The Market for Intellectual Property: Evidence from the Transfer of Patents

This paper quantifies what are the gains from trade and the costs of adopting technology in the market for U.S. patents. We estimate the parameters of a model of the transfer and renewal of patents using new data on the transfer of their ownership. The fundamental basis of our identification strategy is the interplay of the cost of technology transfer with the revenue and the age of a patent. The cost of technology transfer creates a selection effect so that better patents are more likely to be traded. This effect accounts for the discontinuous increase in the probability of an active patent being traded immediately after renewal and for why traded patents are more likely to be retraded and less likely to be allowed to expire. There is also a horizon effect that accounts for why the probability of active patents decreases as they get closer to their expiration date. A shorter horizon implies less time to amortize the costs of technology transfer. ∗I am especially grateful to Thomas Holmes and Sam Kortum for their advice and patience. I would also like to thank Chris Laincz, Nicolas Figueroa, Suqin Ge, Valeriu Omer and Marcel Boyer, Zvi Eckstein, Mike Golosov, Katherine Lande, David Levine, Antonio Merlo, Matt Mitchell, Jim Schmitz, Andy Skrzypacz and participants at several workshops and universities for their comments. I also acknowledge financial support from the Bank of Spain Graduate Fellowship. All errors are mine. First draft: January, 2005