The investment model of R＆D project with patent is developed in the paper. The R＆D investment process divides into two stages by the characteristics of R＆D investment process. The research stage is considered as an European option. The development stage is considered as an American perpetual option. Therefore the investment opportunity in R＆D can be thought of as a compound option. The analytic valuation formula for the R＆D option and optimal investment policy are derived. It is discussed that the effect of the patent breadth on the R＆D option value and R＆D investment policy, and presents the condition to apply for a patent