Intellectual Property, Innovation and Management in Emerging Economies

Intellectual Property, Innovation and Management in Emerging Economies

This book argues that intellectual property (IP) management development and innovation are fundamental to economic development, especially in newly emerging economies, which often hold vast reserves of natural resources and human knowledge that remain unprotected. It sheds light on countries that are gradually realising this situation, with examples from many parts of the world, including Eastern Europe, Africa and especially Asia, where in India a great deal is being made of innovation and IP to stimulate economic growth. These case studies are seen within the theoretical context of the future of cross-border IP, which is slowly becoming a reality. Specific examples go beyond the Patent Prosecution Highway, to which China has also recently signed up, and India’s development of generic drugs at lower costs. Experts in the field, including practising IP lawyers, explain and criticise current and new models being tested in emerging economies concerning intellectual property rights (IPRs). Original case studies of hitherto little-understood breaches of African trademarks by the US and Japan, and patenting mistakes in relation to little-known Indian forest plants all damage emerging economies and their native people’s lives. While proper implementation of IP laws by emerging economies themselves can lead to positive outcomes for all involved, the key is an independent judiciary coupled with thoughtful and thoroughly understood implementation of IP laws within the context of cross-border IP. The book shows through models how different emerging economies are at various levels of developing their IPRs and what paths they are taking to do this. Finally, it provides a comprehensive assessment of the ways in which innovation, protection and enforcement of IP laws can help newly emerging economies achieve economic growth without destroying natural and human resources, while moving ahead from the current global financial crisis. Ruth Taplin is Director of the Centre for Japanese and East Asian Studies, UK. She is the author/editor of over 200 articles and 14 books, including most recently Intellectual Property and the New Global Japanese Economy, also published by Routledge. She is the editor of the Journal of Interdisciplinary Economics. Alojzy Z. Nowak is Dean of the School of Management, University of Warsaw, Poland.

Routledge Studies in the Growth Economies of Asia 1 The Changing Capital Markets of East Asia Edited by Ky Cao

11 Workers and the State in New Order Indonesia Vedi R. Hadiz

2 Financial Reform in China Edited by On Kit Tam

12 The Japanese Foreign Exchange Market Beate Reszat

3 Women and Industrialization in Asia Edited by Susan Horton 4 Japan’s Trade Policy Action or reaction? Yumiko Mikanagi

13 Exchange Rate Policies in Emerging Asian Countries Edited by Stefan Collignon, Jean Pisani-Ferry and Yung Chul Park

5 The Japanese Election System Three analytical perspectives Junichiro Wada

14 Chinese Firms and Technology in the Reform Era Yizheng Shi

6 The Economics of the Latecomers Catching-up, technology transfer and institutions in Germany, Japan and South Korea Jang-Sup Shin

15 Japanese Views on Economic Development Diverse paths to the market Kenichi Ohno and Izumi Ohno

7 Industrialization in Malaysia Import substitution and infant industry performance Rokiah Alavi 8 Economic Development in Twentieth Century East Asia The international context Edited by Aiko Ikeo 9 The Politics of Economic Development in Indonesia Contending perspectives Edited by Ian Chalmers and Vedi R. Hadiz 10 Studies in the Economic History of the Pacific Rim Edited by Sally M. Miller, A.J.H. Latham and Dennis O. Flynn

16 Technological Capabilities and Export Success in Asia Edited by Dieter Ernst, Tom Ganiatsos and Lynn Mytelka 17 Trade and Investment in China The European experience Edited by Roger Strange, Jim Slater and Limin Wang 18 Technology and Innovation in Japan Policy and management for the 21st century Edited by Martin Hemmert and Christian Oberländer 19 Trade Policy Issues in Asian Development Prema-chandra Athukorala 20 Economic Integration in the Asia Pacific Region Ippei Yamazawa

21 Japan’s War Economy Edited by Erich Pauer 22 Industrial Technology Development in Malaysia Industry and firm studies Edited by Jomo K.S., Greg Felker and Rajah Rasiah 23 Technology, Competitiveness and the State Malaysia’s industrial technology policies Edited by Jomo K.S. and Greg Felker 24 Corporatism and Korean Capitalism Edited by Dennis L. McNamara 25 Japanese Science Samuel Coleman 26 Capital and Labour in Japan The functions of two factor markets Toshiaki Tachibanaki and Atsuhiro Taki 27 Asia Pacific Dynamism 1550–2000 Edited by A.J.H. Latham and Heita Kawakatsu 28 The Political Economy of Development and Environment in Korea Jae-Yong Chung and Richard J Kirkby 29 Japanese Economics and Economists since 1945 Edited by Aiko Ikeo 30 China’s Entry into the World Trade Organization Edited by Peter Drysdale and Ligang Song

31 Hong Kong as an International Financial Centre Emergence and development 1945–65 Catherine R. Schenk 32 Impediments to Trade in Services Measurement and policy implication Edited by Christoper Findlay and Tony Warren 33 The Japanese Industrial Economy Late development and cultural causation Ian Inkster 34 China and the Long March to Global Trade The accession of China to the World Trade Organization Edited by Alan S. Alexandroff, Sylvia Ostry and Rafael Gomez 35 Capitalist Development and Economism in East Asia The rise of Hong Kong, Singapore, Taiwan, and South Korea Kui-Wai Li 36 Women and Work in Globalizing Asia Edited by Dong-Sook S. Gills and Nicola Piper 37 Financial Markets and Policies in East Asia Gordon de Brouwer 38 Developmentalism and Dependency in Southeast Asia The case of the automotive industry Jason P. Abbott

39 Law and Labour Market Regulation in East Asia Edited by Sean Cooney, Tim Lindsey, Richard Mitchell and Ying Zhu 40 The Economy of the Philippines Elites, inequalities and economic restructuring Peter Krinks 41 China’s Third Economic Transformation The rise of the private economy Edited by Ross Garnaut and Ligang Song 42 The Vietnamese Economy Awakening the dormant dragon Edited by Binh Tran-Nam and Chi Do Pham 43 Restructuring Korea Inc. Jang-Sup Shin and Ha-Joon Chang 44 Development and Structural Change in the Asia-Pacific Globalising miracles or end of a model? Edited by Martin Andersson and Christer Gunnarsson 45 State Collaboration and Development Strategies in China The case of the China–Singapore Suzhou Industrial Park (1992–2002) Alexius Pereira 46 Capital and Knowledge in Asia Changing power relations Edited by Heidi Dahles and Otto van den Muijzenberg 47 Southeast Asian Paper Tigers? From miracle to debacle and beyond Edited by Jomo K.S.

48 Manufacturing Competitiveness in Asia How internationally competitive national firms and industries developed in East Asia Edited by Jomo K.S. 49 The Korean Economy at the Crossroads Edited by MoonJoong Tcha and Chung-Sok Suh 50 Ethnic Business Chinese capitalism in Southeast Asia Edited by Jomo K.S. and Brian C. Folk 51 Exchange Rate Regimes in East Asia Edited by Gordon de Brouwer and Masahiro Kawai 52 Financial Governance in East Asia Policy dialogue, surveillance and cooperation Edited by Gordon de Brouwer and Yunjong Wang 53 Designing Financial Systems in East Asia and Japan Edited by Joseph P.H. Fan, Masaharu Hanazaki and Juro Teranishi 54 State Competence and Economic Growth in Japan Yoshiro Miwa 55 Understanding Japanese Saving Does population aging matter? Robert Dekle 56 The Rise and Fall of the East Asian Growth System, 1951–2000 International competitiveness and rapid economic growth Xiaoming Huang

57 Service Industries and Asia-Pacific Cities New development trajectories Edited by P.W. Daniels, K.C. Ho and T.A. Hutton 58 Unemployment in Asia Edited by John Benson and Ying Zhu 59 Risk Management and Innovation in Japan, Britain and the USA Edited by Ruth Taplin 60 Japan’s Development Aid to China The long-running foreign policy of engagement Tsukasa Takamine 61 Chinese Capitalism and the Modernist Vision Satyananda J. Gabriel 62 Japanese Telecommunications Edited by Ruth Taplin and Masako Wakui 63 East Asia, Globalization and the New Economy F. Gerard Adams 64 China as a World Factory Edited by Kevin Honglin Zhang 65 China’s State Owned Enterprise Reforms An industrial and CEO approach Juan Antonio Fernandez and Leila Fernandez-Stembridge

68 Asian Informal Workers Global risks local protection Santosh Mehrotra and Mario Biggeri 69 The Rise of the Corporate Economy in Southeast Asia Rajeswary Ampalavanar Brown 70 The Singapore Economy An econometric perspective Tilak Abeyshinge and Keen Meng Choy 71 A Basket Currency for Asia Edited by Takatoshi Ito 72 Private Enterprises and China’s Economic Development Edited by Shuanglin Lin and Xiaodong Zhu 73 The Korean Developmental State From dirigisme to neo-liberalism Iain Pirie 74 Accelerating Japan’s Economic Growth Resolving Japan’s growth controversy Edited by F. Gerard Adams, Lawrence R. Klein, Yuzo Kumasaka and Akihiko Shinozaki 75 China’s Emergent Political Economy Capitalism in the dragon’s lair Edited by Christopher A. McNally

66 China and India A tale of two economies Dilip K. Das

76 The Political Economy of the SARS Epidemic The impact on human resources in East Asia Grace O.M. Lee and Malcolm Warner

67 Innovation and Business Partnering in Japan, Europe and the United States Edited by Ruth Taplin

77 India’s Emerging Financial Market A flow of funds model Tomoe Moore

78 Outsourcing and Human Resource Management An international survey Edited by Ruth Taplin 79 Globalization, Labor Markets and Inequality in India Dipak Mazumdar and Sandip Sarkar 80 Globalization and the Indian Economy Roadmap to a convertible rupee Satyendra S. Nayak 81 Economic Cooperation between Singapore and India An alliance in the making Faizal Yahya 82 The United States and the Malaysian Economy Shakila Yacob

Daly, Hisakazu Matsushige and Dehne Taylor 89 Institutions for Economic Reform in Asia Edited by Philippa Dee 90 Southeast Asia’s Credit Revolution From moneylenders to microfinance Aditya Goenka and David Henley 91 Economic Reform and Employment Relations in Vietnam Ngan Thuy Collins 92 The Future of Asian Trade and Growth Economic development with the emergence of China Linda Yueh

83 Banking Reform in Southeast Asia The region’s decisive decade Malcolm Cook

93 Business Practices in Southeast Asia An interdisciplinary analysis of Theravada Buddhist countries Scott A. Hipsher

84 Trade Unions in Asia An economic and sociological analysis Edited by John Benson and Ying Zhu

94 Responsible Development Vulnerable democracies, hunger and inequality Omar Noman

85 Trade Liberalisation and Regional Disparity in Pakistan Muhammad Shoaib Butt and Jayatilleke S Bandara 86 Financial Development and Economic Growth in Malaysia James Ang 87 Intellectual Property and the New Japanese Global Economy Ruth Taplin 88 Laggards and Leaders in Labour Market Reform Comparing Japan and Australia Edited by Jenny Corbett, Anne

