OECD Book Highlights Economic Impact – Good And Bad – Of IPRs

A new book from the Organisation for Economic Cooperation and Development (OECD) paints a revealing picture of the impact on economies of intellectual property rights.

The book, entitled, “Enquiries Into Intellectual Property’s Economic Impact,” is available here.

The Paris-based OECD is an organisation of the world’s largest economies working to promote economic and social goals worldwide.

The book highlights challenges and makes a number of general points that capture the state of IP and the economy. A summary of these points, as provided in the book:

General points

• Intellectual property rights are exclusive rights held by the owners of a variety of knowledge-based assets that qualify for legal protection under applicable IP laws. The main types of IP rights are patents, copyrights, design rights, trademarks, and geographical indications. Trade secrets are sometimes considered to be IP rights, too, though many countries do not expressly define them as such.
• IP rights support innovation by making it a more worthwhile investment and encouraging knowledge diffusion. The economic rationale for IP rights is that it is in everyone’s long-term interest for people and businesses that create knowledge to have well-defined, enforceable rights to exclude third parties from appropriating their ideas, or the expression of their ideas, without permission. Failing to put restrictions on appropriating others’ inventions and creations would dilute the rewards for investing in innovation, thereby reducing the incentives for making such investments. In addition, both i) disclosure requirements and time limits for exclusivity that are built into IP laws, and ii) IP rights’ facilitation of licensing and other knowledge transfers, contribute to knowledge diffusion and thus to innovation.2

• IP’s overall role in economies has evolved from a policy area that was mainly relevant to a handful of industries to a force that influences a wide swath of demand and sectors. Consequently, IP policy has become a more influential framework condition that affects not only innovation, but trade, competition, taxes, consumer protection, and other areas.
• Investment in IP-protected capital is growing faster than investment in tangible capital, and salaries in IP-intensive sectors are higher than in non-IP-intensive sectors. The available evidence on IP’s aggregate role also shows that IP’s economic importance has grown over time and that it remained resilient during the recent recession.
• The context in which IP operates has been changing substantially. IP frameworks and stakeholders have been and continue to be affected by a number of developments, including the rise of cloud computing, the growth of the Internet, digitisation, and globalisation. These have created both new challenges for IP, including the facilitation of piracy and industrial espionage, and new opportunities for it to stimulate inventions and creativity as well as to facilitate greater access to information and creative works. For example, new business models and research tools (based on, e.g., text/data mining, open access, and e-content) hold the promise of jobs, growth, and greater knowledge diffusion.
• IP-based financing deserves attention. Young firms contribute disproportionately to job creation. Among the most important factors affecting their success is the ease of access to financing. Capital is often relatively difficult for young firms to obtain because they do not have long histories of consistently repaying loans and they tend to lack traditional collateral. But some young firms have untapped resources in the form of IP, which – if it can be properly valued and if markets for IP-based financing are functioning well – can be used to persuade lenders and investors to provide financing. Indeed, a substantial body of empirical work has found that young, high-growth firms with IP assets receive more funding than firms without IP. Nevertheless, IP-based finance is significantly under-used, especially by SMEs that are most in need of it. One reason is a lack of opportunities to sell IP in secondary markets. While open source models may not be predicated on enforcement, in some countries a lack of effective IP enforcement can be another barrier to obtaining financing. Policy makers are striving to support IP markets in several countries. Generally, their efforts fall into two categories: i) supporting greater transparency of IP ownership and transfer information via disclosure requirements or measures to foster greater clarity in patent claims; and ii) creating new IP market infrastructures. Another approach that governments can take is to help manage the risks associated with collateralising IP. Government agencies and development banks can do that through risk-sharing mechanisms.

