Much has been made about the iPad as a consumptive, rather than creative, device. Some, including law professor Tim Wu at a recent New America event, have voiced concern that it heralds the end of a golden era of user-generated content. But to truly understand the importance and impact of user-generated content – including on the traditional media that Clay Shirky has recently argued are fatally too complex to survive – we must have better measurement of the phenomenon. Without reliable data and sensible comparative metrics, it is impossible to say if we have even experienced a golden age of open creative possibility.

For example, nearly two years ago in response to Shirky, Nick Carr bristled at the idea that the Web was the necessary component for creative production, participation and sharing. According to Carr, the people he knew back before the Web were also creating – writing, photographing, drawing, constructing and volunteering. This is undoubtedly true, but because technology did not enable the inexpensive recording, archiving, sharing and finding of this creativity, it went largely unnoticed. Of course, cheaper technology almost certainly does enable more creative production, but how much is hard to say.

When Shirky notes that an amateur video of two children has garnered more views than American Idol, Dancing with the Stars, and the Superbowl combined, it is comparing apples and oranges. A minute video hardly competes with the Superbowl for eyeballs; certainly the Internet has opened opportunities to competitors to the Superbowl, but let’s compare those. The problem is, we don’t currently have the categories and metrics necessary to make sense of the rise (and potential fall) of creation. Some people are trying to create quantify the impact of blogs on the news cycle, but in regards to other media types, we seem to be ignoring the problem and living off anecdotes. So, how can we move ahead with better metrics for user-generated content and what should those metrics be?

In recent months, a number of folks have argued that the arrival of high-speed bandwidth in Africa represents not an opportunity for economic growth, but a dangerous threat to the world. According to these Western pundits who are, incidentally, often promoting their cybersecurity services, computers and connectivity in Africa either pave the way for terrorists to unleash cyber-attacks or for botnet operators to gather millions of unprotected machines into their control. Although we’ve spent considerable time debunking the hysteria around cyberwar, this new version of the meme is even more unfounded.

Worrying that Africa is going to start producing top-notch hackers in any great quantity seems pretty absurd, when we’re talking about a continent where basic literacy, not to mention programming prowess, is a challenge. When Franz-Stefan writes in one of the articles above, that “skillful cybercriminals operating out of an unregulated Internet cafe in the slums of Addis Ababa, Lagos, or Maputo” will create the world’s biggest botnets, he shows that he has little understanding of those “slums.” For starters, electricity is intermittent enough to make cyberwar a sputtering failure. Secondly, although there are pockets of terrorists on the continent, by and large, elsewhere terrorists have access to far better finances and bandwidth than their comrades in Mogadishu. The fact that those terrorists haven’t used the Internet for these types of attacks with any regularity suggests that they place far more faith in tried-and-true methods of terrorizing, and there is every reason to believe that those in Africa will be the same.

Finally, as Miquel Hudin points out, it is ridiculous (and very likely offensive) to think that Africans are any more likely to keep their PCs insecure than anyone else. An American or European who points to Africa as the source of infected botnet computers is wildly hypocritical considering the enormous number of insecure computers that wealthy, educated Westerners have in their homes and offices. It seems quite unlikely that African computers are any more insecure than elsewhere.

Frantic articles painting Africa as just another threat, especially with regard to a great opportunity for the continent – connectivity – are reckless and miss both on-the-ground context and level-headed responses to the challenges of the continent.

This is the final post in our series on intellectual property in China and India. Feel free to read through the whole thing.

The continued development of the knowledge economies in both China and India requires thoughtful, practical policies that will give the needed incentive and capacity to innovators while providing benefits to as many as possible. In contrast to the beliefs of many, further strengthened intellectual property rights are unlikely to provide a positive impact on the economies of China and India. Instead, the two emerging giants should dedicate maximum attention to the other ingredients of a knowledge economy while structuring, to every extent possible under international treaty obligations, their domestic intellectual property regime to provide the optimum balance between incentives and access, bearing in mind that to diffuse the gains from existing innovations, the latter is to be favored.

Perhaps the single-most beneficial thing China and India can do to promote innovation and a dynamic knowledge economy is to provide high-quality education for all. This can be done in numerous manners, but it is important that science and technology education is promoted, perhaps even subsidized, to make it more attractive and affordable. Developing highly-skilled workers will provide the creativity and drive essential to the invention, adoption and productive utilization of new technology. While providing training for scientists and engineers, China and India must also create a strong managerial class to absorb and adopt technologies from around the world (Maskus 2000).

