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Patent Renewals as Options: Improving the Mechanism for Weeding Out Lousy Patents

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  • Marc Baudry
  • Béatrice Dumont

Abstract

This paper examines how patent renewal fees may be restructured to discourage low-value patents with the goal of reducing the burden on patent offices without unduly impairing innovation incentives. We depart from Pakes’ (1986, Econometrica, 54, 755–784) real-option model by moving to an approach involving binomial trees, widely used in valuing financial options. The new approach has the advantage of allowing the dynamics of the patent rent to follow a wide range of stochastic processes. The model is estimated using French data from 1970 to 2002. Policy simulations cast some doubt on the relevance of the current schedule of renewal fees. An alternative fee schedule is suggested. Copyright Springer 2006

Suggested Citation

  • Marc Baudry & Béatrice Dumont, 2006. "Patent Renewals as Options: Improving the Mechanism for Weeding Out Lousy Patents," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(1), pages 41-62, February.
    • Handle: RePEc:kap:revind:v:28:y:2006:i:1:p:41-62
    DOI: 10.1007/s11151-006-0001-0
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    References listed on IDEAS

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    1. Jean Olson Lanjouw, 1993. "Patent Protection: Of What Value and for How Long?," NBER Working Papers 4475, National Bureau of Economic Research, Inc.
    2. Gans Joshua S & King Stephen P & Lampe Ryan, 2004. "Patent Renewal Fees and Self-Funding Patent Offices," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-15, July.
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    More about this item

    Keywords

    patent renewal; real-option model; C51; O31;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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