Vicenzo Denicoḷ and Piercarlo Zanchettin

"How should forward patent protection be provided?"
JEL codes: L00, O31, O34
Keywords: cumulative innovation, patent, novelty requirement, patent breadth

Abstract: We study the optimal combination of the novelty requirement and leading breadth to provide forward patent protection in a two-stage model of sequential innovation. We show that when the option value of the second innovation is low, it is a matter of indifference whether forward protection is provided though the novelty requirement of the leading breadth. As the option value of the second innovation increases, forward protection must be provided throughout the leading breadth only. Finally, when the option value of the second innovation is still larger, the optimal policy involves maximum leading breadth and a positive novelty requirement. When collusion between patentees is permitted, the optimal novelty requirement is positive even for low-value improvements.