsibility, it seems advisable to acknowledge the usefulness of multiple criteria in assessing patent portfolio value by means of managers’ perception (Hagedoorn and Cloodt, 2003; Malewicki and Sivakumar, 2004; Teece, 2006; Tseng et al., 2011).
So far, a managerial procedure capable of identifying those patents that show non-homogenous evaluations of their bibliometric, strategic, and economic characteristics and verifying the alignment of patent strategy and business strategy is not available. Moreover, the patent analysis systems proposed in literature do not consider quantitative and qualitative determinants of the value of patents at the same time (Chiu and Chen, 2007; Chen et al., 2009; Ernst et al., 2010; Lagrost et al., 2010). Although the possibility of simultaneously grasping the values of several entities or of combining different indicators is very powerful and advantageous to the strategic and managerial decisions, there is not in literature a synthetic index that provides a comprehensive evaluation of patent portfolios by combining various qualitative criteria and several quantitative factors (Trajtenberg, 1990; Ginarte and Park, 1997; Guellec and van Pottelsberghe de la Potterie, 2000; Lanjouw and Schankerman, 2004; van Zeebroeck, 2011).
Indeed, many indicators, able to assess the value of the patents by making use of one of the determinants, have been advanced in literature. Some indicators have examined the patent technological role by means of claims (Reitzig, 2003; Lee et al., 2007; Caviggioli et al., 2013), others have analyzed the value of citations (Bonaccorsi and Thoma, 2007; Ernst and Omland, 2011; De Rassenfosse et al., 2013), still others have taken the geographic coverage into consideration (Guellec and van Pottelsberghe de la Potterie, 2000; Fabry et al., 2006; Kabore, 2012). Many quantitative methods, which can rarely be considered actual indexes, have analyzed qualitative characteristics, such as the strategic importance to a company (Dou, 2004; OuYang and Weng, 2011), or its economic relevance (ER) (Chen and Chang, 2010; Park and Park, 2006). However, the existing tools do not synthesize the results of all these multiple criteria into a single procedure so that the strategic assessment of decision makers can be easily supported.
Therefore, as it is possible to observe from the literature review on patent value, some research papers about patent value indexes investigate only specific subsets of value or analyze the patent value focusing exclusively on financial or market-dependent indicators. To the best of our knowledge, most of the determinants are calculated from patent database information; consequently, there is a need for constructing an index that simultaneously grasps information supplied by qualitative and quantitative patent determinants and information derived from perceptions and judgments of decision makers. In other words, both in literature and in managerial practice, what is needed is a synthetic index that considers both quantitative-bibliometric data and qualitative data, and economic and strategic features as well. The exigency of providing such a synthetic evaluation of patent portfolios derives from the need of assessing the overall value of patent portfolios according to the internal business perspective and of verifying the alignment of patents with the strategic objective of companies.
As a consequence, in order to assess patents and patent portfolios value, we have designed a framework which synthesizes into a single index the results of a multiple criteria approach, based on information derived from quantitative objective data (claims, citations, and market coverage); information related to qualitative determinants (strategic positioning and economic importance); and information derived from decision makers’ perceptions and judgments.
More specifically, the aim of the paper is to advance a framework that can assess the value of portfolios containing patents from different technological fields. On this purpose, the framework helps assess the patent innovation level or their technological originality and suggests an economic-strategic guideline.
We have implemented the framework in the technological sectors of one of the most important industrial Italian company, Leonardo is the leading company in aerospace and defense field and constitutes the sixth worldwide player in the defense electronics market. The results of the framework have been discussed with the managers in charge of each sector.
The paper is structured as follows. Section 2 provides the theoretical background on indicators and indexes as illustrated in the literature. Next, Section 3 provides an insight into the methodology and the data collection. Section 4 describes the results of the data analysis. Section 5 concludes and provides directions for further research.
2. Literature review
In literature, papers related to the study of determinants that concur to patent’s value mainly refer to the economic and strategic value of patents and to the analysis of the impact that patent innovation and technology produce on the company value. In general, there is a consensus of opinion that a correlation exists between patent value and some determinants. The analysis of the literature has helped us select those determinants considered very important to the patents’ value: claims, citations, market coverage, strategic positioning, and economic importance. We reached a compromise on the number of criteria, in order that: the criteria would be thorough enough to ensure completeness; they could guarantee a straightforward application of framework; and would avoid difficulties either to the readability of the qualitative synoptic representation or the comprehension of the quantitative index.
In the following sub-sections, the main indicators of each determinant of patents’ value suggested in literature are examined; then, the main aggregated indexes that synthesize a few indicators of value determinants are analyzed.
Claims are related to the product, process, and usage of patents and delineate the property rights of the technology protected by patents (Haupt et al., 2007). Many authors hold that the value of a patent or of a patent portfolio can be leveraged by the number of its claims (OuYang and Weng, 2011; Tong and Frame, 1994; Harrigan et al., 2017). Lanjouw and Schankerman (2004) observed that a large number of claims reflect the technological importance of the innovation embedded in the patent and its wide potential for profitability. Lerner (1994) and Shane (2001) pointed out that only highly valued patents, underpinned by several technical claims, make company financial value increase. Moreover, it has been noted that the number of claims changes substantially in dependence of the technology field of the patent (Ernst, 2003) and of the scope of the patent itself (Park and Park, 2006). In addition to their number, also the quality of claims of a patent portfolio can be an indication of their value (Lagrost et al., 2010). The main indicators of claims are listed in Table I. In this respect, Reitzig (2003) selected four indicators as determinants of the quality of a patent: independent, dependent, process, and application claims. Lanjouw and Schankerman (2004) identified the average value of the number of claims for each patent and utilized it to compare patent portfolios as a determinant of the patent value. Also, Caviggioli et al. (2013) established a logarithmic relation between the number of claims and the patent quality. Lee et al. (2007) and van Zeebroeck and van Pottelsberghe de la Potterie (2011) devised two similar indicators to compare the number of claims owned by a patent/patent portfolio to the average value of the number of claims owned by patents/patent portfolios of the same technological sector. Van Zeebroeck and van Pottelsberghe de la Potterie (2011) suggested an indicator which could take the presentation year of the applications into account.
In literature, most of the authors agree upon the importance of citations in the study of patent value (Harhoff et al., 2003; Hikkerova et al., 2014; van Zeebroeck, 2011). Citations state usefulness, originality, and relevance of patents, and legally, they delimit the scope of the property rights awarded by patents. Backward citations are all those documents cited by patents. Forward citations are all those citations received by other patents and documents. Even if either backward or forward citations can be a measure of value, most of the indicators ground only on forward citations (Hall et al., 2005; Harhoff and Hoisl, 2007). The number of citations is an important proxy for patents’ value and for the assessment of patent portfolios. However, the construction of an indicator able to represent the impact of citations on the patent value is subject to different opinions. The main indicators of citations are listed in Table II. It is possible to observe that the number of forward citations is one of the main determinants of patents; indeed, in patent literature, it has long since been acknowledged that this determinant is tied to the patent value. However, a number of authors have emphasized that just the simple count of forward citations is not adequate to assess the value of a patent, as citation number grows at the increasing of the age of a patent. Therefore, several scientists have determined appropriate indicators in order to solve the problem that the number of forward citations increases over time and to analyze the relationship between forward citations number and patent value. Park and Park (2006) proposed an indicator based on the cumulated probability that, for a specific sector, a generic patent be cited during the 20 years of its validity. Ernst and Omland (2011) advanced a normalization between the number of forward citations of a patent and the average number of citations received by all the patents published in the same year. Caviggioli et al. (2013), Kabore (2012), and Fischer and Leidinger (2014) suggested a logarithmic relationship between forward citations and patent value; indeed, it is reasonable to expect that the nth citation will have a lesser impact on the patent value than the previous n−1 citations. Similarly, several authors restricted the time interval within which to evaluate the number of the forward citations (Bonaccorsi and Thoma, 2007; De Rassenfosse et al., 2013; Frietsch et al., 2013; Lanjouw and Schankerman, 2004; Messeni Petruzzelli et al., 2014).
