1. Art and Diseño

The globalization of
intellectual property rights:
Much ado about nothing?
Introduction
One of the key characteristics of the XXI century
global economy is that knowledge and intangibles
have become increasingly important both as production factors and as consumption goods. It is therefore
hardly surprisingly that intellectual property rights
(IPRs) have become an increasingly controversial issue. Companies should bear greater investments in
Research and Development (R&D) and design in order to generate and bring to the market new products
and services but very often the core competitive assets can be imitated and replicated at costs that are
substantially lower than the original cost. This is at
the root of the traditional tension between innovators
and imitators, a tension that for long occurred mostly
within the national scene and that now has taken a
global dimension. The growth in international trade
and foreign direct investment, associated to the rise
of new actual and prospective markets, has in fact
increased the propensity of companies to search for
profits related to their innovations and intangibles
also at the global level.
The generation of knowledge is far from being geographically uniformly distributed. Most inventions
with commercial potential come from companies
based in North America, Europe and Japan and in
a few other countries, such as the Asian Tigers, that
are strongly integrated with the Triad (Archibugi and
Iammarino, 2002; Archibugi and Pietrobelli, 2003;
Filippetti and Peyrache, 2011). It is often pointed
out, and rightly so, that most of holders of IPRs are
a restricted number of gigantic multinational corporations. The same companies are also responsible for
a corresponding amount of expenditure in R&D, industrial design and investment in intangibles. These
companies have somehow managed to assure that basic IPRs are protected in their home country and even
in their most important economic partners, namely
in the areas where they concentrate the bulk of their
sales. So far, however, they have not managed to get
an equally effective protection in emerging and developing countries representing markets that are not
at the moment their core business but that are expected to become steadily more important. This has
led Western companies to demand greater international protection for their IPRs against unfair foreign
Daniele Archibugi1
Andrea Filippetti2
To be published in The Global Politics of Science
and Technology: Concepts and Perspectives, edited
by Maximilian Mayer, Mariana Carpes and Ruth
Knoblich
ABSTRACT
It is hardly surprising that companies try to exploit their intellectual property rights (IPRs) globally. This has generated hated disputes on the advantages and disadvantages associated to a global regime
of IPRs. The aim of this chapter is to put the debate
in the right context of what IP can actually do, and
what they cannot do, in order to reward inventors and
innovators and to prevent imitators. The generation,
transmission and diffusion of knowledge are complex
phenomena and both supporters and detractors of
IPRs often tend to exaggerate the effects that they
have in the economy and society. We present two
ideal typical models pro and against IPRs and discuss their limitations. In our view, both the models
overemphasize the role of IPRs in the world economy.
KEYWORDS: Innovation, Intellectual Property
Rights, Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), technological appropriation, patents, copyright
1 Italian National Research Council, IRPPS and University
of London, Birkbeck College, email: [email protected]
2 Italian
National Research Council, ISSIRFA and
University of London, Birkbeck College, email:
[email protected]
1
imitators (Ryan, 1998; Sell, 2003).
Other voices have called against IPRs denouncing
the fact that they were increasing the costs for developing countries arguing that this implied a net
transfer of resources from developing to developed
countries, that this was retarding the catching up of
developing countries or even that multinational corporations are claiming monopoly rights over forms
of ancient forms of knowledge that were not really
developed by them (Shiva, 2001).
The aim of this chapter is to put the debate of the
globalization of IPRs in the right context of what IP
can actually do, and what they cannot do, in order to
reward inventors and innovators and to prevent imitators. As students of technological change, we have
learnt that the generation, transmission and diffusion
of knowledge is a complex phenomenon and that both
supporters and detractors of IPRs often tend to exaggerate the effects that they have in economy and
society. The chapter is organized as follows. Next
section reports the terms of the debate on IPRs. We
follow by describing how and where the attempt to
make IPRs stronger has started in the United States.
Then we discuss the attempt to generate a global
regime through TRIPS. We then present two ideal
typical models pro and against IPRs and discuss their
limitations. The last section discusses the policy implications.
tant for food and beverages. Often, companies use a
combination of IPR instruments to increase the protection over their activities. For example, companies
defend their software through a mixture of copyright
and patents while drugs combine patents to trademarks.
The legislation on IPRs is national in scope. It is
the responsibility of national governments to take decisions about the length and the scope of each IPR.
National legislation is also responsible to establish the
penalties associated to infringements. Finally, the
enforcement of IPRs is also carried out by national
authorities. Police can be tougher or softer against
violators and the Courts which should take the final decision in controversies among economic agents
are national. When the globalization of IPRs is discussed, it should be kept in mind that we are dealing
with legal and policing practices that are (still?) national in scope.
