UC Berkeley

Most investigations of the optimal patent term problem have followed Nordhaus's assumption that setting and optimal patent term requires balancing the incentives necessary to encourage innovation against the inefficiencies associated with longer lasting monopoly rights. Nordhaus, however, relied upon a static model in which all investments and innovations occur at a fixed time. If the times of investments and innovation are not fixed, the time of patent expiration becomes a "U-shaped" function of patent life. Below a minimum patent term, increasing patent life results in both earlier innovation and earlier patent expiration. Increasing patent life up to this term involves no tradeoff but instead unambiguously increases welfare.