Patent Policy, Imitation Incentives, and the Rate of Cumulative Innovation

44 Pages Posted: 28 Jun 2019 Last revised: 14 Apr 2020

See all articles by Silvana Krasteva

Silvana Krasteva

Texas A&M University

Priyanka Sharma

Illinois Institute of Technology

Chu Wang

affiliation not provided to SSRN

Date Written: June 27, 2019

Abstract

We study an infinite horizon cumulative innovation model, in which strengthening patent protection has a negative litigation effect on innovation incentives by increasing litigation threat for future innovators and a positive competition effect by limiting profit eroding imitation by competitive firms without innovation capacity. Patents are characterized by their strength and length and the optimal innovation-maximizing patent policy balances these two opposing effects. The short-run innovation incentives are a function of the remaining life of the outstanding patent. For moderate patent strength, longer remaining lifetime increases innovation incentives due to the competition effect. The opposite is true for strong patents, for which the litigation effect dominates. The long-run policy that maximizes the rate of innovation calls for moderate-strength and infinite patent length when innovators discount future profits significantly and for strong and finite length when innovators care more about their future profits.

Keywords: Patent policy, patent validity, patent length, imitation, litigation, cumulative innovation

JEL Classification: K4, L1, O3

Suggested Citation

Krasteva, Silvana Simeonova and Sharma, Priyanka and Wang, Chu, Patent Policy, Imitation Incentives, and the Rate of Cumulative Innovation (June 27, 2019). Available at SSRN: https://ssrn.com/abstract=3411158 or http://dx.doi.org/10.2139/ssrn.3411158

Silvana Simeonova Krasteva (Contact Author)

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States
(979) 845-7384 (Phone)

HOME PAGE: http://econweb.tamu.edu/skrasteva/

Priyanka Sharma

Illinois Institute of Technology ( email )

10 West 35th Street, 18th Floor
Chicago, IL 60616
United States

HOME PAGE: http://mypages.iit.edu/~psharm21/

Chu Wang

affiliation not provided to SSRN

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