On the Optimal Novelty Requirement in Patent Protection

Abstract

Novelty value is one of the legal requirements for a patentable innovation but it has been given relatively little attention in the literature. It is often abstracted away by assuming that any innovation is patentable. We study the optimal novelty requirement in a model where ideas are scarce, and where turning an idea into an innovation requires resources. We show that all innovations should not be patentable but it is optimal to have a non-zero novelty requirement. The equilibrium investment in R&D is an inverse-U-shaped function of the novelty requirement.