Additional policies can promote innovation, as well. Labor laws, especially in India, should be restructured to create maximum mobility and provide competitive salaries for the best and brightest. Government procurement laws, the rules of science and technology ministries and funding sources can be reformed to provide the incentives that intellectual property seeks to create, but without the unintended consequences of limited access and monopoly prices (Graff 2007). Universities, an important source of knowledge, should be connected with industry and receive funding for basic and applied research. Further, economic policies should encourage open competition, macroeconomic stability and a robust ICT infrastructure.

China and India should seek to structure their respective intellectual property regimes to best promote their individual interests, not an unclear global compromise that is driven by nations far wealthier than themselves. China and India are unique due to their size in which advanced capabilities exist in parallel with deep-seated poverty. Although existing international treaties largely confine China and India, they do have some room for flexibility. For example, TRIPs leaves room for domestic standards regarding novelty, nonobviousness and the scope of patent protection (Abramson 2007). This can be used to tilt the intellectual property regime towards second-comers, especially domestic innovators (Reichman 1997). For example, nonobviousness should be interpreted widely, allowing Chinese and Indians to legally utilize overly blatant foreign patents. Disclosure should be strengthened, leading to additional information spillover. And competition laws can be used to curb many of the adverse effects of IP. In the face of overly-strong intellectual property abroad, China and India should structure their legal incentives to encourage long-term competitiveness, establishing an innovation system that will be increasingly attractive to MNCs who find innovation difficult in the West.

A number of specific recommendations are possible, as well. Think tanks and research institutions focused on issues concerning intellectual property should be established with independent, objective and well-trained staff. Both existing IP systems should be run efficiently and with social interests in mind. This means training judges, administrators and bureaucrats in the nuances of intellectual property and their costs and benefits. When addressing university commercialization, India and China should fund and manage research in the public interest, mandating transparency, avoiding exclusive licensing unless necessary for commercialization, and potentially retaining government use rights for resulting innovations (So 2008). Although it has not been the focus of this paper, on the topic of traditional knowledge, China should follow India’s lead in actively defending the public use of exiting knowledge by fighting attempts to reappropriate the public domain through marginal changes to traditional knowledge. India’s successful challenge of patents on neem and Basmati rice provide useful examples (Boldrin 2008). Finally, the capacity of domestic institutions to support limited intellectual property should be strengthened, most prominently by prosecuting misuses of the IP regime (Okediji 2006 PDF).
    
With increased global prominence, China and India should accept their rightful place in the international system. As far as it is in their populations’ interests, they should resist further elevation of intellectual property, seek expanded compulsory licensing capability, and promote exceptions and limitations for educational materials for students.

Above all, China and India should seek consistency and transparency in their intellectual property policies to create a business environment conducive towards investment and innovation. IP should not be strong; IP should be efficient. As an imperfect tool, it should be used pragmatically and critically.

Robust, clear and enforced intellectual property is very likely a part of a successful knowledge economy, but the advantage of strengthened IP is frequently overstated. In contrast to the other parts of a knowledge economy, intellectual property has a tendency to be misused to the detriment of the economy. For both China and India, placing faith in exclusive rights will limit the ability of the impoverished masses to find productive employment and threaten the long-term sustainability of their innovativeness.

Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

This is the sixth post in a series of posts looking at the question of intellectual property rights in both China and India. We’ve got one more post to go.

Why Intellectual Property Is Insufficient For Economic Development In China And India The strong focus on intellectual property presented by advisers to China and India miss the ecosystem in which useful innovation takes place. This ecosystem includes, among other things, education, entrepreneurship and openness. For example, intellectual property can only add to growth when coupled with trade liberalization, something India significantly lacks (Gould 1996). However, because a larger market provides a larger incentive for commercial innovation, some researchers have found that with increased market size should come decreased intellectual property (Boldrin 2005). This finding, that for every 2% of economic growth, the duration of IP should be reduced by 0.5% would have significant implications in rapidly growing China and India, but it receives little to no attention amidst the drive for ever stronger intellectual property. Finally, even though intellectual property may stimulate cross-border licensing of technology, it is unlikely to bring a sudden inflow of foreign investment because other facts account for the variation in the behavior of MNCs in different countries (Fink 2005).
Watch out for the Patent Thicket

As China and India are exhorted to increase intellectual property protection and enforcement to higher standards – “harmonization” in the rhetoric of its proponents – they risk emulating the detrimental IP systems of the developed world. The United States, widely viewed as the most innovative nation in the world, has a patent system that  has, according to Jaffe, "become sand rather than lubricant in the wheels of American progress” (Jaffe 2004). Even more worrying, the trend in international intellectual property is actually speeding past the American level of protection, raising concerns that the incredibly strong IP in countries will diminish, rather than promote, innovative capabilities.

