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A Patentability Requirement for Sequential Innovation

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  • Ted O'Donoghue

Abstract

This article investigates patent protection for a long sequence of innovations where firms repeatedly supersede each other. Incentives for R&D can be insufficient if successful firms earn market profit only until competitors achieve something better. To correct this problem, patents must provide protection against future innovators. This article proposes using a patentability requirement -- a minimum innovation size required for patents. A patentability requirement can stimulate R&D investment and increase dynamic efficiency. Intuitively, requiring firms to pursue larger innovations prolongs market incumbency because larger innovations are harder to achieve, and longer market incumbency implies an increased reward to innovation.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 29 (1998)
Issue (Month): 4 (Winter)
Pages: 654-679

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Handle: RePEc:rje:randje:v:29:y:1998:i:winter:p:654-679

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References

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  1. Stokey, Nancy L, 1995. "R&D and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 469-89, July.
  2. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring.
  3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
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  9. Budd, Christopher & Harris, Christopher & Vickers, John, 1993. "A Model of the Evolution of Duopoly: Does the Asymmetry between Firms Tend to Increase or Decrease?," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 543-73, July.
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  12. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, 03.
  13. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
  14. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  15. Suzanne Scotchmer, 1996. "Protecting Early Innovators: Should Second-Generation Products Be Patentable?," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 322-331, Summer.
  16. Howard F. Chang, 1995. "Patent Scope, Antitrust Policy, and Cumulative Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 34-57, Spring.
  17. Carmen Matutes & Pierre Regibeau & Katharine Rockett, 1996. "Optimal Patent Design and the Diffusion of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 60-83, Spring.
  18. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February.
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  20. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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Citations

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Cited by:
  1. Gilbert, Richard J & Katz, Michael L, 2009. "Efficient Division of Profits from Complementary Innovations," Competition Policy Center, Working Paper Series qt5mr0s11v, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  2. Ghosh, Arghya & Kato, Takao & Morita, Hodaka, 2007. "Discrete Innovation, Continuous Improvement, and Competitive Pressure," IZA Discussion Papers 3132, Institute for the Study of Labor (IZA).
  3. Florian Schuett, 2013. "Inventors and Impostors: An Analysis of Patent Examination with Self-Selection of Firms into R&D," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 660-699, 09.
  4. Prokop, Jacek & Regibeau, Pierre & Rockett, Katharine, 2009. "Minimum quality standards and novelty requirements in a one-shot development race," Economics Discussion Papers 2009-33, Kiel Institute for the World Economy.
  5. Christian Riis & Xianwen Shi, 2012. "Sequential Innovation and Optimal Patent Design," Working Papers tecipa-447, University of Toronto, Department of Economics.
  6. Guido Cozzi & Silvia Galli, 2009. "Science-Based R&D In Schumpeterian Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(s1), pages 474-491, 09.
  7. Chu, Angus C., 2007. "Optimal Patent Breadth: Quantifying the Effects of Increasing Patent Breadth," MPRA Paper 3910, University Library of Munich, Germany.
  8. Adam B. Jaffe, 1999. "The U.S. Patent System in Transition: Policy Innovation and the Innovation Process," NBER Working Papers 7280, National Bureau of Economic Research, Inc.
  9. 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.
  10. Picard, Pierre M. & van Pottelsberghe de la Potterie, Bruno, 2013. "Patent office governance and patent examination quality," Journal of Public Economics, Elsevier, vol. 104(C), pages 14-25.
  11. Chen, Yongmin & Pan, Shiyuan & Zhang, Tianle, 2012. "(When) Do Stronger Patents Increase Continual Innovation?," MPRA Paper 40874, University Library of Munich, Germany.
  12. Robert Hunt, 1999. "Patent reform: a mixed blessing for the U.S. economy?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 15-29.
  13. Nadolnyak, Denis A. & Sheldon, Ian M., 2002. "A Model Of Development Of Agricultural Biotechnological Innovations: Patent Policy Analysis," 2002 Annual meeting, July 28-31, Long Beach, CA 19802, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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