“Cleaning the Closet”: Examining Firm Patent Sales Through the Lens of Absorptive Capacity

We examine firm sales of patents, which are a characteristically valuable firm resource. Using the lens of absorptive capacity, and specifically, its components of recognition, assimilation, and commercialization ability, we surface heretofore underappreciated mechanisms that underpin firm patent sales. We first propose that while the firm's recognition ability will enable and encourage firms to seek out and acquire patents, intrinsic resource capacity limitations associated with its patent portfolio will motivate the firm to “clean its closet” and sell some of its existing patents to free resources and allow new patents to enter its portfolio. We further propose that the firm's assimilation and commercialization abilities can help to ease the firm's capacity constraints, and will, thus, temper the positive relationship between the firm's recognition ability (and patent purchases) and patent sales. As one of a small but growing collection of empirical tests on patent sales, we find support for our hypotheses using a large, cross-industry sample of 1728 public firms observed from 1975 to 2010. In so doing, we provide an absorptive capacity-based explanation for the understudied but strategic question of why firms sell their patents.