Patentability, Industry Structure, and Innovation

Abstract:     
This paper presents a model of sequential innovation in which industry structure is endogenous and a standard of patentability determines the proportion of all inventions that qualify for protection (in U.S. patent law this standard is called nonobviousness; in Europe it is called the inventive step). The rate of innovation initially rises as this standard is raised from very low levels, but eventual falls as the standard is raised to very high levels. Hence there is a unique patentability standard that maximizes the rate of innovation. Surprisingly, this critical standard is more stringent for industries disposed to innovate rapidly. The model suggests a number of important implications for patent policy.

Number of Pages in PDF File: 35

Keywords: Patents, intellectual property, nonobviousness, inventive step

JEL Classification: L1, O31, O34

working papers series