14 Economic Analysis of Synergy Effect of Multilateral
Protection by Different Industrial Property Rights（*）
Research Fellow: Toshihiro Tsuchihashi
Trademarks convey information about the quality and function of products to consumers. On the other hand,patents sometimes convey information about products and firms to consumers and the form of utilization ofpatents as a tool (signal) is actually observed. However, “patent signal” has not been made subject to analysis
much in economics. In this study, we take up the situation where one product is protected multilaterally bydifferent industrial property rights (trademark right and patent right), and analyze the effect of utilization ofpatent signals, in addition to trademarks, on the profits of firms from the perspective of economics. Different
factors, such as the brand power of a firm established by a trademark, difference in the degree of a patented
invention’s contribution to the quality of products, and difference in industry, are considered to be affecting theeffect of multilateral protection of profits of firms. In this study, we classified these factors into three categories,“firm’s characteristics,” “product characteristics,” and “environmental characteristics,” and clarified themechanism whereby each factor increases the profits of firms from patent signals.

Ⅰ Introduction
Trademarks, such as firm names and brandlogos, are attached to products and their packages.
Those trademarks convey information about thequality of products to consumers. For example,
consumers may wish to purchase “AQUOS,” etc.,
not other flat-screen televisions, and may wish topurchase “Prius,” etc., not other automobiles. Thisis probably because consumers guess, based on
trademarks, that the quality of products is high.
However, trademarks indirectly convey
information. This is because whether the quality ofa product is “truly” high and whether a consumer
is sufficiently satisfied with the product remain
unclear to the consumer until he/she actuallyconsumes(uses)
theproduct.
Indirectcommunication like this is called signal ineconomics.
Trademarks do not exclusively work/serve as
signals. For example, many patented inventions areused in electric appliances, such as digital cameras.
When the patented inventions are essential to thefunction and characteristics of the product, amarking to the effect that “a patent has beenobtained” and a statement of a patent number candirectly show the high quality and highperformance of the product. On the other hand,(*)

even if no patented invention is directly related to
the function and performance of the relevant
product, consumers may guess that the product ishigh-quality and high-performance. In the latter
case, patent exactly conveys the quality of the
product as a signal.
Although Silverberg and Verspagen (2007)
pointed out that many registered patents did nothave high value as inventions, patents may havevalue as signals from the perspective of an
appealing effect to general consumers. However,compared to trademarks, the effect of patent signals
is not very obvious. That is, it is not clear whether
patent signals increases the profits of firms. The
reason is that firms have already generally utilized
trademark signals.
In reality, a firm will use patent as a signal
together with a trademark that it already possesses.
If both a trademark and a patent convey similar
information as signals, the patent as a signal may
be meaningless. Still more, this is so especially if
utilization of a patent signal causes additional costs.
In this study, we argue the following threepoints about the impact of patent signals on the
profits of firms.
z Where a firm has already been using a
trademark signal, is the firm always able toThis is an English translation of the summary of the report published under the Industrial Property Research
Promotion Project FY2010 entrusted by the Japan Patent Office. IIP is entirely responsible for any errors in expression
or description of the translation. When any ambiguity is found in the English translation, the original Japanese text
shall be prevailing.

IIP Bulletin 2011 Vol.20● 1 ●gain additional profits from a patent signal?
z What are the characteristics of firms that areable to gain additional profits from patentsignals?
z Under what conditions are firms able to gain
additional profits from patent signals?
In the sense that this study examines thesituation where a patent signal and a trademark
signal are concurrently used, it argues over the
relationship between two different industrial
property rights. This relationship is a point that has
been hardly argued in economics, and is the new
point of view of this study.
The conclusion is as follows. First, althoughboth trademarks and patents serve as indicators of
the ability of firms, firms are able to gain profits
from patent signals, because the source of signals
differs between trademarks and patents. Secondly,
difference in the ability of firms has a great impact
on the success of inventions and the quality of
products, and patent signals increase the profits offirms more for firms whose reputation establishedby trademarks is worse. Thirdly, where a patented
invention significantly contributes to the quality of
the relevant product or where not many license
agreements are concluded between firms, patentsignals increase the profits of firms.
The composition of Chapters that follow is asfollows. Chapters II and III provide an overview ofthe way of thinking of trademarks and patents fromthe perspective of economics. Chapter IV
introduces a framework for analyzing the benefitsof patent signals in economics. Chapters V and VI
examine the profits of firms from patent signals.
Chapter VII analyzes the impact of license
agreements on the profits of firms from patentsignals. Chapter VIII is the conclusion.

