Dr Birgitte Andersen of Birbeck College, University of London explores the economic and societal impact of IPR and the need for an approach which balances the protection and sharing of intellectual property.
Because control over the use of an intellectual property right (IPR) requires ownership or a license, the growing importance of knowledge-based assets and creative expressions in the recent years has been accompanied by recognition that patents and copyrights represent strategic assets for those who own and control them.
It is therefore not surprising that the pace at which individuals, firms and the public sector are using IPRs to privatise knowledge-based assets and creative expressions has been accelerating. This trend has been enhanced by the view of many in industry, government and international agencies that the privatisation of the intellectual capital and knowledge-based assets of individuals and firms provides many advantages. Large firms have reported remarkable corporate results from using the IPR system, and policy-makers report great expectations regarding the performance of the IPR system in the knowledge based economy. Thus, we have seen an increased enforcement of IPR regimes worldwide.
Initiatives include agreements such as the Trade Related Aspects of the Intellectual Property Section (TRIPS) of the World Trade Organization (WTO); patent protection even beyond science based principles (for example business methods and other computer implemented inventions); exclusive rights also on fundamental inventions (for example university science and procedures to obtain genetic codes); exclusive rights on traditional knowledge and traditional cultural expressions; increased privatisation of the public domain; increased period of protection historically; protection on trivial knowledge with very little inventive step; and others.
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The social and economic effects of tightening the IPR systems are not considered obvious
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However, IPR policy to encourage increased enforcement has been largely based on the 'vision' of policy-makers, rather than on the findings of solid empirical research. Within the IPR research community, the social and economic effects of tightening the IPR systems are not considered obvious. There is a need for profound insight as to understanding the role of IPR regulation in achieving economic performance, growth and sustainable development at the corporate, sectoral and global levels, at the same time as providing a higher quality of life for all. This need is especially critical for small and medium sized companies, consumers and the poor.
The Global Commons are in Danger
The seriousness of the situation is illustrated by the fact that our global commons are now in danger. This is partly due to the role of IPRs in the commodification of three separate areas: science, culture and healthcare. All three areas used to be regarded as important areas of the public domain or for public access.
Even though scientific inventions are not, in principle, allowed to be protected by patents, there is still an increased propensity to patent very fundamental inventions. Thus, in practice, the divide between science and technology is very blurred when it comes to patent policy. This comes partly from national policies encouraging universities to patent their scientific findings. For example, the US Bayh-Dole Act of 1980 encourages universities to patent their scientific findings and discoveries, and similar types of policies are now adopted worldwide.
Furthermore, many universities have bought into the idea of entering the market economy through the patent system, and for many, their incentives are more for profit than for technological transfer. However, it is uncertain whether such policies have facilitated more technological transfer, which we must remember was the rationales behind the act, and even whether they generate profit to universities.
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The patent system is still very much about taking knowledge out of the public domain
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However, if the patent system helps certain ends (for example, helps universities and individuals to develop a clear strategy regarding how best to commercialise their ideas), it is still about taking very basic knowledge out of the public domain. Basic scientific findings should be kept in the public domain. Very basic inventions tend to have broader patent scope. If they are patented, prohibiting general use, this can induce a direct welfare loss, as many firms will avoid scientific and technological solutions where the basic knowledge base has been made scarce and expensive, or they will be excluded due to exclusive licensing agreements. It is the total openness of basic inventions from universities for multiple exploration paths in the market economy that makes the evolutionary process of technological advance more powerful, and it is from this advance we develop new science. Thus, the increased privatisation of scientific inventions or very fundamental knowledge is bad for the advance of both science and technology.
Similarly we need to consider how the commodification of creativity performs under the rules of markets and capitalism. It is well-known that artists are not driven by reward incentives for their creative expressions, but instead driven by their inborn spirit. For example, we see creative expressions in many communities (as well as regions of the world) where there is no IPR system in place.
For the venture capitalists, the driver is reward or profit incentives. This is not in itself a problem – but it can become one as there are only a few venture capitalists currently able to make the investments and take the risk involved in volatile creative industry markets. As a consequence we experience very concentrated industry and market structures only represented by a few firms with huge dominance. Of course, such industry and market dominance is only a problem if it affects the extent and nature of the 'innovation-based competition' in a negative way.
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We may be undermining some of the most important elements of a healthy economy
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In this context, we need to be aware that, while we are contracting the public domain by use of the copyright system, we might at the same time be undermining some of the most important elements of a healthy economy. For example, even if it is true that copyrights on creative expressions facilitate commercial exploitation, we need to address if copyrights in this respect also generate 'a wide variety' of 'best quality products embodying best quality creative expressions' and at a 'low price'. Variety, quality and price are often what the success of a capitalistic system is judged on. Or does the current IPR design create the very opposite?
