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Patentability, industry structure, and innovation

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  • Robert M. Hunt

Abstract

To qualify for a patent, an invention must be new, useful, and nonobvious. This paper presents a model of sequential innovation in which industry structure is endogenous and a standard of patentability determines the proportion of all inventions that qualify for protection. There is a unique patentability standard, or inventive step, that maximizes the rate of innovation by maximizing the number of firms engaged in R&D. Surprisingly, this standard is more stringent for industries disposed to innovate rapidly. If a single standard is applied to heterogeneous industries, it will encourage entry, and therefore innovation, in some industries while discouraging it in others. The model suggest a number of important implications for patent policy.

Suggested Citation

  • Robert M. Hunt, 2002. "Patentability, industry structure, and innovation," Working Papers 01-13, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:01-13
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