Transcript Економика на интелектуалната сопствено

Economics of
Intellectual Property
An Introduction
Aleksandar Stojkov, PhD
Assistant Professor of Economics
Iustinianus Primus Faculty of Law
Lecture outline
• Introduction
• The economics of intellectual property:
theoretical considerations
• An economic perspective on the advantages of
weak and strong protection of the intellectual
property
• Proposals for reforming the system of IP
protection
• Concluding remarks
Introduction
“Like most academics, I have ambivalent feelings about
intellectual property, illustrated by two personal stories.
About twenty years ago I received a letter from a Chinese
publisher asking me to write a preface to a pirated edition of
one of my textbooks. As an academic, I was enthusiastic
about the idea. The motivation of much academic writing is
not to make money but to influence ideas and to shape the
intellectual debate. China at the time was beginning the
transition to a market economy: if my book helped shape
that transition in a way that enhanced its likely success in
raising the living standards of more than a billion people, it
would have been a major accomplishment. Looking at it even
in more narrow terms, if even 1 percent of China’s billion
people read my book, it would be a larger readership than I
would ever get in America.
My publisher, of course, was not as thrilled as I was about
the notion of my ideas reaching the Chinese audience
through a pirated version of my textbook.”
Source: Stiglitz, Joseph
(2008), “Economic
Foundations of
Intellectual Property
Rights“, Duke Law
Journal, 57 (1): 16951696.
Introduction
“Later I was at a conference in Taiwan. At that time, I knew
that intellectual property rights were not always strictly
enforced there.
During a break in the conference, I had a little time to go to a
bookstore. As I went to the store, I had a debate in my mind
about what I hoped to see when I arrived. On the one hand,
there was the possibility that they had stolen my intellectual
property, that they had pirated one or more of my books. As
we all know, theft is a terrible thing, and stealing intellectual
property is a form of theft, so that would have been terrible.
The other possibility was that they had not pirated one of
my books and stolen my intellectual property, that they had
ignored me. As I walked to the bookstore, I came to the
conclusion that being ignored is far worse than having one’s
property stolen, and I resolved that I would actually be much
happier if they had stolen my intellectual property than if
they had ignored me.
When I got to the bookstore, they had in fact stolen it, and I
was relieved.“
Source: Stiglitz, Joseph
(2008), “Economic
Foundations of
Intellectual Property
Rights“, Duke Law
Journal, 57 (1): 16951696.
Economics of
IP: Theory
Economics of Intellectual Property:
Theoretical Considerations
• The protection of the intellectual property is one of the areas in
which the market cannot provide the most favourable outcome for
the society. If there is no protection, there will be no innovations
and technological progress, implying lower rates of economic
growth and lower quality of life.
• The economic theory qualifies this as a domain of market failure
and for these reasons, it justifies the state intervention and the
protection of the intellectual property.
• More precisely, the economics of intellectual property relies upon
the insights of the public good theory, by which it explains why the
unregulated markets cannot sufficiently stimulate the creativity
and production of original work.
Economics of
IP: Theory
Are the Intellectual Property Rights Public
Goods?
• Public goods are neither excludable nor rival. That is,
people cannot be prevented from using a public good,
and one person’s enjoyment of a public good does not
reduce another person’s enjoyment of it.
• The two main features of the public goods are:
– Non-rivalry - the consumption of a good by one
consumer does not prevent the others to enjoy it,
and
– Non-excludability – once it is produced, it is
impossible to exclude somebody from their
consumption.
Economics of
IP: Theory
Are the Intellectual Property Rights Public
Goods?
• The knowledge is an example of a public good. The
additional user of knowledge does not reduce the quantum
of existing knowledge.
• In contrast, the private goods are characterized by rival
consumption. If I eat this sandwich, the next consumer
cannot eat it (the fast food restaurant must prepare a new
one).
• The knowledge has a different character: if somebody
shares his or her knowledge with us, that will not reduce
his or her quantum of knowledge.
• For instance, Thomas Jefferson describes this much more
poetically by using the candle as an example: “Knowledge is
like a candle. Even as it lights a new candle, the strength of
the original flame is not diminished.”
Economics of
IP: Theory
Are the Intellectual Property Rights Public
Goods?
• Since the ideas and knowledge play a prominent role in
promoting the economic growth, the society strives to
stimulate the “production” of knowledge. On one hand, it
would be much more efficient for the economy if there is a
free access and distribution of knowledge.
• However, providing the public goods creates costs. As no one
can be excluded from their use once public goods are
provided, there is no incentive to pay for them.