Patent thickets – "a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology" – and the "tragedy of the anticommons" – where "too much ownership… wrecks markets, stops innovations and costs lives" – are useful concepts for policy-makers in China and India to keep in mind as they are encouraged to increase their intellectual property. Instead of being incentives for innovation, 47% of firms are using patent portfolios in negotiations and 50% as defensive protection from lawsuits (Boldrin 2008). If China and India grant patents too broadly, they risk overshooting privatization, likely stunting the domestic growth of complex technologies and innovations whose production will be covered by dozens of competing patent claims (Jaffe 2004). This will only be exacerbated by bad standards that do not restrict exclusive rights to truly novel, useful and non-obvious inventions (Boyle 2008).

Are China and India Overshooting Optimal Intellectual Property?

There is already evidence that the two emerging superpowers are making these errors. East Asian countries are patenting at a per capita rate of 4 times the developed world, leading to quick patent quantity convergence (Brahmbhatt 2007). China, whose patent office led the world with 800,000 applications in 2008, is now also home to the most patent lawsuits per year (“Battle of Ideas”). While, prima facie, the enormous absolute populations of China and India will likely make their patenting activity among the highest, given the relatively small sectors engaged in truly innovative work, these figures are worrying. In fact, the same motivations that have been fingered as the causes of the American patent system’s woes – government downsizing and competitiveness – are currently present in China and India, increasing the likelihood that they follow America’s folly (Jaffe 2004).

Another American policy of uncertain quality that is being emulated in China and India is university commercialization. The Bayh-Dole Act, passed by Congress in 1980, encouraged universities to commercialize their innovations through patents, but its effectiveness is highly suspect. Bayh-Dole changed “academic norms regarding open, swift and disinterested scientific exchange” (So 2008). In India, this is already a concern with 71% of surveyed executives feeling “that lack of collaboration between industry and research institutes was the main hurdle to innovation in India” (Dutz 2007). The facilitators of that exchange, Technology Transfer Offices, have “become gatekeepers that in many cases constrain the flow of inventions and frustrate faculty, entrepreneurs, and industry” (So 2008). Yet, China and India are both encouraging university patents (Graff 2007).

Flying Right Past the USA

Unfortunately, simply recreating the flawed American system is unlikely. The world’s largest economic force, the USA, is actively using its trading power to increase international IP standards beyond the current TRIPs-mandated level. Through bilateral free trade agreements (FTAs) and the multilateral Anti-Counterfeiting Trade Agreement, currently being negotiated in secret, the United States is promulgating even more expansive intellectual property policies. The FTAs have strengthened intellectual property rights beyond the high standard already set by TRIPs in dozens of countries. These measures include extending copyright for an additional 20 years, preventing parallel importation of patented pharmaceutical products, limiting compulsory licensing ability, limiting copyright exceptions and limitations through the illegalization of technological circumvention measures, and explicitly extending patents to biological innovations (Fink 2005 PDF). Countries accept these provisions in return for lower tariffs and better quota allotments, but while those are temporary, the expansive intellectual property policies are not.

In addition to all the previously explained reasons why this is likely detrimental to the developing nations who agree, it is useful to note that these policies promoted by the USTR are deeply hypocritical, especially when it comes to copyright. The United States copyright laws give considerable breadth to consumers through the fair use provision. This limitation on exclusive rights has been estimated to contribute $4.5 trillion per year to the US economy (Rogers 2007 PDF). Consumer International, a nonprofit, ranks the United States as among the best copyright policies in regards to consumer protection; notably, it is joined by China and India, condemned by the USTR and copyright industries as too permissive (“IP Watch List” 2009).

Speaking of intellectual property as unidirectional makes little sense when one recognizes that the benefits are neither clear-cut nor absolute. Additional costs of further strengthened IP in China and India will be higher administrative costs, less imitation, and a decrease in the incremental innovation that provides real growth (Reichman 1997).

Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

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:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

This is the fourth 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.

