Blocking Patents, Rent Protection, and Economic Growth

49 Pages Posted: 4 Jul 2022 Last revised: 19 Aug 2023

See all articles by Michael A. Klein

Michael A. Klein

Rensselaer Polytechnic Institute

Yibai Yang

University of Macau - Department of Economics

Date Written: August 17, 2023

Abstract

We develop a Schumpeterian growth model to analyze the interaction between patent policy and firms' internal strategies to capture value from innovations. We consider two dimensions of patent policy: backward protection against imitation and forward protection, also known as blocking patents, against subsequent innovation that builds on a patented technology. Incumbent patent holders endogenously invest resources to protect their monopoly rents by impeding market entry of innovative competitors. We show that patent policy impacts economic growth through its influence on both the ex ante R&D incentives of potential innovators and the post-innovation rent protection incentives of incumbent firms. Most importantly, our analysis formalizes a novel growth-promoting role of forward protection; by guaranteeing previous innovators a share of future innovators’ profits, forward protection reduces the incentive to actively obstruct follow-on innovations. We identify conditions under which the selective use of forward protection can stimulate economic growth through this mechanism.

Keywords: Patent policy; Blocking patents; Economic growth; Innovation; Intellectual property rights

JEL Classification: O31; O34; O43

Suggested Citation

Klein, Michael A. and Yang, Yibai, Blocking Patents, Rent Protection, and Economic Growth (August 17, 2023). Available at SSRN: https://ssrn.com/abstract=4135881 or http://dx.doi.org/10.2139/ssrn.4135881

Michael A. Klein

Rensselaer Polytechnic Institute ( email )

United States

Yibai Yang (Contact Author)

University of Macau - Department of Economics ( email )

Macau
China

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