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nts to get the maximum profit possible from the diffusion of his work. In particular the inventor is supposed to make a cost-benefit analysis to compare the flow of rents he would receive in case he decide to get a patent on his invention in a country which is willing to adopt the innovation or in case he decide to introduce the invention in the country without applying for property right protection. Having a patent on a market will increase the flow of rents from that market because it reduces the possibility of imitation of the patented innovation; so the benefits expected from holding a patent in a specific country are greater, the stronger is the protection from imitation offered in that country. On the other hand there are also some costs to be sustained, which are represented by application fees and possible translation fees if the country that wants to adopt the innovation has a different language from the country in which the innovation has been created.

The bilateral patenting equation depends also on the number of invention generated In the country that apply for patent protection; this depends on the efforts made on R&D in this country, so an increase in R&D effort will increase also the possibility to get a patent in other countries and consequently a positive flow of rents from that market.

Another factor which influences the bilateral patenting equation is the possibility that, in some countries, for products belonging to particular industries (such as pharmaceutical, chemical…) is still not possible to apply for patent protection.

Other parameters which influence the patenting behavior are the market size, the distance between countries and the bilateral imports among them; the level of human capital and the growth rate of the country that wants to exploit the innovation.

Some of the parameters have been calculated while others have been predetermined, their value based on previous economists’ work.

The pre-TRIPs system

Exploiting the model described in the previous section McCalman was able to assess the value of the patent portfolio held by each of the 27 countries in 1988, when TRIPs agreement was not yet applied.

As we can see in Table 2 the US are the country with the greatest patent portfolio, which results even to be greater than the value of rents of all the other countries added together.

Table 2 - Patent values for pre-TRIPs Regime ($US millions 1988), from McCalman(2005)

In the second column of Table 2 is possible to see the percentage of R&D expenditure that each country is able to earn back through patent protection. The value showed in the table seem to be in line with the conclusion reached by Levin et al. (1987), which sustain that patents are not the main method used by inventors to earn profits from the innovations they create.

The last column shows the percentage of patents held abroad by a country on the total of patents in its portfolio. The data show that some country as US, Japan and India took the greatest part of the patents in their portfolio in their own country, while the majority of the nations held more patents abroad than in their country. Beside the value of the share of patent rents from abroad of united states is in line with Mansfield, Romeo and Wagner (1979) work, which sustain that only one third of the returns from R&D pr