The Cadillac Automobile Com- pany, founded in 1902, is grant- ed a set of patents in the U.S. and then worldwide that define the design and basic functionality of what becomes the modern automo- bile: four wheels, a gasoline-powered internal combustion engine, a closed steel body, and a round steering wheel. Then Henry Ford comes out with the much less expensive Model T in 1908 and quickly gains 80% of the market. After a brief lawsuit, a jury finds that Ford has violated Cadillac’s patents and must cease production as well as pay ex- tensive damages to Cadillac, now part of the General Motors Corporation.
Two additional scenarios might have unfolded. One could be that pat- ent protection for Cadillac stimulates further innovation. Competitors de- velop automobiles with batteries as well as fuel cells powering electric mo- tors, high-tech materials for convert- ible bodies, and joystick controls that resemble those of modern-day video game consoles. The intense competi- tion spurs on advances in manufac- turing methods as well, leading to as many as 250,000 patents are filed that cover the design and functionality of the iPhone and other smartphones. lower prices. Lots of companies make money, and consumers have choices of varying quality and prices. Anoth- er scenario, however, could be less cheerful. Maybe no company comes up with a better design. Cadillac dom- inates the market and becomes the most valuable company in history. Its investors are delighted and so are its affluent customers. As for everyone else, they make do with inferior three- wheel vehicles or continue to drive horses and buggies.
In some ways, the August 2012 Cali- fornia jury verdict against Samsung
(the world’s largest maker of smart- phones) in the case brought by Apple (the world’s second largest maker) could
