Lecture 6

Question 1

Why we care about Intellectual Property Rights

Answer 1

• IPRs can increase incentives to innovate
• IPRs can help to appropriate profits from innovation
• The IPRs of others (competitors, suppliers, customers, …) can make a firm’s life and innovative activity difficult
• The IPRs of others contains valuable information

Question 2

Whate are the most important formal protection mechanisms?

Answer 2

• Patents
  
  • new
  • inventive - sufficiently different
  • usually 20 years in pharma 25 years
  • needs to be ensured by patent holder
• Registered designs (“Geschmacksmuster”) - Design right
  
  • New and individual character; only apply to products - not technical just shape
  • Just five years, but a lot cheaper than patents
  • Difficult to enforce, except for direct copies
• Registered trademarks
  
  • like coca cola
• Copyright
  
  • Automatic, lasts for 70-years after author’s death
  • Mainly for artistic works, but also software

Question 3

Overview: Formal IPRs and how they are applied

Answer 3

Question 4

Why is a patent not a monopoly?

Answer 4

• patent must not be a monoly (new headache drug e.g.)
• not every patent make it through a product
• validity of the patent

Question 5

What is a patent?

Answer 5

• A patent is a right of ownership over an invention, granted to an inventor by a government for a specified period of time
• The owner may sell or license a patent.
• Patents are territorial rights; so a German patent relates only to Germany
• Patents have limited lifetime. After the end of the patent term, or if the patent should lapse, the invention becomes freely available.

Question 6

What is patentable?

Answer 6

– Be new – prior public disclosure can invalidate an application

– Contain an ‘inventive step’ - i.e., compared with what is already know, it should contain something that would not be obvious to someone with a good knowledge and experience of the subject.

– Be capable of industrial application – i.e., be capable of being made or used in “industry” (broadly defined). i.e., that the invention must take the practical form of an apparatus or device, a product such as some new material or substance or an industrial process or method of operation.

Patent examiners judge whether these conditions are met

– Undertake searches to see whether patent breaches “prior art”

– Assess inventive step, industrial applicability

Question 7

What cannot be a patent?

Answer 7

• A ‘scientific’ discovery – without an industrial application
• A scientific method or mathematical method
• An aesthetic creation (e.g., literature, art, music, etc.)
• A device contrary to the accepted physical laws
  (e. g., a perpetual motion machines, or a time machine)
• [In Germany & Europe]

– Computer program (except if technically novel)

– A business method (except if technically novel)

– Invention of a new animal or plant variety

– A method of treatment of the human or animal body by surgery or therapy; or a method of diagnosis

Question 8

How to obtain a patent?

Answer 8

• To obtain a patent, one submits a patent application to the patent office
• The application
  
  • describes the technical invention
  • defines the desired area of protection
• The application is examined and approved (or rejected) by the patent office
• In any case, the application is made public after 18 months
• Avg. time from application to decision at EPO: about 4 ys!
• Granted patents can be renewed for up to 20 ys
  
  • exceptions for pharmaceutical industry, 25 ys

Question 9

Benefits of patents?

Answer 9

• Profits from
  
  • use in own production without risk that a competitor receives the patent
  • Licensing against cash
  • Licensing in exchange for other patents (cross-licensing)
• Creates costs for rivals (for invent-around) and potentially entry barriers
• Image, signaling (esp. for young firms seeking venture capital)

Question 10

Costs for patents?

Answer 10

• Process cost (incomplete): – attorney
  
  • research
  • patent office application fee – renewal fees
  • translation cost
• Opportunity cost to secrecy (application is made public!)
• Detection of infringement
• Assertion of patent in case of infringement

Question 11

The big debate: Societal benefits and cost of patents

Answer 11

Patents provide (under suitable conditions) incentives for developing new technology → dynamic efficiency

• Economic reasoning: A limited period of protection and increased market power (potentially even monopoly) shall create incentives to invest in innovation
• Lawyers‘ reasoning: The inventor has a right to his/her intellectual property which is embodied in the invention.

But, on the other hand, granted patents provide exclusion rights, and typically an inefficiently low use of the existing technology

• → static inefficiency