The basic principle of patent law is to provide the innovator a negative right to exclude others from making, using, exercising, offering to dispose of and marketing the invention within a limited statutory period. Two aspects of patent theory have polarised research since the Schumpetian era; namely, the balance between this individual right and the societal loss and the level of patent protection that incentivises innovation. Only in recent times has there been research activity on the problem of the shortened patent life and optimal patent design. This empirical study sought to determine the optimal patent protection; thus patent breadth and patent length that create patent value for touch-screen handsets without increasing societal loss. In previous literature mathematical modeling was used as a methodology to determine the optimal patent breadth and patent length. In this study, a quantitative method was used with empirical evidence collected from all patent attorneys practicing in South Africa. The study provides empirical evidence that patent breadth and patent length should vary based on product sectors as a „one-size-fits-all‟ patent protection approach is outdated in product sectors characterised by rapid technological innovation. From the study results it was concluded that long-lived narrow patents are optimal for touch-screen handsets. Lastly, that there are more underlying factors that contribute to patent value in touch-screen handsets that should be investigated further. Copyright / Dissertation (MBA)--University of Pretoria, 2011. / Gordon Institute of Business Science (GIBS) / unrestricted

This dissertation is a collection of essays on intellectual property rights and optimal product selection when innovation occurs sequentially. One of the highlights of this dissertation has been to show the possibility of full rent extraction by the patent holder when uncertainty in litigation is taken into consideration. The result of the theoretical model has practical policy implication regarding the design of an optimal patent system. The other highlight of this dissertation is to show the coexistence of maximal and minimal product differentiation in a sequentially growing market. This result sheds light on the simulation of a multi-dimensional product space. Brief Summaries of Chapters: Chapter 1 presents a survey of the historical, legal, and economic aspects of patents. The emphasis in this survey is to recognize the crucial elements in the current patent law practice and to initiate research projects thereof. Chapter 2 considers a model of sequential innovation in which patent infringement occurs and the outcome of litigation is uncertain. By recognizing the "diminishing returns to litigation" exhibited in the winning probability distribution function for the plaintiff, it is shown that a basic researcher holding a patent is able to extract all the profit facilitated by the basic innovation. More intriguingly, under rather general circumstances, broader patent breadth may diminish the patent holder's incentive to innovate. Chapter 3 extends the previous model to include a rule on the reasonable royalty to determine the damage award. In addition to the full rent extraction results, the extended model further reveals that the second innovator has incentive to "invent around" with close imitation or "invent enough" with a much improved product. Comparative statics with respect to parameters of litigation cost and granted patent breadth are performed. Among other things, it is demonstrated that an increase in patent breadth, and an increase of litigation costs may neutralize each other. Chapter 4 analyzes a model of two-dimensional product differentiation in which sequential entry occurs and the potential entrant outperforms the incumbent in innovating a new dimension. For a three-stage entry-variety-price duopoly, a unique subgame-perfect equilibrium is obtained and fully characterized. Most importantly, the entrant will completely utilize its capacity to innovate and achieve the principle of maximum differentiation with respect to the innovated variety. However, it is shown that with a sequentially growing product space, firms will not choose extreme opposite positions in all dimensions in order to soften price competition; the principle of minimum differentiation persists with respect to the traditional variety. / Ph. D.