However, as shown in Table II, there is a disagreement among scientists about the time span of citations to be considered and the beginning of the time span itself. Hall et al. (2005) classified patent value by the number of forward citations and assigned each class a value. Chang (2012) suggested a patent citation matrix, within which the time frequency of citations of enterprises be recorded, regardless whether they belong to the same technological sector or not. Narin (2000) conceived an indicator called current impact index (CII) to evaluate the frequency of forward citations in the last five years within the same technology sector. In other words, the CII provides an indicator of “how often patents are cited in other patents, which shows how frequently they are used as the foundation for other inventions.” Indeed, the CII is a normalized indicator of the number of times a group of patents are cited by another patent; it measures the extent to which current technology is built on a group of patents, and provides an indicator of the quality of an assignee’s patent portfolio in a specific field.
2.3 Market coverage
The effect of a patent is delimited by the extension of the territory of the country that licensed that patent (Meyer et al., 2011), while the geographic extent of a worldwide patent protection strongly influences patent value due to the strict correlation of patent value to market coverage, as Grefermann et al. (1974) were the first to point out. On this basis, it is possible to consider the extent of patent protection in global markets as an indicator to assess the value of patents, as several authors indicated in their works (Ernst and Omland, 2011; Harhoff and Hoisl, 2007; Lanjouw et al., 1998; Lanjouw and Schankerman, 2004). The main indicators of the market coverage of patents, examined in literature, are listed in Table III.
Sapsalis and van Pottelsberghe de la Potterie (2007) suggested that the patent value results from the number of countries where the patent is protected. Then, they analyzed whether the patent is licensed by the main patent offices. Reitzig (2004a) and Harhoff et al. (2003) set forth that the relationship between patent family size and patent value is defined as logarithmic. That is, when the number of countries where the patent is extended increases, the patent value increases in a logarithmic way. Guellec and van Pottelsberghe de la Potterie (2000) took measurements of patents’ value by means of the family size. In order to evaluate each patent, they introduced Boolean variables that accounted for the number and the typology of the countries, where the patent was licensed. In a following paper, the same authors proposed different Boolean variables which considered both the gross domestic product (GDP) and the case in which the country of origin did not match with the country of citizenship of the applicant (Guellec and Van Pottelsberghe de la Potterie, 2002). Similarly, Fabry et al. (2006) expressed the market coverage as an entity depending on the number of countries where a patent or a patent portfolio was protected. Moreover, they put forward an indicator to assess patent portfolios, the share of triadic patents, which is the number of patents protected in the three most important patent offices divided by the total number of patents.
A number of authors have based their research on the premise that it is not adequate to take into consideration only the family size of patents to assess the patent value, rather, it is fundamental to pay attention to the characteristics of the country that guarantees the protection of the patent innovation. A few scientists have suggested indicators useful to deal with this need. Ernst and Omland (2011) introduced the value of the GDP of the countries where the patent was licensed as a determinant of the patent value. They advanced an indicator, the market coverage of granted patents, which is the sum of the GDPs of the countries where the protection of the patent technology had been obtained, normalized to the GDP of the USA. Lanjouw et al. (1998), Kabore (2012) and Frietsch et al. (2014) proposed an indicator, the value index, which uses the family size weight (FSW) as a determinant. Each of these authors calculated the value index by assigning FSW a different weight. Lanjouw et al. (1998) assigned each country a specific value. Kabore (2012) used the GDPs value as a parameter of the importance of FSW. Frietsch et al. (2014) highlighted the correlation between FSW and other suggested variables, such as imports, GDP, population size, the global competitiveness index, intensity of local competition, and strength of patent systems.
2.4 Strategic positioning
Patents are of great importance to the value creation process of companies and can be used in planning defensive and offensive strategies (Arundel and Patel, 2003). Thanks to their value, patents can assure companies a competitive advantage over competitors in terms of differentiation (Ernst, 1998; Hsieh, 2013) and can be considered a source of revenues from their grant to a third party (Lee et al., 2009; Tseng et al., 2011). Furthermore, patents correspond to fundamental elements of patrimonial estate: their value can encourage mergers and acquisitions, valorize the corporate image in negotiations, and, when unexploited by owners, can be capitalized by licensing them in other countries. Patents can also encourage innovation and valorization of research activity and can address the coordination of technological flows within companies or research groups (Breitzman et al., 2002). In the following, we cite a few indicators of the strategic determinants as suggested in the literature. As synthesized in Table IV, researchers very often have tried to analyze the relationship or the correlation existing between a determinant of patent value and the strategic perspective. Abraham and Moitra (2001) started from the concept that patents are not only an important source of information to evaluate the technological advance and innovation, but that they can also support the strategic planning process effectively. They, therefore, suggested a classification of the patents by their technological characteristics in order to give indications of the patent strategy.
Chang (2012) advanced a model based on a bi-dimensional matrix, where patent portfolio and patent citation data allowed to evaluate the ability of the corporate technological strategy to support the strategic planning. Hsieh (2013) advanced a hybrid method to assess patents and define a corporate strategy in its initial phase of trading. First, patents are organized into classes according to their revenues and risk factors, then each group is assigned a possible commercialization strategy. The method makes it possible to draw the attention to strategic changes in the positioning of patents and to develop corporate strategic planning at medium and long term. Banerjee et al. (2000) analyzed the relationship between the number of patents and the industrial competition. The authors have proposed a competition indicator by which it is possible to gather information about the strategic planning, the level of competition, and the main value drivers of the production process. Fabry et al. (2006) examined the patent information to evaluate new business opportunities and support corporate strategy planning. Based on “patent quality” and “patent activity,” they organized enterprises in four categories: technology leaders, high potentials, activists, poor dogs. Then, they proposed an appropriate strategic planning for each of the four categories. Ernst (1998) suggested a tool to rank patents and to compare patent portfolios in relation to corporate technological and strategic strength. Similarly, Dou (2004) called attention to a technique of benchmarking patent portfolios to assess their technological and strategic strength. The parameter used to rank patent portfolios is the patent strength, defined by Fabry et al. (2006) as the product of patent quality by patent activity. OuYang and Weng (2011) outlined a methodology for patent analysis, called new comprehensive patent analysis model to support the development of new products. This methodology consists of five phases and makes use of the causal link existing between the concepts of patent family, patent citation analysis, and patenting strategy (PS). Then, an indicator is calculated, the key patent priority number, by which it is possible to select those patents that are essential to design new products.
2.5 Economic importance
The economic importance of patents describes the current economic value of patent and patent portfolios. Quantitative and qualitative methods have been developed to measure its value (Kamiyama et al., 2006; Lagrost et al., 2010; Trajtenberg, 1990).
A small number of indicators proposed in the literature are aimed at the evaluation of the economic importance of a patent, while many researchers have tried to analyze the relationship existing between a determinant of value and the economic importance (Table V).
The first indicators of patent market value are data regarding the renewal of patents and their opposition claims. In particular, patent renewal data show the interest of the assignee company to invest in that patent, following the well-known concept which states that a company renews a patent only when revenues deriving from that patent overtake the costs of its renewal. Pakes and Schankerman (1984) and Schankerman and Pakes (1986) were the first to develop an evaluation model of the value of patents by means of their renewal data. Later, Park and Park (2006) worked out a valuation-based patent stock indicator, which assessed the economic value of a patent by means of its patent renewal fee data. Kabore (2012) showed that the family size and the forward citations had a positive impact on the probability of patent renewal. Consequently, he measured the patent value by means of this probability. Similarly, Lanjouw et al. (1998) evaluated patent value by means of renewal and family size data and suggested a value index. Harhoff et al. (1999) developed an analysis process based on interviewing patent holders, who were requested to assess the sale price of patents after three years following the date of the original patent grant. From this, they derived that the highly valued patents were those that collected a large number of citations by later patents and that were renewed for a long time. Putnam (1996) analyzed the relationship between family size and patent renewal by means of the patent value and pointed out that patent renewal depended exclusively on its returns. Moreover, he observed that patent oppositions and patent citations are indicators of the economic value of the patent portfolios as well.
Lerner (1994) showed the correlation between the market value of a company that owns a patent and the number of IPCs of the patent. The author remarked that by means of this variable it is possible to understand the impact of the patented invention and to make explicit a further correlation existing between the market value of a company and the value of its patents.
