Possibility of relicensing and patent protection

Abstract We examine the effects of patent protection, paying attention to its role of prohibiting relicensing. We focus on two questions. First, whether does the innovator have an incentive of licensing the concealable (easily kept secret, if not licensed) innovation in the case where patent protection is absent? Second, what effects does patent protection have upon the innovator's payoff and the consumers' welfare? Principal findings include the following: In the case of nondrastic innovations in the sense of Arrow, the innovator has an incentive of licensing even without patent protection. Patent protection generally benefits the innovator, but may cause damage to the consumers for large innovations. For drastic innovations, patent protection has no influence on licensing: Licensing never takes place regardless of whether it is provided or not.