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Royalty payments and the incentives to conduct research and development


Countries are introducing policies to generate stronger intellectual property rights. These policies are aimed at increasing incentives for firms to conduct research and development in the country. One form of intellectual property rights is captured by patent royalty payments—that is, payments made to the owner of a patent for the right to use that asset.

The U.S. has experienced a substantial increase in patent royalty receipts and license fees since the 2000s (blue line on left Y-axis). These data are reported in the balance of payments of the country as exports of services and reflect income that firms in the U.S. receive from other countries to use their intellectual property (e.g., patents, trademarks, copyrights, and franchises).

On top of the increase of net receipts of royalty payments from the rest of the world, there has been an increase in expenditures in research and development in the U.S. during the same period (red line on right Y-axis).

As intellectual property rights become stronger, the incentive of firms to innovate strengthens as well. Part of this research and development translates into patented innovations; along with stronger intellectual property rights, this increases royalty payments by firms in other countries that want to use this knowledge.

How this graph was created: Search for “Exports of services: Royalties and license fees” and click on the series you want to create the first line. Select “Line 1” in “Edit Lines” under the “Edit Graph” tab and add the series “Gross Domestic Product: Implicit Price Deflator” to the existing line. Apply the formula a/(b/100) to deflate exports into a constant year. Use “Add Line” within “Edit Graph” to add line 2 “Real Gross Private Domestic Investment: Fixed Investment: Nonresidential: Intellectual Property Products: Research and Development” to the existing graph. Change the time line to be “2000/01/01-2015/01/01” through the two boxes next to “Edit Graph.” Finally, under the “Format” tab, select “Right” for the “Y-Axis position” for line 2.

Suggested by Ana Maria Santacreu.

View on FRED, series used in this post: B684RC1Q027SBEA, GDPDEF, Y006RX1Q020SBEA


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