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

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  • JOAN FARRE‐MENSA
  • DEEPAK HEGDE
  • ALEXANDER LJUNGQVIST

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 venture capitalists, banks, and public investors.

Suggested Citation

  • Joan Farre‐Mensa & Deepak Hegde & Alexander Ljungqvist, 2020. "What Is a Patent Worth? Evidence from the U.S. Patent “Lottery”," Journal of Finance, American Finance Association, vol. 75(2), pages 639-682, April.
    • Handle: RePEc:bla:jfinan:v:75:y:2020:i:2:p:639-682
    DOI: 10.1111/jofi.12867
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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