Patents and Other Forms of Intellectual Property

Patent law is designed to increase the incentive to invent new methods of production and new goods. The inventor is granted a temporary monopoly on the use of the invention. The idea is that the patent makes the invention more profitable, during the term of the patent, and that these profits encourage inventors and so increase the rate of technical progress.

For example, the Polaroid company has owned the basic patents on instant cameras. When the Kodak company produced instant cameras in competition with Polaroid, a court found that this violated Polaroid's patent rights, and Kodak had to cease and desist and pay a penalty to Polaroid.

Other forms of "intellectual property" include copyrights on books and works of art and such, trade-marks, and trade secrets. Copyrights and trade-marks probably do not create monopolies in and of themselves. There may be close substitutes for copyrighted books, and close or even perfect substitutes can be offered for trade-marked goods, provided they do not falsify the trade-mark. However, it is possible that trade secrets might create monopolies. The formula for Coca-Cola, for example, is a trade secret. While Coca-Cola probably is not a monopoly, this is a matter of degree -- Coca-Cola is a distinctive product. Whether other colas are close substitutes or not we leave to the judgment of the reader.