How Should Forward Patent Protection Be Provided?

Abstract

We study the optimal combination of the novelty requirement and leading breadth to provide forward patent protection in a simple model of sequential innovation. Forward protection may be provided by a blocking effect, a profit-sharing effect, or both. The novelty requirement and leading breadth are perfect substitutes for low levels of forward protection in that both protect the original innovator by blocking subsequent improvements. As forward protection strengthens, the only appropriate policy variable is leading breadth because it is the most efficient and in some cases the only way to guarantee profit sharing. Under certain conditions, a positive novelty requirement (with complete leading breadth) becomes necessary when the optimal level of forward protection goes still higher.