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A Patentability Requirement for Sequential Innovation

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  • Ted O'Donoghue

Abstract

This article investigates patent protection for a long sequence of innovations where firms repeatedly supersede each other. Incentives for R&D can be insufficient if successful firms earn market profit only until competitors achieve something better. To correct this problem, patents must provide protection against future innovators. This article proposes using a patentability requirement -- a minimum innovation size required for patents. A patentability requirement can stimulate R&D investment and increase dynamic efficiency. Intuitively, requiring firms to pursue larger innovations prolongs market incumbency because larger innovations are harder to achieve, and longer market incumbency implies an increased reward to innovation.

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  • Ted O'Donoghue, 1998. "A Patentability Requirement for Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 654-679, Winter.
    • Handle: RePEc:rje:randje:v:29:y:1998:i:winter:p:654-679
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    Cited by:

    1. Yang, Xuebing, 2013. "Horizontal inventive step and international protection of intellectual property," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 338-355.
    2. 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.
    3. Gilbert, Richard J. & Katz, Michael L., 2011. "Efficient division of profits from complementary innovations," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 443-454, July.
    4. Atal, Vidya & Bar, Talia, 2010. "Prior art: To search or not to search," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 507-521, September.
    5. Bronwyn H. Hall, 2003. "Business Method Patents, Innovation, and Policy," NBER Working Papers 9717, National Bureau of Economic Research, Inc.
    6. Prokop, Jacek & Regibeau, Pierre & Rockett, Katharine, 2010. "Minimum quality standards and novelty requirements in a one-short development race," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-49.
    7. Comino, Stefano & Graziano, Clara, 2015. "How many patents does it take to signal innovation quality?," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 66-79.
    8. Chen, Yongmin & Pan, Shiyuan & Zhang, Tianle, 2014. "(When) Do stronger patents increase continual innovation?," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 115-124.
    9. Fershtman, Chaim & Markovich, Sarit, 2010. "Patents, imitation and licensing in an asymmetric dynamic R&D race," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 113-126, March.
    10. Yiannaka, Amalia & Fulton, Murray, 2006. "Strategic patent breadth and entry deterrence with drastic product innovations," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 177-202, January.
    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. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 315-380, Elsevier.
    13. Lu, Louis Y.Y. & Liu, John S., 2016. "A novel approach to identify the major research themes and development trajectory: The case of patenting research," Technological Forecasting and Social Change, Elsevier, vol. 103(C), pages 71-82.
    14. Erkal, Nisvan, 2005. "The decision to patent, cumulative innovation, and optimal policy," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 535-562, September.
    15. Aoki, Reiko & Spiegel, Yossi, 2009. "Pre-grant patent publication and cumulative innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 333-345, May.
    16. Nadolnyak, Denis A. & Sheldon, Ian M., 2002. "A Model Of Development Of Agricultural Biotechnological Innovations: Patent Policy Analysis," 2002 Annual meeting, July 28-31, Long Beach, CA 19802, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Guido Cozzi & Silvia Galli, 2009. "Science‐Based R&D In Schumpeterian Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(4), pages 474-491, September.
    18. Christian Riis & Xianwen Shi, 2012. "Sequential Innovation and Optimal Patent Design," Working Papers tecipa-447, University of Toronto, Department of Economics.
    19. Jaffe, Adam B., 2000. "The U.S. patent system in transition: policy innovation and the innovation process," Research Policy, Elsevier, vol. 29(4-5), pages 531-557, April.
    20. 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.
    21. Ghosh, Arghya & Kato, Takao & Morita, Hodika, 2007. "Discrete Innovation, Continuous Improvement, and Competitive Pressure," Working Papers 104-27, Department of Economics, Colgate University.
    22. Picard, Pierre M. & van Pottelsberghe de la Potterie, Bruno, 2013. "Patent office governance and patent examination quality," Journal of Public Economics, Elsevier, vol. 104(C), pages 14-25.
    23. Glaeser, Stephen, 2018. "The effects of proprietary information on corporate disclosure and transparency: Evidence from trade secrets," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 163-193.
    24. 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.

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