Patents are vital to commercialization and global tech transfer through licensing deals

A patented invention is an intangible real asset with potentially valuable control rights. The market value of patents is subject to random shocks due to randomness in the outcomes of the development process, in the costs of the development process, and in market valuations of the outcomes of innovation. The market value of the asset can also depend on the extent of the claims in the patent.93 The patent owner can invest in development and commercialization, so that the probability distribution of the market value of the patent depends on the level of investment. The patent owner can choose among various investment projects with random outcomes, so that the probability distribution of the value of the patent also depends on the choice of projects.

The market for innovative control provides guidance to inventors regarding investment in R&D and the choice of R&D projects. Because market values of individual inventions differ, the returns to producing inventions through R&D depend on how the resulting inventions will be valued in the market. The expected returns to different directions in R&D will depend on scientific and technical opportunities and the potential market value of successful outcomes. Efficient levels of investment in R&D will be targeted to particular areas on the basis of expected returns to different types of inventions.

The market for innovative control also provides guidance on how much to invest in commercialization and how to commercialize particular inventions. Commercialization of inventions requires investment in communication, marketing, and sales efforts. Patent owners also need to identify potential adopters who might license or purchase their inventions. Patent owners need to choose among different methods of commercialization including transfers, licensing, cross-licensing, services, and contract R&D. In addition, patent owners must monitor potential infringement and if necessary invest in the legal costs of obtaining damages and injunctions. The market for inventions contains many types of transactions including embodied inventions. This implies that limited licensing does not indicate market failure, contrary to some studies.94

Patents are important for commercializing inventions through licensing. Using data from the Securities Data Corporation (SDC), Bharat Anand and Tarun Khanna find significant licensing activity in the chemicals, computers, and electronics industries.95 Ashish Arora, Marco Ceccagnoli, and Wesley Cohen apply extensive survey data on research labs in the U.S. manufacturing sector and show that patent protection of IP supports the market for technology licensing and the provision of specialized technology services.96 The market for inventions includes not only domestic markets but also international transactions related to IP; royalty and licensing fees in international transactions grew faster than global GDP, reaching $2.8 billion in 1970, $27 billion in 1990, and $180 billion in 2009.97