OPTIMAL PATENT DESIGN AND THE DIFFUSION OF INNOVATIONS

Innovators who have made significant breakthroughs may be tempted to g et a head start in developing the applications of a new discovery befo re commercializing any new product. We consider how this socially unde sirable waiting period and the pattern of development of subsequent in novations are affected by two patent protection regimes which we call ''length'' and ''scope'' protection, Our main finding is that the scop e of the patent, and not its length, is the dimension that should be u sed to induce early disclosure of fundamental innovations while still preserving firms' incentive to do R&D. Furthermore, the optimal protec tion increases with rivalry in the markets for applications.