But IPRs are also one of the areas where for more
than a century governments have tried to reach a
certain harmonization. The Paris Convention for the
Protection of Industrial Property dates to 1883 and
the Berne Convention for the Protection of Literary
and Artistic Works to 1886. For a rather long period there has been a tension between the desire of
each nation to get the IPR system congenial to its
own economic and social advantage and the need to
establish a harmonized system.
As it can be expected, countries that had more inventions and products to protect were keen to push
the international system towards stronger protection.
These countries saw in IPRs a method to increase
their revenues and more generally to strengthen the
bargaining position of their national companies in
host countries. Countries that relied more on knowledge and products generated elsewhere were keener
to have a permissive IRP system. Catching up countries interpreted a rigid IPR system as a further burden for their economy and their development strategy. The rules of the system co-evolved differently in
each country. As shown by the country case studies
reported in Odagiri et al. (2011), national institutions have evolved differently, and often they have
tried to protect national industries through a variety
of legal, institutional and customary devices.
What are IPRs
Intellectual Property Rights are legal instruments
designed to provide to the holder the exclusive use
over certain creative activities. They include patents,
copyright, trade-marks, utility models, geographic indications and others. Each of these rights has a specific legislation and therefore covers a different domain. Each of these IPRs has a distinct economic
and social impact and can be more or less relevant according the nature of the industry, of the technology
and of the geographical area. For example, patents
are crucial for a few manufacturing industries, including pharmaceuticals, chemicals and electronics, copyright is the core instrument to protect audiovisual
and literary products, trade-marks are relevant in the
industries where brands represent an important competitive advantage, geographic indications are impor2
However, through complicated and long diplomatic
negotiations, diffusion of experiences and attempt of
companies and other economic agents to reach similar
standards across countries, IPRs national legislations
and practices have converged. The number of countries that jointed the international conventions on
IPRs has steadily increased and also the legal norms
are certainly less different across countries than they
were 100, 50 or even 25 years ago. If we look at the
expansion of the IPR system, it clearly emerges that
at the beginning it involved countries at a comparable level of economic development. Progressively, the
IPR regime has incorporated also countries at the periphery and, consequently, the members of the world
IPRs system have become more heterogeneous.
One of the core principles of the international conventions already held in the XIX century was to guarantee that the public institutions in each country
would not discriminate against foreigners. It was acceptable that some countries had longer or shorter
validity for patents or copyright, stronger or weaker
protection, but the various conventions tried to establish the principle that home and foreign inventors, authors and companies should be treated equally. The
formal principle, however, is not easily enforced in
practice. It is up to the police to identify if counterfeited CDs and DVDs are sold in an open market,
it is a national patent examiner who should decide
if the application for an invention is genuinely original, and it is to a national court to settle business
controversies. In spite of all the principles stated
in the conventions, in treaties and in national legislations about non-discrimination, there have always
been allegations that national institutions tend to favor national interests and that the police, patents and
trademarks offices and Courts are biased.
It can be questioned if this has been advantageous
for developing and catching-up countries (see, for example, the analysis of Drahos, 2010) to implement
the IPR system of developed countries. It has often been argued that weak economies have also bad
negotiators or have underestimated the costs associated to IPRs agreements (May, 2002; Sell, 2003;
Heller, 2008). Others, on the contrary, have argued
that countries with Western-like IPR systems have
facilitated industrial development (Branstetter et al.,
2010), induced foreign by multinational corporations
(Dinopoulos and Segerstrom, 2010) and induced technology transfer (Mansfield, 1994; 1995).
In the next sections, we will discuss how the situation has changed over the last two decades and if
such a change has obtained the desired outcome.
The Silent IPR Revolution in the
United States
The United States has always been the country
where violations of IPRs have been more vocally denounced. In fact, for the whole XX century the most
spectacular controversies about intellectual property
have occurred in the American theatre and the XXI
does not look any different. It is difficult to explain
why the United States economy, society and legal system are so keen to consider a villain somebody who
uses other’s intellectual property without authorization. Also in Europe and in Japan there are daily
controversies on IPRs infringements, but intellectual
property is not surrounded by the aura that it has
in the United States. To use knowledge and other
immaterial property invented or developed by others
is not considered equally bad, up to the point that
the imitator, and even the hacker, has at most the
appearance of gentleman thief, a sort of Robin Hood
that takes knowledge from those who have it and provides it to those that do not have it (for a contemporary praise of the hacker, see Himanen, 2011).
The reasons why intellectual property in the
United States is much more appreciated than in other
countries are both material and ideological. Among
the material reasons, we can mention the fact that
the United States is the largest R&D spender and
patent generator of the world, its companies has invested massively in trademarks and brands and it
hosts the largest number of large multinationals with
operations across the five continents. Old companies, such as Disney and IBM, and new companies,
such as Microsoft and Facebook, have business lines
heavily dependent on IP protection. Moreover, the
United States government has also the economic, political and diplomatic muscles to protect the property
rights of its companies both at home and abroad, instruments that are often lacking to other countries.
