Fences and Competition in Patent Races

This paper studies the behaviour of firms facing the decision to create a patent fence, defined as a portfolio of non-improving substitute patents. We set up a model in a context of a multiple stages patent race, where firms can decide either to patent their inventions, or to rely on secrecy and that, for different levels of competition. It is shown that firms create a fence of substitute inventions, when competition is low or at an intermediate level. We also show that in this context, firms will patent their inventions for intermediate levels of competition and rely on secrecy when competition is low or when the benefit of keeping the invention secret is large. Furthermore, we study the model under the First-to-Invent rule and show that this does not imply more secrecy in the case of "fencing patents"