Analysis of Patent and Profitability in Taiwan Semiconductor Firms

Abstract

This investigation seeks to ascertain the relevance between firm profitability and innovation. This paper regard granted patent as the indicator of innovation. Next, we further explore how the company size, export ratio and research and development ratios (R&D ratios), patent infringement lawsuits affect firm innovation. The impact of lawsuits on innovation is investigated in terms of the following aspects. First, this investigation empirically explores the relations between granted patent number and corporate profitability. Second, this paper empirically analyzes whether the plaintiffs file the patent infringement lawsuits to protect their property rights, so the patent infringement accusation lawsuits force enterprises to concentrate on intellectual property rights. This paper employs 59 integrated-circuit (IC) design firms, 11 IC manufacturing firms and 17 IC packaging and testing firms from 2001 to 2006 in our sample. The results exhibit the rate of return on asset is higher for firms which hold more granted patents. In particular, Taiwan granted patent number dominates firm profitability. In addition, both company size and RD ration are positively related to the innovation ability. Also, we find the rapid growth of Taiwan and U. S. granted patents after patent infringement lawsuits. It implies that such litigations enforce enterprises to involve in R&D activities. Particularly, the patent growth is found substantially greater for the defendants than the plaintiffs. To refute the charge and defend corporate competitiveness, firm managers will enhance patent development after the patent infringement accusations. Thus, the innovative ability of these firms become superior and more patents are successfully developed.