Intellectual Property & Innovation

Question 1

What were the effects of the cartel formed by glass producers?

Answer 1

Cross-licensing technology created a barrier to entry for new producers, new firms wouldn’t have immediate access to existing technology
This allowed these firms to control the market
This limited access to new technology slowed the rate of diffusion
Caused high prices

Question 2

What did these firms have to do after they were found guilty?

Answer 2

→ The glass producers make their patents available on a royalty-free basis
→ Future patented innovations were to be licensed for “a reasonable royalty”
→ The firms had to make available “drawings and patterns relating to licensed machinery or method used in the manufacture of glassware”.
→ The rationale behind this was to make greater knowledge available
→ However for many industries, getting innovation to work requires greater knowledge not always available in patents
→ On appeal, the Supreme Court struck down the royalty-free licensing provision and exempted some patents from the decree. The rest of the lower court’s decision stood.

Question 3

What did corning glass do in response to the court’s ruling?

Answer 3

It patented much less and instead relied on trade secrets, the fact that they could use their technology much better than competitors
It forcefully existed trademarks, which exist to prevent confusion and improve brand loyalty.
It used the association of its name with high quality products to improve consumer acceptance of new products.
Brand loyalty could then provide protection against lower priced competition.

Question 4

Could there be innovation without intellectual property?

Answer 4

→ Yes, in the computer industry there was lots of innovation and low patenting
→ There is only a need to patent technology that is limited by a high rate of innovation
→ Firms that initially create the technology will always be ahead of new entries
→ Greater knowledge gives first mover advantage to these firms over new entry

Question 5

Conclusions on intellectual property

Answer 5

→ IP is closely associated with the innovative process in North America and Europe.
→ IP provides a temporary monopoly unless the holder of the IP decides to/is forced to
license it.
→ That temporary monopoly may obstruct innovation by preventing access to the technology and its improvement by others.
→ For consumer goods, in particular, trademarks can be a useful substitute or complement to patent protection.
→ Know-how is an important source of commercial advantage, complementary to or instead of patents.
But know-how/trade secrets are harder to protect where labour is mobile.

Question 6

Conditions for Innovation

Answer 6

1. Ease of Reproducibility
   → If your product can easily be reproduced and you have no intellectual property, there is risk
   → Ex. Pharmaceutical companies are at risk because chemical compounds can easily be reproduced by competitors
2. The cost curve
   → Cost falls as quantity increases
   → This makes it hard for new firms to enter at a competitive level because they aren’t able to produce as much, which means their cost of production will be higher
   → In the meantime, already established firms will have time to innovate