Author(s)
Source
RAND Journal of Economics, Vol. 30, pp. 181-196, 1999
Summary
This paper asks when it makes sense to allow patents to be renewed.
Policy Relevance
The patent renewal system can help firms be rewarded for an invention for a longer time when the invention has more value. But using subsidies to reward invention instead might avoid some problems with patents.
Main Points
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Patents in the United States and Europe can be renewed in exchange for a fee. This system can help a firm make good decisions about whether to invest in an innovation.
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How many patents are renewed varies; in some countries the renewal rate is only 7%. Even the types of patents renewed most often are renewed at most 30% of the time.
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Patents with higher values will be renewed often and last longer.
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One problem with patents is that firms can charge high prices for a patented product even if their research costs were low, which costs consumers money.
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Subsidies are an alternative to patents or can be used in addition to patents, but the authority issuing the subsidies must screen them to avoid spending too much. Because subsidies do not give an inventor a patent supporting high prices, subsidies make sense for low-value innovations.
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If inventions that cost more to develop are worth more, perhaps because hard work is usually involved rather than luck, it makes sense to have a renewal system that gives more rewards to the higher valued inventions.