| Technology often grows cumulatively, and firms repeatedly supersede each other with sequential improvements. This dissertation explores patent protection in such an environment. Insufficient incentives for R&D arise because each innovator faces the threat of being superseded by future innovators. We focus on two ways patents can protect against future innovators: leading breadth and patentability requirements. Leading breadth specifies superior products that would infringe the patent (and cannot be produced without a license). Patentability requirements specify superior products that no firm can patent.; Chapter 2 examines leading breadth. We distinguish statutory patent life--how long the patent is valid--from effective patent life--how long the patentholder earns market profits. Since a patent can terminate either because it expires or because a noninfringing innovation displaces its product from the market, leading breadth and patent life jointly determine effective patent life. We compare patents with finite life but very broad leading breadth (so effective life coincides with statutory life) to patents with very long life but narrow leading breadth (so a patent effectively terminates when a better product appears). The former policy improves the diffusion of new products, but the latter has lower R&D costs.; Chapter 3 investigates patentability requirements. The R&D literature generally assumes exogenous innovation size. If innovation size is endogenous, however, a patentability requirement protects against future innovators by requiring them to pursue larger innovations. Because larger innovations are harder to achieve, such a policy can stimulate R&D investment by prolonging market incumbency. Furthermore, patentability requirements will be superior to leading breadth if licensing imperfections or monopoly distortions are large.; Chapter 4 examines patent protection in an endogenous-growth model. The policies discussed in Chapters 2 and 3 can, in fact, stimulate R&D in the endogenous-growth framework. In addition, the general-equilibrium framework contributes insights for the study of patent design. In a general-equilibrium model, both incentives to innovate and monopoly distortions depend on the proportion of industries that conduct R&D. Furthermore, patents affect the allocation of R&D resources across industries, and patents can distort resources away from industries where they are most productive. |
