Standing on the Shoulders of Science

Abstract

Today's innovations rely on scientific discoveries of the past, yet only some corporate R&D builds directly on scientific output. We analyze U.S. patents to establish three new facts about the relationship between science and the value of inventions. First, we show that patents building directly on science are on average 26% more valuable than patents in the same technology that are disconnected from science. Patents closer to science are also more likely to be in the tails of the value distribution (i.e., greater risk and greater reward). Based on patent text analysis, we show second that patent novelty predicts their value. Third, we find that science-intensive patents are more novel. Overall, using science appears to help firms capture more value through relatively novel inventions.

JEL Classification: O30, O31, O33, O34