95 The Everyday Impact of Economic Reform in China Management change, enterprise performance and daily life Ying Zhu, Michael Webber and John Benson 96 The Rise of Asia Trade and investment in global perspective Prema-chandra Athukorala 99 Intellectual Property, Innovation and Management in Emerging Economies Edited by Ruth Taplin and Alojzy Z. Nowak

Intellectual Property, Innovation and Management in Emerging Economies Edited by Ruth Taplin and Alojzy Z. Nowak

First published 2010 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business

This edition published in the Taylor & Francis e-Library, 2010. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2010 Ruth Taplin and Alojzy Z. Nowak for selection and editorial matter; individual contributors, their contribution All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Intellectual property, innovation and management in emerging economies / edited by Ruth Taplin and Alojzy Z. Nowak. p. cm. – (Routledge studies in the growth economies of Asia) Includes bibliographical references and index. 1. Intellectual property–Economic aspects–Developing countries. 2. Technological innovations–Economic aspects–Developing countries. I. Taplin, Ruth. II. Nowak, Alojzy Z. (Alojzy Zbigniew) K1401.I55655 2010 346.04′8–dc22 2010008208 ISBN 0-203-84440-8 Master e-book ISBN

ISBN10: 0–415–55960–X (hbk) ISBN10: 0–203–84440–8 (ebk) ISBN13: 978–0–415–55960–7 (hbk) ISBN13: 978–0–203–84440–3 (ebk)

I would like to dedicate this book in memory of Dick Wilson. I met Dick in his later years while I was at the beginning of my career and he encouraged my burgeoning interest in Asia. His knowledge of China in particular was extraordinary and I learned a great deal that has inspired me to do this book on emerging markets. In the year of the tiger it is apposite to remember his book China: The Big Tiger (Little, Brown, 1996), which not only predicted the rise of the Middle Kingdom but also foresaw that if China was not a partner of the West then they would become rivals, with China possibly partnering the other giant India or Russia.

Contents

List of illustrations Notes on contributors Acknowledgements List of abbreviations 1 Cross-border intellectual property and theoretical models

xiii xv xix xx 1

RUTH TAPLIN

2 Innovation and intellectual property rights in China and India: prospects and strategies

15

BERNARD AROGYASWAMY AND LISA A. DOLAK

3 African intellectual property law and the newly emerging African economies, with an emphasis on South Africa

42

NTHABISHENG PHASWANA AND DARIO TANZIANI

4 Two types of University–Industry Technology Transfer intermediaries – TLOs and TMCs: the case of Thailand and the United States

65

AKIO NISHIZAWA

5 The financial crisis, intellectual property and prospects for recovery: the case of Poland and Central and Eastern Europe

83

ALOJZY Z. NOWAK

6 Socio-economic changes effected by intellectual property rights: the Indian perspective

105

MOHAN DEWAN

7 Development of intellectual property rights in Turkey and its implications for the Turkish economy ERHUN KULA AND SELIN OZOGUZ

125

xii Contents 8 Cluster development, intellectual property and global competitiveness: prospects of the nano sector in Hsinchu Science Park

142

CHYI YIH LUAN

Index

165

Illustrations

Figures 3.1 PCT international applications originating from selected developing countries 4.1 Growth of university start-up ventures in the US 4.2 UITT strategic model in the US 4.3 Austin model: university start-up ventures assisting institutions 4.4 Patents awarded and transferred from Thai universities, 1995–2004 4.5 IP applied and granted for CUIPI 4.6 Performance of university–industry collaboration at Chulalongkorn University 4.7 TMC at Chulalongkorn University in 2009 4.8 Evolution of TMC at Chulalongkorn University 5.1 Levels of budget deficit in countries under analysis 5.2 GDP in recent EU member states, first quarter of 2007 to second quarter of 2009 5.3 Decrease in exports in emerging markets of Eastern and Central Europe, third quarter of 2008 to second quarter of 2009 5.4 The relationship between the cumulative fall of GDP and the cumulative fall of exports, third quarter of 2008 to second quarter of 2009 5.5 The relationship between GDP and loans, 2004–7 5.6 The relationship between GDP fall and bank credit to GDP ratio 5.7 Sold production of industry, 2005–9 5.8 Construction and assembly production, 2005–9 5.9 Comparison of Poland’s levels of spending on national defence and R&D, 1997–2007 7.1 Turkey in comparison according to International Property Rights Index rating 7.2 High-technology exports in 2006 7.3 Share of high-technology products in total exports in 2006 7.4 Ginarte–Park Patent Rights Index scores 8.1 Shares of cross-year and cross-program budget for NSTPNN

43 67 68 69 73 76 77 78 80 86 87 87

88 89 90 91 92 93 136 137 138 138 146

xiv Illustrations 8.2 Nationality distribution of nano patents, 2000–6 8.3 Top ten patent applications, 2000–6 8.4 Nano patents applied for by domestic firms and research institutes in Taiwan 8.5 Nano patents applied for by HSP firms in IPC_G and IPC_H 8.6 Horizontal hierarchical tree plot 8.7 Directional graph representing cross-cluster dependency in HSP 8.8 ITRS vs TSMC roadmap of foundry technology

147 147 149 149 153 154 156

Tables 3.1 Total number of trade mark applications filed by non-Kenyan and Kenyan residents, 2004–8 3.2 Number of PCT/convention and non-convention/local patents filed, 2005–9 3.3 Number of PCT/convention and non-convention/local patents granted, 2005–9 3.4 Laws passed in Ethiopia to ensure adequate protection of intellectual property, with dates of issue 3.5 Applications received by the Ethiopian Intellectual Property Office by year 4.1 Number of BIs in Thailand as of September 2007 7.1 Conventions and agreements on industrial property rights in Turkey 7.2 Conventions and agreements on copyright and related rights in Turkey 7.3 Patent applications by year 7.4 Patent grants by year 7.5 Distribution of patent applications to the TPI according to country 7.6 Trademark applications by year 8.1 NSTPNN budget, 2003–8 8.2 Taiwan’s nano patents in eight IPC classes, 2000–6 8.3 Forecast nanotechnology market opportunities in Taiwan 8.4 Summary statistics for the RCA and net export ratios, 2004 8.5 Cross-cluster dependency measures 8.6 Top ten IC companies worldwide 8.7 Matching IPC to industrial sectors 8.8 RCA and net export ratios: top 50 traded products in terms of export value, HSP 8.9 Top 20 goods by ranking of RCA, HSP

52 54 54 56 57 72 129 130 131 131 132 134 145 148 150 151 154 156 160 161 163

Contributors

Bernard Arogyaswamy is Madden Professor of Business and Director at the Madden Institute, New York. Prior to this he was Chair and Professor at LeMoyne College, Department of Business Administration, Syracuse, New York and a consultant to SMEs on quality and international business. He was a Fullbright Professor, 2002–3 at the School of Management, University of Warsaw, Poland and was awarded MBA Teacher of the Year. His first degree and industrial experience was in Madras, India. He is the author of a number of book chapters, and articles mainly dealing with innovation and business often with reference to China and India. Mohan Dewan, Intellectual Property Rights attorney/owner of R.K. Dewan & Company, has been a patent and trademark attorney for over 35 years and is a practising advocate and jurist. His area of expertise encompasses both intellectual property rights prosecution and litigation. Having drafted and successfully prosecuted several hundred patent specifications he has come to be acknowledged as a specialist in patent specification drafting. His expertise also extends to technology transfer and intellectual property valuation. He was in charge of the intellectual property law department of the University of Natal in South Africa where he also taught private international law. He has several publications to his credit and is actively involved in conducting seminars and advanced workshops for training students, executives, intellectual property professionals and patent office examiners. Lisa A. Dolak is the Angela S. Cooney Professor of Law at the Syracuse University College of Law in Syracuse, New York, where she teaches courses on patent law and federal court practice and procedure. She is a registered patent attorney and served as law clerk to the Hon. Paul F. Michel, now Chief Judge, United States Court of Appeals for the Federal Circuit. She has served since January 2005 as a member of the Federal Circuit’s Advisory Council. Her research interests include issues at the intersections of patent law and judicial procedure, patent law and the media, and patent law and legal ethics. Erhun Kula is Professor of Economics at Bahcesehir University, Istanbul, Faculty of Economics and Administrative Sciences, Besiktas, Istanbul, Turkey. He holds a PhD in Economics from the University of Leicester, UK. Prof. Kula was a

xvi Contributors Senior Lecturer in Economics at the University of Ulster for 15 years. His research has been in investment appraisal, development economics, environmental and resource economics, public sector economics and business economics. His total number of publications is over 40 articles in international journals, eight books by leading international publishing houses, ten chapters in books and two reports to governments of the Irish Republic and the UK. Recent publications include ‘Regional economic policy in the EU’, in Cost-benefit Analysis in the EU, edited by Massimo Florio (Edward Elgar, 2007); ‘Regional welfare weights in the UK’, in the journal Regional Studies (2005); History of Environmental Economic Thought (Routledge, 2005); and ‘Estimation of a social rate of interest for India’, in the Journal of Agricultural Economics (2004). Akio Nishizawa is Professor at the Graduate School of Economics, Special Advisor to the President of Tohoku University (COI Management) and Deputy Director of the New Industry Creation Hatchery Centre (NICHe) at Tohoku University in Sendai, Japan. He is also former Director of the Japanese venture capital organisation now known as JAFCO. Professor Nishizawa was also awarded the Bayh–Dole Award 2005, presented by the Association of University Technology Managers (AUTM), for his contribution to the proliferation of US-style university technology transfer to Asian countries. His most recent book concerns innovation clustering in Japan (in Japanese). Alojzy Z. Nowak (editor) is Professor of Economics and Dean of the Warsaw University School of Management. He is also a President of the University of Warsaw Centre for Europe. Prof. Nowak is Chair in International Economics at the University of Warsaw and Chair in Finance at Kozminski University in Warsaw. He was educated both in Poland (at the Warsaw School of Economics and University of Warsaw) and abroad (in the USA at the University of Illinois at Urbana-Champaign, in England at the University of Exeter and in Germany at the Free University of Berlin). He has been a Visiting Professor in many American, European and Asian universities, teaching economic analysis of the European Union, International Economics, International Banking and Economies in Transition. He has published over 150 books and articles in Poland, USA, England, Belgium, Italy, Spain, Ukraine, Russia, Lithuania, China and Taiwan. Prof. Nowak is on the editorial boards of many national and international journals and is a member of many international organisations. Last year he was appointed as Chair of the Research Committee to the President of the Polish National Bank. Selin Ozoguz holds an LLM from the University of Kent, UK and a PhD from Marmara University, Istanbul in European Union Law. She is currently working as an assistant professor at Bahcesehir University in the Department of European Union Studies. She specialises in the field of intellectual property, European and Turkish intellectual property law and competition law, European Union integration and European Union/Turkey relations. Her publications concentrate mainly on European Union law and European Union/Turkey relations. She was invited on the International Visitor Program ‘Business Ethics and Intellectual

