Research and development consist of the investigative actions that a person or business determines with the expected outcome of a discovery that will construct an entirely new product, product line, or service. Research and development are not just regarding developing new products, as they can be used to amplify a current product or service with additional components. Research refers to any new science or consideration that will result in a new product or features for an existing product. Research can be separately classified into either basic research or applied research. Basic research aims to concentrate on scientific principles from a theoretical perspective, while applied research is more practical and aims to use that basic research in a real-world environment. The development part refers to the authentic application of the new science or technology through which a new or increasingly better product or service can begin to take shape. Research and development is practically the prime step in designing a new product, but product development is not only research and development. Product development is an outgrowth of research and development, product development can refer to the entire product life cycle, from beginning to sale to renovation to retirement.

Innovation allows companies to expand and contend with other companies. Nevertheless, innovation contemplations also improve the welfare status of the countries. Research and development play a pivotal role in innovation studies. Research and development enable companies to determine their existing problems and apply the baseline work for new products and technologies. By this, we can understand that it contributes to the returns of the companies. The objective of this study is to understand the impact of innovation on the company’s share value. For example, In the study, by the information collected from Turkey during the period 1991–2019.

Nevertheless, the study was experimented with by Engle-Granger Cointegration analysis. This study has determined that there is a long-term relationship between research and development expenses and the company’s share value. In this context, companies must concentrate on research and development expenditures to improve their share values. Regarding the same issue, they need to improve their liquidity. In addition, the research and development departments in the company need to be increased. Companies need to organize a separate budget for research and development analyses.

Innovation helps to build up a better product and better solution to the problem 

As mentioned above, if a company wants to expand its business to become successful and promising, there are a few methods that you can go about accomplishing that goal. Though it will be a slow process ahead, you might decide to go with your current path, increasing as the company enhances the existing products and business models. Instead, the company might determine to extend their business by merging or acquiring others, which will be easier for the company, though also generally a much more expensive way for growth. Likewise, the company might determine to conceive by reviewing the product or business model from the ground level. This is a strategy that can lead to significant growth and help a company to expand swiftly. This potential for development is probably why, according to a recent survey by the Boston Consulting Group, 79 per cent of surveyed executives said innovation was one of their top three company priorities, the highest percentage since the survey began almost a decade ago. The BCG also points out that companies that continuously rank high in the yearly “top 50 most innovative corporations” share a common focus on research, technology, and development. Because they prioritize the positive impact of innovation, these organizations continue to develop while keeping one step ahead of the competition.[1]

Innovation helps organisations to differentiate themselves

At its most basic level, innovation includes doing something that no one else in your market has accomplished before. The purpose of using innovation to develop or upgrade your company and its products, for instance, is to expand or upgrade them until there is nothing else as such in the market. Suppose your company is embracing innovation to enhance its procedures. In that case, it’s because it will conserve your time, money, or other resources, as well as provide you with a competitive benefit over other businesses that are stuck in their techniques. In either circumstance, your company takes the enterprise to endeavour something distinct since the position quo isn’t working. While the genuine success of these recommendations can be satisfactory for numerous businesses, it would be a misstep to ignore another significant advantage: innovation permits a business to separate itself and the company’s products from the competitors, which can be extremely valuable in a replete industry or market. While furnishing value to clients should consistently be a preference, accomplishing so uniquely and separately from the competition may also become a standout element of your brand uniqueness and business technique.

Why is it important to understand intellectual property before any future investments?