But there are perhaps also other cultural reasons
3
that make the American society praise and reward
the individual creativity rather than the societal context in which knowledge is generated. The AngloAmerican ideology strongly supports individual values and freedom even when they are at the expenses
of the public interest. In continental Europe, on the
contrary, the public interest generally prevails over
individual rights. This American vision spans across
a variety of human rights including property rights
and it extends to intellectual property rights. European societies are generally keen to consider limits
to property and to intellectual property especially.
It is therefore understandable that to obtain a very
strong protection of IPRs has been a lesser priority
in Europe than in the United States. The Oriental
vision is even more likely to praise collective effort
more than the individual enterprise. In most of the
Asian countries, the introduction of IP legislation has
been directed more by the need to please the United
States and the other Western parties rather than by
a genuine endogenous sentiment to reward individual
creativity and companies’ investment in immaterial
goods.
It is true that Asian countries such as Japan and
China have also been catching up countries, the former in the 1950s and 1960s and the second since the
1990s. As catching up countries, they had a clear interest to obtain technology transferred at low costs
and weak IPRs system could serve such a purpose.
But it is also true that since the 1980s Japanese companies started to be major producers of innovations
and they have been reluctant to use IPRs as principal
instrument to seize the return of their innovations.
The attempt to strengthen the IPRs regime and
to obtain greater enforcement started in the United
States more than thirty years ago. A ’silent revolution’ (Jaffe and Lerner, 2004) took place in the
form of four interconnected changes. The first was
the Bayh-Dole Act which allowed Universities and
other research centres to commercialize and profit
from the innovations generated with public money,
a legal transformation that has been later imitated
by several OECD countries. Second, the scope of
the patent system has progressively grown, allowing patenting also in areas, such as software, that
were previously covered by other forms of intellec-
tual property or not covered at all. Third, the US
Patent and Trademarks Office (USPTO) started to
be funded through a fee charged on applicants rather
than by the government. This apparently innocuous
change made the USPTO keener to grant patents to
as many applications as possible, even when the novelty and utility is not self-evident and when the invention is in areas traditionally excluded from the range
of patents. Fourth, Courts have become increasingly
tougher with violators of IPRs.
The effects of the silent revolution in the United
States are controversial and many critics argue that
this has been harmful for the American economy
since it has reduced the rate of innovation (Heller,
2008; Heller and Eisenberg, 1998), it has generated
excessive litigation and increased costs (Bessen and
Meurer, 2008) and it has increased monopoly power
(Boldrin and Levine, 2008). So, within the United
States there have been many voices that have argued that the ’silent revolution’ has discouraged innovation and distorted resources from innovation to
patent protection. But when the hegemonic country moves in one direction, it is very likely that also
other countries will somehow follow the path. In fact,
the attempt to create a stronger regime of IPRs soon
reached the international scene.
From the American Silent Revolution to the Vociferous Global Scene
The ’silent revolution’ considerably increased the
strength of IPRs within the United States, and it
has also been able to better protect American companies within their own internal market against foreign competitors. But in a globalizing economy, this
was only part of what American corporations desired:
supposed and real IPRs infringements continued to
occur outside the United States and American companies had the possibility to use legal devices to block
violations in their own country but had little possibility to retaliate when violations occurred elsewhere.
The traditional legislation on intellectual property inaugurated by the XIX century Conventions required
individual states to prevent discrimination and to
protect foreign intellectual property rights. But, as
with many other international covenants, there was
no guarantee that states actually introduced homogeneous legislation and, even when they did, national
4
institutions were keen to enforce it. Many governments had little interest to use their authority to protect the IPRs of foreign companies.
Since the very end of the Second World War, the
United States has been a generous supplier of knowledge, technology and technical assistance to its allies. But at the end of the 1970s, American corporations and their government started to take a different turn. The undisputed American technological leadership started to be eroded by its economic
partners, productivity gaps narrowed and competing
countries continuously improved their innovative potential (see Nelson and Wright, 1992; Pianta, 1988).
Japan constantly increased its export share in hightechnology products and also Europe was progressively performing better. The American trade deficit
was not any longer associated to the import of raw
materials and traditional products, but also to high
technology products, and this was enough to shock a
public which for most of the XX century was proud
of its leadership in innovation. A growing concern
emerged in the United States and the culprit was
easy to be found: Japanese and to a lower extent
European companies had a better performance because they were exploiting commercially the knowledge generated in the United States, often infringing
their IPRs. Less attention was devoted to look at
how companies based in Japan, Germany, Switzerland, Sweden and other countries were investing massively in R&D and design, and even less to the fact
that these companies generated an increasing number of inventions and innovations for which they even
claimed patent protection in the United States and
elsewhere.
