In China And India, Stronger Intellectual Property Is Unnecessary

from the red-herring dept

This is the fifth post in a series of posts looking at the question of intellectual property rights in both China and India. We'll be adding new posts to this series each week for the next few weeks.

Access Is More Important Than "Incentive"

China and India are countries of enormous internal economic differences, primarily stemming from productivity gaps. The technologies that enable world-class economic efficiency in some parts of China and India need to be diffused throughout the country, but the monopoly pricing associated with IPR limits the ability of the poor to access empowering technology.

Despite the presence of high-tech hubs like Bangalore and Hyderabad, India ranks 63rd out of 72 surveyed countries for the Technology Achievement Index (Dahlman 2005). In China, Beijing and Shanghai have knowledge-intensities 6.1 and 5.3 times the national average, respectively (Dahlman 2001).  These disparities indicate an inability to effectively diffuse innovations, likely resulting from the higher prices and protectionism associated with increased intellectual property. The low productivity in most Indian enterprises indicates an enormous opportunity to make better use of existing knowledge; one analysis “implies that the output of the Indian economy could be as much as 4.8 times higher if enterprises were to absorb and use the knowledge that already exists in the economy” (Dutz 2007). Intellectual property is certainly an important factor, but not the only factor preventing this diffusion: after all, India's remarkable agricultural productivity growth known as the Green Revolution took place prior to global intellectual property harmonization.

Because R&D requires much more than financial incentives (educated workforce, infrastructure, etc.), close to 80% of global R&D is carried out in the developed world. Therefore, innovation in the developing world is more appropriately adoption and adaptation of existing technology. Instead of hoping that increased intellectual property will attract it (likely a fool's errand), there are other ways to access global knowledge such as reverse engineering, imitation, utilizing diaspora linkages and networks, and simply purchasing knowledge-embodying goods. Even with broadly condemned intellectual property policy, China and India remain highly desirable locations for the R&D labs of major international corporations. Several surveys indicate that India is the preferred location for innovation centers, likely stemming from the critical mass of low-cost, highly-skilled knowledge workers – the average annual salary of a scientist or engineer in India is $22,600, compared to $90,000 in the United States. Additionally, given the ability to digitize and internationally transfer much of their work, India is attractive regardless of concerns about intellectual property infringement (Dutz 2007). And the benefit to India is impressive:

“Between 1998 and 2003, MNCs made $1.3 billion in R&D investments in India. More than 300 MNCs are setting up R&D and technical centers in India. They employ 80,000 scientists and engineers and spend about $4 billion a year. Planned investment totals $4.7 billion… The growth of MNC R&D centers generates positive spillovers to the Indian economy, with the demonstration effect to indigenous corporations being the most critical” (Dutz 2007).

Although MNCs state their preference for higher intellectual property, a recent study noted that “it is unlikely that product patents will make a dramatic difference to their choices;” instead a change in IP will likely most affect domestic firms who are increasing amount and type of R&D without the incentive of intellectual property (Lanjouw 1997). India, and China where a similar trend is present and increasing, can further their attractiveness to FDI through tax breaks, increased liberalization and actively utilizing their diaspora.

Unnecessary for Innovation. Period.

Stronger intellectual property may also be unnecessary in another way. Although they are promoted as a tool for enhancing economic competitiveness, readers of Techdirt will know that their effectiveness is, at most, questionable. In the 1980s, there was a boom in American patenting activity, seemingly corresponding with changes to intellectual property laws that were made in response to worries about diminishing national competitiveness (Dahlman 2001). A measure of useful innovation, Total Factor Productivity, should have increased accordingly with the rise in useful, novel and non-obvious inventions, but this has not been the case (Boldrin 2008), providing compelling evidence that, contrary to common usage, patent activity is not equitable with economic benefits.

But even if we take patent activity as a reliable indicator of useful innovation, the case for stronger IP is doubtful. Strengthened intellectual property is unlikely to have caused the increase in American patenting in the 1980s: a study of patent reforms over 150 years in 60 countries confirms “that reforms have few positive effects on patent applications by entities based in the country undertaking the policy change” (Lerner 2002).

If traditional patents are not indicative of innovation and productivity-enhancement, is it possible that newer, related exclusive rights could do so? One such right, known as Plant Breeder’s Rights, provides patent-like protection to agricultural innovations. Here again, the evidence fails to provide compelling support for monopoly rights. The premier international treaties on the subject, the PVPA/UPOV, have not led to an increase in experimental or commercial wheat yields; instead, agricultural rights take away from the public domain seeds by allowing commercial entities to patent hardly novel strains. When enforced, these exclusive rights price previously affordable agricultural inputs beyond the means of the millions of subsistence farmers in China and India (Boldrin 2008).

Instead of focusing on intellectual property as the sole source of incentive for innovation, China and India should actively explore and promote ways in which to promote investment in public goods without bringing the distortions of monopoly rights.  As legal scholar Larry Lessig writes in The Future of Ideas, “There is no necessity to marry the incentive to innovate to conferral of monopoly power in innovations” (Lessig 2002). Digital, networked technology expands the ability for people to collaborate across time and space, significantly decreasing the up-front costs of innovation that intellectual property seeks to recuperate through exclusive rights. Models of open source innovation have proven spectacularly successful in software development where innovation is a cumulative and competitive process (Jaffe 2004). Open licensing models also hold promise in biotechnology where much of the research costs are provided by academic researchers who have an interest in promoting knowledge widely (Kapczynkski 2005). In fact, IT and biotechnology were successful in large part due to the freely available research made possible by university knowledge (So 2008). Funding can also be provided by non-profit entities such as government-awarded prizes for socially desirable innovations (Love 2007). Finally, even in a market without intellectual property, large up-front costs associated with innovation can be recouped through trade secrecy and the first-mover advantage (Jaffe 2004).
Other posts in this series:

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  1. icon
    Mike Masnick (profile), 24 Jul 2009 @ 7:30pm

    Re: Re: Re:

    Good lawyers use laws as tools. If one of the tools is broken or lost, they simply look for another one that will suit a client's needs. Hence my opinion that even the wholesale elimination of patent and copyright laws would simply substitute one "devil" for another.

    Then why not deal with each devil rather than pretending that "oh well, we know this devil, and we know it's bad, but let's not do anything about it."

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