What Is a Patent Worth? Evidence from the U.S. Patent 'Lottery'

74 Pages Posted: 17 Dec 2015 Last revised: 9 Jul 2019

See all articles by Joan Farre-Mensa

Joan Farre-Mensa

University of Illinois at Chicago - Department of Finance

Deepak Hegde

New York University (NYU) - Leonard N. Stern School of Business

Alexander Ljungqvist

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 3 versions of this paper

Date Written: June 25, 2019

Abstract

We provide evidence on the value of patents to startups by leveraging the quasi-random assignment of applications to examiners with different propensities to grant patents. Using unique data on all first-time applications filed at the U.S. Patent Office since 2001, we find that startups that win the patent “lottery” by drawing lenient examiners have, on average, 55% higher employment growth and 80% higher sales growth five years later. Patent winners also pursue more, and higher quality, follow-on innovation. Winning a first patent boosts a startup’s subsequent growth and innovation by facilitating access to funding from VCs, banks, and public investors.

Keywords: Patents, innovation, R&D, entrepreneurship, venture capital

JEL Classification: D23, G24, L26, O34

Suggested Citation

Farre-Mensa, Joan and Hegde, Deepak and Ljungqvist, Alexander, What Is a Patent Worth? Evidence from the U.S. Patent 'Lottery' (June 25, 2019). Journal of Finance, Forthcoming; USPTO Economic Working Paper 2015-5. Available at SSRN: https://ssrn.com/abstract=2704028 or http://dx.doi.org/10.2139/ssrn.2704028

Joan Farre-Mensa

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

Deepak Hegde (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Alexander Ljungqvist

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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