When Less Is More: Optimal Patent Breadth under the Threat of Patent Validity Challenges

This article determines the optimal breadth of patent protection for a drastic process innovation when the innovator faces the likelihood of a direct patent validity challenge by a third party and potential entry and infringement by a competitor who provides a technologically equivalent process. The effect of the innovator's patent breadth decision on the entrant's incentive to generate a competing process and on the entrant's ability to enter the market is also examined. Analytical results show that the greater the patent breadth, the smaller the entrant's incentive to develop a non‐infringing process and the optimal flow of research and development spending. However, when patent breadth can be used to deter entry, the incumbent always prefers to deter entry by choosing the smallest patent breadth possible that could achieve entry deterrence. In addition, when entry cannot be deterred, it is never optimal for the incumbent to claim the maximum patent breadth possible.