Venture investors need to determine the worth of a company’s intellectual property before investing in it. Proper IP asset valuation can thus aid in attracting such potential investors, who are looking for the best possible return with the least amount of risk. IP valuation can also help you understand how much value each party’s IP assets bring to the partnership if you consider a joint venture, strategic alliance, merger, or acquisition. Before entering into licensing discussions, fully understanding your IP assets will help you make more educated judgments about the license agreement’s terms and conditions. Knowing your IP assets will also help you determine what royalties charges are reasonable. The franchisor and the franchisee both need substantial knowledge of the value of IP assets in franchising. Understanding the value of an IP asset might help you determine what strategy to use if it is intruded upon. You’ll be better prepared to determine whether to go to court, use alternative dispute resolution, or even explore licensing the asset to the infringing party if you use IP valuation. In assessing damages, IP valuation is also very significant. [2]

Patent portfolio value as an asset/tool to increase the market value of a share

Both businesses and investors must account for the value of a patent. After all, fresh discoveries and breakthroughs frequently keep businesses on the cutting edge. Patents are difficult to value because they are intangible assets, yet they may be critical in deciding a company’s success and the performance of investors who buy these businesses’ stocks. The processing of applications received at the United States Patent and Trademark Office might take up to two years in certain situations. Applicants that apply by mail are typically notified within eight weeks of the application number and formal filing date, and applications are usually numbered in consecutive order. The application number is accessible within minutes if the application is lodged electronically. The inventor can create items with a “patent pending” designation while waiting for the application to be accepted. Legal fees, filing fees, prosecution fees, translation charges, maintenance fees, and other expenses are frequently included in the cost of acquiring a patent. [3]. There are ways to evaluate the value of IP, such as income method, market method, and cost method. Through these techniques, one can easily understand the IP portfolio of a company. Understanding the portfolio will indeed affect the share market value.

What is the gain of having a strong patent portfolio to a company? Example: Tesla, Qualcomm

Qualcomm is made up of global innovators who collaborate to accelerate the future. Their patents transfer technology from them to licensees in a way that ensures the firm and the industry’s stability, dependability, and expansion. The essence of research and development is that the company’s intended invention often fails after the first few efforts. However, the corporation recognises that high technology necessitates taking considerable risks in order to keep the product cycle fresh and avoid stagnation, which is especially important given consumers’ thirst for technological advances. Qualcomm has put money into research in areas that could have appeared science fiction in the past. Consider the case of wearables. Qualcomm has been envisioning an Internet of Everything for years, in which practically everything would be connected in some form and able to share data with other items in the environment. Qualcomm, for instance, invented and patented a method that uses optical recognition techniques via the phone’s camera to determine other objects like a smartwatch and automatically configures itself to communicate with those objects in 2009, long before wearables or the Internet of Everything were buzzwords. That was six years ago when smartwatches were still in their infancy. Several modern smartwatches now employ such technology to identify themselves and connect to phones. Here at Qualcomm, our core business is to invent the future. Their parents allow them to share the ideas that alter our lives and the globe, and they were named to the Thomson Reuters Top 100 Global Innovator list for the second year in a row in 2015. Qualcomm has mastered the art of monetizing intellectual property. Because of its extensive patent portfolio, the business requires that phone makers pay it whether or not they utilize its processors. As a result, when it announced somewhat lower-than-expected sales, its shares sank as analysts speculated about the company’s future prospects. Qualcomm makes a large chunk of its money by licensing its patents to hundreds of device manufacturers, with the fee dependent on the phone’s worth rather than the components. Even if they don’t employ Qualcomm’s processors, every handset maker producing a device that connects to the networks must pay a license fee to Qualcomm. Apple abandoned its international case against Qualcomm, agreed to pay overdue dues, and struck a multi-year chipset supply arrangement for its 5G phones, demonstrating its clout. [4]

Companies may be able to use the technologies protected by Tesla’s patent portfolio through the Patent Pledge. Tesla has over 350 US utility and design patents that span anything from heat management systems to door handles. Companies contemplating using Tesla’s proprietary technology, on the other hand, should carefully understand the Pledge’s main constraints. Tesla’s promise not to sue a party for patent infringement only lasts “for as long as such party is working in good faith,” as noted above. The Pledge continues by stating that a party is operating in good faith if it has not: asserted, assisted others in asserting, or had a financial stake in asserting any patent or other intellectual property right against Tesla or a third party for its use of technologies relating to electric vehicles or related equipment; which explains why those acting in good faith will not assert any patent or intellectual property right against Tesla. It’s worth noting that a firm that uses Tesla’s patented technology waives its right to sue Tesla for patent infringement, as well as any other type of intellectual property infringement. This covers trademark and copyright infringement and misuse of trade secrets. For example, if Tesla copied a firm’s source code line-by-line, that company would have to forego the Pledge’s protection in order to assert its rights. These requirements could have influential legal and business importance for a company using Tesla’s patented technology.

