Top 10 Reminders of Importance of IP

As legislation and issues such as piracy get discussed and debated, sometimes it can become easy to lose focus on why intellectual property rights and their protection matters to businesses of all types and sizes, and to the economy as a whole.

The World Intellectual Property Organization, or WIPO, is an international organization established in 1967. It's stated purpose is "developing a balanced and accessible international intellectual property (IP) system, which rewards creativity, stimulates innovation and contributes to economic development while safeguarding the public interest." In November, WIPO published its "2011 World Intellectual Property Report: The Changing Face of Innovation."

The report offers analysis on assorted IP-related topics, with this annual particularly focused on issues of collaboration and competition, as well as the role of public research. But it's worth highlighting key foundational points from the report that address IP in terms of the broader economy, international markets, and the individual firm.

I've boiled this down to a "Top 10 Reminders on the Centrality of IP to Prosperity."

1) The role of innovation cannot be overestimated: "Innovation is a central driver of economic growth and development. Firms rely on innovation and related investments to improve their competitive edge in a globalizing world with shorter product life cycles."

2) The data make clear that innovation is a driver of economic, productivity and income growth. "As early as the mid-1990s, the economic literature suggested that innovation accounted for 80 percent of productivity growth in high-income economies; whereas productivity growth, in turn, accounted for some 80 percent of gross domestic product (GDP) growth. More recent studies at the country-level demonstrate that innovation - as measured by an increase in R&D expenditure - has a significant positive effect on output and productivity."

3) The importance of intellectual property rights for firms and the economy in general is driven home by the international growth in patents: "Turning to the IP system, there is every indication that IP ownership has become more central to the strategies of innovating firms. IP policy has, therefore, moved to the forefront of innovation policy. Demand for patents has risen from 800,000 applications worldwide in the early 1980s to 1.8 million in 2009. This increase has occurred in different waves, with Japan driving filing growth in the 1980s, joined by the United States (US), Europe and the Republic of Korea in the 1990s and, more recently, by China."

4) International integration regarding IP is further emphasized: "Dividing in patenting worldwide in to so-called first filings - approximating new inventions - and subsequent filings - primarily filings of the same invention in additional countries - shows that the latter explains slightly more than one-half of that growth over the last 15 years... Patent applicants increasingly seek to protect their patents abroad and, indeed, in a larger number of countries, reflecting greater economic integration."

5) Along with patents, other areas where are IP rights and protections matter have expanded as well: "Demand for other IP rights - which firms often use as a complement to patents - has also seen marked growth. Trademark applications worldwide increased from 1 million per year in the mid-1980s to 3.3 million in 2009. Similarly, industrial design applications worldwide more than doubled from about 290,000 in 2000 to 640,000 in 2009. Greater internationalization is also an important factor behind the rising demand for protection of these forms of IP."

6) How much of a difference do IP protections make when it comes to relative competitiveness in the international marketplace? "Differences in innovative activity and related technological gaps between countries are a significant factor in explaining cross-country variation in income and productivity levels. According to several studies, roughly half of cross-country differences in per capita income and growth can be explained by differences in total factor productivity, a measure of an economy's long-term technological change or dynamism."

7) Indeed, being at the cutting edge of innovation matters: "In addition, the variation in the growth rate of GDP per capita is shown to increase with the distance from the technology frontier. Countries with fewer tdchnological and inventive capabilities generally see lower and more diverse economic growth than do richer countries."

8) The reality for individual businesses conforms to broader economic realities on IP: "At the firm-level, there is emerging but increasingly solid evidence that demonstrates the positive links between R&D, innovation and productivity in high-income countries. Specifically, these studies imply a positive relationship between innovative activity by firms and their sales, employment and productivity. Innovative firms are able to increase efficiency and overtake less efficient firms. Firms that invest in knowledge are also more likely to introduce new technological advances or processes, yielding increased labor productivity. In addition, a new stream of research stresses the role of investing in intangible assets for increased output and multifactor productivity growth."

9) As for the views of economists, while research continues to explore the finer details of IP and IP protections, the main point of intellectual property rights being a central driver of innovation and growth remains clear. It is noted in the report: "Understanding how IP protection affects innovative behavior has long been a fertile field in economic research. Important insights from the past still shape how economists view the IP system today. Above all, compared to other innovation policies, IP protection stands out in that it mobilizes decentralized market forces to guide R&D investment."

10) Finally, the bottom line: "Innovation is a driver of economic growth and development. Importantly, innovative capability is no longer seen only in terms of the ability to develop new inventions. Recombining existing inventions and non-technological innovation also counts."

These realities hold at the firm level, for the domestic economy, internationally, and online or offline. IP stands as a main ingredient to innovation, productivity and growth, which is why policymakers must be sure that intellectual property is properly protected.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.