Patent Policy and Innovation

Patent Policy and Innovation

Do Legal Rules Deliver Effective Economic Outcomes?

Hazel V.J. Moir

This empirical study uses a scientifically selected sample of patents to assess patent quality. The careful evaluation of the assumptions in alternative economic theories about the generation and diffusion of new knowledge demonstrates that the height of the inventive step is critical to effective and efficient patent policy.

Chapter 2: The economics of patent policy: assumptions, paradoxes and evidence

Hazel V.J. Moir

Subjects: economics and finance, economics of innovation, intellectual property, innovation and technology, economics of innovation, intellectual property, law - academic, intellectual property law

Extract

The principal economic argument supporting patent policy is founded on the assumption that copying knowledge is virtually free. Once an innovator has developed a new artefact or process, competitors are able to replicate this at very low cost, undercutting the original innovator in the market. They can price close to marginal cost as they do not have to recoup the overhead costs of developing the new knowledge. This argument also implies that very little time is needed to copy the new knowledge to the point of having a fully developed competing product in the market, so that the original innovator has little if any period of market exclusivity. An alternative view, derived from the information economics school of thought, considers that it takes both time and money to learn and use new knowledge. Indeed the cost of acquiring new knowledge is sufficiently high that it is a barrier to the diffusion of new technology. This alternative perspective draws the conclusion that many new industrial artefacts and processes will have a period of exclusivity in the market when there are no competing products.

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