Blocking Patents, Rent Protection, and Economic Growth
49 Pages Posted: 4 Jul 2022 Last revised: 19 Aug 2023
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: Suggested Citation