India and China face profound, perhaps even existential, economic challenges as they seek to continue providing growth for the hundreds of millions of impoverished citizens who demand economic opportunity and empowerment. As low- and middle-income countries, respectively, the desirability of policies that prove charitable to other countries, especially developed ones, is minimal. Yet, evidence from India shows that intellectual property enhancement involves the transfer of rents from poor countries to rich ones. Although proponents of increased IP believe the process is mutually advantageous, the small absolute market size of developing countries like India and China does not provide adequate incentives to change the level or direction of total R&D expenditure (Dutta & Sharma PDF).

Intellectual property harmonization actually allows foreign rights holders to capture profits, obtain jobs, decrease the balance of payments, and cause dependency (Lanjouw 1997). The anti-competitive, monopolistic nature of intellectual property makes it harder for developing countries to gain access to the most valuable technologies needed for economic convergence (Reichman 1997). One study showed that even if stronger intellectual property could accelerate FDI, it would limit the imitative capability of indigenous firms (Lai 1998). Other work found that there is a strong positive effect of intellectual property on domestic imports, leading to a decrease in the balance of payments (Maskus 1995). Moreover, stronger global IP encourages American exports, something India and China should not necessarily favor (Smith 1999). The world’s most successful economies, such as Japan or the United States, rose to prominence by specifically limiting the scope and breadth of patents (Maskus 2000).

Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

This is the third 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.

In the last post, we explained the numerous changes made to strengthen intellectual property in China and India. Yet, to many observers, it has not been enough. Governments, donors, academics and private industry encourage, some more subtly than others, China and India to “harmonize” their domestic intellectual property by strengthening regulations and enforcement.

The Vested Interests

According to the US-China Business Council, an industry group representing American companies operating in China, weak penalties, delayed enforcement and protectionist policies limit China’s ability to become a leading innovator (“Statement of the US-China Business Council” PDF). A survey of its members says intellectual property enforcement is China’s most serious shortfall in implementing WTO commitments, though 1/3 said it had improved. They advocate increased enforcement, more training for judges and prosecutors, public awareness campaigns and lower thresholds for criminal penalties.

The United States Trade Representative (USTR), too, condemns China’s IP regime. The USTR has placed China on the Priority Watch List of its annual “Special 301 Report” that evaluates the IP policies of dozens of countries. India, too, makes this list as a “significant concern,” though China is the primary country of concern (USTR Special 301 2008 Report). In the report, the USTR cites the US copyright industry’s estimate that piracy cost the United States $500 million in 2004 (USTR Special 301 2005 Report). Another estimate by the International Intellectual Property Association says that copyright piracy in 2008 in India and China cost the U.S. $1,096.2 million and $3,504 million, respectively (IIPA 2009 PDF). These sources also claim that counterfeiting reduces tax receipts and domestic growth. To combat this alleged threat to America’s economy, the USTR is actively working to increase global intellectual property standards through bilateral free trade agreements and the Anti-Counterfeiting Trade Agreement, currently being negotiated in secret (USTR Special 301 2008 Report). 

The Academics

These groups motives and facts should be viewed with caution – their statistics have been shown to be wildly innacurate and their motives dubious.  There are others, however, who advocate for stronger intellectual property in China and India, and believe it to be in the best interest of the two countries. Under this thinking, promoting IP in China and India will further their ability to capitalize on international information flows and promote domestic innovation. 

Most basically, the increased export opportunities available as a WTO member makes the adoption of new technologies profitable for more firms (Dutta & Sharma PDF). A recent study has shown that royalty payments for technology transfer, R&D expenditures and total levels of foreign patent applications all increase with intellectual property reforms (Branstetter 2006). One common line of thinking closely related is the belief that FDI will increase with stronger intellectual property. Executives at multinational corporations (MNCs) say that IP rules are a very important factor in deciding R&D locations – before investing substantially in new R&D, companies want to be assured that they will have the opportunity to recoup those costs through exclusive control of their innovations (Lanjouw 1997). China and India suffer from ineffective R&D – they devote a small share of labor and GDP to research, and in both countries much of the work is done by the government – so foreign investment in the sector could prove useful. India, especially, needs improvement in the commercialization of its patents (Dahlman 2005). It is argued that market incentives (via IP) would increase efficiency.

