The dynamics of protection and imitation of innovations

Those arguing in favor of strong intellectual property protection claim that, without such legal constraints, innovators are at the mercy of imitators. In practice innovators however invest actively in making their products technologically hard to reverse engineer. We consider the dynamics of imitation and protection of innovations. We show that innovators can obtain high pro…ts in the absence of legal protection. Surprisingly, in general, the protection technologies that yield the highest pro…ts for the innovator are expensive and do not protect well. Our model also allows us to draw conclusions on the design of patent policy and on the path of di¤usion of new technologies.