Introduction:

Governments all over the world try to encourage economic growth. But sustained growth, with the high employment and rising living standards that everyone craves for, to a large extent growth results from and is sustained by creativity. As people pursue new directions in business, science, and the arts, they develop innovations and improvements that drive the economy forward. So how, beyond mere rhetoric, can governments promote creativity?

Providing adequate Intellectual Property Rights, or IPRs as they are popularly known, can be one of the surest example of a government policy designed to stimulate creativity.

IPRs have recently come under the scanner in India as a potential source of economic growth and development for the country and its people. The effective use of Intellectual Property (IP) as a tool for Wealth Creation for Nations is amply elucidated by the experience of countries like Singapore and South Korea in the last few decades. For while it has been the source of investment and wealth creation in the US from the time of its inception a couple of centuries back, India along with most other developing countries, has recently woken up to the possibility and its potential as a growth-enhancer and enabler.
Further, IPRs are likely to emerge as a very important issue for India’s future and for the future of the developing world, since it is generally agreed that technology and knowledge have played an important role in recent economic growth of countries.

However, how the protection of IPR can foster economic growth, provide incentives for innovation and attract investment that will ultimately create new jobs and opportunities for India needs careful analysis and understanding.

What are IPRs? Why are they needed? 

Intellectual property refers to innovative creations of die mind inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual property is divided into two categories: Industrial property, which includes! inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Protection of the Intellectual Property (IP) is conferred through IPRs. While all the above mentioned forms of IP laws are important and significant by themselves, patents however remain as the most recognised and debated, and the strongest of all the intellectual property laws.

There exists considerable debate in economic literature on whether a decision by developing countries to strengthen their protection of IPRs will increase or reduce their access to modern technologies invented by industrial countries. For dlis access can also be achieved through technology transfer of various kinds, including foreign direct investment and licensing. However, given that the ownership of technologies are perceived to confer the manufacturing supremacy and dictates the ownership of manufacturing as a sector, technology transfers are not readily done.

To the extent that inventing firms choose to act more monopolistically and offer fewer technologies to the market, stronger IPRs could reduce international technology flows. However, to the extent that IPRs raise the returns to innovation and licensing, these flows would expand. In theory, therefore, the outcome depends on how IPRs affect several variables—the costs of, and returns to, international licensing; the wage advantage of workers in recipient countries; the innovation process in industrial countries; and the amount of labor available for innovation and production.

While the idea of protection of innovation dates back to renaissance Italy, the modern patent law originated in England, where, in 1624, the Statute of Monopolies was enacted to grant a 14-year exclusive right to the “true and first inventor” of any manufacturing method. The English law, however, benefited inventors in a way that tied an invention’s reward to its economic dividends. Today, of course, the expanding scope of patents increases their value as a tool to promote creativity. Until recently, the patent law was based on a rather narrow definition of creativity, usually the kind embodied in the invention of devices or industrial processes. While previously most patentable inventions were produced in laboratories, with patents being granted now in all fields of technology, the rewards for creativity can now motivate all kinds of people throughout a business organisation.

Of the other important IPRs, one set comprises those relating to trademarks and copyrights, including those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television Sprograms. Also there are the special cases like petty-patents, or protection of business-process methods. Indeed, countries that do not allow business-method patents — even though some of their citizens apply for parents in the US — run the risk that their businesses will lose some of their creative edge.

It has generally been observed that patents work well to promote creativity when innovation involves high costs for the innovator and low adoption costs for everyone else. In such cases, therefore, the innovation would never be implemented without patent protection, because no inventor could ever recoup costs. But patents work poorly when an invention depends on many small sequential innovations. In these cases, too many patents can drive up licensing and legal costs prohibitively, lowering the payoffs to inventors and discouraging them from innovating. Therefore, the policy makers and the government of the host country concerned must strive to attain a balance, and ensure that encouragement of innovation does not prohibit/restrict further research and scientific queries.

How does IPRs help to nurture the Creative Roots of Growth 

Everyone is waiting for the day when India fully realises its incredible knowledge-induced growth potential and takes its rightful place in the global economy. Dr APJ Abdul Kalam has also emphasised in several of his writings the need for streamlining and strengthening the IPR system to be able to convert IPRs into viable business propositions. For this would definitely induce a better GDP growth and assist India in attaining the developed country status by the year 2020. The value addition that is seen in India in several scientific and research-oriented activities – for example in agricultural produce, strengthening education and healthcare systems, leveraging information technology and communications, and bio-diversity for healthcare and other services provisioning – developing infrastructure and gradually becoming self-sufficient and self-reliant will help make India globally competitive with the right IPR regime. And as outlined in the last section, more than any other country India already has the building blocks in place to create a vibrant, knowledge-based economy.