• Put differently, the free access to knowledge does not
provide sufficient incentives for production of innovations.
Economics of
IP: Theory
Are the Intellectual Property Rights Public
Goods?
• One of the mechanisms to incentivize individuals and
firms to engage more in creative work is of course to
protect the intellectual property.
• This creates new problems: the intellectual property
rights restrict the use of knowledge and lead to
inefficiency. Even worse, they often create monopoly
power and enable the creators to exclude many
potential clients from the use of their knowledge.
• Since the intellectual property rights exclude those
who have not paid for their use, they are considered as
impure public goods. They are non-rivalrous, but
excludable!
Economics of
IP: Theory
The intellectual property as an impure public good
Four types of
goods
Are the
goods
excludable?
Are the goods rival?
Yes?
No?
Private Goods
Natural monopolies
Yes?  Food
 Clothing
 Fuel
Common Resources
 Water supply system
 Railway infrastructure
 Fire protection
Public Goods
Intellectual
property
rights
No?
 Air
 Fish in the ocean
 National defense
 Knowledge
Economics of
IP: Theory
Static or dynamic efficiency?
• Due to this nature of the intellectual property, the society
must make a choice (trade-off) between the static and
dynamic efficiency.
• The static (or short-term) efficiency requires a wide access to
new knowledge for the users at low costs. This suggests that it
would be preferable to move straight from the invention phase
to the public domain and bypass the protection phase
(Lévêque and Ménière, 2004, p. 7).
• The dynamic efficiency requires incentives for investing in new
knowledge and information (research and development). The
incentive is the protection phase. Without the protection
phase, the producer will not be able to recover his R&D
expenses and therefore, the invention will not be produced.
Economics of
IP: Theory
From theory to practice
• Therefore, the countries that have a weak system of
protection of the intellectual property favour the
static efficiency, but they discourage the creative work
of individuals and firms.
• The consequences are as follows: lower rates of
economic growth, limited domestic cultural production
and low quality products.
• The countries that have a strong system of protection
of the intellectual property suffer from insufficient
dissemination of the newly produced knowledge and
tolerate the monopoly power of the holders of the
intellectual property rights. However, they strongly
support greater level of creativity.
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
1. Lower market prices
– If the country tolerates copyright infringement, for example, the
consumers will enjoy lower market prices.
Market for the legitimate copyright
product (monopoly)
Price
Market for a pirated unit
(perfect competition)
Price
d
МC
500 MKD
MC
d
1000 CDs
Quantity
100 MKD
d=P=MR
5000 CDs Quantity
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
2. The level of protection of the intellectual property in
the high-tech industry is irrelevant for the developing
and transition countries
– Even if there is a very strong protection of the patents, there are
no close substitutes for the patent-protected products.
– When providing the patent protection, the creator does not
publish all important information. At least, this is relevant for
many developing countries. Therefore, even highly specialized
professionals could not replicate these innovations once the
patent expires.
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
3. The patent protection restricts the access to
important medicaments for a large portion of the
world population
– Several billions of people do not have an access (or have a
very limited access) to medicaments of vital importance for
them.
– Stiglitz (2008) argues that the Trade-Related Aspects of
Intellectual Property Rights agreement (TRIPS) is a triumph
of the giant pharmaceutical corporations, because it
restricts the access to life-saving medicines. The
pharmaceutical industry does not like generic medicines,
as they are sold at much lower prices.
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
– An example: One-year anti-retroviral therapy for an
AIDS infected person with branded (experimental)
medicaments costs approximately 10,000 USD. Many
patients, including those from Macedonia, cannot
afford this. But, the patients could pay for the generic
medicines that today cost approximately 200 USD.
– According to Stiglitz (2008, p. 1701), “when the trade
ministers signed the TRIPS agreement in Marrakesh in
the spring of 1994, they were in effect signing the
death warrants on thousands of people in subSaharan Africa and elsewhere in the developing
countries.”
Case study: The North-South tensions for the
intellectual property rights
• The enforcement of the intellectual property rights is in favour of the
developed economies (“the North”), because they create the largest portion
of the newly created knowledge (World Bank, 2008).
• This restricts the access to new knowledge for millions of people, especially
in the area of public health.
• A recent study by Mendis et al. (2007) examined the prices of 32 life-saving
medicaments. The conclusion is that the patent-protected medicines, on
average, were 34% more expensive than the cheapest generic medicines in
Bangladesh, 40% more in Nepal, 90% more in Pakistan, 135% more in Brazil,
175% more in Sri Lanka and 257% more in Malawi.