Ⅱ Trademarks in Economics
Under the trademark system, a trademark isprovided a source representing function andself-distinguishing function if it is protected by law.
Hereby, business confidence of the user of the
trademark is improved, and consumers’ interests
are also protected. That is, the trademark system
is one that increases the benefits of both firms andconsumers. This is consistent with economics orthe view of trademarks that is leading in law andeconomics.
According to Landes and Posner (1987), firms
have a motive to maintain the high quality of
products after obtaining trademarks. The reason
thereof is explained as follows. If the quality of
products deteriorates after a trademark is obtained

for the product, consumers will consider the valueof the products, to which the trademark is attached,
to be as low as that of “non-brand” products. This
will lead investment costs which the relevant firm
has spent to obtain the trademark to be wasted. If
things go further wrong, a bad reputation arisingfrom deterioration in the quality of the products
may cause losses to the firm. In order to avoid suchsituation, firms wish to keep the quality of products
to which a trademark is attached above a certain
level.
Moreover, if consumers know that a
trademark has the quality assurance function, they
can also guess, for products they have neverpurchased, that the quality of the products is high.
In this sense, it can be said that trademarks
communicate to consumers the information that
“this product is of high quality.” In other words,
trademarks work/serve as the signals of the qualityof products. In this regard, trademarks as thesignals of quality are similar to advertising, such as
TV commercials.

Ⅲ Patents in Economics
Under the current patent system, inventors
are granted the exclusive right (protection of
inventions) for a certain period in exchange for the
publication of their technological inventions(utilization of inventions). Inventors granted theexclusive right can exclusively sell products tomake great profits by using the relevant technology.
Economic benefits of “protection of inventions” aregenerally considered to serve as a significant
incentive for people making intellectual creations.
On the other hand, as technological inventions are
published, people other than inventors can develop
further new technology by the use of the published
new inventions. As a result of that, technologicalprogress and industrial development are promoted.
Even if the original purposes of the patent
system are “protection of inventions” and“utilization of inventions,” for firms, there is likely
a method of utilizing patents, that is, utilizing“patents as signals.” For example, if a patentee
places the wording “a patent has been obtained” ora patent number on the package of his/her products
when selling products using his/her invention,
consumers may guess the quality of the products
therefrom. In this case, the patent indirectly
communicates information about the quality of the
products to consumers, and the patent can be said
to be working/serving as a signal. Then, arepatents actually being utilized by firms as signals?

● 2 ●IIP Bulletin 2011 Vol.20

The Institute of Intellectual Property
conducted a questionnaire survey targeting firms
within Japan on whether they are utilizing patents
as signals (Institute of Intellectual Property (2010)“Utilization of Intellectual Property Rights in New
Business Environment”).
According to the results of this questionnaire
survey, firms which cited “utilization of patent rights
and patent applications as technology benchmarks”
firstly or secondly as forms of utilization that make ahigh contribution to business accounted for 31.9%.
Therefore, serving as signals can be said to be one of
the roles of patent rights that are sufficiently
recognized in the actual industry.
The point that patents work/serve as signals to
consumers can also be seen from the text of law.
Section 292 of the U.S. patent law imposes a fine notmore than 500 dollars on the false marking of apatent with the intent of deceiving the public forindividual violations. The Japanese Patent Act also
prohibits the false marking of a patent (Article 188),
and a person who fails to comply is to be punishedby imprisonment with work for a term not exceeding
three years or a fine not exceeding 3,000,000 yen(Article 198). Furthermore, dual liability is set for thefalse marking of a patent, and in addition to theoffender, the juridical person is to be punished by afine not exceeding 100 million yen (Article 201). If
patents do not at all work/serve as signals, penal
provisions like this are probably completely
unnecessary.
Horstmann et al. (1985) pointed out thepossibility that the act of obtaining a patent itself willcommunicate the market information the firm has toother competing firms. However, there has been no
study, which analyzes patents’ working/serving as
signals to consumers, in the field of economics andthe field of law and economics. Therefore, there
arises the question of whether patents as signals
actually provide benefits to firms or in whatsituations benefits are provided. In order to answer
these questions, the framework of economics foranalyzing patent signals is presented in the next
Chapter.