Contributors xvii Property Rights’ (a multi-regional project) by the government of the United States of America. Her patent and trademark attorney status was awarded by the Turkish Patent Institute. Formerly she also worked as a consultant in the Istanbul Chamber of Industry where she gave several seminars on intellectual property rights issues. Nthabisheng Phaswana completed her LLB degree at the University of Pretoria in 2002 and further completed her LLM in Mercantile Law in 2008 at the University of Pretoria. She was admitted as an attorney in 2005 and is a member of the Law Society of the Northern Provinces. Nthabisheng is employed at Adams & Adams as a Senior Associate in the Africa Patents Section, specialising in design and patent filings and searches and prosecution in African countries outside South Africa. Dario Tanziani, Firm Chairman of the Patent Department in Africa’s largest intellectual property law firm Adams & Adams, became a registered patent attorney in 1988 when he also became an admitted attorney after being a qualified patent agent. His degrees are in Chemistry and Maths from the University of Pretoria and a BProc in Intellectual Property Law from the University of South Africa. His specialisations are patents, industrial designs and High Court litigation in these areas. He is a member/affiliate of many professional bodies related to intellectual property in South Africa. Ruth Taplin (editor) is Director of the Centre for Japanese and East Asian Studies, which won Exporter of the Year in Partnership in Trading/Pathfinder for the UK in the year 2000. She received her doctorate from the London School of Economics and is the author/editor of 14 books and over 200 articles. She wrote freelance for The Times newspaper for nine years on East Asia and other topics. Her most recent books are Decision-making and Japan: A Study of Japanese Decision-making and its Relevance to Western Companies (reprinted by Routledge in 2003, first published by The Japan Library in 1995); Exploiting Patent Rights and a New Climate for Innovation in Japan (Intellectual Property Institute, 2003); Valuing Intellectual Property in Japan, Britain and the United States (Routledge, 2004); Risk Management and Innovation in Japan, Britain and the United States (Routledge, 2005); Japanese Telecommunications Market and Policy in Transition (Routledge, 2006); Innovation and Business Partnering in Japan, Britain and the United States (Routledge, 2006); Outsourcing and Human Resource Management: An International Survey (Routledge, 2007) and Intellectual Property and the New Global Japanese Economy (Routledge, 2009). Her next major article (March 2010) will be ‘Future developments in the Japanese exchanges’ for the Handbook of World Stock Derivative and Commodity Exchanges. Professor Taplin has been Editor of the Journal of Interdisciplinary Economics (www.jie.org.uk) for 19 years. She has a number of visiting affiliations with universities around the world and is a Visiting Fellow at Osaka City University, Visiting Professor at the School of International Business and Management, University of Warsaw, Poland and was a Visiting Fellow at the University of

xviii Contributors Mumbai in January 2007 and in January 2008 at the University of Bacheshir in Istanbul. She has also been on radio and television around the world over the years. Chyi Yih Luan is Professor in the Department of Economics, National Tsing Hua University, Hsinchu, Taiwan. She was awarded her PhD in 1990 from Northwestern University, USA. Her major fields are macroeconomics and econometrics. She is the author of a number of journal articles and a book chapter. Prof. Chyi is also Associate Editor of Taiwan Economic Forecast and Policy (2003–present) and was Associate Editor of Taipei Economic Inquiry (2002–4). Her most recent research grants have included 1991–2003 National Science Council, Taiwan and ‘Measuring Cluster Development in Hsinchu Science Industrial Park’, a project funded by the Science Park Administration in Hsinchu, August 2005–March 2006.

Acknowledgements

Ruth Taplin would like to thank her colleagues at Adams & Adams law firm, Pretoria, South Africa and R.K. Dewan & Co., trademark and patent attorneys, Pune, India for their support in terms of sponsorship and contributions to this book. She would also like to thank her co-editor Professor Alojzy Z. Nowak for his support throughout this project and Doctors Mohan and Niti Dewan for their special efforts. She is also obliged to Peter Sowden, Asian Editor at Routledge for his continuing support, the contributors for their hard and original work for this book and all those who gave permission to use their materials and advice. Alojzy Z. Nowak would like to thank Professor Kazimierz Ryc from the University of Warsaw, Faculty of Management for his wisdom, generosity and assisting him in the understanding of economics, finance and management.

Abbreviations

AICRPE AIPLA APDC ARIPO AROPI AS ASEAN BI BT CHE COMESA CSIR CUIPI DCA DIP DRAM DUS EAT-SET EC EC ECP EPC EPO ERSO EU FDI FRAND GATT GDP GI GIS GNP GSII

All India Co-ordinated Research Project on Ethnobiology American Intellectual Property Law Association Andhra Pradesh Development Corporation African Regional Intellectual Property Organization Association Romande de Propriété Intellectuelle Anglo-Saxon Association of Southeast Asian Nations business incubator bio-technology Commission on Higher Education Common Market for Eastern and Southern Africa Council for Scientific and Industrial Research Chulalongkorn University Intellectual Property Institute design center alliance Department of Intellectual Property dynamic random access memory distinctiveness, uniqueness and stability emergency auto transfusion set European Commission European Community European Community Patent European Patent Convention European Patent Office Electronics Research and Service Organization European Union foreign direct investment fair, reasonable and non-discriminatory terms General Agreement on Tariffs and Trade gross domestic product geographical indication Global Innovation Scoreboard gross national product Global Summary Innovation Index

Abbreviations xxi HSP IC ICT IMF IP IPC IPR IRE ISIC IT ITRI ITRS JPO LOR ME MNC MRAM NABARD NDL NIE NIS NKC NNI NRC NSC NSTPNN OAPI OECD OHIM OSMEP OSS OTOP OTT OUM PCT PPH PPP PPVFR PRA R&D R&D RCA RDPM

Hsinchu Science Park integrated circuit information and communication technology International Monetary Fund intellectual property International Patent Classification intellectual property rights Innovating Regions in Europe (Network) International Standard Industrial Classification information technology Industrial Technology Research Institute International Technology Roadmap for Semiconductors Japan Patent Office Licence of Rights medium enterprise multinational corporation magnetoresistive random access memory National Bank for Agriculture and Rural Development Nano Device Laboratory newly industrializing economy National Innovation System National Knowledge Commission National Nanotechnology Initiative Nanotechnology Research Center National Science Council National Science and Technology Program for Nanoscience and Nanotechnology Organisation Africaine pour la Protection de la Propriété Intellectuelle Organisation for Economic Co-operation and Development Office for Harmonization in the Internal Market Office of Small and Medium Enterprises Promotion Open Source Systems one tambon one product Office of Technology Transfer ovonic unified memory Patent Cooperation Treaty Patent Prosecution Highway purchasing power parity Protection of Plant Varieties and Farmers’ Rights Property Rights Alliance research and design research and development revealed comparative advantage Regional Development Platform Method

xxii Abbreviations S&E SAC SBIR SE SEI SME SRAM TBGRI TDCA TFT-LCD TIPO TLO TLT TMC TPI TRIPs TSMC UBI UITT UNCTAD USPTO WIPO WTO

science and engineering Standardization Administration of China Small Business Innovation Research small enterprise Science and Engineering Indicators small and medium enterprise static random access memory Tropical Botanical Gardens Research Institute Trade, Development and Cooperation Agreement thin film transistor liquid crystal display device Intellectual Property Office in Taiwan Technical Licensing Organization Trademark Law Treaty Technology Management Centre/Center Turkish Patent Institute (Agreement on) Trade-Related Aspects of Intellectual Property Rights Taiwan Semiconductor Manufacturing Corporation university business incubator University–Industry Technology Transfer United Nations Conference on Trade and Development United States Patent and Trademark Office World Intellectual Property Organization World Trade Organization

1

Cross-border intellectual property and theoretical models Ruth Taplin

Introduction In this book we assess the most dynamic relationship in the current globalised economy, that between intellectual property rights (IPRs) and the development of economies. By IPRs we mean protecting, by the rule of law, intangible assets that are predicated on an independent judiciary for enforcement. The fair and transparent use of law and especially in relation to IPRs is a key to civilised society and a fertile ground for innovation, which eventually brings economic prosperity to all. There is a symbiotic relationship between developed economies and emerging economies that can be measured through the levels of intellectual property (IP) activity and economic development. Japan and the United States have the highest number of patents produced in the world while England has been a centre of innovation since the industrial revolution especially in relation to individual inventors and small and medium enterprise (SME) innovation. Japan and the United States, respectively the first and second largest economies in the world, also depend for their success on how rigorously emerging economies enforce their IPR laws. Such enforcement depends on a number of key variables such as an independent judiciary, which allows a country to enforce IP laws effectively, the ability of the other country to innovate itself so it is not compelled to copy other countries’ IPRs, the strength of morality a country holds and attaches to IP and the history and tradition of upholding IP. As the chapters emphasise again and again advanced economies do not favour investing in countries that have appalling IPR enforcement records. There is a tendency for active foreign direct investment (FDI) to occur in countries and regions that make an effort to uphold IPRs. This has compelled countries and regions that actively seek FDI to standardise their IP laws such as with the European Union (EU) and to work on upholding standards of enforcement such as in China and South Korea. This leads us to six different models of IP and the economy, which may be exemplified by different regions of the world. Asia and the United States feature largely in this picture as they produce the most patents in the world together and lose the most when infringement takes place in emerging economies. As emerging economies develop it is increasingly the case that their IPRs are being infringed domestically in their own country/region and even more recently from advanced

2 Ruth Taplin countries themselves. In this book, for example, we show that China has made some successful prosecutions against French companies. Chinese companies are also suffering greatly from domestic infringement and potentially from current Standardization Administration of China (SAC) laws, which may also adversely affect foreign companies’ attempts to innovate and file for patents within China. We assess in this chapter the relationships between IP and the context of these models in relation to both region- and country-specific examples. We look at national standard setting, which can affect a country domestically and internationally as mentioned above with reference to China. China and India comprising the largest emerging economies with greatly influential IP policies will be discussed at length in Chapter 2. A brief review will be made of the subsequent chapters themes and issues within the context of a plan for the reality of cross-border IP to occur more methodically and efficiently. The following chapters will then provide original analysis and case-study examples of how IP and the economy are intertwined in different regions/countries with some positive and negative outcomes but overall with the view to inform and provide possible paths for making the management of IP more efficient and beneficial to economic and social environments in which people have to live and make their livelihoods.