The stories heard in the 1980s soon re-emerged
with reference to the Asian tigers. In fact, these countries followed with three decades delay patterns very
similar to those of Japan. Comparable catching up
processes have occurred for more than a decade in
China, a country with a population size much higher
than Japan and the other East Asian tigers. The
widespread feeling in the United States continued and
still continues to be that the national investment in
knowledge and in other intangible assets is not adequately rewarded and that its competitors in the
international markets also make unauthorised use of
technologies, design and other intangible assets generated by American corporations. As long as the international markets would not provide adequate remuneration for its innovations and intangibles and
institutions do not punish infringements, the United
States would continue to be penalized.
It took a while for the American corporations
mostly dependent on knowledge and other intangible assets to find the methods able to better guarantee their IP also outside the United States. The
retaliations that their government could apply for violation of national IPRs ranged from diplomatic reproach to sanctions to military interventions; none
of them was particularly effective to protect companies’ economic interests. As well documented by Susan Sells (2003) and Michael Ryan (1998), a group
of Chief Executive Officers of leading corporations
joined their forces through the creation of the Intellectual Property Committee (IPC) and the International Intellectual Property Alliance (IIPA). The IPC
explored the available opportunities and eventually
it came out that the most effective and perhaps sole
way to penalize countries not adequately protecting
IPRs was retaliating on trade. Since the negotiations
to reduce trade barriers were already in the agenda,
the United States government effectively pushed with
all its political, diplomatic and economic muscles to
make IPRs a crucial pillar of the new World Trade
Organization (WTO) to be built on the GATT ashes
and this is how the Trade Related Aspects of Intellectual Property Rights (TRIPS were born.
Commentators were surprised that so many countries signed TRIPS: after all, if these countries were
using knowledge and intangibles without paying a
proper remuneration they should not have an interest
to sign an agreement that implied greater transfer of
resources from the imitators to the innovators. But
developing countries had an interest to liberalize the
international trade in textile apparel - the Multifiber
Agenda - and agricultural products. For sure the US
market, along with the European market, was the
most attractive for them. If the price to be paid to
access the American and European markets was to
promise to introduce a tougher IPRs legislation, it
seemed that this was an acceptable deal. TRIPS was
born as a bargain: developing countries accepted the
5
risk of retaliation if they were not able to introduce
adequate legislation for IPRs in their own country
against the opportunity to enter into the American
market. The powerless conventions of the XIX century were therefore integrated with a potentially vigorous tool: trade retaliations.
It has been argued that TRIPS was accepted by
developing countries because the American government was a much better negotiator, and because it
had the instruments to convince other governments
to sign the agreement also if it was against their interest (Sell, 2003). This is certainly part of the story
but it does not necessarily imply that the American
society made a good deal. The deal was cash against
a promise: developing countries did not get much
but they obtained instantaneously greater access to
the market of developed countries. In turn, developed countries got the promise that all countries that
signed the treaty would have accurately introduced
IPRs in the future. But, as we will argue, the United
States’ did not properly consider three core aspects.
First, legislation does not necessarily imply enforcement: even if developing countries were induced to
apply more rigid IPR norms, this did not necessarily imply their willingness and capacity to enforce
them. Second, the reasons why some of its multinational corporations focussed so much on TRIPS were
not necessarily beneficial to the American economy
especially if, as we will argue, their strategy was to
decentralize production, including knowledge-based
production, abroad. Third, the real economic importance of IP is not as important as it was assumed.
Next section presents two alternative models on the
importance of IPRs.
regime or even the absence of IPRs is conducive to
well-being.
Defending strong IPRs
The model which supports strong protection of
IPRs both at the national and global levels argues
that in the long term strong IPRs will not only be
beneficial for the producers of knowledge but also for
users and therefore for society at large. This model
applies the same logic also at the international level,
assuming that IPRs will benefit developing as much
as developed countries.
The pro-IPRs model stresses that incentives and
rewards to inventive and innovative activity are crucial to generate further investment. It is not denied
that statically the existence of IPRs may reduce the
diffusion of innovations to those that cannot afford
to pay its price, but dynamically this will be an incentive to invest more in the future.
• Invention, innovation and more generally creativity is generally costly to be generated, especially since it involves a great degree of uncertainty. But they can be imitated or replicated
at substantially lower costs. The absence of protection will discourage profit-seeking agents to
invest in these activities.
• IPRs protection encourages full disclosure of inventions that eventually will become part of the
public domain. In absence of disclosure, knowledge may be kept secret and this will reduce its
dissemination.
• The revenues generated by inventions are one of
the core resources to finance further projects. It
is therefore relevant that the current inventive
activities are able to generate profits to keep the
system going.
