Patents, Copyrights, and Trademarks The degree to which a firm can capture the r
ID: 423750 • Letter: P
Question
Patents, Copyrights, and Trademarks
The degree to which a firm can capture the rents from its innovation efforts is largely determined by the degree to which competitors can quickly and easily imitate the innovation. Some innovations are inherently difficult to copy; others are difficult to copy because of the mechanisms the firm uses to protect its innovation. The three primary legal mechanisms used to protect innovation in most countries are patents, trademarks, and copyrights. Each mechanism is designed to protect a different type of work or good.
QUESTION:
What factors should a firm consider in formulating its protection strategies for an innovation that will be marketed in multiple countries?
Give examples in your answers.
Explanation / Answer
Firms must decide whether and how to protect their technological innovations. Protecting innovation helps a firm retain control over it and appropriate the rents from it. However, sometimes not protecting a technology is to the firm’s advantage – it may encourage others to support the technology and increase its likelihood of becoming dominant.
Appropriability: The degree to which a firm is able to capture the rents from its innovation. Appropriability is determined by how easily or quickly competitors can copy the innovation. Some innovations are inherently difficult to copy (tacit, socially complex, etc.) Firms may also attempt to protect innovations through patents, trademarks, copyrights or trade secrets.
Patents, trademarks and copyrights each protect different things. Patents: rights granted by the government that excludes others from producing, using, or selling an invention. Must be useful, novel, and not be obvious. Utility patents protect new and useful processes, machines, manufactured items or combination of materials. Design patents protect original and ornamental designs for manufactured items. Plant patents protect distinct new varieties of plants. In 1998, many software algorithms became eligible for patent protection. The patent process can take 2-5 years, and involves a number of costs.
Trade Secret: information that belongs to a business that is generally unknown to others. Firm can protect proprietary product or process as trade secret without disclosing detailed information that would be required in patent. Enables broad class of assets and activities to be protectable. To qualify: Information must not be generally known or ascertainable. Information must offer a distinctive advantage to the firm that is contingent upon its secrecy. Trade secret holder must exercise reasonable measures to protect its secrecy. In some industries, legal protection mechanisms are more effective than others E.g., in pharmaceutical patents are powerful; in electronics they might be easily invented around. It is notoriously difficult to protect manufacturing processes and techniques. In some situations, diffusing a technology may be more valuable than protecting it. However, once control is relinquished it is difficult to reclaim.