In addition, patent opposition data can be considered an indicator of the patent value. Evidence of costs and risks related to the controversy and the resulting opposition highlights the value of the patented invention and fosters its possible launch on the market (Harhoff et al., 2003; Lanjouw and Schankerman, 2004). Reitzig (2004b) suggested to assess patent value by accounting for the probability of oppositions to the patent. Harhoff and Reitzig (2004) observed that the probability of oppositions, which is correlated positively to the family size, can be considered a proxy for the ER of a patent. Hall et al. (2009) analyzed how the main characteristics of a patent influenced the probability of receiving an opposition. The analysis showed that family size, forward citations, and backward citations are tied positively to the probability of oppositions.
A further stream of research relates to the analysis of the relationship between patent value and citations. Some authors have focused on the meaningful correlations between the number of citations received by a patent and its economic and technological relevance from patent owner’s point of view. Hall et al. (2005) showed that forward and backward citations are correlated to market value and future profit flows. Park and Park (2006) designed an indicator that evaluates the economic value of patents by means of a calculation on forward citations.
Finally, Chen and Chang (2010) examined the relationship existing between patent quality and their market value. Results have showed that the relative patent position is associated positively with the corporate market value.
2.6 Patent value indexes
Index construction has become the focus on works by many authors. In this section, we illustrate the indexes proposed in the literature, each of them synthesizing a number of patent value determinants and some indicators into a unique numeric entity (Table VI). One of the first attempts is the index advanced by Ginarte and Park (1997), who investigated the relationship between patent rights and economic actors’ behavior. The index comprises five constructs, namely patent coverage, membership of international treaties, enforcement mechanisms, restrictions on patent rights, duration of patent protection. Lanjouw and Schankerman (2004) proposed a multiple-indicator model which combines four patent determinants: number of claims, forward citations to the patent, backward citations in the patent application, and family size. In this model, the patent quality is defined as the technological quality of a patent and its expected value. However, Lanjouw and Schankerman (2004) did not implement any kind of analysis in order to study the economic-strategic aspect of patents. Ernst and Omland (2011) developed a new methodology of benchmarking which goes beyond the limits of the existing approaches and allows to evaluate a patent portfolio of a company in comparison with its competitors. The patent asset index (PAI) classifies companies by means of two indicators, “market coverage” and “technology relevance,” the product of which takes the name of “competitive impact.” Such index aims at giving a measure of the overall “strength” of a patent portfolio but disregards data related to the strategic positioning and the ER of a patent. In more detail, the PAI is calculated through the sum for each patent of the “competitive impacts.” van Zeebroeck (2011) defined a patent ranking modality which allows to pick out the most valued patents in a patent portfolio thanks to their potential market. The ranking is based on the analysis of five variables, forward citations, grant decisions, families, renewals, and oppositions, which are positively correlated to the patent value, and easily retrievable from the patent databases. As it appears in the study by Ernst and Omland (2011), also the ranking method by van Zeebroeck (2011) takes no account of fundamental factors such as the strategic positioning and the ER of a patent.
Chang et al. (2012) and Zhang et al. (2012) investigated the relationship between corporation performance and patent performance by making use of complex variables and complex indicators. Chang et al. (2012) employed “market value,” “sales,” and “return on equity” to measure the corporation performance; moreover, they made use of indexes such as “patent H-index,” CII, and essential patent index (EPI) as descriptive variables of the patent performance. Zhang et al. (2012) implemented the dependent variable “sales” and the following independent variables: patent H-index, essential technological strength, and patent citation. These last two indexes do not examine two important dimensions, considered in the literature, such as the claims and the market coverage of patents.
Drawing on the insights gained from the analysis of the literature, it is possible to infer that there is a large number of indicators analyzing and quantifying the determinants of value. These determinants are extracted from bibliometric data, from patent databases, as citations, claims, oppositions, renewals, as well as from economic or financial documentation items, such as market value and strategic positioning. However, to the best of our knowledge, most of the determinants are calculated from patent database information and there is not any synthetic index that considers both quantitative data, such as claims, citations and market coverage, and qualitative data, such as economic and strategic features, and analyzes them all from an internal corporate perspective. In the following section, a framework is proposed which provides an index, comprehensive of information supplied by qualitative and quantitative patent determinants, and of information derived from perceptions and judgments of decision makers. The exigency of providing such a synthetic evaluation of patent portfolios derives from the managerial need of assessing the value of patent portfolios according to the internal business perspective and of verifying the alignment of patents with the strategic objective of companies.
3. The patent portfolio value index (PPVI)
In this paper, we propose a PPVI based on the five determinants selected for their importance to the patents’ value: claims, citations, market coverage, strategic positioning, economic importance. For each of the five determinants, we have identified a specific key indicator that can encompass crucial information to the acquisition of a deep knowledge of patent portfolios: technical scope (TS), forward citation frequency (FCF), international scope (IS), PS, and ER.
3.1 The five indicators
The formulae employed to calculate the indicators are described in Table VII. These indicators were proposed on the basis of the analysis of literature (Arundel and Patel, 2003; Breitzman et al., 2002; Ernst and Omland, 2011; Hall et al., 2005; Harhoff et al., 2003; Hikkerova et al., 2014; Lanjouw et al., 1998; Lanjouw and Schankerman, 2004; Lagrost et al., 2010; Lerner, 1994; OuYang and Weng, 2011; Putnam, 1996; Reitzig, 2004a, b; Tong and Frame, 1994; Trajtenberg, 1990).
TS expresses the value of the number of the claims. Since the number of claims could be substantially different within the classes of the IPC, it is necessary that the value of claims be normalized for the number of technologies, and, that a comparison between patents belonging to different classes be carried out. Consequently, we normalized the value of the number of the claims for the maximum number of claims of a patent of the same IPC class. In this way, TS value, which comprised between 0 and 1, is equal to 1 when a patent has the maximum number of claims within the IP class.
FCF indicates the value of the average number of annual forward citations received by a patent. As made for claims, we normalized the value of the average number of annual forward citations for the maximum number of forward citations of the patents in the same IPC class and period.
IS evaluates the market coverage by means of two addends. The former (ISa) accounts for the number and type of the countries covered by the patent and assumes a value comprised between 0 and 0.7 in dependence of the number of those countries where the patent has been granted. It is the result of three contributions: a value of 0.1 if the patent is granted in USA; a value up to 0.2 if the patent is granted in more than two European countries; a value up to 0.4 if the patent is granted in more than six extra-European countries. The latter (ISb) is a dummy variable that takes null value or 0.3 value in dependence of two different situations of patent granting: the Patent Cooperation Treaty procedure and the triadic share.
PS assesses the strategic positioning of a patent. Four qualitative levels of positioning have been identified in literature: competitive (the patent is functional to the company’s competitive positioning and defends the leading strategic positioning of the company’s business by the rights of the industrial property protection and); business (the patent protects the strategic positioning of the company’s products and is important for the business of the company at product level); defensive (the patent serves the purpose of limiting/precluding solutions to the competitors and/or creating further barriers/difficulties to possible new entries); and not essential (the patent does not protect the company’s competitive position against other companies and maintains a certain importance in the portfolio only in terms of corporate image). For each of these four levels, quantitative values equally distributed along an interval comprised between 0 and 1 are assigned, as specified in Table VII.
ER assesses the economic importance of a patent by means of five qualitative levels logically linked to the ER of a patent, such as core (the patent represents one of the most significant sources of profitability of the company and value for the client and the stakeholders); high (the patent is able to generate a high profitability and a satisfactory level of cash flow); medium (the patent is still able to generate value but the marketing of its products and technologies faces difficulties); low (the patent is not profitable anymore but can generate a barely sufficient level of cash flow); and no relevance (the patent has no longer economic and accounting value). For each of these five levels, quantitative values equally distributed along an interval comprised between 0 and 1 are assigned, as specified in Table VII.
It may be worth remembering that, due to the specific definition and construction of the five indicators, their values are comprised between 0 and 1.
The procedure to design the PPVI consists of three steps (Figure 1) as follows:
patent data and IPC data gathering;
calculation of the patent indicators; and
calculation of the PPVI.