India’s proven ability has been in her spectacular achievements in space science and other areas of fundamental research with a total R&D budget of 3.5 billion USD, which is about half of Pfizer’s and one-third of General Motors. And this has been thinly distributed in a range of research areas, from IT to space technology to pharmaceutical and biology to engineering technology. That definitely says something in our ability to deliver with limited resources, and opens vistas of what could be attained if research and development attention is accorded to other focused and capital-intensive areas, for example in genomics, pharmacogenomics and proteomics and other related bio-tech research. For we have an added advantage of a vast and diverse genetic pool that provides unique opportunities to discover functional significance of gene sequencing and its pharmaceutical applications.

In the 21″ century, ideas are going to emerge as the single most valuable currency that a country can market, and as Dr Mashelkar has pointed out, India is a country of ideas! The wonderful thing about ideas is that they have no nationality or religion, and take on a life of their own once they are launched and marketed. And the idea that IP protection is good for India has now finally taken hold. The opportunities Indian scientists are creating for other countries could well be leveraged for the benefit of their motherland. However, unless policies protect and encourage innovation, people will go to countries that allow their ideas find financial backing and protecrion;’and this is where the enormous amount of potential income is foregone. It must be realised that simply R&D is a literally a billions of dollars industry, not considering the manufacturing and sales aspects of the products of such innovative research!

IP and Growth 

Economic statistics support the relation between economic growth, R&D and IP. Economists have explained the process of economic growdi as being driven by two main sources: the supply of factors of production, namely physical, capital and labor (or human capital), and technology. Many studies since 1970s have shown that the influences underlying economic performance are affected by the interaction between the two sources of growth, and the relative proportions of labor and physical capital and technology.

It has been postulated that IP significantly influences the appreciation in value and the accumulation in quantity of human capital, and the rate and direction of technological change. Recent literature also describes die emerging attitudes toward IP protection in both developed and developing countries – for example, how the growdi in patent filings is concomitant with the growth of knowledge activities, and even how patent-related statistics can act as an indicator of the strength or weakness of the economy.

In the 1990s, an increasing number of policy-makers in countries with emerging economies recognised the role of the IP system as an important element of the institutional infrastructure for encouraging private investment in R&D, especially in the industrial and scientific fields. This is supported by the pattern of business R&D investment in the Organisation for Economic Cooperation and Development (OECD) countries, for example, which suggests that a strong positive correlation exists between the level of R&D expenditure and the level of patenting activity.

The influence of IP is also reflected in the increasing contribution of knowledge-intensive industries to gross national product (GNP) (for example, in the United States of America, this increased from 21 to 27 percent from 1982 to 1995). In the 1990s, the rapid expansion of a new global trading regime following the establishment of the World Trade Organization (WTO) also triggered much attention to, and increasing demand for, IP protection, especially in the high technology and other knowledge-intensive industry sectors.

Current data regarding the importance of IP in economic development is still limited, however. Visible and demonstrable evidence of economic pay off attributable to IP protection is currently not sufficiently developed. It is difficult to analyse the role of IP in the economic development process because of complexities in separating or disaggregating the effects of IP protection from other factors that impact developing economies. Some experts argue that die role of IP in economic development is likely to be case-specific, widi variations bodi from industry to industry and among countries. Others, however, contend that the strength or weakness of the IP situation has a strong effect on foreign direct investment (FDI), and that a low level of IP protection will preclude certain types of investment in various industries.

The difficulty in analysing die economic aspects of intellectual property is attributable to die complex interplay of many factors. The nature and extent of this complexity can be clearly seen by examining the role of me patent system in me performance of die economy. Typically, a patent system is established for die following reasons: (a) to promote creativity and inventiveness by offering exclusive ownership rights and a reasonable period for recovering R&D costs for the invention, (b) to promote investment to commercialise new inventions through limited exclusive rights in working me invention and marketing it, and (c) to diffuse knowledge and information through publication of patent applications and grants for me benefit ofodier R&D and society as a whole.

However, these reasons could seem to be more applicable and relevant to the developed economies than to the developing and least developed countries due to a number of factors surrounding local creativity and invendveness in the latter countries, including a different IP paradigm that arises with the emerging demand for protection of “rural inventions” and traditional knowledge. Indeed, in developing countries, the majority of patent applications are filed by foreigners from developed countries, and the conditions for promoting local innovation in many fields are far from ideal, due to constraints in resources and other factors (limited access to research material, facilities, and prototyping possibilities, lack of relevant technical and managerial skills, disorganized markets, and so forth). Critics of the patent system hypothesize that, because of these factors, the economic rewards for innovation will flow from the developing to the developed countries, and that capital investment in developing countries is likely to center on foreign-owned or controlled enterprises. Taken in isolation, these factors would seem to present a bias against developing economies.

