How firm characteristics affect the speed of patenting.

Author:Ruth, Derek


Patents represent one of the key tools that firms can use to protect their intellectual property. In successfully prosecuting a patent, a firm gains exclusive rights to exclude others from "making, using, offering for sale or selling the invention throughout the United States or importing the invention into the United States" (USPTO, 2009) for a period of up to 20 years. By virtue of this ability to exclude others from infringing on the patent a firm is, in theory, better able to profit from their intellectual property and recover such things as monies invested in the research and development of said intellectual property.

The patenting process begins with the filing of a patent application with the United States Patent and Trademark Office (USPTO, 2009). Once received, the application is examined to ensure that the claims made in the patent meet three key tests of being useful, non-obvious, and unique (USPTO, 2009). If the patent's claims pass these three tests, the patent is issued. This lag between the application being filed and the patent being issued is referred to as the pendency period.

In addition to the importance of patenting, which has been the topic of many different papers and studies, we argue in this paper that the speed with which firms are able to patent is also important. In other words, we believe that it is not just the successful issuance of a patent that is important, but also that the speed with which that patent is won is also important.

In essence, a successful patent application is evidence of attempts to create new products (Hausman, Hall & Griliches, 1984) and evidence of new knowledge that has been created (Jaffe, Trajtenberg, and Henderson, 1993). In the management literature, the key to long-term success of a firm is not just achieving a competitive advantage, but rather achieving one that is sustainable over time (Penrose, 1959; Prahalad and Hamel, 1990; Barney, 1991; Peteraf, 1993). By their very nature--explicitly excluding competition for up to 20 years--patents can be a key source of sustainable competitive advantage. The rights conferred to patent holders are valuable in a monetary sense as well, increasing the likelihood of obtaining financing and helping to improve their bargaining position in licensing deals (Grindley & Teece, 1997).

In general, firms want the pendency period to be as short as possible. If an invention cannot be patented--or if certain claims made in the patent are denied--the potential value of the intellectual property is reduced, perhaps to the point that further development and marketing of products based on the technology may not be worthwhile in the absence of patent protection. In the case of a lengthy pendency period, a firm faces two choices: either forge ahead with product development and marketing efforts at the risk of being unable to prevent later competition; or scale back on the aforementioned outlays until the patent is issued and limits to competition are guaranteed. In either situation, a firm will prefer to know the fate of their patent application sooner rather than later (i.e., they prefer a shorter pendency period).

The central purpose of this paper is to shed light on the factors that influence the speed with which firms obtain patents. With these results in hand, firms may be able to more quickly and efficiently protect their intellectual property with patents. In considering the factors affecting the pendency period, we consider two chief types of factors: firm-level and patent-level characteristics. The theoretical framework draws on two mean streams of literature: organizational learning and firm capabilities. Using data from the USPTO databases and publicly traded firms, we test the empirical link between firm- and patent-level characteristics on the pendency period of patents issued between 1980 and 2000.

The remainder of this paper is divided into four sections. The first section, Theory and Hypotheses, reviews relevant theory and develops the hypotheses that are tested later in the paper. The Data and Methods section lays out the data collection process, sample construction, and statistical methods used to test the paper's hypotheses. In the Results section, we summarize and present the findings of our empirical tests. The paper ends with Discussion and Conclusions, where we discuss the implications of our findings, both in terms of theory development as well as for managers involved in the patenting process. The section closes with suggestions for future research.


Although it is difficult to determine directly, the chance that a given patent application will eventually be issued (i.e., a patent granted) is somewhere in the neighborhood of 40-70% (see

Table 1 below). The difficulty in estimation arises from the fact that the patents granted in a given year are overwhelmingly from applications that were filed in the previous year, and the ratio of patents granted relative to patent applications changes from year to year. Looking at USPTO records from 1980 to 2000, more than 90% of patents had pendency periods longer than 12 months. Table 1 lists the number of patents applied for and issued annually from 1980 to 2000. Although the number of both applications and issuances has tended to increase over the years (see Figure 1 below), the ratio of patents granted relative to applications filed in a given year has varied widely, from a low of 48.3% 1995 to a high of 64.7% in 1987 (see Table 1 for a list of annual success rates). Keep in mind that the vast majority of patents issued in a given year are from applications that were submitted in previous years, so the aforementioned percentages are not a direct reflection of a given application's probability of success.


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