George Barker Centre for Law and Economics Australian National University

1. Intellectual Property 2.0:The Role of Patents in Investment and Collaboration George Barker Centre for Law and Economics Australian National University CIPC and ICC- BASCAP

2. Background • OECD is working on an Innovation Strategy designed, “to foster economic growth and to tackle the major global and social challenges of our time: persistent poverty, unemployment, climate change, water management, and health care, especially as our populations age.” • The OECD has created a website with relevant resources on the strategy which is directly accessible at www.oecd.org/innovation/strategy. /0,3343,en_2649_37417_42982163_1_1_1_1,00.html CIPC and ICC- BASCAP

3. Background • The OECD’s Innovation Strategy aims to develop: • A set of principles that spans across the entire policy arena (whole of government approach) on governance systems for promoting innovation and assessing its impact. • A framework for dialogue and review at the national and international levels. • Thematic, country and cross-country analyses and best practices. Conclusions will focus on methods for effective promotion, reporting, measurement and assessment of innovation. • An Innovation Performance Scoreboard. • A list of best practices and recommendations for a coherent policy approach to tackle global challenges such as climate change. CIPC and ICC- BASCAP

4. Background • Although the OECD’s Interim report correctly acknowledges that “innovation entails investment aimed at producing new knowledge and using it in various applications”, it fails to emphasize the critical role of intellectual property rights in encouraging not only investment in new knowledge but also in collaboration in the knowledge eco-system. • There is indeed only one passing reference to intellectual property rights in the entire report CIPC and ICC- BASCAP

5. Background • The one passing reference to intellectual property rights in the OECD’s Interim report occurs at the end of the discussion of knowledge markets, where it is noted that: “Steering markets toward innovation and attracting outside investment also depends on an effective and balanced intellectual property regime.” • Perhaps inadvertently, the impression one gets from the report overall is that, while innovation “also depends” on IPR, IPR may not be a significant factor. Moreover, little guidance is given on what “an effective and balanced intellectual property regime” might look like. CIPC and ICC- BASCAP

6. Background • The OECD tends instead to emphasizes the fact that recent trends have led to “increased specialisation, within the value chain, increased collaboration and partnering, and the growth of knowledge markets” • involving “new forms of knowledge sharing and exchange between firms, individuals and institutions” • Yet as we shall see knowledge markets like traditional markets need property rights to function. CIPC and ICC- BASCAP

7. Background • This gap in analysis is consistent with related academic work • For example in September 2008 a group chaired by Richard Gold of McGill University released a report entitled “Toward a New Era of Intellectual Property: From Confrontation to Negotiation” • Lets call it “The Gold Report” • Seehttp://www.theinnovationpartnership.org/data/ieg/documents/report/TIP_Report_E.pdf (last accessed 1 July 2009) CIPC and ICC- BASCAP

8. The Gold or McGill Report • It describes the current IPR regime as “Old IP” claiming that it has: • “hampered access to new goods and services by those who need it most.”p16 • “hampered business innovation” p29” • “proved counterproductive to industry, which has in health fields seen declining levels of innovation” p7 • “proved counterproductive to the world’s poor” p7 and • ‘never really been about creating new inventions’ p28 CIPC and ICC- BASCAP

9. Economic Theory & The Effects of IPR • The “Classic” Investment Effect – mid late 1960’s • Free Riders, Under-investment & Exclusion • Harold Demsetz Information and Efficiency 1969 J.L. & ECON. • The Contractual Effect - and Collaboration • Heller ‘s & Eisenberg’s “Anti-commons” Thesis • Epstein and Buchanan response • Kitch’s ‘prospect theory’ 1977 • Kief’s “Beacon and Bargain theory” (2007) YALE L.J. POCKET PART CIPC and ICC- BASCAP June 22 2010

10. Empirical Evidence • In a general review of the role of intellectual property in innovation, Ove Granstrand has concluded: “In summary, IPRs, particular patents, play several important roles in innovation systems – to encourage innovation and investment in innovation, and to encourage dissemination (diffusion) of information about the principles and sources of innovation throughout the economy. However … the importance of these roles varies across sectors (industries) and countries, and over time” The Oxford Handbook of Innovation, Oxford University Press, 2005 CIPC and ICC- BASCAP June 22 2010

11. Conclusion Economic Theory generally predicts IPR will increase R&D, innovation and economic Growth Empirical Evidence is supports this result The key need is for further empirical work CIPC and ICC- BASCAP June 22 2010