Introduction
Patents have been used to protect the intellectual property rights of the persons who own them. A patent is defined as a right claimed and granted to the owner of intellectual property rights relating to an invention. It allows for the exclusive enjoyment of the inventory right for a specified duration of time. Consequently, other persons are prevented from dealing with the invention in a manner that would infringe on the rights of the patent holder. This paper illustrates the principle of cost-benefit analysis for protecting intellectual property through patents. The essay will conclude with a view on the utility of patents in society. Practical examples to be considered for this essay will be A.M. Perkins & Son Ltd, Zaibatsu of Germany, and the big push of Japanese origin.
Principal costs and benefits of protecting intellectual property using patents
The uniflow engine was first developed by Perkins. As the inventor, he obtained patent rights over his invention in 1825. It is observed that at some point, there was a dispute due to the usage of patent rights between Perkins Company and another competing company. The conflict resulted in the merger of Werner, Pfleiderer, and A.M. Perkins and Son Ltd to form Werner, Pfleiderer and Perkins (STARK, F.1958). This move was triggered by the need to protect patent rights by Perkins.
The idea behind patenting is to retain a monopoly and prevent the exploitation of one intellectual property rights by other persons. Monopoly leads to minimal or zero competition in a business. Scholars have pointed out that monopoly creates a competition-free business environment (BOWMAN, 2004). As a result, monopoly enables control of markets hence more sales and profits (BARAN & SWEEZY 1968).
Notably, theories have been advanced in support of the idea that patents are beneficial to business. One of them is the invention-inducement theory which posits that when people anticipate exclusive patent rights get motivated to invest in useful inventions (NATIONAL RESEARCH COUNCIL (U.S.).1997). The second one is called Development and Commercialisation Theory. It holds that Patents encourage the Commercialisation of inventions (HOPE, 2008). As a result, considerable value is attached to inventions. This makes it profitable to hold patent rights as they may be sold or licensed to other persons. As noted in the Perkins case, the conflict that arose from claims of patent rights led to the amalgamation of Werner and Pfleiderer and A. M. Perkins and Son Ltd to form Werner, Pfleiderer and Perkins. The effect of the said amalgamation indicates granting patent rights to Werner and Pfleiderer who would otherwise not be entitled if the amalgamation never took place.
The process of obtaining a patent is also may be costly and involves several transactions. The cost of obtaining a patent increases with the increase in possible claims that may be made about a particular innovation. Perkins held a total of 21 patents in America and 19 others from Britain. The cost of obtaining those patents must have impacted his business expenses. However, depending on the nature of the innovation, patenting would impact positively on the business notwithstanding the costs incurred in obtaining it. This is because patents ensure exclusive enjoyment of intellectual property rights about an invention. It is noted that Perkins enjoyed the monopoly over steam-powered machinery (Refrigeration and Air Conditioning, 1939).
Contrary to the use of patents in the USA and Britain, in Germany monopoly was achieved through financial groupings known as the Zaibatsu. Their groupings ensured control over sales, marketing, and distribution. Their specialty and skills made it difficult for the newcomers to penetrate the market. The Japanese industry benefited a lot from the Zaibatsu concept of business. Therefore, unlike patented inventions, this concept could be copied and emulated by others. In Japan, Rosenstein-Rodan proposed a big push model of business. It was aimed at kick-starting economic growth in Japan. This aimed at supporting independent industries by the government. It is noted that the big push approach was successful due to the elimination of factors that would prevent innovation such as unnecessary monopoly caused by patents. The support came from the state.
The cost of patenting plays a significant role in influencing innovators' decisions about whether to obtain patents or not. Some inventors will remain skeptical about the usefulness of patent rights before they are sure of the market response toward their invention. Thus, it may at times appear too much of a burden for beginners. However, in reviewing the value attached to patented inventions, some still consider obtaining patents. The cost of a patent in a societal setup is understood to be high and of some commercial benefits to its holders. For one to transfer such rights to another party, costs are incurred to facilitate the transfer of intellectual property rights. Though expensive to acquire, it brings a cost benefit to its holders.
Are patents a good thing in society?
The preceding question can be addressed in two ways. One way is by focusing on the benefits of patents to society. The second way is by focusing on their drawbacks to the society. If one were to focus on the negative aspect of patenting one would be likely to hold that patent creates unfair trade practices because it creates a monopoly and stops other people from participating in the innovation of patented products.
On the other hand, the use of patents has some positive contribution to the society. In a business setup where no patents exist, the threat of cartels is real. For instance, the dyestuffs cartel of Germany would manipulate the prices of both the existing products and those that would be invented in the future. They would set lower prices than the market price to create a monopoly (MURMANN, 2003). It would be difficult for cartels to interfere with markets where patenting is prominent.
From a theoretical point of view, theorists propound that patents enhance disclosure. They advance a disclosure Theory that suggests that Patents facilitate extensive knowledge of the use of inventions. This is because they encourage inventors to share their inventions. They hold that if there is no patenting, innovators would otherwise rely on their secrets to thrive (GREELY, 2008). Hence, they facilitate public knowledge of the existence of certain inventions that they would otherwise not be aware of. Patenting is also beneficial to society in that it enables the exploration of broad prospects of derivative inventions. This is based on the Prospect Development Theory (HOPE, 2008).
Further, on the expiration of patents, other persons can build on an invention and make commercial gains out of it. The fact that patents protect the intellectual property of the owners of the patent rights prevents the act of passing off which is both unfair and exploitative.
Conclusion
The idea of patenting has both positive and negative impacts on both the business and the society. As illustrated by the A.M. Perkins & Son Ltd used for purposes of this paper, patents are beneficial to both businesses and society. While the owners of the patent thrive due to the monopoly of user rights, the society on the other hand is protected from counterfeited products due to copying of people’s inventions. They also enjoy the disclosure of information, and upon the expiry of patents, they may participate in the improvement of inventions. Patenting also allows licensing which though expensive, allows the use of a patented invention in a manner that would otherwise be infringing on the owner's patents rights. Therefore, patenting is beneficial to society as pointed out in the paper.
References
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Hope, J. (2008). Biobazaar discusses the open-source revolution in biotechnology. Cambridge, Massachusetts: Harvard University Press.
