Question

Q. What is a patent? If a patent serves as barrier to entry, why do governments issue patents?

Answer 1

A patent is protection granted by a national government for an invention. This protection excludes others from making, using or selling an invention for a period of up to 20 years. Many drug companies and university researchers seek patent protection to recover research and development costs for patents related to specific genes and proteins, laboratory techniques and drugs. In order for patents to be issued by a granting agency such as a Patent Office they need to be new, useful and not obvious to others working in the same field.

Patents are usually seen as barriers to entry created temporarily by the government. However, in most cases, patent protection restricts entry rather than preventing it. A firm can enter a protected market if his product does not infringe on the current patent: he must respect a minimum novelty requirement.

Intellectual property is usually the starting point for any examination of barriers to entry. A strong and well-drafted utility patent gives the owner the right to prevent any other party from making, using or selling the patented invention in the territory covered by the patent.

In most cases an invention must be considered novel and useful in order to be patented. It also must represent a significant advance in the state of the art and cannot merely be an obvious change from what is already known. Patents are frequently granted for improvements of previously patented articles or processes if the requirements of patentability are otherwise met.

The government issue patent:

i) to limit excessive economic profits in the short run before new firms have had time to enter profitable markets.

(ii) to encourage competition among firms in markets with barriers to entry.

(iii) to prevent firms from keeping secrets on how a product is made.

(iv) to ensure that new products are safe and effective for consumers.

(v) to encourage firms to spend money on the research and development necessary to create new products