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Nonobviousness and the incentive to innovate: an economic analysis of intellectual property reform

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  • Robert M. Hunt

Abstract

U.S. patent law protects only inventions that are nontrivial advances of the prior art. The legal requirement is called nonobviousness. During the 1980s, the courts relaxed the nonobviousness requirement for all inventions, and a new form of intellectual property, with a weaker nonobviousness requirement, was created for semiconductor designs. Supporters of these changes argue that a less stringent nonobviousness requirement encourages private research and development (R&D) by increasing the probability that the resulting discoveries will be protected from imitation. This paper demonstrates that relaxing the standard of nonobviousness creates a tradeoff--raising the probability of obtaining a patent, but decreasing its value. The author shows that weaker nonobviousness requirements can lead to less R&D activity, and this is more likely to occur in industries that rapidly innovate.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 99-3.

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Date of creation: 1999
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Handle: RePEc:fip:fedpwp:99-3

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Related research

Keywords: Patents ; Research and development;

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References

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  1. Saul Lach & Rafael Rob, 1992. "R&D, Investment and Industry Dynamics," NBER Working Papers 4060, National Bureau of Economic Research, Inc.
  2. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
  3. 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.
  4. Green, J.R. & Scotchmer, S., 1993. "On the Division of Profit in Sequential Innovation," Harvard Institute of Economic Research Working Papers 1638, Harvard - Institute of Economic Research.
  5. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August.
  6. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
  8. Ted O'Donoghue, 1997. "A Patentability Requirement For Sequential Innovation," Discussion Papers 1185, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Scherer, F M, 1972. "Nordhaus' Theory of Optimal Patent Life: A Geometric Reinterpretation," American Economic Review, American Economic Association, vol. 62(3), pages 422-27, June.
  10. 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.
  11. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring.
  12. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December.
  13. 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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Citations

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Cited by:
  1. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, 09.
  2. David Encaoua & Dominique Guellec & Martinez Catalina, 2011. "Sistemas de patentes para fomentar la innovacion: lecciones de analisis economico," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00743037, HAL.
  3. Angus C. Chu, 2009. "Macroeconomic Effects of Intellectual Property Rights: A Survey," IEAS Working Paper : academic research 09-A007, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  4. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," Levine's Bibliography 122247000000001065, UCLA Department of Economics.
  5. 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.
  6. Gilles Koléda, 2005. "Northern and Southern Patent Novelty Requirements Harmonization, Growth and Trade," DEGIT Conference Papers c010_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  7. Pia Weiss, 2004. "Competitive disadvantage through non-existing software patents," Development and Comp Systems 0402006, EconWPA.
  8. Florian Köhler, 2011. "Patent cross-licensing, the influence of IP interdependency and the moderating effect of firm size," The Journal of Technology Transfer, Springer, vol. 36(4), pages 448-467, August.
  9. David Encaoua & Dominique Guellec & Catalina Martínez, 2006. "Patent Systems for Encouraging Innovation: Lessons from Economic Analysis," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00177614, HAL.
  10. David Encaoua & Dominique Guellec & Martinez Catalina, 2011. "Sistemas de patentes para fomentar la innovacion: lecciones de analisis economico," Post-Print halshs-00743037, HAL.
  11. Che, XiaoGang & Yang, Yibai & Zhang, Haoyu, 2010. "Outsourcing and R&D Investment with Costly Patent Protection," MPRA Paper 25516, University Library of Munich, Germany.
  12. Farhauer, Oliver, 2002. "Folgt aus der Theorie des endogenen Wachstums eine neue Wirtschaftspolitik?," Discussion Papers 2002/3, Technische Universität Berlin, School of Economics and Management.
  13. 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.
  14. Angus Chu, 2009. "Effects of blocking patents on R&D: a quantitative DGE analysis," Journal of Economic Growth, Springer, vol. 14(1), pages 55-78, March.
  15. Chu, Angus C., 2007. "Economic Growth and Patent Policy: Quantifying the Effects of Patent Length on R&D and Consumption," MPRA Paper 5476, University Library of Munich, Germany.
  16. Chu, Angus C., 2007. "Optimal Patent Breadth: Quantifying the Effects of Increasing Patent Breadth," MPRA Paper 3910, University Library of Munich, Germany.

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