Economic and Legal Aspects of Intellectual Property

Priyanka Sardana and Vijay Sardana

IT is important that every inventor must have incentive to use his or her creativity for the benefit of the society and for his or her personal benefit. It is also equally important to understand the scope of the intellectual property within the overall legal framework and economic implications of the objective of the subject.

Scope of intellectual property rights

Intellectual property may be analyzed in terms of its subject matter, the actions it regulates, the duration of specific rights and the limitations on these rights. Intellectual property law is conventionally categorized according to subject matter: inventions, artistic expressions, secrets, semiconductor designs, and so on. Intellectual property law regulates what people may legally do with these inventions and the expressions. The regulations regarding each subject matter area tend to form distinct bodies of law. The rules permitting reproduction without license of patented inventions and copyrighted expression are entirely independent of one another.

Legal aspects of Intellectual Property

Intellectual property rights are generally divided into two categories: those that grant exclusive rights only on copying/reproduction of the item or act protected (e.g. copyright or copyleft) and those that grant other exclusive rights also. The difference between these is that a copyright would prevent someone from copying the design of something, but could not stop them from making that design if they had no knowledge of the original held by the copyright holder. A patent, on the other hand, can be used to prevent any person other than the patent owner to make the same design even if they had never heard of or seen the original. Patent rights can thus be more powerful, and generally harder to obtain. It is even more expensive to enforce.

There are also more specialized varieties of so-called sui generis intellectual property rights, such as circuit design rights, plant breeder rights, plant variety rights, industrial design rights, supplementary protection certificates for pharmaceutical products and database rights.

IP law will regulate others from unauthorized use

Generally, intellectual property law checks unauthorized reproduction. However, some rights go beyond this to grant a full suite of exclusive rights on a particular idea or product. Rather the intellectual property rights grant the holder the ability to stop others doing something (i.e., a negative right), but not necessarily a right to do it by themselves (i.e., a positive right). For example, the holders of a patent on a new ingredient may be able to prevent others selling it, but in most of the countries they cannot sell it themselves without a separate permission or authorization from a food regulatory authority under food laws.

IP laws permits right holders to sue the infringer

In most of the cases, intellectual property rights are nothing more than the right to sue an infringer, it means that the interested people will approach the right holder for permission to perform the acts covered by the right holder’s exclusive rights. The granting of this permission is termed licensing, and Intellectual property licenses may be used to impose conditions on the licensee, generally the payment of a fee or an undertaking not to engage in particular forms of conduct. In many jurisdictions the law places limits on what restrictions the licensor (the person granting the license) can impose. In the European Union, for example, competition law has a strong influence on how licenses are granted by large companies.

IP laws permits right holders to issue a permission/license

A license is ‘permission’ to do something, in contract form. Therefore a license is only required for activities which fall under the exclusive rights in question. The intellectual property laws of certain countries provide for certain activities which do not require any license, such as reproduction of small amounts of texts, sometimes termed fair use. Many countries’ legal systems afford compulsory licenses for particular activities, especially in the area of patent law.

Economic aspects of Intellectual Property

A government awards many intellectual property rights for a limited period. Such rights are justified as a reward for creating intellectual works. Economic theory typically suggests that a free market with no intellectual property rights will lead to too little production of intellectual works in relation to an efficient outcome. Thus by increasing rewards for authors, inventors and other producers of intellectual capital, overall efficiency might improve. On the other hand, intellectual property law could in some circumstances lead to increased transaction costs that outweigh these gains. The other view is that restricting the free reuse of information and ideas will increase costs.

IP laws offer exclusive rights to sell or use or license

Intellectual property rights like copyrights and patents give the holder an exclusive right to sell, or license, the right to use that work. As such, the holder is the only seller in the market for that particular item of intellectual property, and the holder is often described as having a monopoly for this reason.

However, there are other items of intellectual property that are close substitutes. For example, the holder of publishing rights for a book may be competing with various other authors to get a book published. For this reason, many writers prefer that intellectual property rights be described as exclusive rights rather than monopoly rights.

IP laws offer right to claim damages

If the market for the rights to some intellectual property is perfectly competitive, then the rights to that intellectual property will generally be worthless. It is because in a perfectly competitive market, sellers are price takers and can sell to as many people as they like at the prevailing price in the market. It costs little or nothing to grant someone the right to use a copyrighted work or patent, so the optimal behaviour for the seller is to sell as many licenses as possible, whatever the price is, forcing the price towards zero. Thus intellectual property rights, to be valuable, must give the holder some market power (the ability to influence price) in the market for rights to use that intellectual property. An example may be a patent covering an idea where another idea, which is in the public domain, provides the same utility and no one is likely to accidentally stumble on and use the patented idea. If someone were to re-invent the patented idea and use it because he/she is unaware that a patent exists, the patent holder can claim damages.

IP Law encourages financial incentive to the innovator

The case for intellectual property in economic theory is substantially different than the case for tangible property. Consumption of tangible property is rivalrous. For example, if one person eats an apple, no other person can eat it; if one person uses a plot of land to build a home, that plot is unavailable for use by others. Without the right to exclude others from tangible resources, a tragedy of the commons can result. Intellectual property does not share this feature. An indefinite number of copies can be made of a copyrighted book without interfering with the use of the book by owners of other copies. Therefore, the rationale for intellectual property rests on the incentive effects. A more elaborated view of capital suggests that the three most common property instruments applied provide exclusive rights to use different things: copyright covers creative works and expressions of ideas, patent covers ideas with industrial application and trademark covers means to uniquely identify a producer or other source of reputation. Without intellectual property rights (or subsidies), there would be no direct financial incentive to create new inventions or works of authorship.

Challenges to Intellectual Property

Technological Challenge to Intellectual Property

Technological advances constantly destabilize intellectual property rights. Today’s’ great advances in computing, telecommunication, biotechnology, biological sciences, and so on require very considerable investment, but very often are taken over by others quickly, efficiently and cheaply. This makes the case for some IP protection very hard to resist. This also explains why corporates are demanding more and more protection for new form of intellectual property like database compilations, multi-media works, new form of electronic distribution, DNA manipulation, genetic engineering, etc.

Political Challenge to Intellectual Property

The demand for increased protection has arisen. At the same time level of suspicion and criticism of intellectual property protection also increases. The demand for foreign investment and new products by consumers are forcing intellectual property regime in developing economies.
At the same time based on the ideology and need for freer access to technical and educational materials, for self sufficiency and independent initiatives for national business concerns governments are curbing the growth of monopolies through Anti-trust laws, Competition policy, Compulsory Licence requirements, curbs on royalties payments, licences to operate or ownership rights, etc

This series of articles is an attempt to increase the awareness and knowledge among the readers about IPR regime. More details about different types of intellectual property will appear in future articles. You can also write to us about your specific requirements.

Please do send your feedback about the articles and also topics you want to be coverd in future articles.


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