Theoretical models The first model is one that adds extra value through mainly high research and design (R&D) expenditure to remain competitive in globalised markets. The United States and Western Europe both use this model to create greater numbers of value-added products and services. This in turn creates more jobs, boosts household income, consumption and gross domestic product (GDP), and is wealth producing. There are usually a relatively small number of individual inventors, entrepreneurs, and many SME companies that engage in this activity in a highly productive manner. Newly emerging economies such as China, Taiwan and Korea are working hard to ‘catch up’ in R&D. All have tried to follow the US-initiated University–Industry Technology Transfer (UITT) model. Then there are the countries that are already part of the EU, such as Poland as noted in Chapter 5 and those who aspire to be part of the EU as explained in Chapter 7 regarding Turkey, that have adopted or are in the process of adopting the system of IPRs in Europe as stipulated by the European Patent Office (EPO) and EU regulation. A subset of this is the case of Thailand as noted in Chapter 4. In line with their tradition of never being colonised but taking models from other countries and then ‘naturalising’ them to their own native peculiarities, the TMC has arisen from the TLO. The Technical Licensing Organization (TLO) was created in the United States through the Bayh–Dole amendment to facilitate innovation and IP and then adopted by Japan with its own native adaptations. The Technology Management Centre (TMC) is an amalgamation of the TLO and business incubator (BI). The second model attempts to involve the entire population in value creation to make products and services more competitive and works more on a collective basis. IP is also used as collateral to revitalise businesses. Preparation of the grassroots

Cross-border intellectual property and theoretical models 3 level is important to the success of IP becoming an underpinning of economic activity. An example of this is Japan and to a lesser extent South Korea.1 The third model uses the infringement of IP to develop the economy with loose enforcement of IP laws. IP is used as a means to develop the economy, achieve rapid technology transfer, provide jobs for large populations and internal migrants, preserve economic and political stability, and increase GDP, to boost internal savings and income of the populace. China, which has now become the world’s third largest economy, is following this model as are India and Brazil. The use of generic drugs has been a very contentious issue especially for India and Brazil. This will be discussed below and in Chapters 2 and 6. Latin America does not have consistent IP law or enforcement and in many countries of the region an independent judiciary is not guaranteed. In Argentina there is some work with the US to protect seed varieties in the agricultural sector. Brazil, probably the most forward-looking country in the region, has intentions to introduce legally sound IPR legislation but more often than not is held back by government bureaucracy and lack of enforcement. The fourth model uses IP to protect traditional medicines, encourage internal growth of the country and enter the modern economy but within their own cultural context and political economies. Often these countries have infrastructure and practices left by departing colonial forces such as the British and the French, which affects how IP will be enforced or implemented because of a residual civil service or other colonial legacy. Examples of this model are India and Africa, which will be covered in Chapters 6 and 3. The former holds strong British-created infrastructure such as an established civil service with its own particular brand of native Indian bureaucracy coupled with the unifying English language. The latter is a continent divided between the British English language and French francophone legacy. IPRs and economic development and practise are divided because of this colonial legacy. Also both suffer from inadequate IPR protection of their traditional knowledge, know-how, products and medicines, with advanced economies such as the US and Japan taking advantage of this. The fifth model is state-controlled economic and IPR activity that looks to specialised niche market activity and serves the demands of the former colonial ruler. The state is the vehicle to increase patenting, boost GDP, income and jobs and to secure the state. Taiwan is the example here as discussed in Chapter 8 in terms of producing niche technology such as their next phase of star nanotechnology and while producing even R&D as a backyard innovator for its former colonial ruler Japan. The sixth model is that of the EU, which standardises IPR practice through centralisation of the federation of states and the market economy. This has occurred in the jurisdiction of the EU and can be seen especially in the newly emerging and recently entered states such as Poland as discussed in Chapter 5, which has produced higher GDP and economic development through aligning itself to EU standards on innovation and entrepreneurship. Turkey, as explained in Chapter 7, which is waiting to enter the EU, has also aligned all its IPRs with EU standards in anticipation of entering the EU in the near future. Poland and Turkey, along with Central and Eastern European countries as shown in Chapter 5, have not tried to

4 Ruth Taplin develop their own national form of IPRs but have moved directly to standardising their IP with EU regulation and standards.

Asia and Japan In fact if we look at Asia, most issues to do with IP and economic activity may be traced back to the countries’ relationship to Japan at some point in their history. Japan is entering a recessionary phase largely because of a drop in demand for manufactured goods such as electronics. Matsushita in the late 1980s produced twothirds of the video recorders but has now lost out to cheaper producers, China in particular. Japan after the Second World War initially copied products from advanced economies in the West, improving on them and producing them more cheaply. In the 1960s it turned to a vigorous IP drive that was replicated under the recent Koizumi government to propel itself to becoming the world’s second largest economy. Innovation whether it is creating new products or improving substantially on existing products was the underpinning for creating a dynamic and successful economy. Sony, which exemplified the post-war recovery, is also in steep decline. It had a £141 million operating loss for the final quarter of 2008, and has been planning to drop 16,000 people from its payroll. Its ground-breaking television technology in the form of Trinitron has fallen into third place behind South Korea’s Samsung and LG. Other Japanese companies are also outperforming the older established companies. Hitachi, which had the leading inventor Nakamua Shuji who developed the missing link technology for DVDs, the blue emitting diode, has lost £5.35 billion and will cut jobs worldwide by 7,000, has lost out to Nintendo Wii. Japan sees South Korea as a potential threat to its superiority in electronic consumer goods as a number of LG and Samsung products are making Japan’s obsolete especially in the television sector. South Korea has also been sued many times for infringement by a number of Japanese companies in recent years as the competition is so fierce. Japan does not see China as a technological threat as the technology and R&D gap is so wide. China has a huge gap to bridge. However, Japan is wary of IP infringement by Chinese companies of Japanese embedded technologies when the latter are manufacturing products for Japanese companies. This is so serious that Japanese companies send staff to oversee the entire process from its inception to the products leaving the Chinese factory to airports and shipping ports. The Japanese have in-depth knowledge of China as it has traded with Japan for centuries and Japan was the main intermediary selling spindles and other goods from advanced industrialising England into China through Japan. Japan has developed from an imitation economy when ‘Made in Japan’ after the Second World War was usually associated with second-rate imitation of American products but it had become the manufacturing backyard of America and, later on, Europe. Japan was accused at the time of cheap imitation and of copying Western technology and at the same time of an extremely restrictive IP system. The judiciary, now based on the American system of law rather than the historical German techno-

Cross-border intellectual property and theoretical models 5 cratic style that it had followed since the later part of the nineteenth century, was accused of not being fair and independent but of colluding with Japanese scientists and business by prolonging infringement cases to give their engineers time to not only replicate but also better the existing technology. This behaviour extended to visiting foreign companies and taking pictures of technological processes in America and the UK and then replicating these processes while changing them slightly. Japan today continues to register trademarks en masse and then settles, usually out of court, charging quite high sums to companies in developing and developed countries who perhaps have had the same-sounding name for many years.2 This point is shown by an example from Kenya in Chapter 3 on Africa in this book. Singapore and South Korea used FDI and gave foreign multinational companies many tax breaks and incentives until they caught up with Western and Japanese technology advancements and then cut the foreign firms out and concentrated on their own innovation competing fiercely on a global level. Today Japan tries to stop South Korean chaebols from infringing their products such as LCD screens and tries to assist China with better enforcement to stop its products being infringed. In India and Brazil the IPRs of major pharmaceutical firms were breached while these two countries developed their own massive generic drugs companies. A fierce legal battle ensued, which was eventually settled. The US has recently, through the American Intellectual Property Law Association (AIPLA), acknowledged the problems of generic and traditional knowledge issues by establishing in October 2008 a Special Committee on Genetic Resources, Traditional Knowledge and Folklore. This special committee is seeking to develop legal instruments to deal with these issues on an international basis after its meeting in December 2009 with the World Intellectual Property Organization (WIPO) Intergovernmental Committee on IP and Genetic Resources, Traditional Knowledge and Traditional Cultural Expressions. The AIPLA Special Committee was mandated by the Annual WIPO General Assemblies to decide on a text of international legal instruments that will protect genetic resources, traditional knowledge and traditional cultural expressions.3 It is quite clear from the examples in this book that the links between strong IP enforcement and protection assists countries and regions with their economic development. It also shows that strategies based on inadvertent and intentional infringement or even trying to influence the all-important independent judiciary can serve to promote economic growth but only in the short term. What is very clear is that those countries that concentrate on original innovation and invest heavily in R&D tend to be the most successful economically and that the development of IPRs along with an independent judiciary cannot be separated from successful economic development. It is also clear that supporting the rights of inventors and giving them incentives and support to innovate is crucial to a successful national, regional and global economy as well. These issues have been revisited recently in the standard setting issue with the SAC that has taken place in China, and which emphasises the fact that despite the national and regional linkages between the development of IPRs and the economy, all nations are affected by the actions of others in relation to IP laws and standard setting and that a cross-border standard is moving closer to reality.

6 Ruth Taplin

The Chinese SAC standard setting in relation to IP The proposed change to the standards law by the SAC concerning ‘Regulations on Administration of Formulating and Revising National Standards Involving Patents’ caused great concern and responses around the world prior to the deadline for public comment of 30 November 2009. There are 21 articles and they deal with Chinese national standards involving patents. Roughly 180 letters were submitted to the SAC with the most concerns being raised about Articles 8, 9 and 13. SAC is now re-drafting the proposal taking into account these comments and modifying the original proposal so it can implemented in addition to Notice No. 618 concerning an Indigenous Innovation Product Accreditation Program. In general, although SAC was trying to balance the requirements of society, which include the rights of individuals, owners of IP and institutional investors to invest in innovation by earning a reasonable and fair return on their patented products, with the right of all members of society to benefit from innovation and new technologies, the balance by all accounts had not been made with this proposed legislation. Article 9, for example, is challenging the practice of worldwide organisations such as ANSI, CEN/CENELEC/ETSI, JISC, ISO, IEC, ITU and other major standard setters by not including the basic requirements of FRAND, which enables innovators to be able to obtain a return on the risks of investing in R&D. This is done through the concept of offering licences to the essential patent claims of an internationally agreed standard based on fair, reasonable and non-discriminatory (FRAND) terms. Article 9 states that a national standard cannot include any patented technology unless the patent holder agrees to grant licences with royalties ‘considerably lower than the customary license fee’ or with no royalties at all. It is argued that most patent holders making a rational choice in the face of licensing revenue being well below the normal royalty expected by the patent holder or no royalty at all will choose not to license their technology, which will result in a lower quality standard and a great loss as the patent holder will seek a fair return on their investment elsewhere, which could affect adversely China’s own export business. The Indigenous Innovation Product Accreditation Program (Notice 618) will also, it is argued, hamper China’s progress in advancing science and technology capabilities by limiting access to the most advanced and best products from around the world, which will not only affect the Chinese standard of living but also has serious implications for non-Chinese companies investing and operating in China. This is because Notice 618 stipulates that a Chinese product’s IP has to be developed and owned in China and that any trademark must be originally registered in China. Within this context, quality, value and performance have a much diminished role.4 As China and the international community need to robustly protect IPRs together as economic ties are built, this new programme does not recognise the reality of cross-border, collaborative IP and the global nature of R&D for innovative purposes. If local IP ownership becomes the basic requirement for market access, collaborative innovation on a global scale would suffer and would be against free

