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When Do More Patents Reduce R&D?

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  • Robert M. Hunt

Abstract

This paper develops a simple duopoly model in which investments in R&D and patents are inputs in the production of firm rents. Patents are necessary to appropriate the returns to the firm’s own R&D, but patents also create potential claims against the rents of rival firms. Analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm’s R&D intensity and the number of patents it obtains. When that condition is violated, changes in exogenous parameters that induce an increase in firms’ patenting can also induce a decline in R&D intensity. Such a negative relationship is more likely when (1) there is sufficient overlap in firms’ technologies so that each firm’s inventions are likely to infringe the patents of another firm, (2) firms are sufficiently R&D intensive, and (3) patents are cheap relative to both the cost of R&D and the value of final output.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 2 (May)
Pages: 87-91

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:2:p:87-91

Note: DOI: 10.1257/000282806777212035
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References

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  1. Carl Shapiro, 2003. "Antitrust Limits to Patent Settlements," Law and Economics 0303004, EconWPA.
  2. James Bessen & Robert M. Hunt, 2007. "An Empirical Look at Software Patents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 157-189, 03.
  3. Wesley M Cohen & Richard R Nelson & John P Walsh, 2003. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not)," Levine's Working Paper Archive 618897000000000624, David K. Levine.
  4. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  5. Reinganum, Jennifer R., . "Innovation and Industry Evolution," Working Papers 426, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Bronwyn H. Hall, 2005. "Exploring the Patent Explosion," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 35-48, 01.
  7. Adam B. Jaffe & Josh Lerner & Scott Stern, 2007. "Innovation Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number jaff07-1, October.
  8. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, 09.
  9. Jay Pil Choi, 2003. "Pools and Cross-Licensing in the Shadow of Patent Litigation," CESifo Working Paper Series 1070, CESifo Group Munich.
  10. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  11. Robert M. Hunt, 1999. "Nonobviousness and the incentive to innovate: an economic analysis of intellectual property reform," Working Papers 99-3, Federal Reserve Bank of Philadelphia.
  12. Robert M. Hunt, 2006. "When do more patents reduce R&D?," Working Papers 06-6, Federal Reserve Bank of Philadelphia.
  13. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  14. Carl Shapiro, 2004. "Navigating the Patent Thicket: Cross Licenses, Patent Pools and Standard Setting," Levine's Working Paper Archive 122247000000000539, David K. Levine.
  15. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
  16. James Bessen, 2004. "Patent Thickets: Strategic Patenting of Complex Technologies," Working Papers 0401, Research on Innovation.
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Citations

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Cited by:
  1. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers 2009_20, Business School - Economics, University of Glasgow.
  2. Gaétan de Rassenfosse & Bruno Van Pottelsberghe, 2010. "The Role of Fees in Patent Systems: Theory and Evidence," Working Papers ECARES ECARES 2010-023, ULB -- Universite Libre de Bruxelles.
  3. Guido Cozzi & Silvia Galli, 2009. "Science-Based R&D in Schumpeterian Growth," Working Papers 2009_19, Business School - Economics, University of Glasgow.
  4. Iain Clacher,, 2010. "National accounting for intangible assets in the knowledge economy," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(2), pages 106-119, May.
  5. Alexandre Almeida & Aurora A.C. Teixeira, 2008. "One size does not fit all… An economic development perspective on the asymmetric impact of Patents on R&D," FEP Working Papers 292, Universidade do Porto, Faculdade de Economia do Porto.
  6. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," Levine's Bibliography 122247000000001065, UCLA Department of Economics.
  7. Alexandre Almeida & Aurora A.C. Teixeira, 2007. "Does Patenting negatively impact on R&D investment?An international panel data assessment," FEP Working Papers 255, Universidade do Porto, Faculdade de Economia do Porto.
  8. Banerjee, Dyuti & Chatterjee, Ishita, 2010. "The impact of piracy on innovation in the presence of technological and market uncertainty," Information Economics and Policy, Elsevier, vol. 22(4), pages 391-397, December.
  9. Robert M. Hunt, 2007. "Economics and the design of patent systems," Working Papers 07-6, Federal Reserve Bank of Philadelphia.
  10. Che, XiaoGang & Yang, Yibai & Zhang, Haoyu, 2010. "Outsourcing and R&D Investment with Costly Patent Protection," MPRA Paper 25516, University Library of Munich, Germany.

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