Ⅳ Framework for Analysis
We assume that many firms that differ inability are manufacturing and selling the same kindof products in the market.
The ability refers to a synthesis of “tangible
resources, such as persons, things, and money, andintangible resources, such as know-how andinformation.” Here, we assume that ability can beevaluated in one dimension in the same manner as

IIP Bulletin 2011 Vol.20

temperature and weight. Figure 1 is an example
expressing two-dimensional elements, specifically,tangible resources (persons/things/money) andintangible resources (know-how/information), in
one dimension.
Persons, things and money

High

Low
Kow-how and information

Figure 1 Ability of firms in one dimension
Firms’ activities consist of two processes (orsectors), “research and development (R&D)” and“manufacturing and selling.” We think of R&D
first.
R&D is a process of developing technology for
manufacturing products. Development of a newtechnology does not necessarily succeed, and theprobability of success thereof depends on theability of a firm. We assume that the higher theability is, the higher the probability of succeedingin development of a new technology, and that thelower the ability is, the lower the provability ofsuccess is.
Also we assume that, if a firm succeeds indeveloping a new technology in the process of
R&D, the technology is necessarily protected bypatent.
Next, we think of manufacturing and selling. If
a firm succeeds in technological development in
R&D, it can utilize the relevant new technology to
manufacture products. On the other hand, if a firm
fails in technological development, it must
manufacture products using the existing oldtechnology.
Although every firm manufactures the samekind of products, the “quality” of the products
differs depending on the firm. There may be cases
where products sold by a firm are of high quality
while products sold by another firm are of low
quality. However, it is assumed that the quality of
products manufactured by one firm is kept uniform.
That is, the situation where some products sold by
one firm are of high quality and others are of low
quality is left out of consideration. In addition, it is● 3 ●assumed that the quality of products is unclear to
consumers until they purchase the products.
Quality is decided in a probabilistic manner,
depending on ability and success in developing
manufacturing technology (existence of a patent).
A firm with high ability that has succeeded intechnological development has a high probabilityof manufacturing high-quality products. On theother hand, a firm with low ability that has also
failed in technological development has a low
probability of being able to manufacturehigh-quality products. The point that requires
attention here is that even if a firm has highability and has succeeded in technologicaldevelopment, it is not necessarily able tomanufacture high-quality products. This is themeaning of the “probabilistic manner.” This
relationship that exists among the ability of a firm,
success in technological development, and thequality of products is shown in Table 1.
Technologicaldevelopment

Success

FailureAbility of a firm
High
High
MiddleLow
MiddleLow
Table 1 Probability of high-quality products
being manufactured
We assume that, although firms correctly
understand their ability and quality, they are
unknown to consumers unless there are patent or
trademark signals. Such information is called theprivate information of firms. However, it isassumed that all consumers share common
knowledge about what level of firm ability andproduct quality is possible in what probability (putmathematically, the probability distribution of thesevariables).
At the end, we think of the process of products
being sold to consumers. Firms sell all products to
many consumers through the (competitive) market.
Assuming that there are sufficiently many
consumers compared to firms, the price of
products settles at the maximum price (perceived
value) that consumers do not mind paying for the
products (the price is decided by Walrasianauctioneer). As it is assumed here that all
consumers are identical, it is necessary to pay
attention to the point that it is not that different
prices are presented to individual consumers.
Then, how is consumer perceived value
decided? As mentioned above, consumers do nothave any information about the ability of firms andquality of products in advance. However, when
consumers purchase products, they will be able toobserve product names and firms’ logos. In
addition, firms that have succeeded intechnological development in R&D can describe“patent numbers” and a statement to the effectthat technology is used on the package of theirproducts in a form that is observable to consumers(like the “browning brewing method of ‘KIRIN’”).
Consumers form a perceived value based on thesekinds of information brought by trademarks andpatents.
Lastly, we assume that the framework is
common knowledge among all firms and all
consumers (assumption of common knowledge).
Before moving on to the analysis of patentsignals and trademark signals, we state three
remarks on the framework.
First, in the framework, we assumed that thequality of products can be evaluated objectively andin one dimension, based on such concepts as“high” and “low.” Since quality consists of many
elements, including the durability, functionality, andconvenience of products, the level of quality may
not be evaluated in one dimension. However, here,
scales that can be evaluated objectively and in one
dimension, such as the failure rate of products, areassumed as quality. Needless to say, it istechnically possible to consider quality inmultidimension.
However,
introductionofmultidimensional quality complicates analysis, andis likely to make the role of patent signals, which
this study intends to analyze intensively, hard tosee. Therefore, in this study, we use scales ofquality that can be evaluated objectively and in one
dimension.
Next, it was assumed that firms that are more
likely to succeed in technological development in
R&D are more likely to manufacture high-quality
products. According to this assumption, firms withhigh ability are more likely to exert their ability inboth of the two processes. In reality, there areprobably firms that are not good at productdevelopment despite having abundant know-how intechnological development, and vice versa.
However, for example, if, for two firms that havethe same level of know-how for technologicaldevelopment, one’s financial assets far exceed theother’s financial assets (money), the one having
more money is more highly likely to succeed in the
R&D process. That is, it is not unnatural to thinkthat firms that have sufficient resources, including
persons and money, can perform all businessactivities more advantageously than firms that do● 4 ●IIP Bulletin 2011 Vol.20

