ABSTRACT
The new section of the General Agreement on Tariffs and Trade (GATT) Uruguay Round agreement on Trade-Related aspects of Intellectual Property (TRIPs) provides symmetric worldwide standards in many areas such as patents and copyrights. There are two decision making stages to be considered. In the first stage, the governments of North and South play a game in patents. In setting patent policy, each government must balance providing the incentive to innovate against introducing monopoly distortions. In the second stage, the firm determines its optimal investment in research and development (R&D) given patent lengths set by North and South in stage one. Since the governments anticipate the action of the innovating firm when they set their patents, it is necessary to begin by considering the firm's optimum investment in R&D. North and South consider the indirect effects of their patent choices on the probability of successful investment when they determine their patent lengths.
