Sequential Innovation, Patents, And Imitation

34 Pages Posted: 9 Feb 2000  

James E. Bessen

Boston University - School of Law; Research on Innovation

Eric Maskin

Princeton University - Department of Economics; Harvard University - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: January 2000

Abstract

How could such industries as software, semiconductors, and computers have been so innovative despite historically weak patent protection? We argue that if innovation is both sequential and complementary--as it certainly has been in those industries--competition can increase firms' future profits thus offsetting short-term dissipation of rents. A simple model also shows that in such a dynamic industry, patent protection may reduce overall innovation and social welfare. The natural experiment that occurred when patent protection was extended to software in the 1980?s provides a test of this model. Standard arguments would predict that R&D intensity and productivity should have increased among patenting firms. Consistent with our model, however, these increases did not occur. Other evidence supporting our model includes a distinctive pattern of cross-licensing in these industries and a positive relationship between rates of innovation and firm entry.

JEL Classification: O31, O34

Suggested Citation

Bessen, James E. and Maskin, Eric, Sequential Innovation, Patents, And Imitation (January 2000). MIT Dept. of Economics Working Paper No. 00-01. Available at SSRN: https://ssrn.com/abstract=206189 or http://dx.doi.org/10.2139/ssrn.206189

James E. Bessen (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Research on Innovation ( email )

202 High Head Rd.
Harpswell, ME 04079
United States
617-531-2092 (Phone)

Eric S. Maskin

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
(617) 495-4167 (Phone)
(617) 495-7730 (Fax)

Massachusetts Institute of Technology (MIT) - Department of Economics

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Princeton University - Department of Economics ( email )

Institute for Advanced Study
Einstein Drive West Building Room 318
Princeton, NJ 08540
United States
(609) 734-8309 (Phone)
(609) 951-4457 (Fax)

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