Two models on IPRs
Since their very origin, IP had enthusiastic supporters and fierce enemies (May and Sell, 2006,
trace the genealogy of these arguments). Much has
changed in the generation, imitation and diffusion of
invention and creativity over several centuries, but
the arguments in favour and against IPs have somehow been repeated. It is possible to identify two opposite models in the contemporary debate, the first
that commend a strong regime of IPRs for economic
development, and the second that argues that a weak
• New entrants have to face the alternative of imitating existing devices or investing in generating
fresh solutions, and strong IPRs will induce them
to opt for the latter strategy.
These reasons are used to justify IPRs within nations and it is accepted that IPRs will have some
advantages for individual and companies that generate knowledge and some disadvantages for consumers
6
or supplier-dominated companies. But it is assumed
that the advantages for the economic system are
greater than the disadvantages and a well-tuned legislation could balance the interests of both producers
and users of knowledge, for example by regulating the
length and scope of IPRs and even by using compulsory licensing in cases of palpable public interest.
The pro-IPRs model advances additional reasons
to suggest that also developing countries will benefit from a global IRPs regime. It is a fact that the
distribution of scientific and technological capabilities is extremely polarized across the globe. This
means that the net recipients of IPRs royalties and
fees are based in the North and the net payers are
based in the South. The advocates of IPRs argue
that Southern countries with a strong regime of IPRs
will benefit from greater inflows of technology transfer. Companies in the North may be reluctant to
establish production facilities, to build R&D lab, to
licence knowhow and to engage in strategic technology agreements in countries that do not properly
guarantee IPRs. On the contrary, if IPRs are secure, companies may be willing not only to licence
the knowledge generated in their home country, but
they may also decentralize in emerging and developing countries some of their R&D and innovative
facilities and to collaborate with local companies in
common projects. In a world where developing and
emerging countries still need to acquire the knowledge generated in the North, a well functioning IPR
system is the best guarantee that Southern companies are not excluded.
This view has particularly emphasized the role of
multinational firms and foreign direct investment.
For instance, Dinopoulos and Segerstrom (2010) developed a model of North-South trade and find that
stronger IPR protection in the South leads to: i) a
permanent increase in the rate of technology transfer
to the South within multinational firms and ii) a permanent increase in R&D employment by Southern
affiliates of Northern multinationals. Along similar
lines it has been showed that improvements in IPR
protection has led United States based multinational
firms to increase technology transfer to their affiliated and to shift towards more technologically based
products abroad (Branstetter et al., 2004; Branstet-
ter et al., 2010). Other scholars point to the indirect
benefits for the countries hosting multinational firms
have in terms of growth of local suppliers (Javorcik,
2004a), and transfer of advanced knowledge and skills
to the local workforce (Gorg and Strobl, 2005; Poole,
2010). Also, the establishment of reliable and harmonized IPRs systems lead to the creation of ’markets
for technology’ which facilitate and encourage knowledge diffusion trough formal transactions of technology (Arora et al., 2001; Athreye and Cantwell, 2007).
In praise of weak IRPs
The pro-IPR model has been contrasted with fierce
arguments that can also be divided in arguments used
for developed economies and those that apply to developing countries. The first and very ancient argument against IPRs is that they are harmful because, by creating a legal monopoly, they obstruct
and reduce the diffusion of knowledge (Andersen,
2006; Boldrin and Levine, 2008). Since knowledge is
also an input to the generation of further knowledge,
IPRs may create a vicious circle that stops inventive
activity. This is particularly true within industries in
which innovation activity is based on sequential inventions and complementary technologies. In these
cases, imitation may promote further innovations,
while strong patents might actually inhibit it (Bessen
and Maskus, 2009; Merges and Nelson, 1990). By becoming tighter, IPRs increase legal costs more than
investment in innovation, leading to a scientific and
technological system based on litigation rather than
on research (Bessen and Meurer, 2008). Eventually,
lawyers are the main beneficiaries of a strong system
of IPRs. Second, IPRs may also distort the investment for knowledge since this is likely to be directed
towards the areas that promise greater profits or that
can be better legally protected rather than towards
those that are more likely to generate socially useful
results or where there are more technological opportunities. For instance it has been shown that the type
and strength of the patent regime influence not only
the rate of innovation activity but also the direction
of technical change (Moser, 2005). It is therefore not
in the public interest to get a strong IPRs system
(Macmillan, 2006).