• In the Republic of Macedonia, the price of patent-protected medicines is ten
times higher than the generic ones (Source: Health Insurance Fund, 2011).
Medicament
Therapy class
Lowest price for
patent-protected
medicine
Price of generic
medicine
DIDANOSINE
HIV-1 и HIV-2
288 $
132 $
NEVIRAPINE
HIV-1
219 $
48 $
RITONAVIR
HIV-1 и HIV-2
190 $
83 $
Source: Médecins Sans Frontières (2006).
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
4. The protection of intellectual
property stimulates the
accumulation of “sleeping
patents”
– Sleeping patents are those that
are intentionally not used by the
patent holder in order to fulfill
some strategic goals. In most
cases, they remain in the shelves
of the managers because of the
fear that they have a potential
value, that might be used by the
competitors or firms from other
industries.
– It is estimated that IBM, Siemens
and Philips use only 40% of their
patent portfolio.
Why do they sleep a lot?
There are many examples when the companies
have published their invention and this enabled a
spectacular commercial success in other
industries.
The invention of glass-producing company
Corning made it possible to invent high quality
cables in the telecommunications sector.
The Olestra molecule designed by Procter &
Gamble, initially planned as a low fat product for
the food industry facilitated huge profits for the
companies that used it for the decontamination of
the soil.
The technological advancement by Boeing for the
needs of the military industry ended as a profit for
Touchbridge Systems, a company that offered
integrated network system for the home.
For these reasons, many patent applications or
even patents do not have a commercial use and
“sleep” in the company shelves.
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
5. Abuse of the dominant
position or the
monopoly power
– Granting monopoly rights
over certain patentprotected product creates
an incentive to abuse the
dominant position or the
monopoly power.
– Many companies are
trying to prolong the
patent life, by introducing
small, incremental
improvements of the
product and then by
requesting new patent
protection.
Bad news for NOVARTIS
A victory for the “rights of patients over patents! In July
2007, the High Court in Madras refused the request by
the Swiss giant „NOVARTIS“ to enable patent protection
of slightly modified medicines. Novartis asked the High
Court in Madras to clarify a key element of India’s 2005
patent legislation. The law denies patent protection to
new versions of drugs invented before 1995.
If the request was approved, the Indian companies would
have been prevented from manufacturing generic
versions of Gleevec, which they sell domestically and
internationally for about a tenth of what Novartis charges.
The Swiss company charges $2,600 for a month’s worth
of the drug.
See more: Amelia Gentleman, Setback for Novartis in India
Over Drug Patent Protection, N.Y. TIMES, Aug. 7, 2007.
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
6. High costs related to the patent system
– For the society, the protection of the intellectual
property involves rather high costs.
• Duplication of the efforts to discover innovation first
(patent race)
• High fees for registration and patent renewal
• High costs for translation to fulfill the requirements of
the European Patent Office.
– Still, for a small group in the society – the IP
lawyers – this brings immense monetary benefits
and reputation.
Weak IP
regime
The advantages of the weaker protection of the
intellectual property
Figure 1: When do patent costs kick in?
Source: Van
Pottelsberghe (2009).
Note: Author’s calculations, EPO fee structure as of May 2008 and renewal fees at national patent offices. Translation costs, which occur after
the grant of the patent, are taken from van Pottelsberghe and Mejer (2008) and take into account the cost reduction brought about by the
London Agreement. EPO6 stands for validation in 6 EPC countries, EPO13 stands for validation in 13 EPC countries. Costs in €1000.
Strong IP
regime
Arguments for a stronger protection of the
intellectual property
1. Sectors that rely on IPR protection are substantial
contributors to the economy
– In the G8 countries, copyright-based industries and
interdependent sectors alone account for approximately 411% of Gross Domestic Product (3.4% in Japan, 4.7% in
Canada, 6.06% in the Russian federation, 6.9% in the
European Union, and 11.09% in the United States).
– Research in Germany has found, for example, that the
branded goods sectors represent 22% of the domestic
manufacturing industry, 20% of the country’s exports, and
7% of the overall economy.
Strong IP
regime
Arguments for a stronger protection of the
intellectual property
12.0
10.0
8.0
6.0
4.0
2.0
GDP
Employment
Uruguay
Ukraine
Romania
Philipines
Paraguay
Mexico
Lebanon
Jamaica
Colombia
Chile
Bulgaria
0.0
Brazil
 The World Bank studies
devoted to the developing
countries find that the
industries that are
protected from the
infringement create
between 2% and 6% of the
gross domestic product and
account for between 3 and
11% of the total
employment.
