IDEAS home Printed from https://ideas.repec.org/p/fip/fedpwp/99-3.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • 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.
  • Handle: RePEc:fip:fedpwp:99-3
    as

    Download full text from publisher

    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/1999/wp99-3.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jennifer F. Reinganum, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 81-99.
    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, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 429-436.
    9. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
    10. Ted O'Donoghue, 1998. "A Patentability Requirement for Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 654-679, Winter.
    11. Saul Lach & Rafael Rob, 1996. "R&D, Investment, and Industry Dynamics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 217-249, June.
    12. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
    13. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-918, December.
    14. Scherer, F M, 1972. "Nordhaus' Theory of Optimal Patent Life: A Geometric Reinterpretation," American Economic Review, American Economic Association, vol. 62(3), pages 422-427, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," American Economic Review, American Economic Association, vol. 96(2), pages 87-91, May.
    2. 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.
    3. Encaoua, David & Guellec, Dominique & Martinez, Catalina, 2006. "Patent systems for encouraging innovation: Lessons from economic analysis," Research Policy, Elsevier, vol. 35(9), pages 1423-1440, November.
    4. Yang, Xuebing, 2013. "Horizontal inventive step and international protection of intellectual property," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 338-355.
    5. Angus Chu, 2010. "Effects of patent length on R&D: a quantitative DGE analysis," Journal of Economics, Springer, vol. 99(2), pages 117-140, March.
    6. Pia Weiss, 2004. "Competitive disadvantage through non-existing software patents," Development and Comp Systems 0402006, EconWPA.
    7. 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.
    8. David Encaoua & Dominique Guellec & Catalina Martínez, 2010. "Sistemas de patentes para fomentar la innovación: Lecciones de análisis económico," Working Papers 1015, Instituto de Políticas y Bienes Públicos (IPP), CSIC.
    9. Caillaud, Bernard & Duchêne, Anne, 2011. "Patent office in innovation policy: Nobody's perfect," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 242-252, March.
    10. 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.
    11. 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.
    12. Che, XiaoGang & Yang, Yibai & Zhang, Haoyu, 2010. "Outsourcing and R&D Investment with Costly Patent Protection," MPRA Paper 25516, University Library of Munich, Germany.
    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. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, September.
    15. 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.
    16. Robert M. Hunt, 1999. "Patent reform: a mixed blessing for the U.S. economy?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 15-29.
    17. Adam P. Balcerzak & Elżbieta Rogalska, 2011. "The Significance of Intellectual Protection Rights System in the Knowledge Based Economy," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 27.
    18. repec:hal:journl:halshs-00743037 is not listed on IDEAS

    More about this item

    Keywords

    Patents ; Research and development;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:99-3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul). General contact details of provider: http://edirc.repec.org/data/frbphus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.