To Protect Or Not To Protect Foreign-Owned Patents -- A Strategic Decision
In a three-country framework, with one innovating country, we study the incentives of non-innovating countries to extend patent pro- tection to the innovator's intellectual property. I assume that non- innovating countries differ with respect to their market sizes and/or imitative capabilities. I show that even if patent protection has no effect on the rate of innovation, the more capable imitating country makes an equilibrium decision to provide patent protection, under some conditions. However, as the market size of this country becomes rel- atively large or too small, or if the imitative capability of the other imitating country improves, the earlier decision in favour of patenting is reversed.
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