Innovation is a key driver of economic growth and progress, but the incentives to innovate are just not always there. Occasionally, there are high invention costs and no barriers for other players in the market to copy such creations. When that is the case, otherwise successful inventors might not only see how the extraordinary rewards of innovation vanish; they can lose money.
To prevent competitors from benefiting from an invention while avoiding its costs, patent law offers exclusive ownership rights to the inventor for a given period. This solves the problem of potential free-rider competitors, hence providing ex ante incentives for investment in innovation.
The solution is far from perfect. Ownership rights not only provide incentives to innovate. They also induce the rent-seeking behavior displayed by the so called “patent trolls”. These are companies that own patents, do not actually produce goods or services related to them, but do enforce…
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