In the competitive business landscape, effective technology and intellectual property strategies play a critical role. Our research, published in the Journal of Management Studies challenges the belief that dense patent portfolios always lead to higher firm value, revealing a more nuanced relationship. We find that dispersed patent portfolios can actually be more valuable in the cases of emerging and unique technologies. Our study underscores the need for IP strategies tailored to specific technological contexts, offering valuable insights for optimizing the value of patent portfolios.

The power of a portfolio perspective

In today’s highly competitive business landscape, technology and intellectual property strategies are critical drivers of value creation and appropriation. Our article shows it is important to go beyond summing up a firm’s patents or looking at characteristics of individual patents to examine how the characteristics of a portfolio of firm patents impact firm value. 

The combination of patenting decisions – specifically related to the density of a firm’s patent portfolio — and the conditions in the technology landscape have important implications for profiting from innovation. Simply put, patent density is the degree to which patents are clustered or spread across diverse knowledge domains. The prevailing wisdom suggests that dense portfolios are invariably linked with higher firm value, as they fortify core innovations and ward off competitors. This article, however, challenges this conventional belief by showing that the relationship between patent portfolio density and firm value is far more nuanced. For example, portfolio density might stifle investment in complementary technologies, which can be essential for appropriating value from innovation.

When are dispersed patent portfolios more valuable? 

Using stock return data over a period of 32 years in the chemicals industry, we find that dispersed patent portfolios are associated with better performance with newer technologies and technologies that are more distant from other inventions (or more unique). Conversely, dense patent portfolios are associated with better performance with mature technologies and technologies that are more closely clustered to others. These findings yield insights for optimizing firm value through patent portfolios.  

Dispersed patent portfolios can enhance access to knowledge and complementary assets, offering a strategic edge when technology trajectories are still taking shape. This suggests that investing in a dense thicket of patents around a young technology is not optimal; rather, a dispersed portfolio will suffice and allow space for complementary knowledge and assets to evolve which can lead to more value. However, when mature knowledge underpins an invention, for an innovating firm to realize superior returns it needs a dense portfolio to protect its intellectual property from competitors.

Additionally, considering how a patented invention relates to other innovative activity is also important.  Operating on the periphery may make dispersed portfolios more advantageous, while proximity to the core may necessitate the fortification provided by dense patent portfolios; in technology-rich environments, dense portfolios are necessary for protecting innovations, while in less competitive environments, a dispersed portfolio is sufficient. A dispersed portfolio can also help firms maximize their claims in the technology landscape, potentially covering valuable areas.

Implications for maximizing value from a patent portfolio

This study contributes significantly to our understanding of intellection property strategy by looking into how specific configurations of patenting-related decisions and technology landscape characteristics can impact firm value. For more than three decades, since at least Teece in 1986, there has been great interest in why technological pioneers often fail to capture economic returns. Pisano and Teece later emphasized that more IP protection and stronger barriers around innovation do not necessarily lead to better value capture. This study sheds light on when and why strong versus weak IP barriers are beneficial; dense patent portfolios are not universally linked to increased firm value. Instead, their value depends on the specific context. The relationship between patent portfolio density and firm value is influenced by technological uncertainty, specifically technological recency, and proximity to the locus of inventive activity.  These findings underscore the contextual nature of patent portfolios’ value. IP strategies must be formulated within specific technological landscapes defined by knowledge recency and similarity. Firms must proactively lay claim to technology space and adapt their patenting efforts to the pace, direction, and location of technological advancements made by others.

In summary, the study’s results emphasize that patent portfolio strategies are not one-size-fits-all. Dense portfolios are most valuable when technology is mature and close to the locus of inventive activity, while dispersed portfolios are more effective under opposite conditions. IP strategists should adjust their patent portfolios as knowledge matures and aligns within the technology landscape. This study also opens avenues for future research. It prompts questions about patent portfolios’ value in complex technology areas or high-tech industries with tight interdependencies between product and process innovation. Investigating the role of technology licensing and open innovation in firms with different patent portfolio densities is another promising research direction. Understanding the impact of planned versus emergent IP strategies under varying rates of technological change is also worth exploring.

In conclusion, this study offers valuable insights into the contextual determinants of patent portfolio value. It highlights the importance of considering the broader technological landscape when formulating IP strategies and suggests that dense or dispersed patent portfolios can be more effective under specific conditions. This research paves the way for further exploration of the nuanced relationship between IP strategy and firm value in various technology and industry contexts.