Figure 2: Significance of IP-protected
industries
Argentina
1. Sectors that rely on IP
protection are substantial
contributors to the
economy (cont.)
Strong IP
regime
Arguments for a stronger protection of the
intellectual property
 The empirical analysis by Arora et al. (2003) demonstrates that the
patents have a positive influence on the investment in research and
development (R&D).
 Without the IP protection, these costs would be between 25% and
35% lower in the developed economies.
 The patented inventions, on average, were sold at prices that were
180 and 240% higher than those for the same products not
protected with patents. This is also known as a patent premium.
 The patent premium is defined as the incremental profit due to
patent protection as compared to the value of an innovation
without patent protection.
Strong IP
regime
Arguments for a stronger protection of the
intellectual property
2. Enhanced IP protection leads to larger FDI inflows
and transfer of new knowledge
– Many researchers underscore that there is a direct
relationship between the enhanced protection of
intellectual property and the foreign direct investment
inflow.
– After the reform of the patent and trademark laws in India
at the beginning of the 1990s, the country experienced
large FDI inflows.
– The same phenomenon occurred in Brazil: after the
adoption of the new Law on industrial property in 1996,
there was a dramatic turnaround and unprecedented
interest by the foreign investors.
Strong IP
regime
Arguments for a stronger protection of the
intellectual property
– The comprehensive study by Park and Lippoldt
(2007), conducted with a sample of 120 countries
during the period between 1990 and 2005,
demonstrated that the protection of intellectual
property stimulates the FDI inflows.
– More than 25% of the U.S., Japanese, and German
high-tech corporations do not want to invest in
countries with weak protection of intellectual
property.
Strong IP
regime
Arguments for a stronger protection of the
intellectual property
3. The protection of intellectual property enhances the country’s
competitiveness and increases the level of economic
development
• According to the Global Competitiveness Report, published by the World
Economic Forum, there is a strong and positive correlation between the
competitiveness of an economy and the protection of the intellectual
property rights.
• The correlation shows dependence between the two phenomena, but
nothing about the causality.
• What is true?
– One country strengthens the IP regime and then builds a competitive
economy?
– Or, the country manages to build a competitive economy and then
strengthens the protection of IP rights?
– Most probably, there is a bidirectional causality.
Strong IP
regime
Arguments for a stronger protection of the intellectual property
Protection of the
intellectual property rights
Figure 3: Correlation between the IP
protection and country’s competitiveness
Global competitiveness of the country
Source: http://www3.weforum.org/ docs/WEF_GlobalCompetitivenessReport_2010-11.pdf.
Strong IP
regime
Arguments for a stronger protection of the intellectual property
• The protection of the IPRs is also strongly and positively
correlated with the level of economic development, most
commonly measured by the country’s GDP per capita.
• The countries that have higher GDP per capita have also higher
index of protection of the intellectual property rights (Source:
World Economic Forum, 2012).
• According to the Global Competitiveness Report rankings,
Macedonia stands on the 89th position out of 142 countries.
• Finland has the best score in the world in terms of intellectual
property protection, including anti-counterfeiting measures.
Strong IP
regime
Arguments for a stronger protection of the intellectual property
Top 10 IP protectors
Top ten
Country
South Eastern Europe
Score
Rank
Country
Score
1.
Finland
6.2
41.
Slovenia
4.2
2.
Singapore
6.1
57.
Montenegro
3.7
3.
Switzerland
6.1
69.
Croatia
3.5
4.
Sweden
6.0
89.
Macedonia
3.1
5.
Luxembourg
5.9
94.
Albania
3.0
6.
Denmark
5.9
98.
Romania
3.0
7.
France
5.8
100.
Bulgaria
2.9
8.
New Zealand
5.8
107.
Serbia
2.7
9.
Netherlands
5.8
108.
Turkey
2.7
10.
Ireland
5.7
121.
Bosnia&Her.
2.6
Strong IP
regime
Arguments for a stronger protection of the intellectual property
Country’s GDP per capita and its protection of the intellectual
property rights in 2010
GDP per capita (in U.S. dollars)
100,000.00
90,000.00
80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
МК
20,000.00
10,000.00
0.00
1.5
2.5
3.5
4.5
Intellectual property protection
5.5
6.5
Strong IP
regime
Arguments for a stronger protection of the intellectual property
4. The protection of intellectual property is in favour of the
small and medium enterprises (SMEs)
- SMEs are important drivers of innovativeness and creativity.