Unfortunately, the evidence is not clear-cut. A 2005 study found that IP laws have little discernible influence on the growth of R&D stocks, though the international transfer of and propensity to patent do seem to be influenced (Jaumotte 2005). Another study from the same year, though, shows that stronger intellectual property will improve the incentives for a foreign rights holder to enter emerging markets, but that it will also increase that firm’s market power, diminishing the ability of domestic firms to compete. However, technology has spillover effects, especially due to the disclosure required by patent applications, which can, in theory, make productivity gains from foreign firms available to domestic firms. Yet, although a 2004 study finds that FDI could theoretically lead to widespread gains in domestic productivity, because companies block spillover through various means, in practice, the sectoral gains are minimal. This is particularly worrisome for China and India because the sectors in which they presumably have some burgeoning capabilities will receive little benefit from international linkages.

One study found that increased intellectual property has a significant positive impact on the productivity of R&D, as measured by patents per dollar of R&D, though this metric is suspect because a patent does not necessarily translate into any economically or socially desirable outcome (Brahmbhatt 2007).

In the coming weeks, we’ll discuss the likely downsides of increased intellectual property in China and India.

Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

Harvard Law Professor, and former Bush White House lawyer, Jack Goldsmith has an opinion piece today in the NYT about cyber-security. In it, he makes a number of obvious (though admittedly often overlooked) points about the need for better education and information sharing, but then asserts that those, untried, methods will not be enough. Instead, he argues, "The government must be given wider latitude than in the past to monitor private networks and respond to the most serious computer threats." For a lawyer who saw first-hand (and even wrote a book about) the excesses of the Bush administration, this is a reckless claim. The repeatedly documented violations of civil liberties by the NSA and other government agencies (not to mention their private sector compatriots) through widespread network surveillance did not serve to protect and defend US critical infrastructure. In fact, by adding legitimacy to network monitoring, scholars like Goldsmith and respected countries like the USA make it easier for less savorable regimes to justify their digital surveillance and crackdowns. While China’s "Green Dam" censorship software was justified on child-safety grounds, the next iteration of liberty limiting code could very well be to stop "cyber-terrorism" or some other amorphous, ill-defined concept.

A far more level-headed approach to cyber-security is taken by Evgeny Morozov in his recent essay in the Boston Review, which points out that "[m]uch of the data are gathered by ultra-secretive government agencies—which need to justify their own existence—and cyber-security companies—which derive commercial benefits from popular anxiety. Journalists do not help. Gloomy scenarios and speculations about cyber-Armaggedon draw attention, even if they are relatively short on facts." While Goldsmith is certainly not promoting increased government intervention out of self-interest, it is not good enough to pay lip-service to privacy and network openness. Decision-makers need to recognize that certain policies and rhetoric will inevitably have dangerous, unproductive unintended consequences.

This is the second 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.

To fully understand why increased intellectual property in China and India is unnecessary and objectionable, it helps to understand the relationship intellectual property has with economic development. Historically, intellectual property has generally increased with economic development, but the relationship is not straightforward. Although there is no reliable cross-country index of intellectual property policy, in large part due to the difficulty of quantifying concepts like enforcement quality, some trends are discernable. When a country is poor, IP is unnecessary for a host of reasons, not the least of which is the limited access to productivity enhancing technologies that intellectual property brings and the domestic inability to innovate in a commercially viable manner. But instead of constantly increasing with wealth, IP actually falls with an initial increase in wealth before dramaticaly growing (Maskus 2000). As a country develops, it obtains imitative abilities that make legal prohibition on copying foreign technologies an artificial obstruction to economic growth. However, with further global integration and increased domestic innovative capabilities, patent protection tends to increase. However, China and India have both realized that their relative poverty makes access to technology a more pressing concern, justifying relaxed IP standards.

India’s On-Again, Off-Again Relationship With Intellectual Property

India’ colonial status brought with it patent legislation, so by 1911 India’s IP regime conformed with developed world status (Graff 2007). However, seeking to develop a domestic pharmaceutical industry, in 1970, India abolished patents on pharmaceutical products. This allowed domestic firms to imitate and adapt foreign therapeutic inventions. The policy was a success: the 2,237 licensed drug manufacturers in 1969-1970 grew to 16,000 by 1991-1993, production of drugs grew at an average rate of 14.4% per year from 1980 to 1993, India became a net exporter of pharmaceutical products, and the market share of foreign multinational corporations (MNCs) dropped from 80-90% to 40% (Fink 2005). In 1995, six of the top ten pharmaceutical firms in India were domestic, and employment in the sector had reached half a million people (Lanjouw 1997).