not. Therefore, in this study, a simplified
assumption is adopted that firms with high ability
are more likely to exert their ability in both of thetwo processes.
Lastly, it was assumed that firms that havesucceeded in inventing manufacturing technology
have necessarily obtained patent rights. In reality,
there are possible cases where the inventor does
not file a patent application for strategic reasons, as
pointed out in Horstmann et al. (1985). For
example, a firm tends to keep its technology secretin cases where costs for obtaining a patent (costs
for the procedures related to obtainment of apatent) are sufficiently high and where competingfirms are presumed to catch up to the firm’s
technical level due to publication of the technology.
That is, in these cases, the company chooses not tofile a patent application as costs for obtaining apatent exceed the benefits therefrom for thecompany. However, if the period subject to analysis
is short, such issue of catch-up will not occur.
Benefits of firms from utilization of patentsignals are analyzed below. For this purpose,
examination is carried forward through comparisonof benefits in cases where firms do not utilize
patent signals (Chapter V) and benefits in cases
where firms utilize patent signals (Chapter VI).

higher consumer perceived value will be. That is,
firms that have a high trademark-based reputation
make high profits while firms that have a low
reputation make low profits. In other words,
success or failure in technological development,
which is information that is unobservable for
consumers, has no impact on the profits of firms,
and firms gain profits in proportion to theirtrademark-based reputations.
It is necessary to make a supplementarystatement with regard to newcomer firms. As
mentioned above, a trademark works/serves as asignal of a firm’s ability for the firm’s history ofbusiness. As newcomer firms do not have suchhistory, special handling is required for theirtrademark-based reputations. There are twodifferent types of possible handlings. Those are themethod based on the idea that the reputations of
newcomer firms belong to the lowest category andthe method based on the idea that they are at the
average of the reputations of firms existing insociety. Which method is appropriate differs
depending on the social trend of the time and theindustry.

Ⅴ Analysis of Cases Where Firms
Do Not Utilize Patent Signals

Next, we examine the benefits that firms cangain in cases where they utilize patent signals.
In this case, patents, including their marking,are protected by law; therefore, not only
unauthorized use of the relevant technology but
also a false statement of a patent number and afalse marking, like “a patent has been obtained,”
are not permitted. Therefore, consumers cancorrectly recognize the fact that the firm has
succeeded in inventing technology, on the basis of apatent number stated on the package of the productand marking of the patent.
As consumers also know that firms withhigher ability are more likely to succeed ininventing technology, the following becomes clear
based on the conditional probability theory that is
known as Bayes’ theorem. That is, the true (actual)ability of firms that have succeeded in inventing
technology is higher, on an average, than that offirms that have failed to do so. In other words,
patents provide consumers with information about
ability. While communication through trademarks
requires a history of business (reputation) of firms,
even completely newcomer firms can communicate
their ability through patent signals. As a result,consumers guess that the quality of products
supplied by such firms is high, and the consumer

