An examination of the intertemporal returns of patented inventions

This paper examines the intertemporal returns of patented inventions using estimates of patent value obtained from German employee inventors’ compensation records. The paper finds heterogeneity in the mean age and dispersion of the annual returns by technology and cumulative patent value. While the returns earned by most patents dissipate rapidly, high valued patents tend to receive significant returns through the latter part of the patent term. These high valued patents which account for the vast majority of the realized returns, further can be identified based on past returns, relatively early in the patent term. These findings suggest that while shortening the length of the patent term could substantially reduce realized returns, graduated maintenance fees may not adversely affect returns, as firms would be able to identify and selectively renew the subset of high valued patents.