But, the patent system offers practical and positive advantages, especially to developing countries. For instance, it facilitates transfer of technology and patent licensing “through an active use of patent information. Moreover, it can be utilised as a practical guide to investment decision-making by corporations looking for lower factor prices in developing countries for their manufacturing activities. In many ways, the patent system functions as an indicator of the level of protection afforded to the introduction or transfer of proprietary technologies to developing countries, and as a rough assessment of the risk of working a particular invention without full patent protection in a particular sector where there is an observed high rate of patenting activity. The quality of the national patent law attests to the seriousness of a governments commitment to encourage both innovation and respect for the IP related to it, and its belief in the positive role played by the patent system in national development.

IP and Investment 

Economists, however, have not adequately dealt with issues directly related to economics and intellectual property. Among the few who have addressed this subject, there are differing opinions. Some are supportive of the positive relationship between intellectual property and innovations and inventions, and others have different views. Many researchers have suggested a direct link between enhanced IP protection and an increase in inward FDI in certain countries. A steady and steeply rising increase in FDI in India has been evident (except for a dip in 1999 due to the adverse impact of the east Asian crisis) ever since patent and trademark reform was introduced in the early 1990s. The equivalent increase in Brazil is more dramatic, with a spectacular growth in FDI following the introduction of a new industrial property law in 1996, which provided patent protection for 20 years, as well as pipeline protection for drugs not yet on the market.

It is common knowledge that investment in R&D is quite an expensive undertaking. Investors will under-invest in such activity if they are not assured of reaping the lions share of the resulting benefits. It can be convincingly argued that IP protection plays a catalytic role in stimulating R&D. Furthermore, protection of intellectual property has the potential to contribute positively to a country ‘s efforts to attract FDI, increase foreign trade, and provide the necessary conditions for transfer of technology. The combination of all these factors contributes to a greater potential for increased growth. In the case of Japan, for example, the rate of technological development since 1945 can significantly, though not entirely, be associated with intellectual property and, in particular, the patent system, which was widely used in the “catching-up” process.

The relationship between international economic activity and IP for developing countries in the post-TRIPS era was recently examined by W. Lesser of Cornell University, in a paper commissioned by WIPO. He examined in particular the link between stronger IP protection and two international factors: FDI and imports. Lesser reports in his findings that “the relationship between the IP score and both FDI and imports is both positive and significant” and concludes that “…taken in the context of previous studies, [the result] is compelling evidence that stronger [intellectual property rights] IPR do indeed provide some domestic benefits for developing nations.”

There are many other positive aspects to the question of intellectual property and its benefits in the economic equation, especially if one looks at intellectual property other than patents. Take the case of trademarks, for example. Trademarks are an important component of the IP system and have a strong influence on private investment and marketing decisions. They have been in use for many years in many countries, both developed and developing. IP executives consider the market value of their trademarks as part of their intellectual and intangible capital.

The value added from the cultural industries (literature, music, art, etc.) should similarly be considered. In developing countries, this economic sector has grown considerably concerning the book publishing sector. Copyright and related rights of authors, performing artists, producers of soundjg recordings, broadcasters, and other creators have been in the limelight for some time because of the economic losses attributed to piracy of works protected by copyright, particularly, software, music, and film. Based oh OECD data, the proportion of counterfeit goods in total sector sales has reached 33 percent for the music sector, 50 percent for the video sector, and 43 percent for the software sector.

Overseas investments and the amount and kind of technology transfer by Germany, Japan, and the United States of America also seem to be affected significaJitly by a recipient country’s system and level of IP protection. In spite of the lack of quantitative evidence regarding the impact of IP protection on developing economies, there seems to be agreement that a positive, two-way, and mutually-reinforcing relationship between IP and international trade exists, i.e. IP protection enhances international transactions and vice versa.

Moreover, there are short-term and long-term gains and losses that should be considered. As regards patents, the literature has shown that “patent protection enhances economic growth rates once a particular level of development has been reached”. Recently, there have been indications that IP protection may also be directly or indirectly influenced by wide and intensive discussions on IP policies, e.g. the debate on IP in the fields of biotechnology and genetic resources, plant variety and farmers rights, the emerging patent debate over the human genome mapping projects, genetic resources, biodiversity, traditional knowledge, folklore, and other areas of intensive intellectual and commercial activity.

There are ways to stimulate innovative activity, such as govemment-funded R&D, encouraging use of savings and other resources of the inventor’s family for capital investment, and more recently, facilitating the participation of the so-called (“investment angels.” However, the influence of IP has been growing steadily on its own, especially in knowledge driven areas such as information technology, communications, and biotechnology. And intellectual property protection is often seen as an instrument of industrial policy that has wide-ranging ramifications on the economy.

