ABSTRACT
The patent regime creates a lawful monopoly within the scope of the relevant invention. Its economic function is to correct the market failure that would emerge in the presence of copying and competition. In particular, as R&D costs are sunk and because competition drives price toward marginal cost, a free market would deny some inventors the ability to recoup their investment. A patent confers an exclusive right to practice the claimed invention. This chapter traces the contours of patentable subject matter, identifies the technical requirements of patentability, explores the rights associated with patent ownership, and analyses some of the more nuanced elements of patent doctrine. It explores the factors that affect incentives to innovate independent of the patent regime. It also explains how those factors apply to distinct industries. The chapter considers alternative incentive mechanisms that may produce comparable rates of innovation by solving the public-goods problem, whilst avoiding the draconian nature of monopoly pricing.
