R&D: How much, by whom?
3.5
3
Percentage
2.5
2
1.5
1
0.5
1997
1995
1993
1991
1989
1987
1985
1983
1981
Year
0
In decreasing order of terminal (1998) values:
Japan, Germany, U.S. (in bold), France, U.K., Canada, Italy
Public sponsorship:
E.U. 44%
U.S. 26%
(down from about 35%)
Brazil, Chile, Costa Rica and Mexico: substantially over half
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Who patents, and where?
•
•
•
•
•
•
•
(EU = the 15 EU states in 2002)
Almost all patents are issued to Japanese, European, US inventors
The “trilateral block” are about 13% of world population
Relative populations Japan (16%) EU(47%) US (37%)
Relative GDPs:
Japan (18%) EU (36%) US(46%)
What would we expect? Patents in these proportions
In fact, there is a slight domestic bias.
--About half of patents in the U.S. are non-American.
--About half of patent applicants to the European
Patent Office are non-European
There is also a Japanese bias. About 80% of Japanese patents are to
Japanese inventors, and Japanese inventors patent
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National Treatment,
Reciprocity, Harmonization
(A Short History of Treaties)
• Paris Convention 1884 (patents)
• Berne Convention 1886 (copyrights)
– Included some harmonizations
• NAFTA and TRIPS 1990s
• SCPA 1984 : demanded reciprocity
• EU Database Directive 1996 : reciprocity
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Observations
• We cannot study the efficacy of IP regimes by comparing
countries. No heterogeneity in inventors’ incentives even
if there is heterogeneity in national IP regimes.
• Domestic innovations create externalities abroad,
whether they are in the public domain or patented.
• International profit flows affect domestic IP policies.
(The literature on patent design ignores this.)
• Domestic policies may turn to IP instead of public
science, to recover some of the externalities as profit.
• Thus, arguments that TRIPS went too far has a basis “in
theory.”
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Questions
• What might we mean by
“optimal” international protections?
• What is the incentive to join treaties for national
treatment?
• Within the national-treatment regime, what protections
will countries choose “independently.”
• Will harmonization increase or decrease these
protections?
• Which types of countries will prefer harmonized stronger
protections?
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A simple Model
• Size of market: va
The ratio or profit and deadweight
loss is fixed, even if the market are
different size
mva
• Two regions: a,w
• Innovations differentiated by
cost of innovation c
• Public sponsors are
inefficient.
Public cost is kc, k>1
va
p va
 va
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• A multipart question
(1) IP or public sponsorship?
compare DWL to inefficiency of the public sector
(2) geographic extent of protection.
(3) level of innovation (do inefficiencies outweigh value?)
Efficiency
• Test (1): (k-1) c >< d (va+vw) ?
• Test (2) Ratio test: minimize ratio of deadweight loss to profit.
For linear demand curves, the ratio is ½.
No (global) efficiency consequences to extending protection
• Test (3). The standard one. DWL has two parts.
Duplication in patent races.
Reduction of DWL on inframarginal innovations
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Three regimes
• These regimes are equally efficient in the sense of
deadweight loss, provided the level of profit is the same.
• Three regimes
1. Autarky (reciprocal externalities)
before the Berne and Paris Conventions
2. All inventors protected in all jurisdictions
(post-TRIPS).
3. All inventors protected in one jurisdiction
Pre-TRIPS, for some subject matters
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The Political Economy Perspective
• National treatment: There is no incentive to provide it if a
country can free-ride. However treaties are reciprocal.
The reason to join is to get profit in foreign markets.
• Independent choices: Profit flows are two-sided (in and
out). In view of this, will domestic choices be “too
strong” or “too weak?”
• Harmonization: Will it strengthen protections?
• Harmonization: Which types of countries will argue for
stronger protection?
Source of following material: JLEO 2004
Political Economy of Intellectual Property Treaties.
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Pathologies with independent choices
• “Free-riding” and inequity: Country “a” refuses to protect a
subject matter because protection in country “w” gives enough
incentives. (Why is this “free-riding”?)
• Unilateral protection by “wrong” country
• Bilateral failure to protect.
Neither country protects because unilateral protection does not
suffice. Countries fail to coordinate on protection.
• Too much IP, too little public sponsorship.
Social test (compares costs, not profit flows)
(k-1) c < d (va+vw) or (k-1) c < d va
Domestic test (profit flows):
va > ca and va - kca > (va+vw)
With public sponsorship, there is no way to repatriate the
benefits conferred abroad.
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First Best (coordinated) protections of
subject matters (assume ca<cw)
va
dca
(k-1) πca πcw
d(ca+cw)
(k-1)
IPa IPw
fa
fw
π(ca+cw)
(ca+cw)
k
IPa +IPw
Public Sponsorship
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Independent Choices of what
subject matters to protect
va
No public sponsorship in equilibrium
π(ca+cw)
f
No IP
No IP
fa
fw
IP in both regions or neither
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What can harmonization accomplish?
• Can only strengthen protections, and will typically do so.
• Can solve the bilateral coordination problem (at least
when there is no disagreement)
• Cannot remedy the unilateral failures (there is always
disagreement over “free riding”) Harmonization may
occur where public sponsorship would be better.
• Cannot remedy the failure to provide public sponsorship
when domestic benefits are less than cost.
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Harmonization: How do disagreements
depend on asymmetries?
• Two asymmetries: size and innovativeness
• Size & innovativeness: correlated?
• Conflicting Effects:
-- Size: larger countries want more public
sponsorship abroad, and less IP
-- Innovativeness: More innovative
countries want more global IP
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Is the public sector an orphan?
•
•
•
•
Space station: Mostly Russia and U.S.
CERN nuclear physics facility
Various telescopes around the world.
Various research efforts of the World Health
Organization (very limited)
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