These beliefs are reinforced when the needs of de7
veloping countries are taken into account. In these
nations, knowledge generating institutions are still
in their infancy and they will be the most affected
by a strong international regime where there is a
price to be paid for any technology transfer. In a
North-South perspective, the IPR regime may hamper or impede catching up (Chang, 2002). It has
been have claimed that transferring the IPR practices of the developed world to developing countries
leads to reduced knowledge flows, less imitation activity and increased prices (Helpman, 1993; Lai, 1998;
Parello, 2008). Thus, a system prior to TRIPS, with
a strong IPR regime in developed countries and a
weaker one in developing countries, is more congenial
to allow the latter to catch up also benefitting from
the knowledge developed elsewhere. The consequence
of TRIPS is therefore damaging development and it
will make more difficult to allow emerging and developing countries to build solid innovation systems.
Moreover, it will extract resources from developing to
developed economies and this will delay further their
catching up.
In an historical perspective, it is often pointed out
that most countries managed to catch up also copying and imitating from more developed countries,
largely benefiting from loose IPRs regime (Boldrin
and Levine, 2008). It was only later on that tighter
IPRs regimes were established as an effect of the development of the country (Lerner, 2002; Mokyr, 2002.
For a detailed list of national case studies, see Odagiri
et al., 2011). By making more onerous international
technology transfer through a strong regime of IPRs,
developed countries make an attempt to ’kick the ladder away’ and to make more difficult catching up to
laggard countries (Chang, 2002).
Some critics of IPRs also focus on selected key
products protected by IPRs (see, for example, Correa, 2000; Shiva, 2001). A paradigmatic case is
the anti-retroviral drugs patented by leading American pharmaceutical corporations, the so-called Big
Pharma, but marketed in South Africa through their
generic and un-authorized manufacturers. This led
to a controversy between Big Pharma and the South
African government. The government argued that
the vast majority of South Africans affected by HIV
could not afford to pay the price charged by Big
Pharma and opposed a public interest argument to a
private interest. The campaign was sufficiently powerful to induce Big Pharma to withdraw from the
case. In this domain, intellectual criticism overlaps
with social and political activism. New social movements have started to contest the pro-IPR policies
carried out by multinational corporations, national
governments and the World Trade Organization. Big
Pharma, Microsoft and other companies have become
the frequent targets of many campaigns against intellectual monopoly.
A different view: How powerful IPRs
are?
The pro and against IPR models both describe
real aspects of the generation, transmission and diffusion of innovation. But, surprisingly, both models
are based on a common textbook assumption: they
assume that a legal system of IPRs is much more
powerful than it actually is. Both of them give for
granted that strong IPRs can guarantee the protection of invention, innovation and intangibles and that
weak IPRs can on the contrary allow imitators to acquire the related knowledge. This is not the case
and old and new empirical evidence has shown that
IPRs are much less effective than generally assumed
by both models.
From the perspective of the producer of invention,
innovation and intangibles, it should be clarified that
its main economic interest is not to get their IP immaculate but rather to profit from it. In order to
appropriate the returns from their inventions, innovations and intangibles, companies have to develop
complex strategies that include R&D, design, lead
time, ability to deliver the products to the markets,
and also to combine effectively industrial secrecy with
IPRs. IPRs are just one the elements of this strategy and certainly not the most important one. Surveys carried out for US and European manufacturing
companies have indicated that patents and other legal methods are, in fact, the two least important appropriability factors while companies have ranked as
more important lead time, industrial secrecy, complementary manufacturing and complementarily sales
and services (Cohen et al., 2000; Arundel, 2001).
From the perspective of potential users, would-be
8
imitators cannot manage to acquire knowledge for
production facilities just by getting knowledge unprotected by IPRs. The use of knowledge for production is associated to a much larger variety of factors. IPRs may, at most, report and protect some
codified knowledge, but there is an equally important component represented by tacit knowledge that
is not, nor can be, reported in patents, handbooks,
software, blueprints, and other codes (Pavitt, 1987;
Nelson, 1992). Imitators will need to acquire also
this knowledge to properly use it. A musical score
and a violin are not sufficient to play Beethoven’s
violin concert, likewise to dispose of free use all the
relevant patents will not allow a company to manufacture a good car. Patent rights last for not more
than 20 years, but only a foul can believe that abolishing patent rights will be sufficient to get rid of the
technological backwardness of developing countries.
In a nutshell, IPRs are less important than assumed
for both generators and users of knowledge.
Of course, it is difficult to generalize for a complex economy where there are products and industries with radically different characteristics. In fact,
the available empirical research has also shown that
industries and products are very differently affected
by IPRs. Within the manufacturing industry, Pharmaceuticals and, to a much smaller degree, Chemicals
are heavily dependent on patents and respondents
argue that as many as two thirds of innovations in
Pharmaceuticals and one third in Chemicals would
not have been introduced in absence of patent protection (Mansfield, 1986). Likewise, copyright is a crucial factor for the audiovisual and software industries
where the final consumers have the possibility to copy
directly the products. But in most other high-tech industries, including computers, electronics, aerospace,
automobiles, mechanical engineering, IPRs are overwhelmed and/or complemented by other methods of
appropriation of innovation.