This Chapter examines the benefits that firms
can gain in cases where they do not utilize patentsignals. In this case, whether a firm has succeeded
in inventing manufacturing technology is completely
unclear to consumers. However, consumers can use
trademark signals as information for determining
the quality of products, as mentioned below.
Trademarks
provideconsumers
withinformation about the ability of firms. Firms have ahistory of business unless they are completely
newcomer firms. It is believed that consumers
have some recognition of the ability of firms on thebasis of the products which firms have supplied tothe market in the past. Firms that have supplied alarge amount of high-quality products probably
have high ability while firms that have supplied
only low-quality products must have low ability. In
other words, reputations indicated by trademarks
work/serve as the signals of ability.
Here, given success or failure in technologicaldevelopment, firms that have higher ability have ahigher probability of supplying high-quality
products (see Table 1). Then, the higher the
probability of products being of high quality is, the

IIP Bulletin 2011 Vol.20

Ⅵ Analysis of Cases Where Firms
Utilize Patent Signals● 5 ●perceived value of the products increases, as in thepreceding analysis of trademarks.
The foregoing discussion has revealed thatboth trademarks and patents work/serve as thesignals of the ability of firms and of the quality of
products. Then, are patent signals completely
meaningless as they duplicate trademark signals?
The answer is no. This is because the sourceof an indicator of ability differs between trademarks
and patents though the high quality of products isindicated by the high ability of a firm. Therefore,
the profits of firms from patent signals arise
independently of the profits of firms fromtrademarks signals.
In addition, the impact of patents on consumer
perceived value (and profits of firms) is not only
that. It should be recalled that, given the ability offirms, firms that possess newer manufacturing
technology have a higher probability of supplying
high-quality products (see Table 1). That is, patents
also work/serve as direct indicators of the qualityof products (not as signals). Through a combinationof both of these functions, firms can gain highprofits from patent signals. The sources of profits
of firms from trademark signals and patent signals
are summed up in Table 2.
Trademarks
Patents

Ability based on reputation
Ability to create inventions
Improvement of the quality of
products based on inventions

Table 2 Sources of profits of firms from signals
Next, we examine the size of profits frompatent signals.
The size of profits from trademark signals is in
proportion to reputation based on trademarks. In
order to examine the size of profits from patentsignals, it is necessary to distinguish relationships
among some variables (Figure 2).
the ability of
firms

(A)
Patents(B)(D) the quality of
products(C)

Figure 2 Relationships among variables
First, consumers can understand from a patentthat a relevant firm has succeeded in inventing
technology. According to the Bayes’ theorem, theability of firms that possess patents is, on anaverage, higher than that of firms that do not;therefore, patents work/serve as the signals of
ability (Figure 2(A)).
Then, the strength of a patent signal depends
on the degree of contribution of ability to successin creating an invention (Figure 2 (B)). If thedegree is small, it is hard for consumers to believe
firmly that the firm has high ability even if they
witness the fact that the firm possesses a patent.
Therefore, consumers cannot sufficiently guess thequality of products, and the perceived value does
not increase much. Consequently, the patent signal
does not increase the profits of the firm much.
After all, it can be said that a patent signal
increases the profits of a firm more as thedifference between the rate of firms with highability succeeding in creating an invention and therate of firms with low ability doing so is larger.
Next is the relationships between ability andthe quality of products (Figure 2(C)). Even if it isunderstood, from a patent signal, that the ability ofa firm is high, profits from the patent signal will not
be very large if the relationships between ability
and the quality of products are weak. This isbecause the ability of a firm is not a (very)
important factor in consumers’ guessing the qualityof products. After all, it can be said that a patentsignal increases the profits of a firm more as thedifference between the probability of firms withhigh ability manufacturing high-quality products
and the probability of firms with low ability doing
so is larger.
Lastly, we examine the degree of contributionof technological inventions to the quality (Figure2(D)). If the degree of contribution is small, theprofits of a firm from a patent signal are not verylarge. This is because, even if consumers canfirmly believe, owing to a patent, that the firm
possesses a new technology, it cannot be said thatthe quality of products becomes higher owing to
the technology and the consumer perceived value
is thus also not increased. After all, it can be said
that a patent signal increases the profits of a firm
more as the difference between the probability offirms having failed to invent technology
manufacturing high-quality products and theprobability of firms having succeeded in inventing
technology doing so is larger.
However, in fact, even if a patented technology
does not contribute to the quality of products at all,if consumers are under the impression that “theprobability of products being of high quality
increases owing to the patented technology,” thefirm can, after all, gain profits from the patentsignal. That is, if a firm is able to make consumers
aware of positive relationships between a patented● 6 ●IIP Bulletin 2011 Vol.20

