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Patent incentives

New Zealand politicians, policy-makers and scientists talk of the need for a more innovative economy. In a Marsden-funded project, Dr Steffen Lippert (Economics) and colleagues have concluded that one way to encourage this would be to tighten patent requirements.

Focusing on the increasingly important role that venture capital plays in the innovation process, they looked at the incentives for venture capitalists to fund financially-constrained entrepreneurs and how these incentives are affected by the design of the intellectual property system.

Lippert says they developed a model of venture capitalists' behaviour as they select and support high-potential entrepreneurial ventures. An important part of this is information acquisition and signalling – how do entrepreneurs get the information to judge whether a venture is worth investing in, and how do they then signal to already-established companies that this venture is worth buying?

He says the intellectual property system plays a key role in this latter stage as venture capitalists use patents to signal the value of an innovation to prospective buyers.

The model shows that a tightening of patenting requirements by patent offices (such as increasing the thresholds for judging novelty, non-obviousness and usefulness) increases the pool of early-stage (unpatented) ideas. This also decreases the number and breadth of patented claims needed to separate highly valuable innovations from less valuable ones, meaning that the venture capitalist can use a good quality patent as a signal to buyers.

“In short: tightening patent requirements would make venture capitalists more likely to back entrepreneurs and increase entrepreneurial incentives to innovate.”

Photo: Graham Warman
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