Patenting in the shadow of independent discoveries by rivals

Abstract

Abstract. This paper studies the decision of whether to apply for a patent in a dynamic model in which …rms innovate stochastically and independently. In the model, a …rm can choose between patenting and maintaining secrecy to protect a successful innovation. I consider a legal environment characterized by imperfect patent protection and no prior user rights. Thus, patenting grants probabilistic protection, and secrecy is e¤ectively maintained until rivals innovate. I show that (1) …rms that innovate early are more inclined to choose secrecy, whereas …rms that innovate late have a stronger tendency to patent; (2) the incentives to patent increase with the innovation arrival rate; and (3) an increase in the number of …rms may cause patenting to occur earlier or later, depending on the strength of patent protection. The socially optimal level of patent protection, which balances the trade-o¤ between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly, is lower with a higher innovation arrival rate or a larger number of …rms.

Protecting Innovation Through Patents and Trade Secrets: Evidence for Firms with a Single Innovation

“…Ponce (2007) shows that an innovator may opt for secrecy but will disclose some knowledge to prevent a potential second innovator from developing the same innovation and patenting it. Zhang (2012) investigated the impact of innovation arrival rates and the number of firms competing for innovations. Firms that innovate early are more inclined to choose secrecy.…”

Intellectual Property Rights and the Quality of Transferred Technology in Developing Countries

“…Firm S , which does not innovate, produces at the marginal cost c > 0. Firm S benefits from firm N 's technology through knowledge spillover, which may result from information disclosure in the patent application (Rockett, ; Zhang, ). The benefit of knowledge spillover to firm S depends on the southern patent system.…”

Determinants of firm’s propensity to patent its inventions

“…With this, the risk of partners behaving opportunistically to improve their competitive position in the market unethically (Solitander and Tidstrom, 2010; Chandrashekar and Bala Subrahmanya, 2017c) opens up a challenge for firms to protect the outcomes of their intellectual capital from being misused. Further, in a high-tech cluster characterised by a complex innovation or technology, the intense market competition related and constantly changing frontiers of technology, on the other hand have put immense pressure on firms to innovate (Zhang, 2012; Blazsek and Escribano, 2016). It is in this context that the follower firms tend to imitate leader firms, which are innovative and technically superior to them by misusing the unintended knowledge diffusions in a cluster (Arora et al , 2016).…”

“…Although firms in general and SMEs in particular innovate intensively they opt not to file patent applications because they fear that the innovation information disclosures made during the patenting process may be revealed and therein it poses a threat of rival firms using those information to their benefit (Zhang, 2012). Further, given the high costs of the patent application, grant and maintenance, the firms stay away from patenting their inventions (Hall et al , 2014; Sweet and Maggio, 2015).…”