Cross-border intellectual property and theoretical models 7 and open trade as most innovative products are not developed in a single national territory. This applies to SME companies as well, which increasingly rely, in Europe for example, on business partnering across many nations to develop an innovative product, which includes sharing IP as a pool or according to other royalty arrangements but across borders without any constraints. This allows European SMEs to share their resources as patenting can be very costly on a small income.5 Many of the global industry leaders have concerns that globally developed technology may hold IP that is difficult to discern in the case of geographic origin and that with such an indigenous-based accreditation system foreign industry may be forced to transfer their IPRs to China, which does not constitute fair and reasonable treatment for industry outside of China. This indigenous innovation notice has tremendous implications for the fair treatment of non-Chinese global trade and innovation, which is a multibillion dollar market that covers the majority of new technology products. Cheung6 points to the ‘get rich quick’ mentality that has taken over in China, which exists in a moral vacuum, and accounts for the high rate of counterfeiting that takes place there. As even socialist values diminish, since the demise of Confucian and Buddhist morality after the Cultural Revolution, market liberalisation and narrowly defined economic growth predominate within an authoritarian political system, coupled with a burgeoning consumer culture, the attitude of getting rich at whatever cost as long as one is not caught becomes normative. This mentality does not lend itself to enforcement of IP laws. This situation may change once there is a more complete transition to one particular form of political economy rather than the current transitional stage, as discussed in Chapter 2. For this to occur both the executive and the judiciary must change to become truly transparent, fair and accountable so as not to be open to bureaucratic and personal abuse. The further away geographically and politically the judiciary is from the central government and law enforcers, the more likely local politics and influence will dominate how judges carry out their judgments. This is why IP enforcement is so unpredictable in China. Some of the Beijing courts hand down very fair and reasonable judgments in relation to infringement issues such as the Hongda case7 while a similar case that is tried by a local judge in a faraway province may have a totally different outcome because of the pressures put on the judge by family members, ‘leaders’/members of the local community or gangsters.

Generic drug production in the Indian pharmaceutical industry In India, the pharmaceutical industry has grown at an enviable rate of 9 per cent per annum between the years 1996–2006, which is a much healthier rate than the global growth rate of 7 per cent for the same period. This strong performance of the Indian pharmaceutical industry is a result of significant contributions through the leading generic producers. The operations of the generic drug producers in India have expanded at a faster rate compared to those that are affiliates of foreign firms. While in 1995, five of the top ten pharmaceutical firms (in terms of sales turnover) were

8 Ruth Taplin foreign affiliates, in 2004 GlaxoSmithKline was the only foreign affiliate on the list of the top ten companies. It is worth noting that this sound performance occurred during a phase when, due to India’s accession to the World Trade Organization (WTO), the process patent regime was dismantled.8 The net worth of most of the top ten firms in the industry increased: some large firms such as Dr Reddy’s and Cipla experienced growth rates of 5 and 9 per cent respectively from 1995 to 2008. Ranbaxy was the largest Indian pharmaceutical producing firm in the mid-1990s, however, Dr Reddy’s had grown to a comparable size. While in 1995 Ranbaxy was the only firm with a sales turnover exceeding US$ 100 million, the recent observation (CMIE, Prowess database) indicates that around 16 firms featured in this list now fall into this category. The pharmaceutical industry performs better than any other sector of the Indian economy in terms of profitability. According to the classification of Balance et al.9 India comes under the group of 17 countries that was identified as having innovative capabilities. Countries belonging to this group were not active in discovering new chemical entities, rather they had the necessary technological capabilities to reverse engineer existing drugs. This classification is no longer true for Indian pharmaceutical firms. In 2008, R&D spending of the organised pharmaceutical industry as a whole was nearly US$ 500 million – a fourfold increase from the level existing in 2000. The two leading firms with the highest R&D intensities are Dr Reddy’s Laboratories Ltd and Sun Pharmaceutical Industries Ltd. Although these firms are considerably behind the global firms with the highest R&D intensities (e.g. Pfizer Inc, USA, GlaxoSmithKline, UK, Sanofi-Aventis, France, Johnson & Johnson, USA, Roche, Switzerland etc.), their R&D activities are increasing at a consistently fast rate. Between January 2005 and March 2008 only 15 patented products were launched in India by five companies; however, it is only a matter of time before the Indian government eliminates legal loopholes and companies, both foreign and Indian, will be fiercely competing for market share. In fact, it is estimated that by the year 2015, the Indian pharmaceutical industry will triple to about US$ 20 billion and move into the world’s top ten pharmaceutical markets. In the current economic and legal milieu it remains to be seen whether Indian pharmaceutical companies will be able to adapt to a relatively stronger patent regime, the lack of which has, ironically, been the primary reason why India has not been able to make a mark in medical innovation, and still be able to provide low priced products and remain profitable. We will see from Chapters 2 and 6 how the disorganisation in the Indian patent regime has damaged potentially innovative projects and economic as well as social development.10 What the Chinese and Indian cases point to is a greater need for cooperation and understanding within an international framework to not only stop patent replication on a cross-border basis but also to protect IP globally to make it more affordable on a worldwide basis for large and SME companies so that countries such as India can innovate, protect their innovations and keep them at a low cost. This internationalising was done with International Maritime Law, which also had to defeat ‘piracy’, albeit a different type than counterfeiting, which emanated from the

Cross-border intellectual property and theoretical models 9 creation of an ordered civil service under the direction of Samuel Pepys and an independent judiciary. There also needs to be a cross-border IP body that allows for discussion of joint problems and that has a database of patent examiners with interdisciplinary skills, which are so needed in the area of patent examination. To deal with all the diverse areas of invention that are becoming more sophisticated and even culturally specific, it is essential that patent examiners are more interdisciplinary. This need can be seen clearly in the development of nanotechnology as illustrated in Chapter 8 on Taiwan. Nanotechnology is a highly interdisciplinary specialism that is becoming more prevalent and requires such attention in patent examination.

Greater international cooperation necessary Despite some of those in the IP field who are protective of their business interests or follow a blinkered nationalistic perspective, as noted below many organisations and individuals are coming to terms with the fact that the global overload of patent work and requests not only requires technological answers such as increased digitisation to move to a more global patent system, but also a more interdisciplinary and streamlined approach. Japan as mentioned above and below supports any global measures that make patenting more rapid and efficient so that Japanese inventions are not made redundant by the inventions in other parts of the world because patents take so long to process. The requirement for greater international cooperation is discussed in the following IP Watch article, quoted at length here as it contains some important points: The [need for greater international cooperation] was exemplified at a private sector meeting in Geneva on 14–15 January 2010. The intellectual property system is bursting with a global overload of work for national IP offices and a backlog in patent requests. Greater international cooperation and some adjustments are necessary to keep an efficient high quality IP system. The Association Romande de Propriété Intellectuelle (AROPI), a group of Swiss French-speaking IP lawyers and experts, organised its first international meeting in the premises of the World Intellectual Property Organization (WIPO). The meeting called Aropiade 2010 in a loose reference to the ancient Greek games, was meant to provide an open gathering of the intellectual property community to discuss the prospects for the IP system but also to examine more practical aspects of IP practice, such as recent and upcoming modifications in the Patent Cooperation Treaty (PCT), which is managed by WIPO. Francis Gurry, director general of WIPO, noted that the increasing number of patent requests also represents a source of difficulty for the system. The migration of content to the internet because of the move to the knowledge economy and the rise in intangible assets has brought changes and the classical model of copyright, for example, is not working well, said Gurry. There is a tendency to try and suppress illegal downloading, such as the recent French legislation, and initiatives in the United Kingdom and Spain. But in order to

10 Ruth Taplin help the general public understand the real issues, it might be interesting to reformulate the description of what is at stake, he said. The issue is the financing of culture in the 21st century, Gurry said, and ‘putting teenagers behind bars’ does not seem a tactic that is likely to win over the general public, he said. A lot of changes are occurring in the IP field, and those changes are taking place in an instable political framework, Gurry said. Global wealth inequality brings instability to IP as technology is a focal point for the differences between countries. This instability carries risks for IP, he said, in particular a political paralysis, which is not only true for WIPO. That could leave a vacuum that could be filled by the private sector. IP policies will be more and more market- and technology-driven, according to Gurry. Google Books is a good example of this. Public goods will be managed by private interests, he said. WIPO is trying to find a way to separate what is necessary for a functional normalisation from harmonisation that touches the national political sphere. Gurry gave the example of cell phones and the different zones where users would like to use their phone. In order to achieve that, he said, international agreements are necessary. For Roland Grossenbacher, director of the Swiss Federal Institute of Intellectual Property, one of the main issues is the work overload in patent offices around the world. This overload jeopardises the whole patent system, he said. This challenge could be addressed with a new dimension of international cooperation, he added. Part of the problem lies in the fact that requests are more numerous but also more complex, Grossenbacher said. The specialisation of patent examiners is reaching its limits faced with the multidisciplinary natures of requests and the demand for higher quality in the patent examination process. The global backlog in the main global patent offices will continue to grow if global collaboration is not improved, he predicted. One of the main consequences of the backlog is that it puts patent applicants at a disadvantage vis à vis their competitors. Other innovators might catch up with the requested patented invention before the patent is granted, he said. Grossenbacher described two measures to help the problem. A ‘classical’ measure would be to hire more examiners, but he said young scientists should put their talent towards innovation and not become patent examiners. Also, the multiplication of ‘hyper-specialised patent examiners’ would be hard for patent offices to manage, he said. A second, bolder measure, according to Grossenbacher, would be a global patent. But at this stage when there is no sign of a European Community Patent [ECP], it seems utopian, he said, although the PCT has the potential to grow in that direction. Another idea would be mutual recognition between patent offices, but this is dangerous if prior conditions are not met. For the moment, that would probably reduce patent quality, he said.

