Nonobviousness and the Incentive to Innovate: An Economic Analysis of Intellectual Property Reform

During the 1980s, the courts relaxed the nonobviousness requirement for all inventions, and a new form of intellectual property, with a weaker nonobviousness requirement, was created for semiconductor designs. Supporters of these changes argue that a less stringent nonobviousness requirement encourages private research and development (R&D) by increasing the probability that the resulting discoveries will be protected from imitation. This paper demonstrates that relaxing the standard of nonobviousness creates a tradeoff — raising the probability of obtaining a patent, but decreasing its value. The author shows that weaker nonobviousness requirements can lead to less R&D activity, and this is more likely to occur in industries that rapidly innovate.