- In the past two decades, the investment in research and
development by the SMEs have increased threefold.
- SMEs have much higher share in the product innovations
compared to the large companies (2.4 times more
innovations than in the large companies).
Reform
proposals
Proposals for reforming the system of
protection of the intellectual property
 Stiglitz (2008) argues that the intellectual property
rights are important, but the importance of IPRs has
been exaggerated, as they form only one part of the
innovation system.
 He underscores that there are other efficient
mechanisms to motivate the firms and individuals to
create and innovate, such as:
 Government-funded research, and
 Prize system;
 The central idea he proposes is to drastically reduce
the scope, duration and breadth of the IPRs.
Reform
proposals
1. Government subsidies and grants for the
universities’ research laboratories
 The government would announce a call for research
proposals and than sponsor only some of them.
 For instance, in the United States, the research in the
defense and airspace industry are dominantly financed
by the government agencies.
 With a due respect to the Nobel prize winner in
economics, Professor Joseph Stiglitz from the University
of Columbia, most economists argue that the
government-supported research has not been
sufficiently effective in stimulating the diffusion of new
knowledge.
Reform
proposals
2. Prize system
 One alternative to the patent system is called the prize system. This
entails giving a prize to whoever comes up with an innovation, or at
least those innovations that meet announced objectives.
 The prize would be set in accordance with the estimated contribution
for the society. The Royal Society of Arts and Technology in UK have
been advocating and even using prizes to incentivize the
development of needed technologies for some two centuries.
 One of the widely discussed ideas for addressing this problem is a
guaranteed purchase fund, where the World Bank or the Gates
Foundation would guarantee one or two billion dollars to someone
who discovers (and patents) a vaccine or a cure for AIDS or malaria or
some other disease afflicting the developing world for the purchase
of the drug Stiglitz, 2008).
Source: Stiglitz (2008).
Conclusions
Concluding remarks
• How we regulate and manage the production of knowledge
and the right of access to knowledge is at the center of how
well this new economy, the knowledge economy, works and
of who benefits (Stiglitz, 2008).
• Economists have ambivalent feelings about the intellectual
property. The fact that you have a property right does not
mean you can abuse the monopoly power you were granted.
• Each country has a different commitment to the protection of
the intellectual property, including anti-counterfeiting
measures. Choosing the strength of the IP regime must rest
on a sound analysis of the economic costs and benefits for the
society.
Conclusions
Concluding remarks
• The empirical research reveals a U-shaped relationship
between the strength of a country’s IPR regime and the
country’s per capita GDP using a cross-section sample of
countries (Maskus (2000) and Chen and Puttitanun
(2005)). As countries develop, their IPR regime will
weaken before it is strengthened.
• Many economists believe that the developing countries
must not have strong IP regime in the early stages of
their development. In the more advanced stages of their
development, the local innovators and foreign
competitors will request strengthening of the IP regime.
It is advisable that the national authorities fully support
their calls.
Conclusions
Concluding remarks
• Proponents of stronger IPR protection in developing
countries often invoke, implicitly or explicitly, the
dynamic efficiency hypothesis. It suggests that stronger
IPR would lead to more resources committed to
building up the indigenous R&D capability of the
developing country firms, while inducing a higher rate
of technology transfer from developed countries to
developing countries (Hu, 2002).
• Stiglitz (2008) and other economists argue that this
argument is in favour of the multinational
corporations, which managed to impose this reasoning
under the umbrella of the TRIPS agreement.
References
• Arora, Ashish; Marco Ceccagnoli, and Wesley M. Cohen (2003), “R&D and
the patent premium”, NBER Working Paper No. 9431, National Bureau for
Economic Research, Cambridge, Mass.
• Lévêque, François and Yann Ménière (2004), The Economics of Patents and
Copyright, Paris: The Berkeley Electronic Press.
• Stiglitz, Joseph (2008), “Economic Foundations of Intellectual Property
Rights“, Duke Law Journal, 57 (1): 1695-1696.
• Mendis, Shanti; Keiko Fukino; Alexandra Cameron; Richard Laing; Anthonio
Filipe; Oussama Khatib; Jerzy Leowski, and Margaret Ewene (2007), “The
availability and affordability of selected essential medicines for chronic
diseases in six low- and middle-income countries”, Bulletin of the World
Health Organization, 85 (4): 279-289.
• Van Pottelsberghe, Bruno (2009), Lost property: The European patent
system and why it doesn’t work, Bruegel Blueprint No. 9, Brussels.