"Patent Breadth, Patent Life, and the Pace of Technological Progress"

by Ted O'Donoghue, Suzanne Scotchmer, and Jacques-Francois Thisse

Journal of Economics and Management Strategy, 7(1), Spring 1998, 1-32

Abstract

In active investment climates where firms sequentially improve each other's products, a patent can terminate either because it expires or because a noninfringing innovation displaces its product in the market. We define the length of time until one of these happens as the effective patent life, and show how it depends on patent breadth. We distinguish "lagging" breadth, which protects against imitation, from "leading" breadth, which protects against new improved products. We compare two types of patent policy with leading breadth: (i) patents are finite but very broad, so that the effective life of a patent coincides with its statutory life, and (ii) patents are long but narrow, so that the effective life of a patent ends when a better product replaces it. The former policy improves the diffusion of new products, but the latter has lower R&D costs.