Cross-border intellectual property and theoretical models 11 Alternative solutions have been developed like sharing work among offices, but this can be very controversial, he said. An example of work sharing is the Patent Prosecution Highway [PPH], a pilot programme which involves close cooperation between some IP offices, such as the Canadian Intellectual Property Office, the United States Patent and Trademark Office [USPTO] and the Japan Patent Office [JPO]. It is meant to accelerate the examination of patents in collaborating national offices. There is also the idea of asking wider participation of other actors, such as requesting the applicant to give thorough information on the state of the technology, or third parties to present possible anteriority, prior use. PCT takes a digital step The PCT, which allows patent applicants to file international patent applications, will see several changes in 2010, said Christine Bonvallet, lawyer for the PCT Legal Division at WIPO. From 1 January, in the request form, applicants will be able to ask the receiving office or [. . .] the WIPO International Bureau to prepare and transmit or to obtain, respectively, a certified copy of the previous application(s) from a digital library. As of 1 July, some modalities concerning the supplementary international searches will enter into force, in particular regarding the scope and some limitations under specific circumstances as a result of further modifications of Rule 45bis.5(g) and (h) and 45bis.9(c), said Bonvallet. As of 18 January, applicants are able to download documents electronically to the PatentScope Gateway, said Ann Bardini, head of the WIPO PCT Functional Support Section in the PCT Operations Division. PatentScope is a WIPO-managed patent search database. All documents should be transmitted in PDF format, said Bardini. This procedure is expected to be cost-saving, more efficient and shorten response time since WIPO will be saved the document digitalisation process. Several types of documents will be accepted electronically, such as modifications, supplementary searches, withdrawing requests, unofficial comments by applicants on the written International Searching Authority’s opinion. However, it will not be possible to send initial requests, said Bardini.11

The requirement for cross-border IP At present there is a number of attempts to create a more simplified and standardised universal IPR system. Japan has been a leader in the PPH programme, which seeks to stop replication of work such as prior art searches and to share work already done by patent offices elsewhere. This has been very important in Japan where a premium has been put on streamlining applications to speed up the procedures. PPH has been criticised despite its broad take up in Asia, the United States and Europe, especially the UK, as it is argued that quality of searches may be diminished as one patent office may not be as rigorous as another or one office may not have the same number of specialists in a particular field. Yet, this has not deterred the most developed

12 Ruth Taplin economies in the world, the US, Europe and Japan through their patent offices, namely the USPTO, EPO and JPO working on common formats, work and activities concerning harmonisation or standardisation to reduce workloads and ostensibly to cooperate in international activities and legal instruments.12 Another option has revolved around the concept of Soft IP and Open Source Systems (OSS). The US and Europe have been leaders in OSS and Open Information Networks are being developed. Soft IP, which still tends to be a vague concept, was mooted first in April 2007 at the European Patent Forum in Munich. It focused on the concept of the ‘innocent infringement’ of a patent. This could involve someone who did not know about the patent or could not be expected to know about the patent or those willing to take out a licence but would be subject to great harm if they were served with an injunction to stop the use of the patented invention. A Licence of Rights (LOR), which is related to Soft IP, has been implemented in the UK and Germany and is not a compulsory licence to use a patented invention. At the request of the patent owner, a patent may be endorsed LOR in the UK and Germany at their respective patent offices. To reward patent owners for this action, annual renewal fees for the patent are reduced by 50 per cent. This situation allows the patent owner to be approached directly by anyone who would like to obtain a licence to use the patent subject to them both agreeing on such usage. If the two parties are unable to agree on such usage, then they would have to apply to the national patent office or court to settle terms. The terms of licensing including royalties are entered into voluntarily by both parties, but based on actual licensing practice. Provisions for LOR have been included in the ECP. This LOR practice should relieve the pressure on the national patent offices and courts while offering the possibility of such a practice operating on a global scale. There are sectors in Japan that are thinking of adopting Soft IP but all the attempts to do this in the UK, Europe and Japan tend to lack cohesion and many believe the Soft IP option to be highly risky and even reckless in their ‘unknown infringement’ arguments. OSS arrangements, which concentrate on allowing software to be more flexible through open source codes and sharing cross-border IP databases such as in the area of informatics, have a greater chance of success. This is because certain fields such as genetics with the human genome and informatics constitute an essential base for many other studies and need to be shared. There has also been a rise in OSS in relation to sustainable development such as ECO and GreenXchange but the vagueness of ECO and what it can be applied to makes this an unreliable source for OSS.

Workable cross-border IP arrangements The following issues need to be taken into account in my estimation to develop a workable cross-border IP arrangement. These issues are discussed in detail below. A universal method of valuing IP needs to be developed. Valuing IP has to be appraised within its own context. Traditional medicines need to be assessed in terms of the value placed on them by local cultures and only then can they be measured

Cross-border intellectual property and theoretical models 13 in terms of value in the outside world. The Arogyappacha plant used by the forest people in India explained in this book in Chapter 6 elucidates this point. The value of this plant, which reduces fatigue and provides energy to those who eat it, needed to be translated from the local to the value of its curative powers universally. This lack of understanding by both the Indian patent authorities and American pharmaceuticals, which tried to exploit it when commercialising it under the name Jeevani, led to a complete collapse in its value and use for the local tribe that had exploited its properties for centuries and also for the wider world. They could not find the correct market price globally because they did not assess its value and understand that the plant lost value and curative powers unless it was grown in local forest conditions. The forest tribe who harvested it were not consulted properly and they held the ultimate knowledge of the plant. If they had been taken on as equal partners in the process of commercialisation of the plant they would have added value to the whole project. There also needs to be an economic model of the role of IP as a tool to develop economies. As shown above IP can be used in many different ways to develop emerging economies. Some societies use IP as a tool of infringement and copying to develop their economies. However, it may be the case that only once all societies develop their IPRs to a similar level will the infringement diminish and a natural time emerge for a universal IP legislation. A cultural understanding of the society/region’s history/attitude to the concept of owning IP is essential. Will economic necessity make these once deeply entrenched attitudes that IP is free change? Japan has been an example of this. China is still in the process. South Korea is half way there. In East Asia there is a tradition of wisdom and ideas being handed down from one generation to the next especially within the family. Such deeply entrenched attitudes take a long time to change. The level of technology can be assessed to ascertain what patenting process may be used for high, medium and low technology. A universal IP system would be facilitated if simplicity and standardisation of the patent process were broken down according to level of technology. This would also assist with the patent examination process as patent examiners could be split according to level of technology, which would streamline their knowledge and this could be applied on a global basis. Education of those who use IP and language simplification could assist in bringing about a global IP system. Two universal languages could be used to simplify concepts, procedures and costs while IP as a universal practice could become part of the general education system of countries. In Japan and South Korea IPRs as a practice is widely taught at school level, higher education and on company training courses. It is taught to the young and to the elderly. Therefore, it can be taught as part of the process of innovation and learning entrepreneurship. This is even more acutely required in emerging economies. A high school/university education in IP will facilitate global IP practice.13

14 Ruth Taplin

Notes 1 See Ruth Taplin, Intellectual Property and the New Global Japanese Economy, Abingdon: Routledge, 2009. 2 Ibid. 3 See IP Watch, ‘2010 US industry priorities: patent reform, USPTO funds, genes, green tech’, by Liza Porteus Viana, 26 January 2010. 4 See IP Watch, Inside Views, ‘China’s standards and patent innovation proposals: problems for IPR and global trade?’, by Ruth Taplin, 21 December 2009. 5 See Ruth Taplin, ‘Can Europe make it? SME innovation business partnering – the missing links?’, in Ruth Taplin (ed.), Innovation and Business Partnering in Japan, Europe and the United States, Abingdon: Routledge, 2007, pp. 9–40. 6 Gordon C.K. Cheung, Intellectual Property Rights in China : Politics of Piracy, Trade and Protection, Abingdon: Routledge, 2009. 7 See Ruth Taplin, Intellectual Property and the New Global Japanese Economy, Abingdon: Routledge, 2009. 8 B. Dharand and K.M. Gopakumar, Post-2005 TRIPs Scenario in Patent Protection in the Pharmaceutical Sector: The Case of Generic Pharmaceutical Industry in India, UNCTAD, Paris, 2006. B. Dhar and N. Rao, ‘Economic development and patenting behaviour’, Economic and Political Weekly, June: 39–46, 2008. 9 R. Balance, J. Pogany and H. Forstner, The World’s Pharmaceutical Industries: An International Comparative Study, Aldershot: Edward Elgar, 1992. 10 Pundarik Mukhopadhaya, Ankit Prakash and Uttam Bhattacharya, ‘Intellectual property and economic development in India’, forthcoming in Journal of Interdisciplinary Economics, 22, 3: 2010. 11 From IP Watch, ‘IP system soul searching in face of success, system overload’, by Catherine Saez, 19 January 2010. Permission to reprint in original form. 12 Talks with the JPO and Judge Shitara, Presiding Judge of the Intellectual Property Division of the Tokyo District Court when in Japan in July 2009 and July 2007 respectively. Please also refer to Ruth Taplin, Intellectual Property and the New Global Japanese Economy, Abingdon: Routledge, 2009. 13 This material is largely taken from Ruth Taplin’s keynote speech given at the European Intellectual Property Law Summit 2009 from 25 to 27 November 2009, Montreux, Switzerland, organised by Marcus Evans. The title of the presentation was ‘The future of cross-border IP’.

2

Innovation and intellectual property rights in China and India Prospects and strategies Bernard Arogyaswamy and Lisa A. Dolak

Introduction Innovation has become increasingly central to the creation of a sustainable competitive advantage for firms, as well as to the success and prestige of nations. In this chapter we attempt to assess the state of innovation in China and India, two large emerging nations with a track record of impressive growth and poverty reduction, and the potential for even more rapid economic expansion and societal transformation. We articulate the concept and practice of a National Innovation System (NIS) and investigate innovation in two layers: high tech and society-wide. Secondary data pertaining to the two nations are analyzed, leading to the conclusion that both countries have impressive achievements in some areas, have demonstrated distinct progress in some, and need improvement in other areas. China, in particular, has taken great strides toward joining the world’s innovation leaders. Recommendations are made based on the more effective management of diverse societal interfaces, as well as the deployment of an appropriate NIS. The evolution of intellectual property rights (IPRs) in both countries is reviewed, and the present position is evaluated. The chapter discusses the intimate relationship between a country’s IPR regimen and its innovation processes and performance, and assesses the direction in which IPR policies in both countries appear to be headed.

