Fundamentals of IP
Why is knowledge a public good?
Because it is non-rival and non-excludable, meaning markets alone underprovide it without IP protection.
Why do firms use trade secrets instead of patents?
To avoid disclosure and prevent imitation when reverse engineering is difficult.
What is a patent race and why is it inefficient?
Firms duplicate R&D to be first, wasting resources on parallel efforts.
What is the appropriability problem?
Firms cannot fully capture social returns from innovation, leading to underinvestment.
What are trademark strategies?
They create brand-based market power and reduce consumer search costs through signalling.
What is patent holdup and when does it occur?
When litigation delays production or forces high licensing fees after investment is sunk.
Which industries are the highest users of patents?
manufacturing and extractive industries (R&D)
Why might firms prefer licensing over direct production?
To earn revenue without bearing manufacturing or distribution costs, or possibly small firms with a lack of complementary assets
Why are the returns to IPRs so skewed?
Because innovation returns are highly uncertain and concentrated, and firms only profit fully if they also control complementary assets (like manufacturing, distribution, or branding), meaning a few patents backed by strong assets generate huge returns while most others have little or no value.
Other than formal IPRs, provide at least two alternative ways to providing incentives to innovate.
R&D subsidies, Trade secrets, First-mover advantage, Open innovation
Why do firms build patent portfolios?
Firms accumulate large patent portfolios not to produce directly, but to improve bargaining power and avoid litigation.
Why is measuring the value of IP difficult in empirical research?
Empirical studies often rely on indirect measures like citations, renewals, or stock market reactions because actual market prices for patents are rarely observed.
How and why should optimal patent length vary across industries?
Some industries justify shorter patent length because high demand elasticity means monopoly pricing causes large welfare losses relative to innovation gains.
Why might two firms in different industries choose different IP strategies? Provide examples in your answer.
example: Apple and Samsung’s smartphone patent portfolio strategy, Nike uses strong branding and trademarks
In your opinion, does the patent system help or hinder new firms? Provide arguments for both sides.
Helps new firms: Provides temporary monopoly over new inventions, signals quality to investors, enables licensing, allows bargaining power
Hinders new firm: high litigation costs, patent thickets, legal uncertainty