What Patent Transfers Tell Us About the Market for Intellectual Property

Thanks to James Bessen at the Technological Innovation and Intellectual Property Blog for helping non-economists understand Carlos J. Serrano's "The Market for Intellectual Property: Evidence from the Transfer of Patents." Among other lessons noted by Mr. Bessen,

Serrano finds that the proportion of patents traded each year starts at about 2.5% and generally drops over time. The exception occurs right after a patent is renewed, when the percentage traded temporarily increases.

Patents that are cited more frequently by subsequent patents are more likely to be renewed and are also more likely to be traded. This provides some additional support for Serrano’s idea that these are more valuable patents.

Among patents of the same age, those that have been previously traded are more likely to be re-traded and less likely to expire. Again, this supports the idea that these are more valuable patents.

Making assumptions about the distribution of patent values, their change over time and the costs of trade, Serrano builds a mathematical model that describes patent owners’ decisions to trade and to renew patents. Then, using his data on transfer and renewal rates, he is able to fit the parameters of the model.

Using these fitted parameters, Serrano makes preliminary estimates of patent value. He estimates that the median value of a freshly-issued patent in his data set is about $21,000 and the mean value is $58,000 (in 2003 dollars). As other researchers have found, the distribution of patent values is highly skewed; there are a few highly valuable patents and numerous low-value ones. Serrano’s mean and median estimates are significantly higher than most of the estimates by researchers who have used European patent renewal data. This is not surprising since the size of the US market is much larger than the markets in individual European countries.