technology and the quality of products throughadvertising, such as TV commercials, patent signal
becomes a useful tool for the firm.
This point at issue is very important because
the current situation, where many patents whose
value as inventions is not high have beenregistered, has been considered to be a mysteryfrom the perspective of economics for many years.
That is, as pointed out in Silverberg and Verspagen(2007), registering a patent that has no value as aninvention (or has a low value) is apparently
unreasonable for firms, taking registration fees forpatents into account. However, as this study
advocates,such(apparently
unreasonable)
registration of a patent can be explained if thinking
that patents can be utilized as signals.
With regard to the profits of firms from patentsignals, we point out another very important point.
As seen above, the profits of firms from patentsignals arise independently of the profits of firms
from trademark signals, and also arise additionally.
This offers an important suggestion with regard to
the question of to what firms patent signals are
beneficial. We think of firms which have a low
trademark-based reputation. Such firms cannot
gain high profits from trademark signals. Therefore,
if a firm with a low trademark-based reputation
succeeds in inventing technology, benefits from apatent signal will be relatively large. On the other
hand, for firms for which a sufficiently highreputation has already been established based on
trademarks, additional profits from patent signals
are relatively unimportant.
The discussion so far indicates that patents
work/serve as the signals of the ability of firms andthat firms can gain additional profits from patentsignals under certain conditions. However, a patentdoes not work/serve as a signal of the ability of a
firm where a relevant patented invention widely
moves among firms through license agreements. In
order to confirm this point, we examine license
agreements in the next Chapter.

Ⅶ Effect of License Agreements
In order to make clear the effect of license
agreements on patent signals, an extreme case is
first assumed in which license agreements areconcluded between all firms that possess patented
inventions and all firms that do not possess new
manufacturing technology.
Firms that have failed to invent technology
can manufacture products by the use of
manufacturing technology for which a patentee has

IIP Bulletin 2011 Vol.20

obtained a patent by paying license fees to thepatentee. If all firms conclude license agreements,
the phrase “a patent has been obtained” will bemarked on the package of all products distributedin the market.
According to the discussion in Chapter VI, theperceived value of products manufactured by firmsthat have patented inventions becomes high as
consumers correctly guess (based on Bayes’
theorem) that such firms have, on an average, highability. However, where all firms manufacture
products by the use of “patented inventions”
through license agreements, patents cannot
provide consumers with any information about theability of firms. That is, patents do not work/serveas the signals of the ability of firms.
Next, we assume the realistic situation where
license agreements are concluded among somefirms. In this case, there are the following threedifferent types of firms in the market. The first arefirms that have failed to invent new manufacturing
technology and do not conclude any license
agreement. These firms manufacture products
without having new manufacturing technology. The
second are firms that have failed to invent new
manufacturing technology but have obtained new
manufacturing
technology
throughlicenseagreements. The third are firms that havesucceeded in inventing new manufacturing
technology in their own R&D.
With regard to the firms of the first type that
do not have new manufacturing technology,
consumers probably conclude on the basis ofBayes’ theorem that their ability is low on anaverage. On the other hand, with regard to firmsthat have new manufacturing technology,
consumers probably conclude that their ability ishigh on an average. However, the point to be noted
here is that consumers cannot distinguish between
the firms of the second type and those of the third
type. Firms of both types state, on the package of
their products, that “a patent has been obtained.”
Therefore, consumers do not evaluate the ability offirms that have new manufacturing technology as
highly as in the case where no license agreement isconcluded, though they highly evaluate the abilityof such firms. In fact, given firms possessing new
manufacturing
technology,
theconditional
probability (based on Bayes’ theorem) of theirhaving high ability is calculated to be lower thanthe conditional probability thereof in cases where
no license agreement is concluded. In other words,
it can be said that the function of patent signals as
the indicators of the ability of firms becomes
weaker.

● 7 ●Whether a license agreement is easily
concluded will be decided based on such factors as
the characteristics of patents, relationships amongfirms, and industrial structure. That is, how muchprofits firms can gain from patent signals also
depends on the aforementioned factors.