  1. The Pledge further specifies that if a corporation has asserted “any patent right against a third party for its use of innovations relevant to electric cars or related equipment,” it is not operating in good faith. As a result, before employing technology from a Tesla patent, a firm must decide if it is ready to agree not to pursue its patents against any competitor in the global electric car industry. Although a corporation may be willing to accept this trade-off, it is not a decision to be made lightly. This choice may substantially influence the value that investors place on the company’s intellectual property, among other things. It may be difficult to get a competitive edge in the marketplace if competitors can exploit the company’s patented technology.
  2. Contested, assisted others in a challenge, or had a financial involvement in challenging any Tesla patent; as a result, a company’s capacity to dispute the validity of a Tesla patent is limited. This statement is comparable to that seen in a lot of intellectual property license agreements. There are a few things to keep in mind, though. To begin with, this restriction applies to any Tesla patent, not just the one now in use by the firm. Second, the Pledge stipulates that the corporation has no financial stake in a patent challenge brought against Tesla. The word “financial stake” has a broad meaning. Tesla, for example, may argue that a supplier has a financial stake in a customer’s patent dispute.
  3. Commercialized or sold any blow product (e.g., one created by imitating or trying to copy the design or presence of a Tesla product or implying an association with or endorsement by Tesla) or offered any areas for better to another party doing so, which explains why the Pledge protects those who market or sell a “knock-off” or provide material assistance to another party doing so. The Pledge does not define “knock-off product.” Still, it does give an example: “a product manufactured by emulating or replicating the look or appearance of a Tesla product or suggesting a relationship with or endorsement by Tesla.” As a result, a firm that uses Tesla’s patented technology must be cautious in its product design to avoid Tesla accusing it of selling a knock-off. [5]

How does a patent portfolio increase the market value of a share?

Patents can help you get a significant competitive advantage in the market. Lockheed Martin, for example, has a patent for its 3D flight simulator technology, which it has exploited in video games. However, decision-makers are frequently overwhelmed by the cost and complexity of developing a patent program for their company and managing the patent portfolio. Patents provide a significant marketing and financial benefit to businesses, allowing them to stand out from the competitors. Texas Instruments, for example, started licensing its patents in the midst of bankruptcy and made over a billion dollars in royalties in only a few years. This action boosted their stock price significantly and attracted Silicon Graphics and Intel as investors.

Patents can also be used to discourage rivals from entering the market. For example, a few years ago, Avery Dennison Corporation was working on a new label film that they would create for P&G. Avery reinforced their current patent portfolio by submitting new patents after learning that Dow Chemicals was also entering the industry. This prevented Dow Chemicals from entering the market. Patent sales may have a significant influence on a company’s stock price. For example, when America Online (AOL) sold a portfolio of more than 800 patents to Microsoft in April 2012, the company’s stock jumped 43 per cent on the day the $1.1 billion sales were disclosed. 

Similarly, comparing Nokia’s market position to Micromax’s shows how important it is to have a patent portfolio. In a recent case involving patents, the Delhi High Court ordered Micromax to pay royalties to Ericsson in a legal fight. The patents in dispute are standards-essential patents, which require holders to license them on FRAND (Free, Reasonable, and Non-Discriminatory) conditions. Despite Micromax’s desire to negotiate a FRAND license with Ericsson, the two businesses could not agree. One of the main reasons for not signing the deal was that Micromax sought to tie the payment to the value of the chipset, but the latter insisted on a portion of the handset’s worth, as is customary across the world. These cases show how to patent filing has led to a rise in stock prices and increased a company’s market position, demonstrating the value of a robust patent portfolio.

