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*Patent renewal studies reveal a highly rightward-skewed distribution of patent values. Our approach elicits valuations approximating those of the patented invention. This paper focuses on the full-term patents of the application year 1977 held by West German and U.S. residents. The tail of skewed distributions values account for a large fraction of the cumulative value over all observations. Several tests were conducted to pin down more precisely the nature of the high-value tail distribution. Three highly skew alternatives were evaluated by graphical and maximum likelihood techniques: the two-parameter log normal, the one-parameter Pareto-Levy, and the three-parameter Singh-Maddala distribution. A two-parameter log normal distribution appears to provide the best fit to our patented invention value data. ZUSAMMENFASSUNG Non-technical SummaryAssessing value of patent protection has long been a central issue in the economic literature studying the incentives for innovation in market economies. A number of authors have exploited a particular feature of many (though not all) national patent systems: the renewal fee structure. In many countries, patent holders need to pay annual renewal fees in order to keep patent protection in force. The fees are usually increasing over time in order to weed out less important patents. Using information on the timing of non-renewal, some studies have been able to infer the value of patent protection.However, these studies cannot use observable information on value differences among those patents that were renewed for the maximum duration of patent protection. But these are presumably the most important patented inventions. Since the valuation distributions are extremely skew, actually observed information in most renewal studies is only available on a small share of the total value of the overall national patent portfolio.We circumvent this problem by using a novel and more direct approach to the measurement of patent valuation. The paper focuses on the full-term patents of the application year 1977 held by West German and U.S. residents. For the German patents, a two-stage methodology was pursued. A preliminary telephone and telefax screening elicited patent value estimates and identified the most valuable patents, about which on-site interviews were then sought to develop more detailed historical information. For the U.S. patents, only an extended first stage was executed.Previous studies have found the distribution of patented invention values to be highly skew. We confirm this result, using actual information on the most valuable patents in the 1977 cohort. Several tests were conducted to pin down more precisely the nature of the high-value tail distribution. Three highly skew alternatives were evaluated by graphical and maximum likelihood techniques: the two-parameter log normal, the one-parameter ParetoLevy, and the three-parameter Singh-Maddala distribution. A two-parameter log normal distribution appears to provide the best fit to our patented invention value data.

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