Working Paper

Patentability, industry structure, and innovation.

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.

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2002

Number: 01-13