Innovation: the basis of corporate and national success The industrial revolution, initially centered in Britain, gave rise to a process of unceasing innovation, which continues to this day. German technology, particularly in heavy machinery, chemicals, and steel, accelerated the spread of industrialization, and American prowess in mass manufacturing later succeeded in making a variety of products widely available.1 More recently, advances in communications and information sciences have made it possible to innovate in supposedly mature industries by developing new products/services, processes, and business models, helping create new organizational forms, enhancing customer service levels, and so on. Moreover, new fields of inquiry with the potential to benefit society on a large scale have opened up (such as biotechnology, nanotechnology, and sustainable energy), offering multiple avenues for innovation well into the future. If anything,

16 Bernard Arogyaswamy and Lisa A. Dolak innovation today appears to be ever more critical to corporate success and national prosperity. Through a focus on the successful development of new products, services, markets, and technologies, innovation helps create wealth for individuals and firms, and, in turn, for society as a whole. The conviction that sustained growth can only be attained through a relentless focus on absorbing, adapting, and developing new technologies, has, therefore, gained widespread currency both in developed and emerging nations. It is also widely recognized that innovation is a social process, one that needs the action and interaction of a number of facilitative elements.2 As is the case with scientific advancement, technological innovation and its critical interface with the market is constructed on a social process of information and knowledge exchange. Rather than being orderly and sequential, the process of innovation is often unpredictable and messy, involving interactions and conversations among multiple actors. Universities and institutes, governments at various levels, publicly owned research groups, corporations, industry associations, and legal and financial institutions are some of the entities that need to function competently, knowing and playing their assigned roles to sustain the process of innovation.3 Efforts to put the pieces of such a system together have been underway for a good many years in many European nations (as well as at the level of the European Union (EU)), the United States, Japan, South Korea, and Singapore. In the developing world, Brazil, China, India, Malaysia, and others are gearing up for the high-stakes innovation economy of the twenty-first century. While these and other emerging nations are still engaged in catching up and enhancing their capabilities in a range of twentieth-century technologies, they are also simultaneously jockeying for position as leaders in cutting-edge fields such as computer and information science, biotechnology, and material sciences. To explain: the simplest of innovation strategies, what we term “zero-order” innovation, is one of imitation (whether done legally or otherwise). Many of the products long commonplace in the developed world are becoming increasingly popular in emerging nations. Technology transfer agreements, joint ventures, licensing, and the like have facilitated the spread of imitative technologies. A wrinkle added to zero-order innovation is through the substitution of components with less expensive or indigenous ones. Chinese manufacturing and Indian call-center operations during their early stages, both employing locally available resources, may be viewed as zero-order efforts. Improvements in existing products or services through independently developed technologies, on the one hand, or through the modification of ideas and concepts originating elsewhere, on the other hand, constitute first-order innovation. These typically comprise new-to-company technologies, but may also encompass new-to-industry and even new-to-world developments, albeit the modifications made to existing products remain marginal. Cell phones with local language keyboards and washing machines adapted to suit domestic water and detergent availabilities would fall into this category of innovation. In second-order innovation, radically new technologies (e.g. cell phones used to pay bills, watch television, access high-speed internet, provide driving directions, and so on) are developed, while third-order innovation extends to, and overlaps with, scientific research to push the envelope of knowledge for its own sake, even in the absence of

Innovation and intellectual property rights in China and India 17 any immediate market application or financial gain. Many countries in the developed world have well-established zero- and first-order systems, and are forging ahead with second- and third-order work as well. Countries such as the US, Japan, and Sweden among others are more focused on the two highest rungs of the innovation ladder. Developing countries are, however, faced with a difficult decision as to where they should direct their attention and resources. Many need to build the absorptive capacity to augment their competitiveness at the initial two levels. However, focusing exclusively on them would mean forever playing catch-up in the second and third orders. Nations such as China, India, Brazil, Russia, Malaysia, Poland, and numerous others, are, therefore, faced with the complex task of creating and sustaining all four orders simultaneously.4 China, for instance, has invested heavily in science and technology parks or clusters to advance knowledge and achieve market leadership, in biotechnology and computer science. The Zhongguancun Science Park, for instance, is viewed as being among the most advanced in the world where biotechnology, information and communications, and nanotechnology are concerned. Over 70 universities and 200 research institutions are found within its periphery.5 However, policy makers and firms need to pay attention to improving textile machinery, developing more sophisticated TVs and DVD players, improving braking systems for cars, and other such medium- and low-tech innovations as well. Over the past two decades, “financial innovation,” or the invention and marketing of new financial instruments (for hedging, securitizing mortgages) in order to create wealth, has occupied the attention of corporate leaders all over the world, but particularly in the US and Western Europe. In fact, it is estimated that nearly 40 percent of all corporate profits in the US were derived from such financial strategies. The financial tsunami that hit the capital markets and economic systems of most countries in 2008–9 might well result in a reduced emphasis on financial innovation, and a renewed focus on, with enhanced resource allocation to, the more “traditional” innovation described earlier.6 After what has been referred to as a “lost decade” for innovation, we are likely to witness a return to global competition based this time, not on a race to the bottom in costs but on reaching the heights, and staying there, in innovation.7 All four orders will figure prominently in this unremitting effort to stay ahead, the emphasis, of course, varying with societal needs, resources, and capabilities. In this chapter we review the efforts and achievements of two of the world’s largest nations, India and China, in regard to innovation. Both countries have enjoyed a period of sustained growth (China’s being of longer duration and greater magnitude than India’s), but are confronted with the urgent need to foster higherorder innovation capabilities. We start with an overview of NISs or the framework of institutions and policies providing a milieu within which new ideas and practices can germinate and bear fruit. We then present some background information on the two countries, their present position on the innovation trajectory, and the efforts underway in both nations to build a sustainable innovation capacity. We then evaluate and analyze China and India’s performance in innovation. We make use of two data sets, one for high-tech innovation (the Science and Engineering Indicators (SEI))8 published by the National Science Foundation. The other set is

18 Bernard Arogyaswamy and Lisa A. Dolak drawn from the Global Innovation Scoreboard (GIS),9 which evaluates societal innovation by measuring performance on multiple inputs to, and outputs from, innovation. In addition we draw from the World Bank’s10 study of the context, climate, and infrastructure for innovation in India as well as the National Knowledge Commission’s11 (NKC) survey on innovation, in which 137 corporations (large, medium, and small) participated. In the case of China, the Organisation for Economic Co-operation and Development’s (OECD)12 exhaustive reviews and analyses of recent strategies and developments will serve to supplement the SEI and GIS data sets. The Chinese Ministry of Science and Technology’s13 survey provides valuable data as well. We conclude this portion of the chapter by discussing the findings, and offer recommendations aimed at enhancing the countries’ innovation potential, capabilities, and performance. The final section deals with both nations’ record and policies in IPRs, and attempts to discern trends in the respective IPR regimes, as well as assessing the likely impact on innovation performance in the coming years.

National Innovation Systems Over the course of the past few decades nations in the developing world have come, at various points in time, to the realization that in the absence of an advanced technological capability, they would forever be engaged in a futile game of “catchup” in which the gap between themselves and developed nations would keep growing. For developed nations, on the other hand, it is imperative that they renew their efforts and abilities in advancing the frontiers of knowledge, both theoretical and applied, in order to sustain economic growth and social well-being. One option is to adopt a strategy of developing technology through centralized guidance and implementation, a form of an NIS. An NIS is comprised of institutions, and the dynamic interactions among them and other elements of society. This serves as a framework for a government-driven innovation strategy, and for actions aimed at enhancing the development, diffusion, and marketability of new ideas.14 An NIS encompasses a vision of where the country should head technologically, area(s) of expertise/competence envisioned, and a will to allocate resources as needed for implementation.15 The ability to foster greater private initiative in R&D, facilitate the establishment of industry associations and standards, and to nurture appropriate institutions (intellectual property, judicial, science, technology, and entrepreneurial education, sources of finance, etc.) are central to a viable and ongoing NIS for the absorption as much as for the development of innovation. An evocative way of conceptualizing an NIS is that it spans the “idea-innovation” chain.16 The chain links meta-institutions such as the state and culture with institutions (financial, educational, social, etc.), stocks and flows of resources (capital, labor, knowledge, and so on), and outcomes of innovation (including ideas, new products, and economic growth). Variants of an NIS have been pursued in Japan (and other Asian countries that sought to emulate it, such as South Korea), and some European nations as well. Though the Japanese NIS was relatively interventionist and directive during the 1970s and 1980s, the focus later shifted to facilitation (through

Innovation and intellectual property rights in China and India 19 the establishment of technopolises, university–industry collaboration, etc.), and hence was not dissimilar to the system in vogue in Europe.17 Consider Finland. Catalyzing the efforts of government, industry, academia, and other institutions led to an innovation system that has made Finland among the most technologically competitive nations in the world.18 Ireland, which has recorded dramatic economic growth since its induction into the EU, has also implemented its version of an NIS. Singapore adopted an even more organized strategy for technology and innovation, based, like Ireland, on foreign direct investment (FDI), but with the state playing an even more intensively facilitative role. Colleges and universities, research institutes, government departments, transportation, and telecommunication and information infrastructure were upgraded to be aligned with the overall strategy.19 In the United States, the approach, historically, has been for the state to avoid excessive involvement in so-called market forces. However, governmental policies and institutions have typically evolved in a direction favorable to innovation. Governmental funding of basic science at universities, incentives to firms in the form of tax relief on research and development (R&D) expenditures, and to researchers in regard to the income resulting from their work, protection of physical rights and IPRs, the establishment of regional development agencies, science and technology parks, and so on, have contributed to the evolution of a technology development regime20 intended to buttress and sustain the country’s lead in innovation. At the other end of the geographic spectrum are localized agglomerations known as clusters, which have been viewed by scholars and policy makers alike as being among the most powerful forces for innovation. Clusters may evolve over time, as did the agglomerations for furniture in North Carolina, automobiles in Detroit, semiconductors, software, and biotechnology in Silicon Valley, heavy industry in the Ruhr Valley, and footwear in regions of Italy, to name just a few.21 However, the majority of clusters functioning today, especially those in more advanced nations, are designed. That is, they did not develop autonomously. Numerous technology parks have been established in the United States, South Korea, Taiwan, China, Sweden, India, and other countries, by a range of interested constituents. The initiation and fostering of clusters is done by governments at various levels (local, county, district, state, federal, etc.), development agencies, universities, multinational firms, domestic firms of all sizes, research institutes, venture capitalists, and so on. The term “cluster” is typically applied to a grouping of organizations within a limited geographic area (one that is small enough to permit personal interaction among the participants) in a specific industry or a shared specialization. The exchange of knowledge, particularly of the tacit sort, is critical to the functioning of clusters, indicating that the members of a cluster must be willing to trust one another with sensitive information. That is, cluster members must be willing to provide resources to others, first, without any fear that it will be used to their detriment, and, second, that it will, in fact, prove to be mutually beneficial. The creation and flow of social capital, which may be defined as a trust-based sharing of knowledge, is a hallmark of clusters, one that makes true clusters a relative rarity.22 Silicon Valley, Oresmund (pharmaceuticals in Sweden), Israel’s advanced

20 Bernard Arogyaswamy and Lisa A. Dolak research centers, North Carolina’s Research Triangle, Finland’s telecom agglomeration, and Italy’s footwear and tile clusters are instances of clusters rich in social capital. Paradoxically, in an era of accelerating globalization, considerable advantage appears to accrue to mutually dependent organizations that are located near, and interact frequently and intensively with, one another.23 Regions are spatially more extensive than clusters, have porous boundaries so as to possibly incorporate areas that would otherwise not belong to any collective entity, and may link up with other regions, within the same country or anywhere else in the world. Ohmae24 contends that the “region-state” is fast becoming a distinct, viable entity. Regional innovation systems are integral to technology policy in Europe, where they are being actively pursued, though not always with consistent or favorable results. Hilpert25 refers to the regional concentrations of technological capability, supportive governments, facilitative institutions, market knowledge, and labor competence as “Islands of Innovation.” These focused centers of competence expand their market horizons to encompass entire countries or continents, or become global in their vision, freely adapting their management practices to their particular needs. Hilpert identifies 29 Islands in Europe, and makes the point that all but three are located in areas that have traditionally been leaders in their field. In a sense, therefore, regional imbalances have either persisted or been exacerbated. In some cases, regions even transcend state boundaries, as in the so-called Chennai– Bangalore corridor in India, and the growth of the electronics sector in and beyond China’s Dalian province.26 We now provide some background information on the two countries that are the object of our study, following which we move on to a more detailed look at innovation as evidenced by the SEI and GIS data.

