Chief Economist for the UKIPO, Pippa Hall, presented “What does a good IP system look like? Good for whom?” in Melbourne, Sydney and Perth recently.

Her conclusion was that in order to answer this we must consider the ultimate aim of IP systems: to stimulate economic innovation and growth.

IP and economics

“Like it or not”, Ms Hall began, “economics has a role to play in IP policy”. In the UK, economics was used to inform the debate surrounding the IP system review and economics is also being used to inform the Productivity Commission’s discussions here in Australia. Innovation is a driving force of economic growth, and growth helps businesses to produce more with less. It is important, therefore, to find a balance between appropriate incentives and not unreasonably impeding innovation.

Economists are able to measure the impact of current policy changes, estimate performance of IP intensive industries and the level of investment in IP, measure the contribution of IP to the economy and the impact of IP on trade. However, the very nature of IP and the high costs, risks and uncertainties associated with innovation mean that economic analysis is complex and many economic markets in IP struggle to find equilibrium. The music industry is a good example where there are high fixed costs and low marginal costs making the possibility of market equilibrium difficult.

So what makes a good IP system?

Unsurprisingly, Ms Hall did not have an answer for what the ‘perfect’ IP system looks like. However, she did provide useful insights as to the attributes of a good IP system. Alongside moral and humanitarian concerns and the strategic use of IP systems, Ms Hall emphasised that a good IP system needs to incentivise and support healthy innovation. While generally IP systems promote innovation by providing the opportunity of a return to the “first innovator”, there is evidence to suggest that current IP systems do not always incentivise innovation and need to be modernised.

Taking the patent system as an example, Ms Hall demonstrated that it is often difficult to measure what makes a good IP system. In theory, the patent system rewards an inventor by providing them a legal monopoly for up to 20 years providing reward for innovation and incentive for continuing innovation. Once the patent expires that innovation becomes part of the public domain and others are free to use it and create further innovation. So both the original innovator and society benefit from further innovation.

However, in reality it is not as simple as the theory would predict and it is often difficult to isolate the impact patents have on innovation. It is acknowledged that the patenting system can be expensive thus reducing the incentive to innovate. If the cost of patent protection is too cheap it may result in more patents being filed, but this is not necessarily an incentive for innovation either and in such a case results in society unnecessarily subsidising the system. In other words, the number of patents filed is not a proxy for innovation or a good IP system. Further, the lack of global harmonisation for patents also leads to uncertainty and increased costs and a taking advantage of the system which can have negative impacts on innovation.

A good IP system needs to be accessible, of high quality and understood and respected. The very nature of IP systems in that they involve the taking away of rights from one person and the giving of rights to another, means that a balancing act between parties is required. Creators and innovators need to know when and how to protect and use IP rights and how to enforce those rights if others copy their ideas. Customers need to be confident that when an IP office grants or registers an IP right it is valid and will stand up to challenge. Further, IP systems need to keep up to date with developments in new and disruptive technologies to be understandable to those who need its protection and to those who use the work of others.

Good IP systems are not simply focused on the rights granted but are concerned with the wider IP ecosystem. That is, how those rights are used and understood. If you are unable to enforce your right, what use is it? If you are unable to use your intangible assets to raise finance, how can you stimulate innovation? And, if you don’t value IP, how can you trade it?

Lessons on reform from the UK experience

The Hargreaves review of the UK IP system essentially established that the system was failing. A number of recommendations were made including that evidence should drive policy, working to reduce patent backlogs and various other legislative reforms. Six years later there has been some progress and substantial improvement on the evidence-based policy making front in particular. However, not all changes have been positive, for example, the private copying changes.

Ms Hall shared her three lessons from the UK experience.

  • Firstly, engagement, being clear, open and honest, is crucial. Engagement should extend beyond the ivory tower to stakeholders and academics.
  • Secondly, it is important to reduce uncertainty and increase the speed of the system.
  • Finally, changes should be ‘robust-evidence’ based, that is evidence must be clear, verifiable and able to be peer-reviewed.