agency is unskilled in competition analysis or does not anticipate that a technical proposal from business may include hidden reductions in competition. In those circumstances, consultations from pro-competition colleagues elsewhere in the government can be quite helpful and effective.

### 4. b) Patents, Copyrights and Competition Policy

One area of firms seeking government protection from competition is growing in importance in recent times. That is government protection of inventors and artists through, for example, patents and copyrights. This area is important enough, growing rapidly enough, and badly enough understood that it merits serious treatment.

Like other governmental actions, protections for inventors and artists serve a valuable public function. Their goal is to encourage the invention of new technologies and the creation of new works by giving exclusive rights to the inventor or creator. The first problem arises because the scope of this protection may be overbroad as granted by the government or may be subject to influence by the protected inventor or creator.

#### 4. b.1) Scope of Protection

Why can competition policy be involved in the protection of inventors and creators? Exclusive rights, by their very nature, are closely linked to market power. The right to exclude rivals from production granted to an inventor or creator, if it is overbroad, can create market power beyond what is needed (or was intended) to encourage invention and creation. Some protections for inventors and creation also grant the right to exclude rivals from further invention and creation. These legal protections can create market power in the short run (by blocking rivals from production) or the long run (by blocking them from invention.) If the legal protections are not entirely given and exogenous, firms may seek to change their scope or their strength.

That is where the competition policy authority comes in. Just as with any other protection from government, patents and copyrights may confer market power either through oversight on the part of the government. through capture, or through manipulation by firms.

Since legal protection for inventors and authors takes the form of awarding them some right to exclude other firms, and since the goal of competition policy is encouraging competition, there is an inevitable tension between the two bodies of policy. Many conceptualize the tension as head-on conflict, and assign to competition policy the goal of favoring competition at the expense of innovation. This is an error. The conflicts arise when the scope of the market power is too great, or when the incompleteness of property rights puts incentives in the system to use partially endogenous legal rights to increase the scope.

#### 4. b.2) Scope, Complements

Economic analysis shows that it is difficult to design legal protections for the inventors of complements. For example, suppose that we are trying to design legal protections for both inventors of a general purpose technology and of its applications. The economic return to a system which consists of both a GPT (such as a PC) and an application (such as applications software) is divided between both sellers. Giving more market power by stronger protection to one seller can lower the return to the other.