Fixing the puzzle of patent value indicators: citations received and Bayesian learning in a real option model of patent renewals.

Marc Baudry, University of Paris Ouest Nanterre la Défense

Since several decades, patent statistics have been widely used to measure the pace of innovation. Some authors attempt to measure patent “quality” on the basis of patent metrics but they do not build a bridge between “quality” and “value”. Some other authors attempt to assess the “value” of patents on the basis of renewal decisions but typically disregard the link with patent metrics. This paper proposes a consistent modelling of patent renewal decisions based on real options with Bayesian learning, where the core of the dynamics is driven by forward citations. By doing so, it builds a bridge between the alternative puzzling approaches of patent “quality” and patent “value”. This paper argues that forward citations can be used as an advanced indicator of the potential rent that can be expected for the commercialisation of a patented invention, in a Bayesian framework. Accordingly, the renewal decision involves two options: letting the patent “sleep” and acquire additional information about the potential gains or alternatively commercialising the patented invention. The latter choice is irreversible due to the sunk cost character of the investment. Patent renewal decisions and patent use decisions are thus two facets of a same medal. The paper finally highlights how citations data convey information on the patent status (“sleeping” versus “fully used”). Implications in terms of innovation statistics, innovation monitoring and innovation policy are discussed.

About the speaker

Marc Baudry is professor at the University of Paris Ouest Nanterre la Défense where is head of the department of Economics. His research works are at the cross road of environmental and natural resources on the one hand and innovation economics and intellectual property on the other hand. He is a senior research fellow at EconomiX ( He is also in charge of the research program “CO2 pricing and low carbon innovation” at the Climate Economics Chair (

Venue: Conference room (room 0.16 & 0.17)

Date: 09 February 2017

Time: 12:00 - 13:00  CEST