Consider the case of the physician who noticed a relationship between an elevated level of a particular human hormone and a congenital birth defect.
Intellectual Property Strategy
He was awarded a patent for his observation, although by itself his test had too many false positives to be useful. If he wins, the cost of testing will more than double. Should the physician who first observed how the existing gene works get some intellectual property rights? But they should not be the same kind of rights as those granted to someone who invents a new gene to replace the defective one. Noticing what an existing gene does is simply not equivalent to inventing a new gene. Such distinctions are necessary, yet our patent system has no basis for making them.
The Importance of Intellectual Property Valuation and Protection
The prevailing wisdom among those who earn their living within our system of intellectual property protection is that some minor tweaking here and there will fix the problem. All can vividly see themselves as potential losers. Few consider the private and public gains that might accrue from a different system.
The prevailing wisdom is wrong. The time has come not for marginal changes but for wide-open thinking about designing a new system from the ground up. Today it is both more important than ever to protect intellectual property rights—and more difficult to do so. To understand why, consider the following four shifts in the economic landscape:. With the advent of the information revolution—or the third industrial revolution call it what you will —skills and knowledge have become the only source of sustainable long-term competitive advantage.
Raw materials can be bought and moved, and they are falling in price and decreasing in value as a share of U. Capital is a commodity that can be borrowed in New York, Tokyo, or London. What used to be tertiary after raw materials and capital in determining economic success is now primary. Major companies such as Microsoft own nothing of value except knowledge.
Fighting to defend and extend the domain of their intellectual property is how they play the economic game. With this reality comes the need for more differentiated systems of determining who owns what, better protection for whatever is owned, and faster systems of dispute resolution. Bill Gates is the perfect symbol of the new centrality of intellectual property. Rockefeller in the late nineteenth century and ending with the Sultan of Brunei in the late twentieth century.
If their intellectual property can be copied easily, they will not be able to generate either wealth for their owners or high wages for their employees. These knowledge-based industries are important in their own right, but they also enable other industries, in turn, to become knowledge based. Consider the oil industry. The story in the famous James Dean movie, Giant, typified the old means of success in the oil business: luck and brawn.
But new technologies such as three-dimensional acoustical sounding, horizontal drilling, and deep offshore drilling have turned the oil business into a knowledge industry.
Luck and brawn have disappeared. Supercomputers have taken their place. The oil industry now has a big interest in intellectual property rights. The growth of electronic commerce is bringing a similar transformation to retailing. Fast knockoffs makes it difficult to sell anything that is truly unique. More directly, the rising importance of intellectual property can be seen in the earnings gained from the licensing of technology. In the past, companies were willing to share their technology because it did not seem to be the source of their success and could not be sold for much anyway. But those days are gone.
Having noticed these numbers, many other corporations are now ordering their technology-licensing officers to step up their efforts. Increasingly, intellectual property is becoming central to strategic battle plans. Companies such as Intel have big legal budgets to defend what they think is their property, but they are also accused of aggressively attacking what others think is theirs in order to create uncertainties, time delays, and higher start-up costs for their competitors.
For example, Digital Equipment Corporation, unsuccessful in the marketplace, filed a huge triple-damages patent suit against Intel for infringing on its Alpha chip technologies. Perhaps DEC will gain in the courts what it could not gain in the economic arena. If it wins, the damages awarded will be in the billions. But where should the limits be? Surely the answer is not where a patent system more than a century old sets them.
For most of the period since World War II, knowledge has flowed easily and cheaply around the world. The U.
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Arrogance also contributed to this free flow of information. Americans believed that the rest of the world would not be able to catch up with American ingenuity. While foreigners were copying the last generation of technology, the thinking went, Americans would be inventing the next generation. But the United States now lives in a competitive world in which its economic dominance is long gone.
Developing proprietary technologies and the skills that go with them is the only way to defend U. As a vivid sign of this need to control the flow of information, witness the call by some members of Congress to keep foreign students out of U. At the same time, the U. What used to be a fifty-fifty split between government and the private sector is now a one-third versus two-thirds split.
Under the current budget-balancing agreement, sharper cuts lie ahead. As a consequence, less new knowledge will be freely available in the public domain. Stronger systems of protection for intellectual property rights are clearly part of the answer.
What is intellectual property?
In the past, U. But the monopolistically funded private research laboratories are gone. Private companies now expect to get big money from their inventions and will vigorously defend their rights. The days of the low-cost sharing of private knowledge are over. Without stronger systems of protection, companies will defend their economic positions by keeping their knowledge secret. Articles about research papers whose publication is deliberately delayed often pop up now in the scientific press.
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Secrecy is a much bigger deterrent to the expansion of knowledge than any monopolistic system of protection for intellectual property rights. An investigator who knows what is known can go to the next step. Private, secretly held knowledge simply does not generate the next generation of knowledge. New technologies have both created new potential forms of intellectual property rights can pieces of a human being be patented? We need to rethink fundamentally what should and should not be appropriable as private property. At the same time, we need to generate new ideas and technologies to offer effective protection of intellectual property rights.
How should we think about what should be patentable? It is clear that the invention of a new gene for making human beings different or better cannot be handled in the same way as the invention of a new gearbox. Nor will biologists be allowed to clone and own whole human beings. Third World countries know that unless they can acquire the necessary knowledge, they will never make it into the First World. They cannot afford to buy what they need—even if those who have the knowledge were willing to sell, and they are not.
So they have to copy. Recently I heard a talk given by the managing partner of a large U. The partner urged his fellow consultants to recommend relocation to India because Indians were very good at copying, had few laws making copying illegal, and often did not enforce the laws that did exist. He remarked that India recognized patents only on the processes for making drugs, not on the drugs themselves, but then went on to say that Indians were very good at developing alternative manufacturing processes.
The fact that no one checks those processes very closely to see that they are really different was left unsaid.
Nor did he need to say that what was made in India could be slipped quietly into the channels of world commerce without anyone having to pay for knowledge that would be considered proprietary elsewhere. The issues are not just those of where a country stands in the invention cycle or where it stands on the economic development ladder.
Different cultures and different parts of the world look at intellectual property rights quite differently. The idea that people should be paid to be creative is a point of view that stems from the Judeo-Christian and Muslim belief in a God who created humankind in His image. It has no analogue in Hindu, Buddhist, or Confucian societies. There are real differences in beliefs about what should be freely available in the public domain and what should be for sale in the private marketplace. Countries also differ enormously in their propensities to use their patent systems.
Switzerland, for example, issues four and one-half times as many patents per capita as the United States. Does anyone believe that the Swiss are really that much more creative than Americans?
Yet despite these differences in economic positions, cultures, and practices, no system of protecting intellectual property rights can work unless most of the governments of the world agree to enforce it. A law that does not exist or is not enforced in country X is essentially a law that cannot be enforced in country Y.
Production simply moves to country X. What different countries want, need, and should have in a system of intellectual property rights is very different, depending on their level of economic development. National systems, such as that of the United States, are not going to evolve into de facto world standards. The economic game of catch-up is not the game of keep ahead.