In order to calculate the PPVI, it is necessary to gather information about all the patents constituting the portfolio to be evaluated. Moreover, supplementary information from the IPC of the patents of the portfolio is necessary as well. For each patent, the following information has to be found:
number of claims of the patent;
number of forward citations received by the patent;
number and type of the countries covered by the patent;
assessment of the strategic positioning of the patent;
assessment of the ER of the patent;
age of the patent; and
IPC class of the patent.
For each IPC class, it is necessary to find the following data:
maximum number of claims of the patents of the portfolio within the same IPC class; and
maximum number of citations received by a patent of the same IPC class.
Data and information items are quantitative elements, and some of them are directly traceable to the main patent databases. Instead, data such as PS and ER, derived by assessment values, are obtained through the answers of managers interviewed on their perception of the value of the patent determinants of strategic positioning and economic importance and subsequently turned into quantitative data.
3.3 The index
In the further step of the procedure, we have developed an index, that we called the PPVI, which synthesizes the values of the five indicators. The PPVI is the result of the weighted sum of the values of the five indicators, as shown in the following equation:
During the patent evaluation process, a weight is assigned to each of the indicators on the strength of each dimension. Quantitatively, each weight expresses the degree of importance of each indicator within the PPVI value. The sum of the products of the weight and the value of each indicator results in the value of the unique index, the PPVI. As the values of the five indicators are comprised between 0 and 1, and the sum of the values of the five weight must be unitary, the value of PPVI will be comprised between 0 and 1 as well.
A number of methods for the determination of the weights of the indicators can be used, as conceptually discussed by Laise et al. (2015). Most of them are based on the direct participation of decision makers in assessing the values of the weights (Grimaldi et al., 2013). Indeed, since no reliable valuation can be carried out without taking into consideration the context and the perceived importance of each determinant within the patent valuation process, it is necessary that managers and decision makers cooperate during this phase. The mainly used method for the determination of the weights of the indicators is the analytic hierarchy process (AHP), proposed by Saaty (1980). The AHP allows to determine the degree of importance of each element within a hierarchical structure and to calculate its overall priority. In order to establish weights, in the AHP, the dimensions are pair-wise compared against their importance in the patent valuation process by means of verbal judgments, expressed by managers and/or decision makers. The interviewed managers make pair-wise comparisons among the criteria, with respect to their importance in the patent value analysis. More specifically, the managers need to determine whether two criteria are equally important or whether one is moderately more important, strongly more important, very strongly more important or extremely more important than the other. Verbal judgments are then translated into numerical values (1, 3, 5, 7, and 9, for the above comparisons, respectively). The overall priority of each criterion is then calculated through the mathematical synthesis of the judgments (Saaty, 1980). The overall priority of criteria is the value of its weight.
An alternative multi-criteria decision-making method is represented by technique for order preference by similarity to ideal solution (TOPSIS), a multi-criteria decision analysis based on the principle that the chosen alternative is the shortest geometric distance from the positive ideal solution (Hwang and Yoon, 1981). In particular, TOPSIS ranks the alternatives in a descending order from the ideal to the negative solution. An additional possibility is provided by the multi-attribute utility theory, which is a structured methodology designed to handle trade-offs among multiple objectives. This methodology infers “utility functions” and aggregates those functions, which relate to a single criterion, into a multi-attribute utility function; in this way, a formal mechanism is provided for shaping ex-ante decision makers evaluation choices (Keeney and Raiffa, 1976).
The PPVI, inasmuch as it is built and defined, shows a relevant number of elements of novelty compared to the other indexes existing in the literature. Indeed, the PPVI is an index of patent evaluation and analysis that merges the values acquired from objective data, such as bibliometric and technological data, with the values of PS and ER values derived from managers’ assessments. In this way, the PPVI not only accounts for the value of a patent portfolio from an internal business perspective, but also offers a quick representation of the profitability of companies’ patents as well. A further strong point of the PPVI is that the process of merging information from different dimensions is balanced by the weights of the indicators. Assessing the weights of the indicators helps managers understand the relevance of the patent elements. During this step, the attention of decision-making managers is focused on the evaluation of the available drivers necessary to valuate and analyze patents, and they are well aware of the strategic importance of the examined dimensions. Moreover, the possibility of using weights gives PPVI the opportunity of several applications. If applied in single companies, the PPVI can support their specific analysis as the different weights can highlight the different relevance of the determinants that compose the index. In this way, it is possible to test the distribution of individual components of the composite indicator and to study the relative contribution in the final value of the resulting composite. In addition, if employed in industrial contexts, the PPVI – by applying equal weights to the determinants – can help perform benchmark analysis among several companies or technological sectors.
In order to facilitate the analysis of PS and ER of patent/patent portfolio values, we have found it useful to refer to the graphic representation (Figure 2) in a Cartesian system of PS and ER values of patents (Grimaldi et al., 2015). Since the framework has been thought of as a tool to support the economic-strategic decision-making process, it has been decided to highlight the role played by PS and ER in the process with respect to the other three indicators TS, FCF, and IS. Therefore, the Cartesian axes of the synthetic graphic refer to PS and ER. The placement of ER and PS values in the four quadrants account for four different possible levels of significance and profitability of the patents or patent portfolios under evaluation (valuable, core, performing, not valuable). The possible combination of ER and PS values are the following: high level of PS and high level of ER mean highly valuable patents; high level of PS and low level of ER refer to less valuable patents, which it is anyway worthwhile to keep for their core competence in respect to the company prominence; low level of PS and high level of ER indicate patents whose alignment to the company’s strategy must be verified; low level of PS and low level of ER denote not valuable patents.
The analysis of PPVI value, in conjunction with the analysis of the Cartesian system, helps evaluate the efficacy of technological investments, understand how to leverage the patent portfolio value, and, finally, suggest strategic decisions about the patent portfolios management.
In order to make the analysis more effective at the decision-making process of managers, we added a third dimension and a color to the bi-dimensional information provided in the Cartesian system. Each patent is represented by a circle, the size of which expresses the range of the average value of the three technological/bibliometric features TS, FCF, and IS, while its position represents the position of patents plotted as a function of PS and ER values. Therefore, TS, FCF, and IS characterize the technological relevance of patents. In order to draw the representation of this third dimension, the three indicators of the technological relevance have been normalized singularly and then averaged. As it is possible that more patents rest on each pair of coordinates of the Cartesian system and it is useful to keep track of their number, we assigned the circles a different color in dependence of the number of patents.
The combined analyses of the PPVI value with the portfolio graphic representation is able to suggest the necessary strategic changes to improve the portfolio value, or the significant actions to be implemented, such as licensing or selling the portfolio.
4. Applying the PPVI to the aerospace and defense industry
We applied the framework to the patent portfolio of Leonardo. We conducted a single, exploratory and descriptive case study analysis on Leonardo. Yin (2003) argues that a case analysis is a right approach when the objective is to understand a contemporary phenomenon whose boundaries from the real life context are not evident. In particular, case analysis is a very good strategy when the researcher wants to investigate the “how” (exploratory case study) and “why” (explanatory case study) of the phenomenon. Leonardo is the Italian leading company in aerospace and defense and is the sixth worldwide player in the defense electronics market. It was established, with the name of Finmeccanica, in 1948 as a sub-holding for the mechanical industry of the Italian Government, which still holds about 33 percent of its shares. Leonardo currently gives employment to about 77,000 people both in Italy and in the USA. Research regarding new technologies constitutes Leonardo’s core mission, as it is showed by the level of its investment in R&D activities, which is around 11 percent of its total revenues and amounts in Italy to about 1.5 billion euros.
Leonardo has the ownership of a significant number of patents related to different technological fields and, for this reason, its patent portfolio appears to be absolutely patchy. Based on the characteristics of our framework, it seemed to be ideal to apply it to such context in order to carry out an evaluation of the patent portfolios from the technological/innovative, economic, and strategic point of view. We applied the framework to the sectors of the Aerospace and Defense industry of Leonardo: aeronautics, Defense and Security Electronics, Defense Systems, Energy, Helicopters, and Space. The percentage distribution values of revenues and of the number of patents of the six sectors are shown in Figure 3. The Defense and Security Electronics sector, the historical core of Leonardo, holds the greatest value of revenues (36 percent) and the greatest number of patents of the total (49 percent). The Space sector shows the lowest number of patents (3 percent), while the Energy sector shows the lowest value of revenues (4 percent) despite the high number of patents it holds in Leonardo (17 percent). Other sectors, such as Aeronautics and Helicopters, in intermediate positions respect to the sectors, show inconsistencies between the percent revenues and the percent number of patents compared to the other sectors.
