File 9: Intellectual Property and Innovation

Question 1

What was the rationale behind IP?

Answer 1

Innovation involves risk and cost. If other firms could copy and adopt the innovations, firms would not incur the cost of innovation. IP ensures the return in investment to incure cost of innovation: allows firm to license product/service in exchange for license fee or other reward.

Question 2

Give an example of IP as an anti-competitive strategy.

Answer 2

In the first hallf of 20th century: glass products formed a cartel. Corning Glass was a member.
Members of the cartel cross licensed and divided market segments between themselves and made joint ventures.
The cross licensing created a barrier of entry to new producers.

Question 3

Why did the US department file a suit against the glass cartel?

Answer 3

The US deparment of Justice deemed the cartel as being too high price, blocking new entries into the market and slowing down innovation (limited licensing of new technology limited number of firms who had access to innovation and that could improve it).
They were found guilty. The court ask that they make their patents available on a royalty free licences base, future patented innovations were to be licensed at a reasonable royalty, the firms had to make drawings and patterns available related to licensing machine and method of manufacturing

Question 4

How did Corning Glass respond to the judgement of the suit filed against the corning glass mafia by the US justice departmnent? (2)

Answer 4

1. It patented less which allowed it to keep the secrecy of its trade and knowledge = unpatenable know how
2. defended another form of IP = trademarks (ex: a competitor used a Corning patented technology to make kitchenware that looked like Corning’s very successful product and Corning sucessfully argued that it wasn’t as good)

Question 5

A part from patents, how else can a firm protect itself from competition?

Answer 5

trademarks

Question 6

Using Corning as an example, explain the advantages and disadvantages of trademarks being used as a protection against competition.

Answer 6

1. Seeing as Corning made high quality products, its strategy is to associate its name with high quality product to improve customer acceptance of new products released by Corning.
2. Brand Loyalty protected it against lower priced competition (like patent except patents are costly)
3. Downside: a product failure could easily damage the cie’s reputation

Question 7

By the 1960s, why was there a return both in general and for Corning to patents? (4)

Answer 7

1. RD expenditures rise thus increasing the risk of investment
2. rise in employee mobility reduce effect of trade secret protection
3. Corning was moving into areas where patents were more common, like electronics
4. change in view in patenting: seen not only as a protection but as a source of royalties

Question 8

What are examples of innovations that took place without patents?

Answer 8

corning glass (1940-1950s) and hardware and software development in the early computer industry

Question 9

Give an example that demonstrates how patenting can sometimes obstruct innovation in an industry.

Answer 9

Wright Brothers:

1. Wright Brothers work on developing a flying machine form the 1890s onward.
2. by 1900s developed a workable powered aircraft
3. they obtained a patent covering anything ressembling an airplane
4. they invested more in enforcing their patents and made little effort in developing their aircraft
5. The wright brother patents prevented the advancement of the adaptive innovation that requires others to have access and improve on it. => little progress in the development of the aircraft in the US
6. in france, their patent was not enforced and france made considerable progress in the development of aircraft
7. during WWI: US unblocked the wrights brother’s patent and made their ip available to everyone

Question 10

What are the advantages of first movers?

Answer 10

allows firm to recoup the money invested in RD because they make money before competitors enter the market and can build on their initial innovation (adaptive innovation) -according to Boldrin and Levine

Question 11

What is know how?

Answer 11

know how is an important source of commercial advantage complementary or replacing patent. but they can be hard to protect under employee mobility

Question 12

How can monopoly hinder innovation?

Answer 12

monopoly may obstruct innovation by preventing others access to innovation and imporving it

Question 13

What can IP provide to firms?

Answer 13

a temporary monopoly unless the IP is forced to license it or decides to share it