IPRs, Innovation & Development

1. IPRs, Innovation & Development Keith E. Maskus UPF, Barcelona June 11, 2005

2. Questions raised • What is the ¨current system¨? • Which IPRs do we mean? • What do we mean by innovation and are IPRs a stimulus?

3. The current system • TRIPS • Set of minimum standards in comprehensive fields; • Permits some limitations and safeguards; • Applies to all WTO members and prospective members; • Legislation in LDCs is far from complete; • Endemic enforcement and compliance problems.

4. The current system • WIPO Conventions and newer treaties on copyrights and performance rights. • ¨TRIPS-Plus¨ standards imposed by US and EU in bilateral trade agreements. • Evolving protectionist standards in databases (EU), patents and digital copyrights (US), etc. • System has moved toward harmonization but far from it, even among developed countries.

5. What IPRs do we mean? • Trademarks and related devices; • Copyrights for cultural goods and software; • Plant variety rights; • Patents, utility models, design protection; • Trade secrecy; • Confidential test data.

6. Objectives of a balanced system of IPRs • Ex-post market power to stimulate ex-ante investment in innovation; • Commercialization of new goods; • Publication and diffusion of new information; • Support markets for trading technology and information; • Consumer guarantees of product origin; • Support complex multi-actor transactions.

7. Potential positive impacts on development • Promote technical change, both internal innovation and imported technology; • Broader domestic and foreign markets; • More cultural goods created; • Commercialization of traditional knowledge; • More products for DC markets

8. Potential negative impacts on development • Support marker power in presence of weak competition; • Block follow-on innovation and restrict imitative competition; • Raise costs of inputs, medicines, agricultural technologies; • Restrict fair-use access to educational, scientific, and cultural materials; • Quasi-permanent shift in terms of trade.

9. Evidence is scarce in developing countries • Studies tend to use aggregate data (need more micro surveys); • Most IPR reforms are recent or ongoing (TRIPS); • IPRs are only one factor in technical change and competition processes; • Significant causality problems.

10. Some practical observations • Problems of consumer confusion and product quality are endemic in poor countries and weak TM protection deters entry and product innovation. • Cultural industries have been damaged by weak incentives and CRs could help resolve them. • Trade secrecy in labor contracts can resolve some appropriability problems.

11. Economists think of patent reforms and invention • Weak prospects for promoting local invention from stronger patents: • Vast disparity in international patenting. • Lerner’s historical study; • Branstetter’s work on Japan; • Declining patent registrations by Mexican companies post-reforms. • Rise in Korea’s patenting after lag; • Little evidence of productivity spillovers from patents. • But this is not very surprising; neither old system nor TRIPS could expand domestic R&D for patentable inventions except with a lag.

12. Domestic patents may not be the important innovative factor. • Inward technology transactions seem to be improved by reforms in patents and trade secrets. • Sensitivity of FDI; • Licensing and externalization; • Markets for technology services • This seems the case for middle-income economies but no evidence for poorest countries. • Trade secrecy can be key for acquiring know-how. • Trademark protection can encourage local firm entry and product development. • Weak copyrights can deter domestic development of software, music and films.

13. Significant potential for higher costs • Imitation prospects diminished and weaker bargaining position on technology transfer; • Patents on mature technologies can be damaging for acquisition prospects. • Patents on medicines and weak prospects for compulsory licenses; • Adoption of strong protection for plant varieties could diminish local experimentation; • “TRIPS-Plus” standards in pharmaceuticals and electronic technologies. • Database protection and limitations on fair use in copyrights.

14. Is the system stimulating innovation? • Always a difficult question to answer. • Old system was not effective for LDCs. • Weak IPRs have been an effective component for technology adoption in some fast-growth economies. • New system (TRIPS) should generate somewhat better conditions for local innovation in middle-income economies. • Little direct impact in poorest countries. • Prior system failed in promoting innovation in public goods for poor countries.

15. But fundamental concerns arise. • Market power in countries with weak dynamic competition processes. • Costs of procuring public goods (health care, education) subject to private rights. • Costs of imported seed varieties. • Potential for TRIPS to concentrate innovative activity even more in OECD, with quasi-permanent shift in terms of trade.

16. Policy ideas: Need for ensuring differentiation and “policy space” • IPRs matter little for poorest countries and needs (priorities) are broader. • IPRs can be pro-innovation and pro-competitive in middle-income countries if structured flexibly. • Experimentation with standards in developing countries may be important. • May need a moratorium on global standards setting (WIPO, TRIPS Plus).

17. Policy ideas: Multilateral approaches • Dedicated funding sources for technical assistance and administraton. • Northern competition policy enforcement on behalf of South. • Technology transfer: • Liberalized visa programs for temporary movement of entrepreneurs and engineers; • Non-discriminatory tax advantages for ITT: • Move basic scientific results faster into the public domain.