The Utility Standard and the Patentability of Intermediate Technology

We explore the consequences of the utility requirement on speed of innovation, welfare and public policy. A weak utility requirement means that an intermediate technology with no immediate application or commercial value is patentable. Using a model of two stage innovation with free entry and trade secrecy, we identify cases when patentability is beneficial to society. Although a firm may undertake basic research protected by trade secrecy, patentability is still desirable when spillover is high and innovation costs are high. However, patentability becomes less desirable as basic research costs decrease. We also show that high value of final technology by itself does not favor non-patentability and identify condition when it does.