All the patents in the six sectors of Leonardo, published from 1995 to 2014, and still active in March 2015, have been examined. We decided to survey a period of 20 years because, in the sector of Aerospace and Defense and Securities Electronics technologies, patents have long lifecycles or are kept alive for a prolonged time, differently from other industrial sectors, where the technological refresh is more frequent. We have retrieved all the patent information related to the 3,532 patent documents of the six sectors out of the Thomson innovation database. These patents have been subdivided according to their relationship with each of the six sectors and the analysis of their characteristics has been carried out for each sector separately.
The five indicators have been calculated for each patent. Data regarding the technological relevance have been calculated by means of the information derived from the Thomson Innovation Database. We determined PS and ER from the information acquired through the interviewing process carried out with the members of the Intellectual Property Governance Board of Leonardo.
Once the values of the indicators have been calculated, the values of the PPVI for each sector have been worked out. In order to calculate the PPVI value, we decided to apply the Formula (1) by employing equal weights (0.2) for the five indicators. Such decision has been endorsed by the members of the Intellectual Property Governance Board of Leonardo so that, through the comparison among the various sectors, differences could be revealed clearly. Indeed, by assigning equal weights the analysis is based on the values of the indicators of the PPVI exclusively. On the other hand, in the case that we had assigned the indicators different weights, the evaluation of the sectors could have been deceived by the altered contribution of the determinants to the value of the PPVI.
The values relative to the PPVI for each sector are described in Table VIII.
From the analysis of the values in Table VIII, it is possible to infer that the Helicopters sector shows the highest value of PPVI (0.437), followed by the Space sector (0.401). The lowest values of PPVI refer to the aeronautics and to the Defense and Security Electronics sectors, respectively, 0.350 and 0.330. At intermediate positions, the sectors of Defense Systems and of Energy show values of PPVI of 0.387 and 0.385, respectively.
The sector “Helicopters” is at the forefront of technology and production quality and companies in this sector show mature patent portfolios with very high percentage of revenues and patents (Figure 4). The high value of the PPVI characterizes the robustness of the patent portfolio of this sector and reveals its strategic alignment with the policy of Leonardo and its profitability.
There are a few global players in the sector “Space,” a sector extremely qualified from a technological point of view. The high value of the PPVI derives from the considerable quality of the patent portfolio of this sector, that even though it is not relevant quantitatively, it is profitable and adequately optimized.
The sector “Defense Systems” is a “cutting-edge” sector and its inventions could be implemented in different industrial contexts with difficulty. The PPVI value indicates that the patent portfolio of this sector is strategically aligned to the policy of Leonardo and fairly profitable.
The “Energy” sector is a cross-technological sector within the Leonardo where companies show very mature patent portfolios that exhibit a percentage of revenues much lower than the percentage of patents (Figure 4). The value of PPVI reveals that the patent portfolio of the “Energy” sector is only partially optimized and shows some critical features from the strategic point of view.
The sector “Aeronautics” is a sector characterized by an intensive and specific patent activity. The PPVI shows that the patent portfolio of this sector is not strategically aligned in full, despite the satisfactory level of profitability.
Finally, the sector “Defense and Security Electronics is a cross and technologically wide sector. The patent activity of the companies in this sector of the Leonardo is noticeable but it is not consistent adequately with the percentage profitability (Figure 3). The PPVI value points out that the patent portfolio of this sector is not always strategically aligned with the policy of Leonardo, not always satisfactory, and problematic because of its extreme technological heterogeneity.
In this analysis, it is important to account also for the life cycle of patents, since patents can be considered also as perspective and related to future opportunity indicators. In this connection, the interpretation of the values of the synthetic PPVI can also be better understood by examining each single value of its five indicators TS, FCF, IS, PS, and ER. The values of the five indicators relative to each sector are described in Table IX.
In Figure 4, the contributions of the five indicators to the PPVI value are shown.
The indicator TS shows homogeneous and low values that range between the minimum value (0.202) of the Helicopter sector and the maximum value (0.317) of the Energy sector. The low and high values are strictly related to the high specificity of the sector which, on the one hand, narrows the IPC code number to few technological classes, and on the other hand causes a normalized medium value of the number of claims.
The analysis of these data demonstrates that the indicator FCF shows very low values for each examined sector. In particular, the Defense System sector shows the minimum value (0.033). The trend of FCF values depends on the fact that a certain number of patents are protected by the industrial secret, thus resulting in a constrained patent rate. The Space sector shows the maximum value (0.180) of the FCF values and this is because in this sector, technologies are specific and there is a small number of global players that make use of the same technologies. So, cross-citations are usual in this sector and cause an increase in the average rate of FCF.
The IS indicator shows highly different values in the sectors, ranging from the minimum value in the Energy sector (0.221) to the maximum value in the Helicopters sector (0.472). The first value depends on the fact that the Energy sector is a company business characterized by a limited market coverage. The second value is because all the few existing players are global players and all of them are commercially and industrially active all over the world. Thus, the supply chain shows a higher degree of vertical integration and a more protected geographic market coverage than the other sectors.
Finally, in all the sectors, the indicators PS and ER are characterized by values greater than 0.5 as a result of the satisfaction expressed by the members of the Intellectual Property Governance Board of Leonardo toward the strategic positioning and the economic importance. Indeed, PS varies between the minimum value of 0.528 of the Defense and Security Electronics and the maximum value of 0.760 of the Defense Systems sector, while ER varies between the minimum value of 0.545 of the Space sector and the maximum value of 0.753 of the Energy sector.
In order to examine the given explanations in more detail, we have analyzed each sector singularly and highlighted the composition of each patent portfolio by pointing out its specific characteristics.
The “Helicopters” sector shows the highest value of PPVI (0.437) as a result of the high intermediate values of IS (the maximum intermediate value in all the sectors), PS, and ER, this last showing a value very close to the maximum one. FCF value is slightly under the average value of all the FCFs, while the value of TS is the lowest of all the sectors. These values are upheld by the fact that in this sector each global player has proprietary and company-specific technologies, which are narrow and focused. It follows that, for this sector, patent citations and claims are few.
The high PPVI value can also be analyzed by means of the data that appear in Figure 5. In this figure, as in the following ones, each colored circle represents a percent number of patents, positioned in the Cartesian system according to the values of PS and ER, and sized according to the average value of technological relevance (TS, FCF, and IS). We divided the number of patents represented by a circle by the total number of patents in the sector to obtain the percentage of patents in each circle. We assigned four separate color classes to each circle in dependence of the percentage of patents:
white: percentage of patents ⩽ 5 percent;
clear gray: 5 percent< percentage of patents ⩽ 10 percent;
dark gray: 10 percent< percentage of patents ⩽ 15 percent; and
black: percentage of patents >15 percent.
The percent number of the patents respect to the total number of patents in the sector appears in the four-parted little square at the center of the diagram.
The analysis of Figure 5 shows that 98 percent of patents are distributed in three quadrants (“performing,” “valuable,” and “not valuable”) and most of them lie in the “valuable” quadrant, showing high values of PS and ER. This means that a high consistency characterizes the patent strategy and the corresponding commercial activity in the “Helicopters” sector. Indeed, the patenting policy in this sector is to keep patents that are valuable for its technological properties and high revenues and to hold a very small number of patents that are characterized by a low level of ER. This policy is also confirmed by the position of the dark colored circles in the “valuable” quadrant (high percentage of patents). Moreover, the fact that few patents appear in the “core” quadrant has been interpreted by Leonardo managers as a result of a mature patent portfolio, which reveals that some patents are out-of-date. From this analysis, it has followed that it is strategically important to maintain and support the future patent activity and not to impoverish the patent portfolio consistency. Finally, few circles (14 percent) with a high average value of TS, FCF, and IS, those with a greater diameter, are not considered as valuable. We have suggested a careful examination of these patents to verify which is the reason that, even though assessed as important by the scientific and technological community, they have not been considered strategically and economically relevant by Leonardo managers.