However, to gain access to the global market enabled by the World Trade Organization, India had to ratify the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), the most influential treaty on global intellectual property. Doing so included introducing full product patents on pharmaceutical innovations, extending all patents from 5-14 years to 20 years, and accepting limitations on compulsory licensing (Abramson 2007). Observers noted that this was likely to lead to a loss of consumer surplus (Chaudhuri et al.). However, the government agreed against its wishes to TRIPs for the additional benefits of WTO membership (Lanjouw 1997). Under TRIPs regulations, patenting has accelerated in India (Dahlman 2005).

China As The Late Bloomer

China was a latecomer to intellectual property. Its first patent law came into effect in 1985, followed by a copyright law in 1990 (Graff 2007). However, since then, the pace of progress has been rapid; it has now joined all major international IP treaties (Maskus 2005). Its patenting activity is increasing rapidly, too, with domestic firms nearly doubling the number of patents they received in the past four years (“Chinese firms…”). China’s Patent Office now leads the world, reviewing 800,000 applications in 2008, and in 2009, domestic firms are poised to receive more patents than foreigners for the first time ever (“Battle of Ideas”). Chinese firms are also receiving more patents abroad: in 1999 they only won 90 patents in America, but by last year they had increased that number to 1,225, demonstrating a desire to use their inventions globally (“Battle of Ideas”).

Chinese intellectual property, however, is still frequently critiqued. Enforcement is notoriously weak with the United States citing “rampant counterfeiting and piracy problems.” Strikingly, according to the USTR, China was the origin for 67% of seizures of counterfeit goods at the American border in 2008. In response to these and other concerns, China has recently updated its patent laws, increasing statutory damages and expanding the investigative power of the patent office (Lim 2009).

In the next post, we’ll take an extended look at the case made for stronger intellectual property in China and India. 

Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

Over the past few months, I have been researching the role that intellectual property plays in China and India, with specific attention to the frequent calls for increased protection in those countries. I believe that a careful and critical review of national goals, potential solutions and likely outcomes will, in fact, make intellectual property harmonization a disagreeable mechanism for bringing China and India to continued global prestige. This series, adapted from a recent paper, will first outline the role that intellectual property can play in economic development. Because of their relative importance, patents will be the focus. Following brief overviews of the intellectual property systems in China and India, it will examine the case for stronger IP in China and India. The most time will be dedicated to explaining why strengthened intellectual property is likely to disproportionately advantage the developed world, decrease the ability of China and India to diffuse productivity-enhancing innovations, prove both insufficient and unnecessary for promoting innovation, and even be counterproductive to the countries’ innovation systems. Finally, the series will end with recommendations for the way forward for China and India.

Every year, in conjunction with the content industry, the US Trade Representative produces the Special 301 report that identifies other nations as significant concerns in regards to intellectual property. It is among the most prominent reminders of the substantial pressure placed on countries to consistently strengthen their national intellectual property regimes. For two developing nations, China and India, the pressure is particularly noteworthy. Governments, donors, private industry and academia give these rising superpowers dozens of reasons to believe that stronger intellectual property is a highly desirable improvement to their respective business environments. They propose international intellectual property "harmonization" – a process through which the developing world upgrades protection and enforcement of intellectual property to levels seen in the developed world, if not further.

A Brief Background On The Challenges Facing China And India

China’s spectacular rise over the past three decades has been thanks, in large part, to good infrastructure and low-cost labor. But to continue its meteoric climb, China must make a sustained commitment to developing as a knowledge economy – one that effectively harnesses and uses new and existing knowledge to improve productivity and increase overall welfare. Right now, the service sector is very underdeveloped in China for a country of its per capita income; and although China is now the third largest spender in absolute R&D, productivity is low and regional inequalities are stark. China’s leaders must take a multipronged approach to development by: promoting competition; upgrading education and learning; exploiting global knowledge; diffusing new technologies; supporting small and medium enterprises; and establishing a viable social security system.

Although China receives much of the media attention, India, too, has enjoyed historic success over the past couple decades. India’s unique characteristics – skilled, English-speaking knowledge workers with diaspora linkage, free market institutions, a well-developed financial sector, and macroeconomic stability – make the knowledge economy an attractive national goal. However, the success stories of Indian IT firms betray the significant challenges facing India. India needs to strengthen the institutions supporting an efficient innovation system. It remains a relatively closed economy that receives minimal foreign direct investment (between 2003 and 2004, India received only $4.26 billion, compared to $53.5 billion in China) (Dahlman 2005). Further, it currently devotes little GDP to R&D, and private sector involvement is crowded out by government intervention. Finally, India must continue to develop a broad base of educated and skilled workers.

Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India