The Economic Incentive to Innovate in Plants: Patents and Plant Breeders’ Rights

The exclusivity conferred to inventors by intellectual property rights (IPRs) provide an ex ante incentive for innovation, but the resulting market power yields an ex post inefficiency (because it limits use of the innovation). Strong IPRs may also affect innovation by limiting access of proprietary knowledge in research aimed at new inventions and discoveries, which raises the question of whether IPRs should have an experimental use or research exemption (RE) provision. This chapter sets up a model to study some effects of a RE provision by comparing two IPR systems that are available for plants: utility patents and so-called plant breeders’ rights (PBRs), which in the USA are implemented by the 1970 Plant Variety Protection Act (PVPA). Whereas PBRs allow for an RE, the US patent law does not have a statutory RE. The differences related to the RE provide the sharpest distinctions between patents and PBRs. The simple model and preliminary analysis presented in this chapter suggest that the RE inevitably weakens the ex ante incentive for private firms to innovate. Thus, when research is very costly and/or risky, as may be the case with pre-breeding germplasm development, an IPR system centred on the features of standard PBRs may not deliver the desired innovation incentive for private firms. Conversely, when research and development (R&D) costs are low, relative to the potential returns, the RE may be desirable because it ensures a larger pool of innovators in follow-up inventions. * GianCarlo Moschini is a professor of economics and the Pioneer endowed chair in science and technology policy, and Oleg Yerokhin is a Ph.D. candidate, both with the Department of Economics, Iowa State University, Ames, IA 50011, USA. Partial support for this research project was provided by Pioneer Hi-Bred International by means of a gift to the Iowa State University Foundation. This is a pre-print version of the following book chapter: Moschini, G., and Yerokhin, O., “The Economic Incentive to Innovate in Plants: Patents and Plant Breeders’ Rights,” in J.P. Kesan, ed., Agricultural Biotechnology and Intellectual Property: Seeds of Change, CAB International, 2007 (pp.190-203).