The “Space” sector exhibits a high value of PPVI (0.401) as a result of the highest value of FCF (the maximum value in the sectors) and a high value of PS, very close to the maximum PS value in the sectors. As previously noted, a high value of FCF is a result of the high rate of cross-citations that in turn is due to the relevant specificity and the limited number of global players. Further, the high value of PS is the result of the strict alignment of patents to the company’s strategy. In more detail, the patent distribution showed in Figure 6 illustrates that many patents (79 percent) are positioned in the “valuable” and “core” quadrants, showing high values of PS and few of them (21 percent) in the “performing” and “not-valuable” quadrants (medium and low values of PS). Further information, acquired from the measure of diameter and the color of the circles distributed in the quadrants, shows that, among the patents positioned in the “valuable” and “core” quadrants, the majority of them have medium-great diameters (corresponding to medium-high average values of TS, FCF and IS) and only a little percentage of them exhibit small-medium diameters (corresponding to low-medium average value of technological relevance), drawing attention to an inadequate technological specificity.
The results of the analysis allow us to observe that the patent activity of the Space sector is essentially focused on the strategic and ER of patents. The few patents, positioned in the “performing” and “not valuable” quadrants, have been reckoned as new or recently published innovations, not yet considered strategic.
4.4 Defense systems
The PPVI value (0.387) of the Defense System sector is adequately high and is the result both of the very high value of the PS indicator (the highest of the sectors) and of the intermediate value of the IS and ER indicators in respect to the other sectors. Indeed, the majority of patents in the sector are considered strategically relevant, and this is also a proof of the appropriate managerial choices at various stages of the technological process. To the contrary, TS and FCF values are very low because of the poor number of global players, and, therefore, of the few claims; in addition, in this sector, inventions are difficult to be generalized, so they produce few citations. The PPVI value can be fully described by means of Figure 7.
In more detail, the patent distribution displayed in Figure 7 shows that many patents (88 percent) are positioned in the “valuable” and “core” quadrants, and few of them (12 percent) in the “performing” and “not-valuable” quadrants. Information related to the size of the diameter and the color of the circles distributed in the quadrants shows that a high percentage of patents have high and high-medium average value of technological relevance, while a low percentage of patents have low or very low average values of technological relevance. So, the analysis carried out along with Leonardo managers has demonstrated that the patents of the Defense System sector are positive in general, with the exception that the economic revenues of those patents that have a high PS and a low ER should be increased.
The PPVI value of the Energy sector (0.385) is the fourth higher value of the analyzed sectors. This result is due to the very high values of the TS and ER indicators (the highest values in the sectors), and to the value of the PS indicator, which has an intermediate value in respect to the values of the other sectors. The high value of TS is strictly related to the high specificity of the sector and the high value of ER expresses the profitability of the patents. To the contrary, FCF and IS values are very low, as the sector is technologically specialized and characterized by few citations and, moreover, has a limited geographical market coverage. The PPVI value can be more deeply examined by analyzing the Figure 8.
The patent distribution in the diagram of Figure 8 shows that there are no patents in the “core” quadrant and that all the patents lie in the other three quadrants. This means that the patents of the Energy sector are characterized by a high consistency between the patent strategy and its commercial activity. Moreover, the information given by the diameter and color of the circles shows that most of the patents have a high value of ER. Indeed many patents are positioned in the “valuable” quadrant of the diagram (68 percent), but a few patents (26 percent) are positioned in the “performing” quadrant as well. Almost none (6 percent) lie in the “not valuable” quadrant. Leonardo managers have suggested that patents in the “performing” and “not valuable” quadrants are the most mature patents, and, consequently, their strategic capability decreases over the years. Moreover, managers have remarked the position of very few patents in the “not valuable” quadrant that have showed their null value in terms of ER and strategy. Leonardo managers elucidated that the specific role of these patents regards the protection of some exclusive technologies. Indeed, retaining some patents in a portfolio has the only purpose to control those technologies that are neither strategic nor profitable, but that competitors lack. Finally, some circles with high values of technological relevance are positioned in the “not valuable” or “performing” quadrant. A careful examination should verify why these patents, which are considered important by the scientific and technological community, are not considered strategically relevant by managers.
The PPVI value (0.350) of the sector “Aeronautics” is obtained from the values of TS, IS, and ER, which have intermediate values in respect to the other sectors, and from the very low values of FCF and PS indicators. The low value of FCF depends on the characteristic of this technological field, where inventions are very specific and frequent, thus making the average number of patent citations low. Further, the low value of PS is the result of the inadequate alignment of patents to the company’s strategy. The PPVI value can be more deeply examined by analyzing the Figure 9.
The patent distribution in the diagram of Figure 9 shows that there are no patents in the “core” quadrant and few patents (19 percent) are positioned in the “performing” quadrant. In the “valuable” quadrant many patents (60 percent) show medium-high values of PS and ER, while in the “not valuable” quadrant a few patents (21 percent) show low values of PS and ER. The information given by the diameter and color of the circles shows that in the “performing” and “not valuable” quadrants most of the patents have high average values of technological relevance. A careful examination verifies which is the reason that these patents, assessed as important by the scientific and technological community, have been considered not strategically and economically relevant by Leonardo’s managers. Even though these patents have seemed to be inefficient and obsolete, during the analysis carried out along with Leonardo’s managers, they have been acknowledged as complementary to strategic products.
4.7 Defense and security electronics
The PPVI value (0.330) of the Defense and Security Electronics sector is the lowest value in the analyzed sectors. It has been obtained from the values of TS, FCF, and IS, which have intermediate values in respect to the other sectors, and from the very low values of PS and ER (the lowest values in the sectors). It is possible to infer that an inadequate level of economic and strategic relevance characterizes the patents of this sector, while the average values of TS, FCF, and IS give an acceptable level of technological relevance. The PPVI value can be more deeply examined by analyzing the Figure 10.
The patent distribution in the diagram of Figure 10 shows that many patents fall in the “valuable” quadrant (41 percent), which are almost compensated by the patents falling in the “not valuable” quadrant (37 percent). Similar percent numbers mark both the patents falling in the “core” quadrant (12 percent) and those falling in the “performing” quadrant (10 percent). A large number of companies that belong to this sector and their different strategic objectives result in a strong heterogeneity of the patents.
The Defense and Security Electronics sector encompasses many technological areas of interest. Therefore, the patent portfolio is split into different IPCs, which have different lifecycles, products, and processes. Moreover, the portfolio technologies are typified by a basic technology (ICT), with a little impact on the final product and with an economic investment less relevant than for other more advanced innovations. In this sector, some patents show criticalities as proved by the high average values of technological relevance and the very low values of PS and ER. The discussion with Leonardo’s managers has led to the conclusion that the patent portfolio of this sector is poorly optimized by some companies of the sector. Therefore, it is profitable to analyze the patents of this portfolio carefully in order to pick the strategic patents out of the worthless ones that are to be dismissed or sold.
5. Discussion and conclusions
In this paper, we have presented a quantitative index, called PPVI, in order to analyze the value of a patent portfolio. The index is the result of the aggregation of five patent determinants: claims, citations, market coverage, strategic positioning, and economic importance. The PPVI, in conjunction with a qualitative instrument, which consists of the synoptic representation of the distribution of the patent values in a Cartesian system, provides a synthetic evaluation of patent portfolios and a verification of the alignment of patents with the strategic objective of companies. Therefore, this framework provides an optimized instrument that can help top management of companies make strategic and economic choices in managing patent portfolios.
There are many elements of novelty in the PPVI in comparison with other indexes found in the literature. First, it makes it possible to merge quantitative information retrieved from patent databases (bibliometric and technological data) and qualitative information obtained through managers’ assessment (patent strategy and ER of patents). In this way, the index provides that the value of patent portfolios is assessed according to the internal business perspective. The PPVI has been devised and built to assess the value of a patent portfolio for the managers to adopt the right strategic decisions in order to exploit their value. Indeed, the main usefulness of PPIV consists in the ability to combine various information thus helping managers get a speedy and efficient indication, necessary especially when portfolios are constituted by a high number of patents. Second, the PPVI succeeds in compensating the procedure of merging information from different dimensions by means of the weights of the indicators and guarantees the continuous understanding of the relevance of the patent elements to the managers during the evaluation process. Finally, the combined analysis provided by the PPVI and the qualitative graphic helps understand which patents are correctly positioned from an economic-strategic point of view and, consequently, which need to be strengthened; in addition, it facilitates the selection of those patents that are not aligned with the core business of the company and reveals the incongruence of those determinants that show unexpected values.
