How to count patents and value intellectual property: The uses of patent renewal and application data

Patent counts are very imperfect measures of innovative output. This paper discusses how additional data-the number of years a patent is renewed and the number of countries in which protection for the same invention is sought-can be used to improve on counts in studies that require a measure of the extent of innovation. Simple weighting schemes are proposed, which may remove half of the noise in patent counts as a measure of innovative output. We describe models of the patent application and renewal processes whose parameter estimates can be used to assess the value of the proprietary rights created by the patent laws. We illustrate their use with estimates of how the value of patent protection would vary under alternative legal rules and renewal fees and with estimates of the international flows of returns from the patent system. Recent progress in the development of databases has increased the potential for this type of analysis.