Promoting Innovation
Innovation takes time and resources to achieve. Suppose a company invests in research and development (R&D) and finds the cure for the common cold. In this world of near ubiquitous information, other companies could take the formula, produce the drug, and because they did not incur the costs of research and development (R&D), undercut the price of the company that discovered the drug. Given this possibility, many firms would choose not to invest in R&D, and as a result, the world would have less innovation. To prevent this from happening, the U.S. Constitution states that Congress shall have power to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their writings and discoveries (U.S. Const. art. I, § 8). Congress used this power to create the U.S. Patent and Trademark Office, as well as the U.S. Copyright Office. A patent gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time; in the United States, exclusive patent rights last for 20 years. The idea is to provide limited monopoly power so that innovative firms can recoup their investment in R&D, but then to allow other firms to produce the product more cheaply once the patent expires.
A trademark means that only the owner of that trademark can use it. Therefore, the owner of that trademark essentially has a monopoly. Anyone else who uses the trademark without permission can be sued for trademark infringement. Roughly 1.9 million trademarks are registered with the U.S. government. A firm can renew a trademark over and over again, as long as it remains in active use.
A copyright, according to the U.S. Copyright Office, “is a form of protection provided by the laws of the United States for ‘original works of authorship’ including literary, dramatic, musical, architectural, cartographic, choreographic, pantomimic, pictorial, graphic, sculptural, and audiovisual creations.” No one can reproduce, display, or perform a copyrighted work without permission of the author. Copyright protection ordinarily lasts for the life of the author plus 70 years.
Roughly speaking, patent law covers inventions and copyright protects books, songs, and art. But in certain areas, like the invention of new software, it has been unclear whether patent or copyright protection should apply. There is also a body of law known as trade secrets. Even if a company does not have a patent on an invention, competing firms are not allowed to steal their secrets.
Taken together, this combination of patents, trademarks, copyrights, and trade secret law is called intellectual property, because it implies ownership over an idea, concept, or image, not a physical piece of property like a house or a car. Countries around the world have enacted laws to protect intellectual property, although the time periods and exact provisions of such laws vary across countries. There are ongoing negotiations, both through the World Intellectual Property Organization (WIPO) and through international treaties, to bring greater harmony to the intellectual property laws of different countries to determine the extent to which patents and copyrights in one country will be respected in other countries.
Government limitations on competition used to be even more common in the United States. For most of the twentieth century, only one company was legally allowed to provide local and long distance service. From the 1930s to the 1970s, one set of federal regulations limited which destinations airlines could choose to fly to and what fares they could charge; another set of regulations limited the interest rates that banks could pay to depositors; yet another specified what trucking firms could charge customers.
Utilities are usually considered to be public services, such as electricity, water, sewage, and more recently, internet access. Historically, these were provided by local or state government and were subject to significant regulation. The means to provide a public service is called a public utility, or simply, a utility. Given that there was typically only one utility in a given area, it is a good example of a monopoly. However, those utilities that can continue to exist as a monopoly depends, in part, on the available technology. Fifty years ago, local and long-distance telephone service was provided over wires. It did not make much sense to have multiple companies building multiple systems of wiring across towns and across the country. The phone company lost its monopoly on long distance service when the technology for providing phone service changed from wires to microwave and satellite transmission, so that multiple firms could use the same transmission mechanism. The same thing happened to local service, especially in recent years, with the growth in cellular phone systems.
The combination of improvements in production technologies and a general sense that the markets could provide services adequately led to a wave of deregulation, starting in the late 1970s and continuing into the 1990s. This wave eliminated or reduced government restrictions on the firms that could enter, the prices that could be charged, and the quantities that could be produced in many industries, including telecommunications, airlines, trucking, banking, and electricity.
Around the world, many governments continue to control and limit competition in what those governments perceive to be key industries, including airlines, banks, steel companies, oil companies, and telephone companies.
Link It Up
Visit this website for examples of some pretty bizarre patents.