A Note on the Value of Patents as Indicators of Innovation: Implications for Management Research

intellectual property rights stimulate growth or increase rates of innovation. Indeed, he finds that patents are not only insufficient to explain cross national growth rates, they are unnecessary, and he gives ample instances of rapid growth and innovation in the absence of patents. A key take away from Bessen's article is that there is a great deal of unobserved heterogeneity in the ways in which intellectual property rights affect and inter act with economic performance. As he puts it, "the devil is in the details": Context matters a great deal in understanding this complex relation ship. In this essay, I make a similar claim that the devil is in the details for a different but related issue: the value of patents as indicators of inno vation, and the implications for research using patent data. Bessen's article surveys the macro level evidence regarding the relationship among patents, innovation, and growth. Here, I adopt a micro approach and look at the relationship of patents to inventions themselves. A core message is that patents are useful indicators, but their utility is limited by the extent of our ignorance of the processes and behaviors that generate them: Context matters in understanding the relation ship of patents to inventions. Patent data have increasingly played a central role in empirical research on innovation. Patents provide rich, fine-grained detail on technologies, pinpointing the people, places, times, and tech nological characteristics of every patented inven tion. Moreover, patent data are not static. Patents cite other patents, and these linkages provide a dynamic view of the technological antecedents and descendents of patented inventions. Over time, citations cumulate, allowing researchers to identify highly cited patents that had the greatest impact on subsequent inventions. For those inter ested in studying knowledge in and across organi zations?a key theme in current management re search?patent data provide a wealth of valuable and easily accessible information. It is therefore not surprising that empirical research on innova tion increasingly relies on patent data. Yet, as Bessen tells us, the devil is in the details. Patents are not passive encodings of inventions, but are constructed within a complex institutional framework by strategizing actors who use patents to strengthen competitive positions. If we do not understand the institutional, organizational, and strategic contexts in which patents are created, we risk misusing the data, misinterpreting our results, and in many cases attributing causality to covari ance. In this essay, I sketch out some caveats for the use of patent data in innovation studies. I organize my remarks into three broad categories of potential problems: behavioral assumptions, un observed heterogeneity, and lack of indepen dence/endogeneity. I link these issues to the in stitutional details of the patenting process. For disclosure purposes I should stress that my own research, past and current, relies heavily on patents as indicators of invention, and I have no particular stake in seeing use of these data dimin ish. My goal, in this essay and related work (Al cacer & Gittelman, 2006; Alcacer, Gittelman, & Sampat, 2008), is to better understand the mean ing of the data, in order to improve the scope and quality of our research on technological innova tion using this very valuable resource.