The Importance of Fostering Incremental Innovation
Today, innovation performance is widely recognized as a crucial determinant of economic growth and a means to address global challenges, such as climate change, food security and public health. As noted in the G20 Blueprint on Innovative Growth, technological progress will be key to achieving the Sustainable Development Goals (SDGs) of the United Nations.
Based upon the degree to which the innovation presents an advancement of the state of the art, economists distinguish between incremental and radical innovation. Whereas incremental innovation involves refinements and relatively small extensions of existing technologies, radical innovation produces considerable technological advancements that have the potential of completely substituting products and industries by new ones. However, in practice, any radical improvement of a technology invariably draws on a series of incremental improvements.
Successful innovation rests on a range of enabling factors, including access to finance, a skilled workforce, and a predictable legal environment that includes enforceable intellectual property rights (IPRs). As a particular type of IPR, the patent assumes a significant role in stimulating technological progress. It gives the inventor the right, for a specified duration, to prevent others from using, making, selling, offering for sale or importing the patented invention without his or her authorization. Thus, he or she can enjoy market power and earn profits for a limited period of time. As a consequence, the patent system encourages companies and other organizations to engage in research and development (R&D). The granting of a patent necessitates the satisfaction of several internationally agreed criteria, namely, subject matter eligibility, utility, novelty, non-obviousness and sufficiency of disclosure. For patent policy reasons, each of the requirements for patentability needs to be applied rigorously when patenting inventions of all types.
Drawing on recent economic literature, Section 1 elaborates on the importance of innovation in general, while pointing to several enabling factors. Section 2 presents the relevance of incremental innovation, including for developing countries. Section 3 introduces the patent mechanism, outlining in particular the economic rationale behind this form of intellectual property protection. Section 4 discusses specific challenges that relate to the patentability of incremental innovation.