Patents and Market Efficiency - An Analysis of Non-Qualitative Patents.

Abstract

The importance of intellectual property and intellectual property rights in today’s economy steadily increases. By conducting event studies this report investigates whether the market is efficient when it comes to the granting and the invalidation of non-qualitative patents, hypothesizing that the granting and invalidation should not have an impact on abnormal returns. By non-qualitative patents it is meant patents that first have been granted and then later invalidated due to reasons that should not lead to the patent being granted from the beginning. An extensive cross-sectional regression analysis is conducted to further investigate what actually drives abnormal returns. The hypotheses set out in the report are confirmed by the event study. The granting of the non-qualitative patent do not have a positive effect on abnormal returns and the invalidation of the non-qualitative patent do not have any effect on abnormal returns. The cross-sectional regression analysis concludes that what drives abnormal returns is not the granting of the non-qualitative patent; instead it is efficiency in terms of asset turnover and knowledge capital in terms of intangible assets to total assets.