On the price elasticity of demand for patents

What is the price elasticity of demand for patents across different patent offices?

Understanding the price elasticity of demand for patents is crucial, as it highlights how patent fees influence the quantity of patents filed. Patent offices are often funded by the fees they collect; thus, comprehending demand sensitivity to fee changes allows for better policy-making. A significant price elasticity indicates that lowering fees could lead to a substantial increase in patent applications, while higher fees might suppress demand, affecting innovation and economic growth.

We analyzed data on patent fees from 1980 to 2007 at the European Patent Office (EPO), the United States Patent and Trademark Office (USPTO), and the Japan Patent Office (JPO). We used dynamic panel data models to estimate the price elasticity of demand for patents, leveraging a dataset that included total patent applications, R&D expenditures, and various fees across the three patent offices. The study accounts for country-specific characteristics and employs econometric methods to derive results from 75 observations.

We found that the price elasticity of demand for patents is estimated to be around -0.30, indicating that a 1% decrease in fees could lead to a 0.30% increase in demand for patents. We also noted that relative patent fees have significantly decreased over time since the mid-1990s, particularly at the EPO, contributing to a boom in patent applications. Additionally, we reveal that approximately 20% of the increase in patent filings at the EPO between 1995 and 2001 can be attributed to the fee policies implemented during that period.

• Total number of yearly patent applications from EPO, JPO, and USPTO (1980–2007)
• Total internal R&D expenditures from OECD Main Science and Technology Indicators
• Fees for a representative patent from EPO, JPO, and USPTO.

• Fees are assumed to be independent of the level of demand for patents.
• There is a long-run equilibrium relationship between the number of patents and R&D efforts.
• The model assumes that the adjustment of patent demand to changes in fees occurs over time rather than instantaneously.