In product markets, the problem of imitation poses a great problem for innovators who are deprived of enjoying economic profits fully.
If imitators are able to move in rapidly and capture a substantial share of the market, the initial profits earned by innovators may not be sufficient to cover their costs and risks in the long run.
However, a substantial delay between the time of innovation and successive entry by competitors may provide the pioneers with decent profits and make invention and innovation a more attractive activity.
The patent system, by establishing a period of time during which the firm faces reduced competition, increases the expected return for innovative effort.
A nation by stimulating research and development can increase the prospects of product and process innovations. Governments can encourage such innovations by granting patents. Three criteria must be satisfied to obtain a patent:
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Patents confer the exclusive right to the use of an idea for a long period (which varies between nations,say,in countries like India, it is seven to fourteen years, depending on the nature of the product) within which the innovator might be able to recover his initial investment.
Another reason to grant patents is to provide for widespread disclosure of new ideas and techniques.
The main objective of patent protection is to encourage research and development. Patents:
The idea behind granting of patents thus is to benefit the society. Developing countries have to offer patent protection, the lack of which has made many foreign firms shy away from investing in core sectors like pharmaceuticals and biotechnology in these nations.
As a result, people of these countries are forced to buy life saving drugs like those for cancer and have to pay ruinous prices. Once patent protection is available, there is a possibility for manufacturing most of the drugs that are being imported, eventually leading to a fall in the price levels.
One of the difficult aspects of patent law is the principle that, whether a patent is to be issued to the person who conceives the idea or who first files for a patent.
Another international issue involving patents is that, countries allow firms to steal and copy protected ideas, due to lack of severe legal enforcements or lack of interest. Either way it proves detrimental to the interest of the patent holders and such violations have to be strictly prohibited.
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