Patent Scope and Technology Choice

The purpose of this paper is to analyze the e¤ect of an increase in patent scope on investments in R&D and on the rate of innovation. Patent scope a¤ects incentives for innovation via the research strategies \u85rms choose; a broad scope on the patent for the state-of-the-art technology can induce entrant \u85rms to choose to do research on alternative technologies to avoid patent infringement. If the alternative technologies have a lower probability of success, this reduces incentives for investment in R&D by entrant rms and the probability that they innovate. On the other hand, the allocation of total R&D across projects is improved, since there is less wasteful duplication of R&D investments. This paper presents a model where the trade-o ¤ induced by patent scope can be analyzed. The model predicts that an increase in patent scope can increase the probability of innovation, and consequently the negative e¤ects of R&D duplication can be large enough to warrant a broad patent scope. This holds if the in-cumbents increase in pro\u85ts from innovating is large, and the patented technology has a small advantage relative to alternative technologies. Oth-erwise, the probability of innovation decreases. However, when the model is extended to allow for Stackelberg competition or license agreements, the bene\u85t of a broad patent scope to a large extent disappears. Hence, the e¤ects of an increase in patent scope depend on innovation and in-dustry characteristics and unless several conditions are met, an increase in patent scope reduces innovation