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The decision to patent, cumulative innovation, and optimal policy

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  • Erkal, Nisvan

Abstract

Optimal patent breadth is an issue that is still being vigorously debated at both the theoretical and empirical levels. This paper analyzes optimal patent policy in the context of cumulative innovation in a model that endogenizes the patenting decisions of early innovators. In the theoretical literature on cumulative innovation, it is generally assumed that all innovations are patented. However, studies such as Cohen et al. (2000) and Levin et al. (1987) report that firms frequently rely on secrecy to protect their discoveries. Cumulative innovation implies that innovators may have significant incentives to keep their innovations secret to get a head start in subsequent R&D races. This paper shows that if innovators cannot rely on secrecy to protect their innovations, it is optimal to have relatively narrow patent protection. This happens if the government has a weak trade secret policy or if innovators cannot monitor the flow of their technological information. This is because when innovators cannot rely on secrecy to protect their innovations, they have increased incentives to patent them and it is not necessary for the government to give them extra incentives to patent. In the case when innovators always prefer secrecy over patenting, it becomes optimal to have a flexible antitrust policy rather than a flexible patent policy. Since non-disclosure reduces the investment incentives in the second R&D race, allowing collusive licensing agreements between competing innovators becomes optimal in order to stimulate investment in the second R&D race.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 23 (2005)
Issue (Month): 7-8 (September)
Pages: 535-562

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Handle: RePEc:eee:indorg:v:23:y:2005:i:7-8:p:535-562

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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  1. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150 National Bureau of Economic Research, Inc.
  2. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP -1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. Gaétan de Rassenfosse, 2013. "Do Firms Face a Trade-Off between the Quantity and the Quality of Their Inventions?," Melbourne Institute Working Paper Series wp2013n06, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  2. ICHIDA Toshihiro, 2013. "Imitation versus Innovation Costs: Patent policies under common patent length," Discussion papers 13054, Research Institute of Economy, Trade and Industry (RIETI).
  3. BHATTACHARYA, Sudipto & D’ASPREMONT, Claude & GURIEV, Sergei & SEN, Debapriya, 2012. "Cooperation in R&D: patenting, licensing and contracting," CORE Discussion Papers 2012055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.
  5. Erkal, Nisvan & Scotchmer, Suzanne, 2007. "Scarcity of Ideas and Options to Invest in R&D," Department of Economics, Working Paper Series qt2hq9s5kg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  6. Aoki, Reiko & Spiegel, Yossi, 2009. "Pre-grant patent publication and cumulative innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 333-345, May.
  7. Scotchmer, Suzanne, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it, or Bank it," Competition Policy Center, Working Paper Series qt2p5543p0, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  8. Zhang, Tianle, 2009. "Patenting in the Shadow of Independent Discoveries by Rivals," MPRA Paper 32917, University Library of Munich, Germany, revised 2011.
  9. Heger, Diana & Zaby, Alexandra K., 2012. "Giving away the game? The impact of the disclosure effect on the patenting decision," ZEW Discussion Papers 12-010, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Yiannaka, Amalia & Fulton, Murray E., 2006. "Getting Away With Robbery? Patenting Behavior With The Threat Of Infringement," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 139933, Australian Agricultural and Resource Economics Society.
  11. Joshua S. Gans & Fiona E. Murray & Scott Stern, 2013. "Contracting Over the Disclosure of Scientific Knowledge: Intellectual Property and Academic Publication," NBER Working Papers 19560, National Bureau of Economic Research, Inc.

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