Document Type

Honors Project

Abstract

Intellectual Property Protection serves two purposes. The first is to encourage innovation by granting patent holders monopoly rights to their inventions for fixed periods of time. The second is to speed up innovation by allowing patent holders to license their inventions and obtain royalties. While few doubt the economic benefit of the system and its ability to foster innovation, empirically assessing the value of a patent to a firm has proved exceptionally difficult. Important in its own right, the question is even more important for developing and improving patent policy.

This paper uses patent citations as a measure of patent value in an attempt to quantify the impact patents have on a firm’s value. Patent citations both reflect the vast heterogeneity in patent value and capture the breadth of the patent by observing the number of areas in which it is later cited. As such, they provide a more direct measurement of patent value. Results find however, that all these variables are statistically insignificantly different from zero, and a discussion of potential explanations is given. At the very least, the relationship between number of citations received by a particular patent and its impact on firm value is proven far more complex than suggested by the previous literature, suggesting the need for further research.

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