A Summary of “Intellectual Property and Innovation in the Knowledge-Based Economy”
This article by Dominique Foray examines the economic conflict between individual actors
and societal interests of maintaining strong intellectual property rights. Foray discusses many
problems that result in a system that supports the excessive privatization of knowledge and argues that
a balance should be achieved by being able to generate information spillovers in a system that also has
attractive forms of intellectual property protection.
One of the most major and obvious problems that surface as a result of intellectual property
protection is the clash that exists between the private interests of the creator and society’s need for the
effective dissemination of knowledge. Intellectual property rights (IPRs), which include patents and
copyrights, were originally instituted to encourage innovation and to compensate those that made the
financial investment in pursuing new research initiatives. If the innovation satisfies the criteria of
being innovative, non-obvious, while possibly having some utility (i.e. an industrial application), etc.,
the creator would have to disclose partial details* of his/her knowledge in exchange for temporary
proprietary rights. Even though some of the details ultimately become public domain, economic
optimality may not be achieved if new knowledge was exclusively owned and costly for others to
adopt. At monopolistic prices, patented knowledge prevents others from better exploiting its use and
possibly achieving a more efficient allocation of resources. After all, Foray argues that the creator of
the knowledge may not necessarily be the person to use it most optimally and efficiently.
The increasing utilization of IPRs is another problem, and this is partially due to major
institutional changes. Within the public sector and open institutions, there have been significant
paradigm shifts that are driving them towards more market-orientated goals. Research and knowledge
which otherwise could have been freely disseminated and coordinated, are endangering the system of
being plagued by high transactions costs and by information blockages. The type of research is also be
affected in that the private sector may not be willing to explore areas that public sector might have
otherwise covered (i.e. due to profit opportunities). Authors, Cockburn and Henderson argue that a
lack of institutional diversity may be “counter-productive in the long run”. There are still many
associations and networks that trade and share knowledge outside of the market, but the evolving
trends are leaning towards the increasing use of IPRs.
On a positive note, the increasing use of IPRs does reflect the greater amount of innovations.
Foray cites that 151,024 patents were granted in the U.S. in 1998, an increase of 38 per cent from the
*
The partial details that are disclosed include only the codified and explicit dimensions of the creation.
year before. Additionally, the range of things being patented has extended into new territory (i.e.
software, genetic creations, etc.), which are being submitted by new actors in the public sector (i.e.
universities, researchers within the public sector).
However, excessive patenting gives root to further problems. A third problem is that
information blockages are being perpetuated by broad patent scopes and the “anti-commons”. Broad
patent scopes hinder other research opportunities from approaching the same topics, thus inhibiting
further developments on the knowledge that was patented. As a result, creators are avoiding certain
areas of research in which subsequent knowledge can be derived because some patents are just too
broad. The accumulation of knowledge in a certain domain is inhibited, along with the social benefits
that might have been derived from subsequent innovations. The same negative effects occur as a result
of the “anti-commons”, which is when a single creation has several patents. This poses an even greater
obstacle for those trying to exploit the creation as a whole. The costs of trying to attain each and every
one of the individual patents within the creation would be extremely high, ultimately deterring
individuals, causing information blockages and under-utilization of the creation.
Foray also discusses that the protection of intellectual property breeds highly litigious
behaviour. After all, making sure that others do not impede on designated IPRs is the financial
responsibility of the patent owner. Foray’s suggestion to reduce legal battles is to revise patent
requirements and to clarify the legal ambiguities that prompt creators to resort to litigation.
Foray makes other policy suggestions aimed at resolving the problems discussed above. To
enhance the dissemination of knowledge, he suggests:
o compulsory licensing;
o buying patents for public domain;
o using price discrimination for those who have inelastic demand apart from those who are
extremely price sensitive with regards to the quantity that is purchased (Ramsey pricing rule);
o using non-exclusive licences for research by public institutions;
o cross-licensing (i.e. mutual concessions, trading rights) to combat the problem of the anticommons;
o increasing funding for public research opportunities; and
o ensuring that patent requirements are strongly enforced.
Foray states that his suggestions do promote less exclusivity but they also strengthen the system
of IPRs as a whole by having increased disclosure, information spillovers, and reduced legal conflicts.
He hopes that these alternative ways of protecting intellectual property will strengthen the economic
and social benefits if patent exclusivity is less stringent.