Time-to-market is a reliable indicator to incentivize innovation.

The crux of this Article is the claim that inventions’ time-to-market strongly correlates with optimal patent strength. This claim has three components: First, the Article uses the framework provided by stand-alone models of innovation to show that inventions’ time-to-market bears a close relationship to the amount of patent protection needed to motivate their development. The optimal patent award for inventions is primarily a function of their R&D costs, the risk of failure in R&D, the anticipated future revenue streams from the projects if they succeed, and the potential for imitation by rivals.43 Inventions’ time-tomarket is a fairly reliable indicator of all four factors. Longer R&D times increase the costs of capital for an R&D investment while diminishing the value of future revenue streams because of discounting.44 They are also correlated with higher out-of-pocket R&D costs and greater technological uncertainty.45 Moreover, because imitators usually avoid much of the uncertainty involved in innovation, and because recent advances in reverse-engineering technology allow imitators to quickly copy most types of inventions (software being the main exception) at relatively little cost, longer R&D times are also generally associated with increased vulnerability to free riding from competitive imitation.46 Inventions that take longer to reach the market therefore will likely need stronger patent rights as an incentive for their R&D, whereas inventions with a shorter time-to-market usually warrant weaker or no patent protection.

Second, the Article argues that because time-to-market affects the pacing of sequential innovation, it is a strong predictor of the extent to which patents are likely to stifle subsequent improvements in the inventions they protect. The cumulative-innovation models predict that stronger patent awards stifle innovation more than they promote it when three conditions are present: (1) Earlier innovators would develop their inventions irrespective of stronger patent rights, (2) the patents granted to earlier innovators cover many later improvements in their inventions technologies, and (3) there are high transaction costs in negotiating patent licenses between earlier and subsequent innovators. The time-to-market for inventions is inversely related to all three conditions.47 Inventions that reach the market quickly tend to have a short product lifecycle (that is, they become obsolete faster), since it usually takes less time for firms to develop the newer inventions that replace them.48 In industries in which R&D times and product lifecycles are short, patents are often less important than first-mover advantages for motivating R&D. Patents are also more likely to read onto (or cover) several future generations of improvements, imposing a greater burden on subsequent innovators. Moreover, the competitive costs of negotiating patent licenses are also higher because short R&D times give subsequent innovators less time to reach a deal, and negotiation delays erode a larger portion of their inventions’ already short product lifecycle.49 Inventions’ time-to-market therefore provides a powerful indicator not only of inventions’ need for patent protection. It also predicts whether those patents are likely to impede subsequent innovation.