Tutorial: Patent Shape

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The Patent Shape Tutorial

Note: in order to run the dynamic simulations referred to in this tutorial, go here, to the Java Applet version. You will be directed to download the latest version of the Java plug-in.

This tutorial is concerned with the problem of optimal patent shape. A variety of perspectives are explored and demonstrations are performed through computational modeling. Observations and results are taken from Gilbert and Shapiro (Optimal Patent Length and Breadth. The Rand Journal of Economics. Vol. 21 Issue 1. Spring 1990. 106-112.), Klemperer (How Broad Should the Scope of a Patent Be? The Rand Journal of Economics. Vol. 21 Issue 1. Spring 1990. 113-130.), and Green and Scotchmer (On the Division of Profit in Sequential Innovation. The Rand Journal of Economics. Vol. 26 Issue 1. Spring 1995. 20-33.)

TABLE OF CONTENTS

1. Introduction
1. Rewarding Innovation Presents Costs to Society
2. A Firm with a Patent Facing Consumer Demand
1. Effect of the Length of a Patent
2. Computing the Potential Value of an Invention
3. Computing Profit and Social Cost
4. Behavior at Different Prices
5. Effect of Price on Profit and Social Cost
3. Controlling Prices to Increase Social Welfare
1. Ratio of Social Cost to Profit
2. How to Maximize Social Welfare
3. How Anti-Trust Policy Affects Patent Value
4. Exceptional Cases
4. Extensions to the Model
1. Patent Scope
2. Valuing Interrelated Inventions
5. Closing Remarks


6. Technical Appendix
1. Simpson's Rule
2. Integration Bounds

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