Consider for example creation and distribution of music or film, as well as the price for a music CD or movie tickets. Whereas the few majors in the music industry control about three quarters of global output, only a very small percentage of the people contributing to the industry output are able to make a living of their activities. Thus, whereas the copyright system is good in facilitating income creation from cultural ideas, we must recognize the problem that is bad in generating cultural expansion or creating a 'fair' income distribution rewarding all its participants for their value added.
Owning a Brave New World
Another central debate in the knowledge-based economy is that of IPR protection on software and other computer implemented inventions such as business methods. The harmonisation of such policies have been discussed in the European Union for several years. Since the technological revolution in micro electronics and ICT, such technologies have become the new key factors in creating and widening investment opportunities and creating the potential for a big increase in productivity. They have pervasive applications, in the sense there is a clear potential for the use and incorporation of the new set of inputs throughout the economic system.
The IPR issues are whether such inventions are of too fundamental importance for IPR protection. The inventions within microelectronics are integrated or embedded in various forms of corporate organisation, social infrastructures, business practices, as well as technical webs of other compatible technologies and standards.
The argument at the EU hearings put forward by the largest group of firms in Europe (in terms of numbers of firms) was that, if we IPR protect such fundamental inventions with network externalities, this will make the business environment difficult and economic system less productive. The increasing returns dynamics tend to create 'winners take all' results, and as IPRs on a locked-in innovation generates profit over time, this also encourages corporate strategies to create and take advantage of such increasing returns dynamics to generate lock-in situations. Microsoft is of course always the textbook example. These firms saw the IPR system as the largest barrier to entry - this was also because of the financial costs and lack of institutional capabilities related to participating in the IPR system. Some of Europe's largest firms in terms of financial turnover did not agree. Thus, the largest group of firms Europe argued for a free information infrastructure in terms of patents on computer implemented inventions and some software. It should be said that the group was not generally opposed to patents in all or most other areas.
The Tragedy of Markets
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It is important to celebrate what the IPR system has achieved, but also recognise its limitations
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Of course, far from all IPRs are bad for firms, society, consumers and the poor. The IPR system has also established a lot of positive dynamics. However, it is important not only to celebrate the achievements created by the IPR system, but also to recognise that patents and copyrights may not be able to solve all our economic problems, and that they create their own problems.
When the IPR system does not perform in accordance to expectations, the problem put forward by policy-makers, industrialists, IPR offices and most lawyers is that this is due to mis-management and lack of IPR protection in many small and medium sized firms and in most countries in the world. Thus, the belief is that if we just get the organisation in place, then we will see all the advantages.
The argument I want to put forward in this article is that, even if we get the perfect organisation of the IPR system in place in most firms and countries, then still, the IPR system may not always perform as expected in terms of stimulating innovation-based competition; facilitating spill-over and expansion of knowledge based ideas and creative expressions of ideas; rewarding inventiveness and creativity throughout the economic system; and in terms of facilitating sustainable development of firms and industries.
Even with substantive improvements in our research on patents and copyrights, we must not overlook that fact that our tools in understanding the dynamics of IPR systems are still blunt. Managers and policy makers do not always recognise this and tend to give a great deal of weight to IPR success stories, which do not usually spell out the limitations of the IPR system. Because significant management and policy decisions are based on these conditions, we must remember to communicate the limitations as well. All sectors, technologies and creative expressions may not perform best under the rules of markets and capitalism, and this article has just provided a brief snapshot of some of the problems.
We often hear the argument concerning the 'tragedy of commons'; about how goods and services become inefficient if they are open for all to exploit and use. However, there is also the other side; 'the tragedy of markets' when every bid of knowledge and creative expression become privatised. We need to get the balance right and the current trend in IPR legislation does not seem to do that. In particular, we need to think about some strategies relating to how we can protect the global commons and the key factor inputs for our businesses and society.
Birgitte Andersen is Reader in the Economics and Management of Innovation in the School of Management and Organisational Psychology, Birkbeck College, University of London, UK, where she is also Director of E-business programmes. She is PhD in Economics. Andersen's research profile is within evolutionary economics and industrial dynamics with respect to innovation and institutions, and the economics and management of Intellectual Property Rights (IPRs).
Contact details: Dr. Birgitte Andersen, Department of Management, Birkbeck, University of London, Malet Street, Bloomsbury, London WC1E 7HX, England, UK. E-mail: b.andersen@bbk.ac.uk.