While in the agricultural sector, the way IPR will be able to make a difference is to rework the cropping patterns and modifying the genetic compositions for boosting agricultural productivity and competitiveness — in other words, biotechnology research is the order of the day. In the manufacturing sector, on the other hand, it is very likely that the main impact of IP protection would be on the modernisation of machinery and manufacturing processes. But in the poorest regions of the world, where people live on less than a dollar a day, less than 5 percent of economic activity relates to manufacturing. Intellectual property activity therefore will have to be relevant to the economic priorities of the country. It is clearly evident, that while an IP regime can bring our the potential for innovation, creativity, and growth in the national economy, it is not by any means a cure-all. However an appropriate IP policy tailor-made to suit the specific needs of the economy under consideration can do wonders towards boosting the economic growth prospects and competitiveness.

Because of increasing recognition of its economic value, IP today is becoming a major element in corporate business management. Intellectual property managers are helping to accumulate hefty corporate IP asset portfolios, for use in mergers and acquisitions, joint ventures, cooperative R&D agreements, and licensing agreements, in much the same way as product managers help to build up product portfolios. These IP asset portfolios are developed srrategically, targeting cluster areas based on product and technology markets and cross-licensing opportunities. Companies are forging alliances with each other in order to heighten the value of their IP assets and to obtain mutually beneficial competitive advantages through cross-licensing. Such alliances can give the companies involved substantially increased weight in their area of technology, or enable them to set technological standards in their particular field. Trademarks are also one of the basic elements of franchising and related corporate alliances.

Our strengths as an originator of Intellectual Property

India – the big idea hub for patents 

Contrary to popular belief, innovative research in India has been undertaken for long, though we have a long way to go in terms of total R&D to GDP ratios. And the remarkable feature of Indian R&D is its cost-competitiveness. It is heartening to note that though India’s total R&D budget is less than half of that of many a company like Pfizer, the work taking place in the CSIR and other government funded labs by itself has resulted in a cumulative 145 patents in the last 15 years, impressive even by international standards. Adding that to the new patents filed from and by private players/research organisations and companies (both domestic and on behalf of the MNCs), one can understand that in spite of being the minnows, India has been slowly emerging as the global hub for R&D activities.

Research-work undertaken and patents passed in India range from mechanical engineering, information and space technology to bio-sciences. Examples of recently granted patents are: a moulded toothbrush with flexible bristles; a process for preparing a cell culture composition; a safety device for motorized two-wheelers with shock absorption; a process for isolation and purification of protein PI 7 for HIV. Novel applications and discoveries are also seen in use of traditional medicinal knowledge – ayurvedic and yunani treatments are being innovatively married with modern medicinal advances in pharmacology and genetics, which are almost miraculous in their effectiveness.

As for ongoing research, engineers at the Intel Technology India Pvt Ltd are constantly innovating chip hardware design, communication technologies at Bangalore same as they would in the Silicon Valley. For example, the Intel India team at Bangalore is developing micro-processor chips for high-speed broadband wireless technology to be launched in 2006. At the GE’sJohn F Welch Technology center in Bangatore, the engineers are developing new ideas for aircraft engines, transport system and plastics. Telecom equipment major Ericsson has recently stated that India is an important market and the company continues to look at outsourcing more R&D work from country. The era of idea seems to have certainly arrived in India, and Indians are parenting patents like never before in the 200-odd R&D labs. Even there is a BPO for patents in India – Evaluserve in Gurgaon – which processes and files patents for Fortune 500 companies across the world, and even the Indians are now waking up to this Big Idea with more and more companies getting their innovations evaluated and filing patents.

Thus, IP that can be used to garner economic benefits for the originator and the scientists that generate such property does exist in India, which in turn can be translated into benefits for the domestic economy and the common man. The supremacy and ability of Indians to deliver can hardly be questioned, when it is a known fact that over one-third of scientists and researchers in the West are either Indian or of Indian origin, in fact 15% of overseas employees of the large pharmaceutical and bio-tech companies are Indian And an additional advantage is that India has got is her vast reservoir of English speaking scientists and technicians.

The Last Word 

Of course, there are downsides to IPR expansion, most important among them is the increased incidence and cost of litigation. Firms are discovering that their competitors with business-method patents may seek to block them from improving their business strategies. The lesson is that whenever such protections are extended to a new domain, we must be attentive to whether their positive incentive effects are outweighed by the main disadvantage of granting what is in essence a monopoly to the inventor slower adoption by others.

It should, therefore, be a top priority for policymakers to ensure that parent offices have the financial and human resources needed to grant IP protection, in particular for granting patents judiciously, and that diey do not award patents to obvious or merely incremental ideas. If correct patent policies are followed, IPRs have the potential to boost dramatically business creativity, and the economic growth that goes with it.