We further define that importing countries are grouping into the strong imitative abilities group (Sk) when their number of utility patent applications filed in US from 1995 to 2005 is more than 50,000 items; the middle imitative abilities group is countrys utility patent application range of 1,000 to 50,000 items; the weak imitative abilities group is countrys utility patent application less than 1,000 items. For more detailed information about this grouping refer to Figure 9 in 4. 2 Method and data. Hypothesis 3- interaction between exports and patent rights with relation to countrys level of threat of imitation
In this section, we examine effects of market expansion and market power by considering countrys threat of imitation. We adopt imitative risks measured by countrys technical capacities in hypothesis 2; however, in hypothesis 3, we emphasize a more detailed grouping which displays mutual influences between the existing degree of patent rights protection and imitative abilities (the same as the hypothesis 2) in importing countries. In short, to further understanding the effect of patent reform in importing countries, it is necessary to consider the existing patent system.
Based on the notion, we sort countries into four groups by degree of imitative threats, which can be classified as four groups strong (T1), moderate (T2 and T3) and weak (T4) in this paper. If nations have strong imitative technical skill and abilities, the number of utility patent application in US from 1995 to 2005 less than 10,000 items, but powerless patent protection, which the index of patent rights bigger than 4, can be defined as countries with strong threat of imitation (Group 1).
On the contrary, when a country has high level of technical skill (utility patent application more than 10,000 items) but powerless patent laws (the index of patent right small than 4) can be defined as countries with weak threat of imitation (Group 4). The remaining countries have both strong/weak patent systems and imitative abilities (utility patent application more than 10,000 items and the index of patent right larger than 4 / application number less than 10,000 items and the patent index smaller than 4).
The former is Group 3 and the latter is Group 2. Hence, market power effect is expected to occur in countries with low threat to imitation (Group 1) if importing countries proceed with patent reform. It would lead to reduce exports because of higher concentrated market power of patent holders. Market expansion effect will occur in countries with high threat of imitation and exports would increase to respond to an improvement of patent rights.
In addition, if countries have both strong and weak patent protection and imitative abilities, degree of imitative threat in countries should be moderate. The link between patent rights and exports is somehow unclear. The flowchart of hypothesis 3 is illustrated in Figure 4 below. As described, the purpose of three hypotheses testing is to observe the determinants of market expansion and power effect related to patent rights protection.
To be clear, I assume that levels of economic development, imitative abilities, and threat of imitation are the main explanatory dummy variables in this paper. Through above assumptions, this study attempts to figure out coefficients between the strength of patent rights protection and exports. In addition, the relation among these three determinants development, R&D ability and threat of imitation further analyze in 4. 2 Method and data.