The implementation of the framework in the Leonardo, where patents and patent portfolios are poorly homogeneous, has demonstrated that the described tools are specially suitable for examining those patents that call careful attention from management. Indeed, by analyzing the PPVI value and the synthetic graphic data from patent values, it has been possible to highlight the technological and innovative characteristics of patents, but also their lack of strategic and economic efficiency. Therefore, the results of the analysis have provided managers with the suggestions regarding further necessary action items: to reinforce, license, try to dismiss, or sell the characterized patents. Examples of the capability and usefulness of PPVI index and synthetic graphic data from patent values of highlighting critical or favorable conditions have been testified by the following cases: the proof that some patent portfolios have been essentially focused on their strategic and ER; the acknowledgment of discrepancies between Leonardo’s manager perceptions and the scientific and technological community; the demonstration of the presence of out-of-date patents in mature patent portfolios; the acknowledgment that under some circumstances it is strategically important to maintain and support the future patent activity so that the patent portfolio consistency is not weakened; the verification that even though some patents had been considered inefficient and obsolete, they were complementary to other more significant patents; the evidence of the poor optimization of some patents portfolios and the consequent call for taking the most profitable resolution.
In the authors’ opinion, the criteria selected from the analysis of the literature can be generalized to the evaluation of patent portfolio value of highly technological and competitive sectors, in addition to those mission and quality oriented, such as the aerospace sector. Furthermore, it is the capability of abstraction of the framework to make it appropriate for any application in high-tech and competitive sectors. However, the application of the framework to divergent sectors from the aerospace one could require the adoption of different criteria from those advanced in the work. Anyway, the highlighted limitation can be easily overcome by adapting one or more criteria. Therefore, the versatility of the PPVI would be considered as a favorable property, as it remains methodologically solid and replicable, and, at the same time, it gives the opportunity of modifying those criteria which are thought of as the more suitable to a specific patent portfolio value analysis. From this limitation, it is possible to receive a suggestion for future research that could be finalized to adapt and apply the proposed framework to one or more sectors, different from the Aerospace and Defense ones. In a further development of this work, the analysis based on PPVI and the graphic representation of the patent values could be applied to firm sectors characterized by patents with a greater numerical consistence of bibliometric data than those examined in this paper (IT or pharmaceutical sectors).
Undoubtedly, it is necessary to refer to a possible limitation of the framework, resulting from the difficulty of analyzing a high number of criteria to calculate the PPVI and allow the graphic to be readable. In many industrial sectors, having characteristics very much different from those pertaining to the aerospace industry, or to diverse technological areas, or to specific enterprises, it would be useful to take further criteria into examination, such as technological economics, national competitiveness, industrial analysis, company strategy and valuation. For this reason, the versatility of PPVI should be recognized as an opportunity, which offers the possibility of modifying the criteria in dependence of their suitability for the analysis of patent portfolio to be carried out in different industrial cases or sectors. However, it must be considered that in case a high number of criteria are utilized the usefulness of the graphic support of the synoptic analysis drops considerably. Another line of study could integrate the methodological approach by considering the two groups of indicators, respectively, related to the technological relevance of the patent in absolute terms and the specific strategic value to the firm, as separate. In this way, it would be possible to appreciate the contribution given by the two kinds of indicators. A further research line could study new criteria to be utilized in the analysis of the patent portfolio value, especially focused on market exploitation, renewal decision, patent landscaping, and sectorial competitiveness.
Finally, as we accomplished a sectorial analysis, it would be also possible to apply PPVI to the various firms of the same sector to carry out a comparative analysis and study how the framework works in different organizational environments; also, a comparative analysis could be performed by contrasting different firms of different sectors in order to analyze feedback from indicators. An additional methodological advancement of this framework could address the identification of a dashboard of indexes, following the approach introduced by the business analytics, in order to analyze specific determinants in the field of the technology analysis and innovation management in more detail.
Indicators of patent claims
|Patent value measure||Value assessment||Authors|
|Number of claims||Number of independent claims=∑i ICi
Number of dependent claims=∑i DCi
Number of process claims=∑i PCi
Number of application claims=∑i ACi
where i is the patents number in portfolio
|Number of claims=∑iCi
Average number of claims for patent=∑iCi/i
where i is the patents number in portfolio
|Lanjouw and Schankerman (2004)|
|Patent quality=log (nr. claims)||Caviggioli et al. (2013)|
|Personal property index (PPI)=claims number/average claims number||Lee et al. (2007)|
|Deflated claim count (CLMDEV)i=Ci/median Si,Yi Cj
where Ci is the number of claims contained in application i; median Si,Yi Cj the average number of claims of the applications in the same technological area and in the same presentation year of application i
|van Zeebroeck and van Pottelsberghe de la Potterie (2011)|
Indicators of patent citations
|Patent value measure||Value assessment||Authors|
|Forward citation number||CVA=OA/FT,j
where CVA is the value of patent A; OA the number of forward citations to the patent A granted in the year t; FT,j the cumulative probability distribution of forward citations of patent A in a specific technological area j for a period of time T=20 years
|Park and Park (2006)|
|Value of patent=NFC/ANFC
where NFC is the number of forward citations to a patent; ANFC the average number of citations to all the patents published in the same year
|Ernst and Omland (2011)|
|Patent value=log (1+nr. forward citations)||Caviggioli et al. (2013), Kabore (2012), Fischer and Leidinger (2014)|
|Patent value=nr. forward citations of Patent Cooperation Treaty patent applications within 4 years after priority date||Frietsch et al. (2013)|
|Patent value=f(Fwd5, Fwd6-10)
where Fwd5 is the number of forward citations to the patent that occur within five years of the patent application date; Fwd6-10 the number of forward citations that occur between the sixth and tenth years after the patent application date
|Lanjouw and Schankerman (2004)|
where Citi,t is the number of forward citations that the ith patent received from following patents up to five years after the filing date
|Messeni Petruzzelli et al. (2014)|
where FWcit5 is the nr. forward citations in 5 years between the publication date of the cited and the application date of the citing
|Bonaccorsi and Thoma (2007)|
|Patent value=number of forward citations ten years after the publication date||De Rassenfosse et al. (2013)|
|Citation classification||Classification of patents by the number of forward citations; each class is assigned a value||Hall et al. (2005)|
where Cij is the patent citation matrix: frequencies of patents of firm i have been cited by firm j; NPj the number of patents in firm “j”
|Citation frequency||CII=the frequency of forward citations in the last five years within the same technology sector
where CII is the current impact index
Indicators of market coverage
|Patent value measure||Value assessment||Authors|
|Number of designated countries (family size)||Patent value=f (FAM, application at JPO, USPTO, EPO)
where FAM is the number of designated countries; Application at JPO is the dummy variable 1:YES/0:NO; application at USPTO is the dummy variable 1:YES/0:NO; application at EPO is the dummy variable 1:YES/0:NO
|Sapsalis and van Pottelsberghe de la Potterie (2007)|
|Patent value=ln (1+number of designated countries)||Reitzig (2004a)|
|Patent value=ln (family size)||Harhoff et al. (2003)|
|Patent value=f (number of countries, typology of countries)||Guellec and van Pottelsberghe de la Potterie (2000, 2002)|
|Patent value=Size of patent family and share of triad (US, EP, JP) patents
Size of patent family=number of countries where the patent is protected; share of triad patents is the number of triad patents/number of total patents
|Fabry et al. (2006)|
|GDP of the countries||Market Coverage of Granted Patents (MCGP)=∑iGDPi/GDPUSA
||Ernst and Omland (2011)|
|Family size weight||VI (value index)=∑j∑nFSWn,j
where j is the number of patents in the portfolio; n the number of countries where the jth patent is filed; FSW the family size weights
