Optimal "Pro-Patent" Policy : An Empirical Study of the Breadth of Patents and Cumulative Technological Innovation

ABSTRACT

1. Currently, the Japanese government is moving toward realizing its goal of becoming "an Intellectual Property-based Nation" by turning out many policy measures regarding its patent system. However, the breadth of patent rights-a foundation of the patent system-is influenced heavily by the judicial system as well as by the government. As the patent system is an economic system designed to stimulate investments in R&D by providing monopolistic uses of technological knowledge, it is beneficial to analyze the breadth of patents from not only a legal but also economic perspective.

2. Economists have been studying optimal patent policies regarding the stimulation of R&D investments and the breadth of patents that maximize economic welfare. This report references the 1986-87 American patent trial of Texas Instruments (TI) that resulted in a virtual expansion of the breadth of patent rights, and examines theoretical predictions about the changes in the innovation of Japanese companies that were caught up in the lawsuit through an empirical analysis.

3. Results show that though the number of high-quality patents increased after the TI lawsuits on the one hand, the increase in low-quality patents was much higher. In order to increase economic welfare through innovation while simultaneously minimizing economic inefficiency resulting from low-quality patents, it is vital to broaden the effectiveness of patents while at the same time promote the elimination of obsolete patents and the formation of patent pools.