Ⅷ Conclusion
Trademarks, such as firm names, productnames, and brand logos, are indicated on products.
Trademarks bear the past history of firms, andcommunicate information about the ability of firms
and the quality of products to consumers. On theother hand, patents can also communicate
information about the ability of firms and thequality of products to consumers; however, it is notclear whether firms benefit from patent signal in
the situation where trademarks are alreadycarrying out a similar function. This study
examined, using the framework of economics,
whether utilization of patents as signals brings
profits to firms.
Both trademarks and patents communicate theability of firms and the quality of products to
consumers; however, they differ in the source of
information. Trademarks are based on past
performance while patents are based on new
inventions that actually exist. Therefore, even if
there have already been trademark signals, patentsignals bring profits to firms. However, profits frompatent signals are affected by the characteristics offirms and of products and environmental factors
surrounding firms as shown in Table 3.
Firm’scharacter-istics

Relationships between ability and therate of success in creating inventions
Relationships between ability and quality
Height of trademark-based reputation

Productcharacter-istics

Degree of contribution of technologicalinventions to quality

Environmentalcharacter-istics

Likelihood of license agreements
being concluded(threat of catch-up by other competingfirms and easiness of technology transfer)

Table 3 Factors that affect the profits broughtby patent signals
The stronger the correlation between ability
and the rate of success in creating inventions is,
the stronger a patent works/serves as an indicatorof ability. In this case, a patent signal can increase
the profits of the firm. However, for that purpose,

there must be a strong correlation between ability
and quality. This conclusion suggests that the more
a firm is renowned for “corporate power” (ability)and “product power” (quality), the more effectively
it can utilize patent signals. On the other hand,firms that have already established a sufficiently
high reputation based on trademarks can gain only
low profits from patent signals. Here exists a
trade-off.
Next, the higher the degree of contribution ofa patented technology to quality is, the more apatent signal increases the profits of the firm. Thisis a direct effect of a patent signal. The implicationof this conclusion is that benefits (merit) of apatent signal are large in the chemical industry, etc.
in which technology and quality are strongly
correlated with each other while benefits are small
in the machinery manufacturing industry, etc. inwhich one product is manufactured throughcomplicated arrangements of various technologies.
However, even where a patented technology
actually makes no contribution to the quality of
products, the firm can gain profits from a patentsignal if consumers are under the impression that“the probability of products being of high quality
increases owing to the patented technology.” That is,
it can be said that the value of a patent signal can beenhanced strategically by using advertising, such as
TV commercials. This is also an effective means fornewcomer firms, such as venture firms.
Lastly, we take up the likelihood of license
agreements being concluded, as an environmental
factorsurrounding
firms. Where
licenseagreements are highly likely to be concluded
among firms, the function of patent signals as
indicators of ability of firms becomes weaker. Thisconclusion suggests that patent signals are likely tobe effectively utilized in the chemical industry, etc.
in which license agreements are unlikely to beconcluded and that the opposite is established in
the electric machine industry, etc. in which license
agreements are frequently concluded.
The above has revealed that patent signals
increase the profits of firms. Moreover, thecharacteristics of firms that can utilize patentsignals more effectively and other factors havebeen indicated. However, variables taken up in thisstudy are abstract, and they are thus not regarded
as specific indicators. Therefore, it is hard tospecifically indicate which firms can increase theirprofits in the case of actually utilizing a patent as asignal. For example, if it is possible to regard the“right of business” on the balance sheet as a proxyvariable of “reputation established based on a

● 8 ●IIP Bulletin 2011 Vol.20

trademark” and to deem the number of patents
related to one product to be an indicator of the“degree of contribution of the patents to the qualityof the product,” it will be possible to provide astrategic suggestion that is beneficial to firms. It isnecessary to find a realistic proxy variable for eachvariable.
Furthermore, it is necessary to verify theobtained results in an empirical manner in the
future. For this purpose, it is necessary, whenintending to actually verify the proposition
obtained in this study, to solve the issue of how tomeasure profits brought to a firm by a patent signal(value of a patent signal). This issue is similar tothe difficulty in measuring the effect of advertising,such as TV commercials. In addition, even if thevalue of a patent signal is measurable in terms ofmonetary amounts, it is very difficult to make theprofits from and the effect of a patent signal
correspond one-to-one with each other as actual
firms generally provide multiple products andservices. These are very important issues, and will
be subject to further study in the future.

IIP Bulletin 2011 Vol.20● 9 ●