Essays on the Economics of Patent Rights: Measuring the value of patents using renewal information

This dissertation is a collection of three empirical essays in the fields of industrial organization and economics of innovation. The first two essays build on the literature of patent renewal models to develop new methods to estimate the value of patent rights. The third essay provides a counterfactual analysis of an important institutional change in the European patent system, the introduction of the Unitary patent.
The first essay measures the private value of patents granted to companies in Finland between 1990 and 2000 using a dynamic stochastic model of patent renewal decisions. In this model, a patent owner decides to renew a patent for each period as long as the expected returns from the patent exceed the renewal costs. The renewal decisions are then used to infer the distribution of private value of patents. This essay contributes to the existing literature by decomposing the private value of patents by technological field and by providing an estimate of the returns to R&D for Finnish companies.
The second essay provides estimates of the private value of patents granted in Germany in the field of semiconductors. This essay contributes both to the literature on renewal decision models and the link between patent value and citations. Indeed, the model includes the possibility for patent holders to learn about the value of their invention with citations received across time. This extended framework allows the dynamic link between forward patent citations and patent value to be investigated in a counterfactual exercise. Additionally, patent-level predicted grant probabilities are computed, applying machine
learning algorithms on the text of patent abstracts in order to model the pre-grant renewal decisions.
The third essay – a joint work with Otto Toivanen and Tuomas Takalo – estimates the private value of European patents in the chemical industry and analyzes the incentive and welfare effects of introducing the Unitary patent. This major institutional change implies that inventors will save on legal and translation costs and will face a single schedule of renewal fees instead of multiple national renewal fee schedules, which is the current situation with European patents. To evaluate the expected effects of the Unitary patent option, we build a three-part model combining: i) A patent renewal model, ii) a patent production function linking the level of R&D to the quality and the private value and (iii) a mapping between private value and consumer surplus. The counterfactual analysis provides key insights on the effect of the Unitary patent on the private value of patents, consumer surplus in Europe as well as on income for national patent offices.