Many scholars argue that utility models are generally useful for developing countries to encourage innovations. This is because utility models require lower novelty and inventive step compared with patent, and thus they can provide protection for small innovations. In general developing countries have not enough resources to produce a major invention. Innovations occurred in these countries are generally small and gran-sized. These innovations cannot be protected by a patent. If there is no utility model system in these countries and examinations are made by the same standard that is applied to international patent applications, such innovations would not be able to receive any protection. On the other hand, under the liability regime, follow-on innovators can use the first comer's innovation only if they are willing to pay a certain royalty to the first comer. This lowers transactions costs and reduces undesirable social behaviour such as free riding appropriation. Utility models that are modified by the concepts of compensatory liability regimes could solve the critical issue of the relationship between the first comer and second comers in sequential innovation, i.e. encouraging innovation without impeding follow-on innovations. Thus, I suggest the following: ① The basic concept of compensatory liability regime should be introduced into the current utility model system. ② Substantial examination for novelty should be done in order to minimize the negative effect of an unexamined utility model right. ③ The inventive step requirement should be abandoned because most of innovations in developing countries are incremental, and thus, they cannot be protected by patents, but should be protected for these countries' domestic industry.

Many scholars argue that utility models are generally useful for developing countries to encourage innovations. This is because utility models require lower novelty and inventive step compared with patent, and thus they can provide protection for small innovations. In general developing countries have not enough resources to produce a major invention. Innovations occurred in these countries are generally small and gran-sized. These innovations cannot be protected by a patent. If there is no utility model system in these countries and examinations are made by the same standard that is applied to international patent applications, such innovations would not be able to receive any protection. On the other hand, under the liability regime, follow-on innovators can use the first comer's innovation only if they are willing to pay a certain royalty to the first comer. This lowers transactions costs and reduces undesirable social behaviour such as free riding appropriation. Utility models that are modified by the concepts of compensatory liability regimes could solve the critical issue of the relationship between the first comer and second comers in sequential innovation, i.e. encouraging innovation without impeding follow-on innovations. Thus, I suggest the following: ① The basic concept of compensatory liability regime should be introduced into the current utility model system. ② Substantial examination for novelty should be done in order to minimize the negative effect of an unexamined utility model right. ③ The inventive step requirement should be abandoned because most of innovations in developing countries are incremental, and thus, they cannot be protected by patents, but should be protected for these countries' domestic industry.