Patentability Requirements and the Direction of Innovation
How can the rules for getting a patent actually shape the future of technology innovation? The recent paper Patentability Requirements and the Direction of Innovation explores how the stringency of patentability requirements influences the direction and intensity of firms' innovation efforts. The article,co-authored by prof. Fabio Manenti of the University of Padua Department of Economics and Management, and Luca Sandrini of Leibniz Centre for European Economic Research, has been published in The Journal of Industrial Economics in April 2025.
The starting point of the analysis is that it is desirable for companies to invest in different technological directions; this, in fact, not only guarantees greater variety of innovation but also reduces the risk of inefficient duplication of R&D efforts. The authors examine whether patent rules encourage firms to conduct R&D on similar or different technological areas. The study uses a model to evaluate how two competing firms decide which technological areas to invest in and how much to invest, taking into account potential overlap with their rivals' innovations.
Can you explain the concept of overlapping and non-overlapping innovations?
Overlapping innovation occurs when competing firms choose to invest in the same technological area. In such a scenario, if both firms succeed in developing the innovation only one firm will be granted a patent as the two inventions overlap.
Non-overlapping innovation, on the other hand, takes place when firms conduct R&D activities in different technological areas. In this case, if both firms successfully innovate and their inventions meet the patentability requirements, their inventions and the patents protecting them can coexist as they fall within distinct technological domains.
For example, in the case of the Amazon Wristband (patent US9881276B2) and the Walmart Sound Sensor (patent US10020004B2), both e-commerce rivals received patent protection in 2018 for technologies aimed at monitoring workers' performance. While the goal is similar (improving employee performance without changing the services for consumers), they build on different foundations that do not infringe on each other. This allows both Amazon and Walmart to have patent protection for their distinct technological approaches to achieving the same broader objective.
What are the main findings of the paper?
- A generous patent system, where it's easy to get a patent even for minor innovations, can lead companies to follow similar R&D trajectories, potentially resulting in overlapping innovations, with a wasteful duplication of R&D efforts.
- Stricter patent requirements, where only more significant and non-obvious innovations can be patented, may encourage companies to explore different technological areas. This can lead to a greater variety of innovations and increased market efficiency.
- Raising the bar for patentability can also motivate companies to invest more in R&D to ensure their inventions are substantial enough to qualify for patent protection.
What are the implications for policymakers?
The research suggests that the strictness of patent rules is a valuable tool for policymakers. By setting a sufficiently stringent standard for patentability, patent offices can not only boost the overall amount of R&D but also induce firms towards developing a wider range of technologically distinct innovations. Therefore, by carefully calibrating requirements, patent offices could direct firms' R&D efforts towards a wider range of different and potentially more valuable innovations, with a significant positive effect on dynamic efficiency.
