The L&E of Intellectual Property – Do we get maximum innovation with the current regime?

Innovation is crucial to economic growth – the essential path for lifting much of the world population out of dire poverty and for maintaining the living standard of those who already have. To stimulate innovation, the legal system has to support the means through which innovators seek to get rewarded for their efforts. Amongst these means, some, such as the first mover advantage or 'lead time,' are not directly legal; but secrets and intellectual property rights are legal institutions supported for the specific purpose of stimulating innovation. Whilst the protection of secrets has not changed very much over recent years, intellectual property (or IP) has. IP borrows some features from ordinary property rights, but is also distinct, in that, unlike physical goods, information, the object of IP, is not inherently scarce; indeed as information and communication technologies expand, the creation and distribution of information is becoming ever cheaper and in many circumstances abundant, so that selection is of the essence ('on the internet, point of view is everything'). Where rights on information extend too far, their monopolising effect may hamper innovation. The paper investigates the underlying structure of IP rights and surveys what we know empirically about the incentive effects of IP as about industries that flourish without formal IP

The Economics of Patents: Lessons from Recent U.S. Patent Reform

U.S. patent reform over the past two decades has strengthened the legal enforcement of patent rights and has extended protection to new subject matter, such as genetically engineered life forms and business methods. This paper highlights these and other policy changes and the debate that this apparent increase in protection has sparked. While the case for stronger patents as a spur to innovation is a weak one, as revealed by recent theoretical and empirical research, evidence that they encourage disclosure and technology transfer is persuasive. The paper discusses the social costs and benefits of these effects from the policy changes and proposals for alleviating the costs through further patent reform.

Patent Policy and Costly Imitation

This article extends the theory of optimal patents to allow for costly imitation of patented innovations. With costly imitation, a rival's decision to imitate depends on the length of patent protection awarded to the patentee: the longer the patent life, the more likely it is that rivals will "invent around" the patented product. Extending patent life, therefore, may not provide the innovator with increased incentives to research or to patent the innovation. In this case, I find that optimal patent lives are sufficiently short to discourage imitation. With both patent length and breadth as instruments, the optimal policy consists of broad patents (no imitation allowed) with patent lives adjusted to achieve the desired reward. These results are in sharp contrast to recent results on the optimality of narrow, infinitely long patents.

DUAL DISTRIBUTION IN FRANCHISING

COWLES FOUNDATION DISCUSSION PAPER NO. 97