The Knowledge Disclosure of Patents and Its Signaling Consequences

Abstract

This study investigates the disclosure of enabling knowledge of patents. In the patent literature, there are two views of patent that treat the patent disclosure decision differently. The “strategic power” view of patent proposes that firms maximize the disclosure of patent knowledge since corporate patenting is for strategic purposes to enhance their power for negotiation or technology preemption, the power benefits which dominate the disclosure costs. In contrast, the “signaling” view posits that patents are signals to correct asymmetric information in the intellectual property markets, and hence, the knowledge disclosure of patents will increase with the signaling benefits countervailed by the disclosure costs. Based upon U.S. corporate patent data, we test the two recent views of patent. The data show that firm size is positively related to the information disclosure of patents. This appears to support for the strategic power view. We also find that the number of industry competitors is negatively associated with the patent disclosure, evidencing the signaling view that predicts a significant role of the disclosure costs for the patenting decision. Finally, more rather than less technology interdependence of patented technologies is positively related to the patent disclosure. This also supports for the signaling view that predicts considerable signaling benefits of patents by informing other firms of true innovation value if patented technologies are interdependent with other technologies. Overall we find that both the signaling and the strategic power view help understand firms’ patenting decision of how to disclose enabling knowledge of patents.