Customer monitoring and recommendation systems for offline stores are two main application areas where Amazon concentrates its efforts. eBay appears to be focusing on machine learning methods, data processing techniques, and neural networks in order to address issues in online resource management, online shopper behaviour prediction, and inventory management. The US Patent & Trademark Office issued Amazon Technologies a total of 2,373 patents in 2020. eBay Inc. is an online marketplace that connects merchants and customers worldwide to locate, buy, and sell goods. [6]

Patenting a product offers the corporation a competitive advantage by providing them exclusive market ownership of the product. This may be highly beneficial to the company’s market share and provide the company with a much-needed competitive advantage. For more than two decades, the photocopying company Xerox ruled the photocopier industry, raking huge profits. Many significant, well-known firms use patents as a defensive tactic against their competitors. Patenting their new initiatives and goods offers little or no room for competitors to follow suit, resulting in a significant market share value for the corporation. One such example is Avery Dennison Corporation’s foray into label film manufacture. They filed as many patents as they could for their technique, procedure, and design, bolstering their creation and making it more difficult for competitors to enter the industry.

Patents for unique ideas and designs with a significant socioeconomic impact can benefit. They can be licensed to bring in cash flow and investments, improving a company’s marketing value. When Ericsson entered into a patent licensing agreement with Apple in 2015, its stock jumped by 8%. The Economist published research on the influence of patents on market concentration in 2016. It was shown that half of the companies that made remarkable profits are in the technology sector, where Intellectual Property Rights play an important role. Patent records are one of the most valuable assets for technology-intensive businesses. The more legally owned technology they have, the higher their market share value. This intangible asset is sometimes utilized to attract investors to companies. Texas Instruments, a semiconductor design and manufacturing business, used patent licensing to avoid bankruptcy and ended up with a large sum of money through royalties.

Patent sales may dramatically increase a company’s market share. When America Online (AOL) reached a deal with Microsoft to sell more than 800 patents worth $1.1 billion, its stock jumped 43 per cent. Failure to recognize the necessity of having a strong patent program in place might result in nightmare scenarios. One of the leading corporations in the photographic industry, Kodak, failed to file a patent for their instant photography technology. Later, Polaroid, a much smaller company, secured a patent for the same technology and sued Kodak for patent infringement. Kodak experienced significant financial losses due to the closure of its operations and the payment of $925 million in penalties. Patents, as is well acknowledged, provide product protection while also having a significant economic influence on the company. It is time for large and small businesses to establish patent strategies and improve their current patent portfolios to increase their market share. Large and small businesses should develop patent strategies and enhance their existing patent portfolios to grow their market share value.

Conclusion: This article can understand the importance of comprehending a company before investing in it. Scrutinising the company doesn’t just have to be about profits and losses. When one is investing, reviewing the company’s patent portfolio is crucial. At least knowing about what the company is using technologies from the past five years and what would be the company’s road map for the next ten years, along with the current patent portfolio, is essential. We should also know whether the company is aligned with its strategy because all of this affects excessively the value of a share in the market.

Disclaimer: The present article intends to provide general guidance on the subject, and you can also consult us in your specific case.

References:  [1] https://zjcbf.or.tz/2021/11/25/be-alone-that-is-the-secret-of-invention-be-alone-that-is-when-ideas-are-born-physicist-nicola-tesla/

[2] https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_11_learning_points.pdf

[3] https://www.investopedia.com/articles/fundamental-analysis/09/valuing-patent.asp

[4] https://www.qualcomm.com/news/onq/2015/11/19/qualcomms-patents-keep-it-top-industry-innovation

[5] https://www.tesla.com/blog/all-our-patent-are-belong-you

[6] https://www.statista.com/statistics/897773/amazon-patents-usa-registered/

Author

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    Suma Sri is a law student exploring various streams of law along with her enthusiasm towards IPR. Her interests dwell in ADR. She is also into NGO activities. She has good knowledge of legal research. She has experience in writing articles and blogs. Currently, she is pursuing her bachelor's of B.B.A.LL.B(Hons.) in ICFAI University, Hyderabad.