Points about particular types of IP rights

• IP rights involve more than just patents; copyright and trade secrets have a bigger role than some might have thought. Indeed, they are the most economically significant forms of IP rights in some respects, yet they have benefited from relatively less research, mainly because there is much less data available on them than there is on patents. It is inherently difficult to obtain data on trade secrets due to the fact that they lose their legal protection if they are made public; however, more could be done to improve data availability with respect to copyright. One possibility is to implement more measures designed to encourage voluntary copyright registration. Other potential actions include funding research and surveys to estimate the benefits of more registration, and changing the accounting rules that apply to creative industries to enable better data collection. This should be done while bearing in mind that under the Berne Convention registration is not mandatory.
• Copyright’s performance excels in terms of the magnitude of investment it attracts, the growth rate of that investment, and job growth. Therefore, to the extent that this synthesis chapter devotes more space to copyright issues than to issues related to other types of IP rights, an important reason is that copyright’s role in economies appears to be growing larger, faster. Note that, in much of the world, copyright protects a significant amount of software investment – sometimes more than in the rest of the ‘creative industries’. Furthermore, although the report discusses the copyright intensive industries at some length, it is important to recognise that user generated content is now also a significant source of entertainment and information.
• Several governments have embarked on a review of their copyright laws to make sure they remain fit for the digital age, with the aim of ensuring that their legal frameworks maintain effective incentives for creators and all stakeholders in the value chain including intermediaries and to consider whether certain aspects of the copyright regimes need to be adapted to the 21st century. For example, such efforts have been undertaken in the United Kingdom, Ireland and Australia. The ways in which copyrighted material is being created, disseminated, and used have changed substantially due to digitisation and the Internet. As a result, a new dynamic amongst stakeholder interests has emerged, which has fuelled a debate about the effects of copyright law and particular provisions on the growth of a wide range of economic activities that depend upon digital networks and products.
• Evidence that patents stimulate innovation is mixed. Several surveys have shown that patents are not considered to be very effective in protecting innovations outside a small number of sectors. However, other reports indicate that growth in patent-intensive industries following the 2008-2009 recession outpaced growth in non-IP-intensive industries. In any event, studies still have not definitively concluded that stronger, broader patent rights are necessarily resulting in more innovation. Despite this mixed evidence, over the past 20 years or so patent rights have generally become broader and stronger, and there has been a surge in the number of patents granted.
• Several ways to estimate the technological and economic value of patented inventions and the impact they may have on subsequent technological developments are provided in this Report, making it possible to shed more light on the patent-innovation relationship. The Report proposes several indicators and illustrates what they can do with data from the European Patent Office. The illustrative results show that: i) the average technological and economic value of inventions protected by patents has eroded over time, at least through 2004, possibly reflecting application backlogs as well as strategic behaviours like defensive patent filings; ii) patented micro and nano technologies have the highest economic and technological value; and iii) Australia, Canada, Norway, South Africa, and the United Kingdom are the countries with the highest average technological and economic patent values.
• Taking certain steps to improve disclosure and dissemination of the information contained in patent applications could boost the impact that patented inventions have on subsequent technological developments. This would more fully achieve a primary purpose of the patent arrangement, namely to increase innovation and knowledge diffusion by granting exclusive rights. Countries can improve the quality of disclosures by more rigorously enforcing the disclosure laws that already exist. They can improve dissemination by encouraging and funding efforts by patent offices to digitise the application process and put databases of patent information online. In addition, a peer review system might be helpful because it is difficult for any individual patent examiner to be skilled in every area. Another idea is to reduce the lag between the date of filing and the date of publication (which is when public disclosure actually occurs). Shortening the lag, at least in fast-moving technology fields, could make disclosures more useful by making it more likely that the information they contain is still relevant.
• A link between trade secrets and innovation is suggested by new OECD work. This report presents an indicator of the stringency of protection of trade secrets, which provides a way to study the relationship between the strength of trade secret protection in an economy and that economy’s performance. The indicator is used to test the hypothesis that more stringent trade secrets protection is associated with greater innovation and diffusion. The results show that there is indeed a positive and statistically significant relationship between the stringency of trade secret protection and indicators of innovation inputs. While these results do not mean that ever stronger rights and remedies will yield similar results, the positive and statistically significant relationships identified do indicate that adequately protecting trade secrets may be an appropriate policy for strengthening certain aspects of economic performance.
• Evidence on the importance of design rights is scarce and mixed. The number of industrial designs contained in applications has been growing. However, one of the few studies that have been performed on design IP found that while design is a significant part of the business model for 85% of UK businesses, a mere four percent of them use registered designs; another four percent use unregistered designs. Nevertheless, earlier work indicated that companies that were “effective users of design” (but not necessarily design rights) outperformed the UK stock market by 200 percent between 1994 and 2004. That raises questions about the effectiveness of design rights for motivating investment in design-related KBC.