**FSW is measured in several alternative ways (Imports or GDP or population size or global competitiveness, etc.)
|Lanjouw et al. (1998), Kabore (2012)*, Frietsch et al. (2014)**|
Indicators of strategic positioning
|Patent value measure||Value assessment||Authors|
|Technology level and patent activity||Elements of patent strategy classification: number or ID; title of the patent; sub-code; date of application; date of acceptance; name of company or individual; country; number of claims||Abraham and Moitra (2001)|
|Revealed patent advantage||RPAij=100Xtanh ((ln(Pij/∑j Pij))/(∑i Pij /∑i ∑j Pij))
where RPA is revealed patent advantage; Pij is the number of patents in sub-class “j” of company “i”; Cij the patent citation matrix: number of citations in the patents of firm i by patents of firm j; NPj the number of patents in firm “j”
|Benefit-risk matrix||Technology portfolio planning matrix where patents are clustered on the basis of benefit and risk. For each group of patent, patenting commercialization strategies are proposed||Hsieh (2013)|
|Number of patents||Tj=∑i tij
where tij is the number of patents of type i in year j; Tj the total numbers of patents during year j; Ti the total numbers of patents of type i over all years; T the total of all types of patents over all years; (tij/Tj) the share of patent of type i for a year j; (Ti/Т) the share of patent of type i of all types over all years; Iij the competition indicator
|Banerjee et al. (2000)|
|Patent quality and patent activity||Patent quality (PQ) = Q1+Q2+Q3+Q4
where Q1: share of granted patents=granted patents number/total patents number
Q2: Technological scope = number of IPC classes
Q3: international scope = size of patent family and share of triad patents
Q4: Citation frequency = numero medio di forward citations
PA (patent activity) = Patent applications of a company in a technological field
|Fabry et al. (2006)|
|Patent strength||PS (patent strength)=PQ × PA
where PQ=patent quality
|Ernst (1998), Dou (2004), Fabry et al. (2006)|
|Innovativeness of patent and patent analysis||
where (technological value added) is the measure of innovativeness of technology patents; (application potential): measure innovativeness of technology patents when applied to specific field; (Other) is the measure other innovativeness; WA, WB, WC are the weight of , , respectively; mc=kc×lc; kc represents the number of candidates of patent family
lc represents the number of patent of the largest patent family
|OuYang and Weng (2011)|
Indicators of economic importance
|Patent value measure||Value assessment||Authors|
|Renewal data||The economic value of a patent, meant as the total revenues associated with the patent, is related to the renewal fees of the patent. The patent renewal fee represents the main indicator of patent value
VPS (valuation-based patent stock) is calculated by analyzing patent renewal distribution and patent value distribution
|Pakes and Schankerman (1984), Schankerman and Pakes (1986), Park and Park (2006)|
|The probability of a patent renewal is utilized as a measure of the patent economic value||Kabore (2012)|
|Family size and renewal data||The renewal of a patent in a given country depends on the revenues resulting from the patent in that country, that is, it depends on the characteristics of the market in that country||Putnam (1996)|
where j is the groups of patents identified by age; wj is the weight relative to the group j; Nj is the number of patents of the group j
|Lanjouw et al. (1998)|
|The most valued patents are also those mostly cited by subsequent patents and those renewed for a longer time||Harhoff et al. (1999)|
|IPC classes||Economic value=Number of IPC classes||Lerner (1994)|
|Opposition probability||Patent value measured in terms of patent opposition probability||Reitzig (2004b)|
|High-quality patents have greater probability of receiving oppositions. Probability of oppositions can be considered proxy for the economic relevance of patents||Harhoff and Reitzig (2004)|
|Highly valued patents have greater probability to receive oppositions||Hall et al. (2009)|
|Market value and citations||Forward and backward citations are correlated to market value and future revenue flows||Hall et al. (2005)|
|The economic value of a patent, measured as CPS (citation-based patent stock), is calculated through the forward citation number
where OA is the number of forward citations of the patent A in the year t; FT,j is the cumulative probability of forward citations
|Park and Park (2006)|
|Corporate market value and relative patent position||Economic relevance measure by means of the corporate market value correlated to the relative patent position
RPP (relative patent position)=M/L
where M is the number of patents in the technological field where it has more patents; L is the number of patents of the leader in the technological field
|Chen and Chang (2010)|
Indexes of patent value
|Patent value measure||Value assessment||Authors|
|Strength of patent protection||The index measures the IP protection and comprises five constructs:
1. Patent coverage
2. Membership of international treaties
3. Enforcement mechanisms
4. Restrictions on patent rights
5. Duration of patent protection
|Ginarte and Park (1997)|
|Patent quality index||The index analyzes the patent quality by means of 4 value determinants:
1. Number of claims
2. Forward citations
3. Number of backward citations
4. Family size
|Lanjouw and Schankerman (2004)|
|Patent asset index||The PAI measures the overall “strength” of a patent portfolio
where CI is the competitive impact; MC the market coverage; TR the technology relevance; N the portfolio size
|Ernst and Omland (2011)|
|Potential market for the patented invention||The “potential market for the patent invention” measures the patent value by means of the following variables:
1. Forward citations
2. Grant decisions
3. Number of families
|van Zeebroeck (2011)|
|Corporate market value, sales, return on equity||The index measures the market value, sales, and ROE by means of the following variables:
1. Patent H-index: at least h forward citing patents, each of which are not cited less than h times.
2. Current impact index (CII) as proposed by Narin (2000)
3. Essential patent index (EPI)
where EPIi=EPNi/(Pi×0.25); EPNi is the number of essential patents which receive high essential integration scores (Chen et al., 2011); Pi is the number of patents
|Chang et al. (2012)|
|Sales||The index relates the performance of a patent portfolio to the sales of the patents and measures the “sales” by means of the following variables:
1. Patent H-index
2. ETS (essential technological strength) of the patents
3. Patent citation
where ETSi=Pi × EPIi × CIIi
EPIi=EPNi/(Pi ×0.25); Pi is the number of patents
|Zhang et al. (2012)|
The formulae of the five indicators
|Technical scope (TS)|
|Forward citation frequency (FCF)|
|International scope (IS)||IS=ISa+ISb
where ISa depends on number and typology of countries; ISb is a dummy variable
|Patenting strategy (PS)||Scale of patent qualitative judgments of managers turned into quantitative data (competitive=1, business=0.66, defensive=0.33, not essential=0)|
|Economic relevance (ER)||Scale of patent qualitative judgments of managers turned into quantitative data (Core=1; High=0,75; Medium=0,50; Low=0,25; No relevance=0)|
The values of PPVI for the six sectors
|Defense and security electronics||0.330|
The values of indicators and PPVI for the six sectors
|Defense and security electronics||0.272||0.103||0.250||0.528||0.498||0.330|
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About the authors
Michele Grimaldi is an Assistant Professor at the Department of Civil and Mechanical Engineering at the University of Cassino and Southern Lazio. He received his Master’s Degree in Business Administration from the University of Rome “Tor Vergata,” Italy. He received his PhD in Industrial and Management Engineering from the University of Rome “Tor Vergata.” He has published more than 80 papers in conference proceedings and international journals such as: Technological Forecasting and Social Change, International Journal of Production Economics, Journal of Knowledge Management, Telecommunications Policy, European Management Journal, Journal of Intellectual Capital, European Journal of Innovation Management. His main research interests are patent analysis, intellectual capital assessment, and innovation management.
Livio Cricelli works as an Associate Professor in Industrial Engineering at the University of Cassino and Southern Lazio. He graduated in Aeronautical Engineering from the University “Federico II” of Naples and received his PhD in Industrial Engineering from the University of Rome “Tor Vergata.” He is an author and a co-author of more than 100 scientific papers presented at national and international conferences or published on national and international reviews. His research interests include issues related to business management and strategy.
Francesco Rogo has a Degree in Computer Science Engineering from the “La Sapienza” University. Since January 2000, he has worked in Marconi Mobile (Tactical Communications) for seven years. In December 2002, he received his MBA in Business Engineering from “Tor Vergata” University. In September 2006, he joined Finmeccanica Corporate (Product Policy Department). In December 2011, he received his PhD in Knowledge Management. Actually, he is the Intellectual Property Manager of Leonardo.