Patenting in the Shadow of Independent Discoveries by Rivals

Tianle Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the decision of whether to apply for a patent in a dynamic model in which firms innovate stochastically and independently. In the model, a firm can choose between patenting and maintaining secrecy to protect a successful innovation. I consider a legal environment characterized by imperfect patent protection and no prior user rights. Thus, patenting grants probabilistic protection, and secrecy is effectively maintained until rivals innovate. I show that (1) firms that innovate early are more inclined to choose secrecy, whereas firms that innovate late have a stronger tendency to patent; (2) the incentives to patent increase with the innovation arrival rate; and (3) an increase in the number of firms may cause patenting to occur earlier or later, depending on the strength of patent protection. The socially optimal level of patent protection, which balances the trade-off between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly, is lower with a higher innovation arrival rate or a larger number of firms.

Keywords: Patenting decisions; Patents; Secrecy; Independent discoveries (search for similar items in EconPapers)
JEL-codes: O31 O34 (search for similar items in EconPapers)
Date: 2009, Revised 2011
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Journal Article: Patenting in the shadow of independent discoveries by rivals (2012)
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