Sequential Innovation, Patents, And Imitation

Sequential Innovation, Patents, And Imitation
MIT Working Paper
Bluebook cite
James Bessen And Eric Maskin, Sequential Innovation, Patents, And Imitation, MIT Working Paper (Jan. 2000)

James Bessen And Eric Maskin
Item Type
How could such industries as software, semiconductors, and computers
have been so innovative despite historically weak patent protection? We argue that
if innovation is both sequential and complementary—as it certainly has been in
those industries—competition can increase firms’ future profits thus offsetting
short-term dissipation of rents. A simple model also shows that in such a dynamic
industry, patent protection may reduce overall innovation and social welfare. The
natural experiment that occurred when patent protection was extended to software
in the 1980's provides a test of this model. Standard arguments would predict that
R&D intensity and productivity should have increased among patenting firms.
Consistent with our model, however, these increases did not occur. Other evidence
supporting our model includes a distinctive pattern of cross-licensing in these
industries and a positive relationship between rates of innovation and firm entry.

Excerpts and Summaries

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