Contribution to The New Palgrave : A Dictionary of Economics , second edition

Patents A patent is the legal right of an inventor to exclude others from making or using a particular invention. This right is sometimes termed an 'intellectual property right' and is viewed as an encouragement for innovation. This article gives a brief history of patenting, and discusses the legal and administrative process for obtaining a patent in the major world jurisdictions. Evidence on patent effectiveness in encouraging innovation is surveyed, and the article concludes with a discussion of the use of patent data in economic analysis. A patent is the legal right of an inventor to exclude others from making or using a particular invention. This right is customarily limited in time, to 20 years from the date of the application submission in most countries. The principle behind the modern patent is that an inventor is allowed a limited amount of time to exclude others from supplying or using an invention in order to encourage inventive activity by preventing immediate imitation. In return, the inventor is required to make the description and implementation of the invention public rather than keeping it secret, allowing others to build more easily on the knowledge contained in his invention. The economics of patents has two distinct components, one normative and one positive. The first is directed towards questions of optimal patent policy, the existence and strength of patents, and the design of the patent system. The second uses patent data as an indicator of inventive activity, relying on the fact that patent offices attempt to apply fairly uniform standards of novelty and inventive step when granting patents, so that counts based on them should reflect the innovative activity in a society or in a particular industrial or technology sector. The advantage of patent data is that they are available in great detail over a wide range of time periods, geographic areas, and technological sectors (Griliches, 1990). Nevertheless, all patents are not equal, and it is 2 important to understand the operation of patent systems throughout their history in order to make effective use of these data. This article begins with a brief history of patents, followed by a discussion of the legal and administrative processes for obtaining a patent in the three major patent offices, the United States, European, and Japanese. Then the evidence on patent effectiveness in encouraging innovation is surveyed. The final section discusses the use of patent data in economic analysis. …