Innovative Output, Productivity and Profitability. A Test Comparing USPTO and EPO Data

Abstract

The aim of this paper is to test whether patent‐based indicators are still reliable measures of innovativeness in light of organizational changes in the field of Intellectual Property Rights (IPR) protection and the regulatory reforms already occurred and under way, respectively, at the US Patent and Trademark Office (USPTO) and the European Patent Office (EPO). For most high‐tech industries, patents represent an outcome of the production process and their number can be taken as a proxy for a firm's ability to improve its productivity growth and profitability. The case study reported here concerns the biotechnology industry in Italy, whose firms, by definition, have Intellectual Property (IP) activities in their portfolios. For this purpose, we use a unique dataset which collects balance sheet items and patent information from EPO and USPTO. After linking firms' financial and production data with the patent information, we estimate a modified knowledge production function in which the dependent variable is alternatively (labor) productivity growth and profitability. Although based on a quite small sample, our findings provide some indication of a statistically significant relationship between patents with the EPO and both productivity growth and, in particular, profitability. This suggests that firms might pursue different strategies when patenting with the USPTO and the EPO.