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Bank of Finland Scientific Monographs, Bank of Finland

No E:41/2009:
Empirical studies on the private value of Finnish patents

Charlotta Grönqvist

Abstract: It is a commonly accepted fact that innovation is important for economic growth and that a well-designed patent system increases research and development investments. Patents are unfortunately a second best solution. While the benefits of the patent system are increased incentives to innovation, diffusion of new knowledge, and easier commercialization of patented innovations; the drawback of the patent system is the monopolies it creates. Therefore, the fundamental question that has interested researchers is: do the benefits of the patent system outweigh the costs? This thesis contributes to the literature that quantifies the benefits of the patent protection to the assignee after the patent is granted, ie the private value of patents. In three of the four essays here, I estimate how different patent and assignee characteristics affect the private value of Finnish patents. The private value distribution of patents is calculated using patent renewal rates and fees and advanced econometric techniques. In the fourth essay I test how a legal change in the statutory length of patents has changed the private value of patents in Finland. To do this, I use nonparametric techniques. The last essay contributes to the discussion on optimal patent design. I present two overall policy recommendations based on the essay findings. First, I find that the distribution of the private value of patents depends not only on patent characteristics but also on patent assignee characteristics. This derives from the fact that it takes time and money to learn the private value of a patent. Also, there seem to be financial imperfections that, especially for smaller firms, restrict the internalization of patent revenues. If patents are seen as a good incentive mechanism for innovation, the policy implication is that commercialisation of patented innovations should be supported. Second, I find, using the patent law change as a natural experiment, that the statutory patent length of 20 years is too long. The optimal patent length is shorter than 18 years in Finland.

Keywords: patent; private value; renewal rates; renewal fees; Finland; (follow links to similar papers)

JEL-Codes: C01; O34; (follow links to similar papers)

167 pages, March 30, 2009

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