Patent Scope and the Scope for Imitation

When a new product is introduced into the international market every country makes an attempt to assess the possible value addition from this product to its consumers. On this basis they expect a certain level of output to be made available at some competitive price. Similarly, they wish to see certain new product extensions. based on the original innovation, which enhance its value to their citizens. To achieve these goals they may offer patent protection, encourage foreign direct investments, enable the innovator lo create a joint venture, and/or require compulsory licensing. Sovereign governments of such countries should have a right to refuse patent protection, irrespective of any WTO agreements, if none of these lnstitutlonal arrangements results in the innovator complying with the obligations. 'Wlthout extensively reducing the pioneer's incentives. the law should attempt at the margin to favor a competitive environment for improvements. rather than an environment dominated by the pioneer firm. In many industries the efficiency gains from the ability to coordinate arc likely to be outweighed by the loss of ccmpetition for improvements to the basic invention.' - Merges and Nelson (1990, pp. 843-4).