Measuring the Immeasurable : Valuing Patent Protection of Knowledge-Based Competitive Advantages

An investment in knowledge pays the best interest. Benjamin Franklin (1706-1790) The knowledge economy Benjamin Franklin, scientist, publisher, founder, and first president of the American Philosophical Society is not only well known for his role as a founding father of the United States of America. He also invented products and technologies that are still used today, for example, bifocals and the lightning rod. In a world in which knowledge creation, application, and protection are essential drivers for a firm's success, his 2- year-old words of wisdom are still relevant and have not become any less important. Today, it is widely recognized that knowledge is one source for obtaining a leading competitive position. Strategic management research tells us that such a leading m- ket position - or even a monopoly - is a basic prerequisite for creating attractive e- nomic rents. This first of all makes knowledge a valuable asset or resource. Additi- ally, empirical results and management expertise indicate that knowledge creation and accumulation through research and development expenditures are important drivers of business success. These expenditures lead to the creation of new products or more - ficient production processes that in turn create higher sales volume or increase existing profit margins. In the end, higher sales and/or lower cost structures result in an - crease of the overall company profit. All else being equal, rising annual earnings drive the market value of a company upward.