The fact that IPRs are effective solely in a few
industries is reflected also in the composition of foreign direct investment. It has been shown that the
importance of IPR protection varies between industries (Mansfield, 1994, 1995) and that weak IPR discourages investors only in sensitive sectors (Javorcik, 2004b). In a study examining the drivers of the
surge of patents in China it is shown that foreign
direct investment play a role only limited to the electric machinery, transportation equipment, and chemical industries (Hu and Jefferson, 2009). Also, it has
been argued that far from being automatic, adoption
of foreign technologies from developing countries is
contingent on the development of an adequate level
of skills and technological capabilities (Benhabib and
Spiegel, 2005; Parello, 2008). Other research which
has tried to explain how come that Western companies have increased so much their patent applications
in countries with weak appropriability regimes, have
found out that preventing imitation or securing royalties are partial reasons (Keupp e al. 2012).
Innovating companies know well that in developing countries they cannot sell their products for the
same price they sell it in developed countries. Many
products have a substantial difference between the
average and the marginal cost and in products such
as drugs, software and audiovisuals the difference is
enormous. Companies apply price discrimination in
order to maximise the revenues from the same product innovation across different markets. What these
companies are most worried about is the possibility
that the same products are re-imported in the Western markets. For example, the main concern of the
Big Pharma when they suited the South African government for its unwillingness to stop the diffusion of
generic versions of the retro-viral drugs against HIV
was precisely the concern that the generic version
could also reach the much more lucrative Western
markets.
Summing up: IPRs per se cannot either guarantee
or reduce returns to invention, innovation and intangibles. Profits for innovations are obtained through
a variety of channels and, if companies are asked to
rank the relative importance of them, it emerges that
patents to prevent imitators and patents to secure
royalties are not among the most important methods
to appropriate returns from innovation. This leads
to a logical question: if IPRs have so little relevance,
how come that companies, governments, lobbies and
social movements are so concerned about them? A
first tentative answer is that IPRs are somehow visible and can be modified by institutions. But what
they represents - the system of incentives to gener9
ate, transmit and diffuse knowledge and creativity are much more complex and often less visible. Much
of the debate is discussing the finger rather than the
moon. In addition, most of the discussion has concerned the issue of drugs. This confirms as said above
regarding the importance of IPRs, namely patents, in
the pharmaceutical industry, and also explains the attention of media and social movements, given the substantial interest in health. True, every citizen in the
world has the right to have the drug and medication
she needs regardless her income. However, it is difficult to argue that, should the TRIPS been abolished
tomorrow, the pharmaceutical industry would turn as
the engine of technological development and growth
in developing countries. Thus one has to distinguish
the two problems related to IPRs in the pharmaceutical sector. The former concerns the right of access to drugs, while the latter regards the capacity of
economic and technological development in backward
countries. Our conviction is that TRIPS has more to
do with the former rather than with the latter.
How effective TRIPS are?
A comparable passionate debate soon emerged
when the WTO integrated IPRs into its core competences. As discussed above, the critics of IPRs also
argue that the governments of developing countries
made a fundamental mistake in signing the TRIPS
agreement since they will get no advantages and
will bear all disadvantages. The critics argue that
TRIPS could seriously hamper developing countries
from catching technological opportunities. This, in
turn, is based on the assumption that TRIPS are effective in preventing imitators to use the protected
knowledge unless this is properly licensed.
After more than 15 years since the implementation
of TRIPS, an overall assessment of their economic
and social impact is much needed. In practice, the
disputes brought at the WTO concerning IPRs are
not many. From 1995 to 2011, the WTO Dispute Settlement Process (DSP) machinery has been activated
29 times for IRPs related issues (Lee, 2010-2011). It
is true that in 17 of these cases the United States is
the complainant country, i.e. the economic dominant
country. But only 7 of these complain are directed toward developing countries, while 10 are towards other
10
OECD countries. Of course, this does not imply that
the most serious infringements of IP occurs in the
OECD area, but rather that the perceived economic
damages occur in OECD countries. The US government, the most active in using the WTO machinery,
did not bother to use the DSP when the markets in
which violations take place are not particularly attractive. Moreover, the DSP has some clear limitations:
i) The DSP can be activated against unfair legislation but much less against the lack of effective
enforcement of IPRs, which continues to be a prerogative of sovereign states;
ii) The DSP process is lengthy (it takes up to three
years) and the remedies that a country agree to implement may take up to a couple of years. For areas
of rapid technological change, this means that a decision may be implemented when is not any longer
relevant;
iii) The parties to the WTO and its DSP are the
states and not the companies. Governments often
act to pursue the interests of the companies based
in their own country and often solicited by the companies themselves. But when dealing with multinational corporations, the national interests are more
difficult to assess.
iv) Trade retaliations have so far seldom been authorized.
