Knowledge Disclosure as Intellectual Property Rights Protection

We study a model in which an inventor discloses knowledge about its innovation and then a rival chooses the probability of attaining a competing invention. Disclosures, by creating prior art, diminish the probability that the rival has of receiving a patent for its invention (legal externality), but, by revealing knowledge, they decrease the marginal cost of R&D (knowledge externality). We stress the following result. If the knowledge externality is large compared to the legal externality, decreasing the patentability standards leads to fewer disclosures and may hinder R&D. We also determine the impact of changes in market payoffs on the equilibrium level of disclosures and R&D