A Patent System for Both Diffusion and Exclusion

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Abstract
Public policy analysis of optimal patent regimes is often framed as a tradeoff between static and dynamic efficiency. In this analytical framework, weak patent protection and strict antitrust policy are taken to be directed toward static concerns, while protection of intellectual property through strong patent laws is taken as a reflection of broader social concerns for long-run growth and technological progress. This characterization has some truth, but the magnitude of the conflict between static and dynamic efficiency, can easily be exaggerated. In this article, I want to argue that weak patent protection need not be inimical to economic growth and, conversely, that strong patent protection need not be an enemy of diffusion. Appropriately structured patent law and antitrust rules can together ensure incentives for R&D and also induce cooperation among firms in diffusing R&D results through licensing and other means. At the same time, cooperation among firms at the R&D stage can counterbalance weak patent protection by internalizing spillovers from ongoing R&D programs, and such cooperation may also produce additional spillovers from the existing knowledge.

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