TRIPS have at most established a general framework that provides the possibility to link two things
that are not clearly associated among them, namely
the regime of IPRs and trade retaliations. But
TRIPS do not provide an effective machinery to punish countries that do not have a strong IPRs regime.
However, they provide a legal basis to link trade to
IPRs that allow developed countries and most notably the United States to link the two issues in bilateral agreements.
If we move a step beyond and look at litigation
and enforcement, the role of national institutions
is even more important. IPRs controversies need
to be interpreted by national courts, and infringements need to be policed. Take the spectacular litigation between Apple and Samsung concerning smartphone (the most updated and detailed source is the
Wikipedia entry ’Apple Inc. v. Samsung Electronics
Co., Ltd.’ and, more generally ’Smartphones Wars’,
see also Filippetti 2012; Graham and Vishnubhakat,
2013). The competing companies have their headquarters in nations with rather uniform norms on
IPRs and, as expected, litigation occurred already
in at least nine different countries. These litigations
are already post-TRIPS since what TRIPS can do is
to ask nations to introduce comparable limitations
but cannot interfere with the decisions taken by national Courts. In spite of that, the rulings of courts
have been, so far, very different and often of opposite
tenor. And, with no surprise, the rulings of national
courts are generally favourable to national firms. The
basic principle of the International Covenants of nondiscrimination holds in theory much more than in
practice.
What is the future of IPRs in a global economy?
We have argued that IPRs are much less effective
than generally believed in guaranteeing the appropriation of innovation. It is quite natural to ask why
companies bother to patent at all, and to spend an
increasing amount of resources to develop patent applications, to extend them across countries, to engage in litigations and so on. The real problem is
that IPRs are just one of the tools that companies
use in a competitive environment and that the reasons why companies take patents are several. All empirical evidence on technological appropriation does
confirm this (see Cohen et al. 2000; Arundel, 2001;
Blind et al., 2006). Prevent imitators is, of course,
a crucial motivation, but often this is associated to
the defensive motivation to prevent competing companies to patent first. Patents are also very important to allow companies to engage in negotiations,
i.e. to cross-licence patent rights with competitors.
Other reasons such as to set new standards, reputation, and use as indicator of internal efficiency are
equally relevant (Shapiro, 2001; Blind et al., 2006).
The cases where IPRs are crucial are strongly confined to some industries and, within these industries,
to specific products.
We have also seen that there has been a consistent attempt to create a stronger IPRs regime in the
United States and globally. Dynamically, this should
also take into account that to make too onerous the
access to intangible products is the best way to foster
11
competitors. In many developed countries, this has
led to change economic attitudes. When software has
started to be policed more seriously, many companies introduced formal policies to prevent the use of
irregular programmes. In turn, this has led software
companies to increase the price of their products. But
the consequence was that consumers started to search
for other viable alternatives. This led to an unexpected diffusion of open sources software and alternative operating systems such as Linux. Extra profits
associated to protected programs have been reduced.
When the United States complained against the illegal distribution of Hollywood films in India and obtained greater protection, this provided an impetus
to the new Bollywood productions, an industry that
is now a potential treat to also for Hollywood (Sunder, 2011).
It is often argued that Western countries should
make a net profit from stronger IPRs.
But,
again, this conclusion is not substantiated from evidence. As already indicated by the Lieberman Report (Lieberman, 2004), the main aim of multinational corporations in obtaining a stronger global
IPRs regime was to delocalize production facilities
and knowledge-intensive jobs in countries with lower
wages. This can hardly be called an advantage for the
United States and other advanced economies up to
the point to question if the US government has made
the interests of its people or of its MNCs in pushing
so much for a harmonized global IPRs regime.
Should the IPRs regime be fixed at all? The economic practice is very different form institutional
ideal. So far, even the advocates of TRIPS recognize that the agreement did not have much impact
for the least developed countries (Hold and Mercurio,
2012). There are clearly contesting forces at work,
with net knowledge producers trying to appropriate
the returns of their investments. But IPRs cannot
guarantee the technology transfer unless there is a
strong effort by developing countries to acquire the
knowledge generated elsewhere. They may block imitators in some specific areas, or they can make it
more onerous the access, but in general cannot impede the use of knowledge. Once again, we are in the
classical situation in which the main policy implication is ’if it ain’t broke, don’t fix it’ (Winter, 1989).
And the debate around the issue recalls the classic
Boldrin, M. and Levine, D. K. (2008) Against Intelmuch ado about nothing.
lectual Monopoly, Cambridge: Cambridge University
Press.
Branstetter, L., Fisman, R., Foley, C. F. and Saggi,
K.
(2010) ’Does intellectual property rights reform
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