Who Cares About Patent Term? Cross-Industry Differences in Term Sensitivity
Neel U. Sukhatme
Princeton University, Department of Economics
Judd N. L. Cramer
Princeton University - Department of Economics
August 19, 2014
There is little empirical evidence about the relative importance of patent term across industries. We measure term sensitivity through patent applicants' response to the passage of the TRIPS agreement, which changed how term was calculated. We find significant differences in term sensitivity across industries, some of which follows conventional wisdom (patent term is important in pharmaceuticals) and some of which does not (it also matters for software). Our measure is highly correlated with patent renewal rates across industries. Additionally, we use ordinary least squares and a new empirical technique known as regression kink design to perform an event study around the passage of TRIPS, which retroactively increased term for many patents. We find the average firm gained about $8.3 million in market value for each additional year of patent term it received. Our measures are highly correlated, which corroborates an intuitive prediction that we formalize in a model: industries that care more about patent term tend to have higher expected profits toward the end of term.
Number of Pages in PDF File: 70
Keywords: optimal patent term, cross-industry measures of patent term sensitivity, patent duration, TRIPS, regression kink design, market valuation of patent term
JEL Classification: K00, K29
Date posted: July 13, 2013 ; Last revised: January 1, 2015
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