India: economic growth and innovation After achieving independence in 1947, India adopted a combination of socialism and private enterprise, with the public sector making mammoth investments in steel, chemicals, fertilizers, heavy electricals, automobiles, and other industries of the second and third industrial revolutions. The emphasis was on import substitution, and any innovation that occurred focused on finding cheaper materials, low-cost processes, etc. India’s per capita output grew by about 50 percent between 1950 and 1975 (whereas it had grown only by 10 percent in the preceding century.27 However, even this figure fell far short of what its East Asian neighbors were beginning to achieve, which China would later eclipse. When market reforms were introduced in 1991, tariffs came down sharply from an average of 90 percent to around 30 percent.28 Though this was still high, imports became affordable, as a result of which exports rose steeply. However, most of the post-reform effort was spent in catching up, in making up for lost time. In industries such as pharmaceuticals and software, innovations that are new-to-country, and some even new-to-industry, have been increasingly in evidence since the start of the twenty-first century. Developments in the automobile industry, through a combination of foreign and

Innovation and intellectual property rights in China and India 21 domestic investment, have led to rising levels of innovation as well. R&D investments by multinational corporations (MNCs) have risen to over $1 billion, making full use of the low-cost scientific and engineering talent available. However, the country’s late start in manufacturing may have placed it at a disadvantage relative to China (where manufacturing comprises 50 percent of gross domestic product (GDP), unlike India with a 25 percent share).29 Though more R&D in manufacturing is being done now in India by MNCs, without a large manufacturing base, the innovations developed by MNCs might well go to benefit their overseas operations outside India. Among the prominent exceptions are the pharmaceutical and small-car industries, in both of which marketing, production, and other managerial capabilities are being nurtured in addition to R&D.

China: economic growth and innovation It may be asserted, with little fear of contradiction, that one of the most, if not the most, remarkable phenomena of the late twentieth century, has been the rise of China as an economic power. With a GDP that, in purchasing power parity (PPP) terms, rivals Japan’s and, in absolute terms, has overtaken that of Germany, China is on the road to, within the next two or three decades, passing the US as the world’s largest economy. In fact, as the recession of 2008/9 has wrought havoc across North America, Europe, and Japan, China, it would appear, has weathered the storm particularly well.30 Its rise was fueled, in large part, by the export of efficiently manufactured goods, but the country seems to be making the transition to growth based on domestic demand (albeit demand for industrial equipment more than for consumer products), as foreign demand slows down. Apart from a dependence on exports, an area of concern for policy makers has been the level of innovation and its contribution to economic growth. Like India, China has been adept at zero- and first-order innovation, but has been a latecomer to higher-order efforts. A set of wide-ranging policy measures has been instituted, as we shall see later, to place China firmly on track to become an innovation leader within a matter of a couple of decades.

India and China’s performance in high-tech innovation: SEI High-tech industries, particularly information and communication technologies (ICTs), enable and leverage innovation, and help enhance productivity, in other industries. In addition, of course, they are, by definition, intrinsically innovative. It would be instructive to look at India and China’s standing in high-tech innovation (inclusive of ICT), and for this we turn to the SEI published by the National Science Foundation.31 (Later, we will review the GIS (2006) to assess the state of innovation in a society-wide sense.) The SEI (2007) identify four variables deemed to be critical to exporting high-technology products, which is an indicator of the ability to win international acceptance for the country’s high-tech capabilities. The variables are national orientation, socioeconomic infrastructure, technological infrastructure, and productive capacity.

22 Bernard Arogyaswamy and Lisa A. Dolak National orientation reflects the strategies, policies, institutions, and public attitudes that influence the achievement of technical competence. The dimension encompasses the vision for innovation as well as opportunities for entrepreneurship. The US is the leader on this front, with Israel, Ireland, and the Czech Republic not far behind. India is positioned quite favorably, and has generally shown steady improvement over the past decade. China, on the other hand, has taken remarkable strides over the short span of two years, and is ranked in the top five in this category along with Israel and Ireland. The gap between China and India has widened considerably to the detriment of the latter. Socioeconomic infrastructure encompasses the human and financial resources needed for high-tech development. Educational facilities, capital mobility, and policies toward foreign investment are included in this dimension. India’s standing is somewhat ahead of Brazil’s, but lags behind the US, Israel, Ireland, China, and even Malaysia (the latter presumably due to the high foreign investment in high tech in that country). Both China and India trail the leader, Israel, by a significant margin. Technological infrastructure is measured along five dimensions: (1) the number of scientists in R&D, (2) purchases of data processing equipment, and the ability to (3) provide training in science and engineering (S&E), (4) absorb and extend technical knowledge, and (5) bring R&D outputs to the marketplace. India’s score here is extremely low, well below not only the high achievers such as the US, Japan, Germany, and Russia, but China as well. Productive capacity is a composite of the supply of skilled labor, the number of indigenous firms in high tech, the competence of management, and the current level of electronic goods being produced. On this count, India’s performance is fair, being in the middle of the 15 countries studied, though it still fares poorly compared to the US, Japan, Germany, and China. China’s strength in electronics production more than compensated for its deficiency in the other areas. Conversely, India’s relatively low output of electronic goods appears to be partly moderated by the positive impact of the country’s unquestionably high information technology (IT) capabilities. When the four elements of high-tech export potential are combined, India’s standing (in 2006) places it well ahead of Brazil, and almost on par with Russia. However, it clearly trails China. China’s sharp upturn in innovative capacity is attributable, in large part, to efforts made by governments at the national, state, and local levels to build technological competitiveness, strengthen public institutions, encourage private initiatives, and foster public–private collaboration. Increased investment in R&D and in scientific education, and policies encouraging innovation by domestic and foreign firms, have served to place China firmly on a path to joining the club of the world’s leading innovative nations. However, caution is called for in assessing China’s technological prospects, particularly where high tech is concerned. The remarkable improvement in high-tech productive performance does not derive exclusively from home-grown capabilities. In fact, almost 85 percent of high-tech exports from China are contributed by foreign-owned or -controlled firms. Moreover, the value added in China for these products amounts to less than 20 percent, suggesting that the high content and know-how are not embedded in Chinese organizations.32

Innovation and intellectual property rights in China and India 23 India’s plans, though grandiose, have not been translated into concrete strategies and actions (say, in terms of R&D efforts by firms, linkages between educational institutions and businesses, broadening and deepening of scientific education, and so on). India’s increasingly sophisticated and aggressive IT industry does offer a glimmer of hope that it could leverage the growth of other industries, both high tech (e.g. biotechnology) and medium tech (say, automobiles, in which the country’s manufacturing prowess appears to be rapidly rising).33 However, much needs to be done in the national orientation, and socioeconomic and technological infrastructures before India can be viewed as a power in high-tech innovation or, indeed, in any second- and third-order technologies. The ability to export high-tech products and services is reflective both of a country’s knowledge base, as well as the acceptability of the application of this knowledge by discerning customers worldwide. India’s improving performance and its favorable ranking suggest that the potential for high-tech innovation is encouraging, provided appropriate action is taken.

Societal innovation in China and India: GIS Innovation is, at its core, a social process involving absorption, learning, communication, and sharing of knowledge. The development and acceptance of new ideas in any field is, therefore, at least in part, driven by interactions within that area, with other fields, and the climate for innovation in the society at large. One of the worldwide comparators of innovativeness is the GIS, which provides a ranking based on data collected on a variety of criteria, constituting the inputs to, and outputs from, innovation of a range of nations from across the world. The GIS is comprised of five major dimensions: innovation drivers, knowledge creation, diffusion, application, and intellectual property. Broadly, these dimensions may be encapsulated as below: 1

2 3 4 5

Innovation drivers – human resources in terms of S&E graduates, proportion of labor with tertiary education, and number of researchers per million population. Knowledge creation – expenditures directed toward innovation (public and business R&D, and scientific articles). Diffusion – expenditure on ICT. Application – exports of high-tech products, and share of high/medium tech in manufacturing value added. Intellectual property – new knowledge patented and trademarked.

The scores on each of these dimensions is combined into an overall “Global Summary Innovation Index” (GSII) to provide a consolidated indicator of a nation’s innovation performance. The method of computation of the score on each dimension moderates the impact of outliers. The GSII is the average of the five scores, except that business R&D is assigned double the weight of public R&D and scientific articles, giving due recognition to the intimate innovation–market linkage.

24 Bernard Arogyaswamy and Lisa A. Dolak On the GIS, four categories of nations have been identified. These are: 1 2 3 4

Global innovation leaders comprising countries such as Finland, Sweden, the US, and Israel. Second-tier performers such as Germany, South Korea, the UK, and France. Followers, which include Russia, Italy, Spain, and Hungary. Lagging countries including Greece, China, Brazil, Poland, and India.

Though both China and India are in the lowest performing group, there is a wide separation between them in total score, China being near the top of the bunch (0.27) and India near the bottom (0.17). More specifically, India’s low GSII stems from receiving the lowest score in the entire sample on two of the five dimensions: innovation drivers and intellectual property. In regard to knowledge creation (twentieth percentile), diffusion (thirty-sixth percentile), and application (fortieth percentile), the country’s innovation record is relatively more favorable. Taking a closer look at innovation drivers, we note that gross enrollment in higher education stands at about 12 percent in India, compared to 90 percent in Korea and nearly 70 percent in Russia.34 Switching to knowledge creation, we find that India’s R&D intensity (R&D expenditure as a proportion of GDP) was less that 0.9 percent in 2003–4, at which point, China’s investment in R&D was nearly 1.5 percent of GDP. China plans to increase R&D intensity to 2 percent in 2010. India’s intention of raising the R&D effort to 2 percent of GDP in 2007 fell short by nearly 50 percent. India’s scores on diffusion, and application, are relatively higher. Diffusion is measured by a single indicator, ICT expenditure in proportion to GDP. It is worth noting that the calculation of ICT expenditure includes the investment made by the IT sector, not all of which facilitates technology diffusion in India, being in part, directed toward the export market. However, insofar as firms such as Infosys Systems and others absorb technology from abroad and are increasingly deploying some of it domestically, ICT expenditure may be viewed as a diffusion indicator. If Indian production and service firms were to invest more heavily in ICT, the rate of diffusion would obviously accelerate. India’s score on applications is near median and the highest out of the five dimensions. This measure combines two ratios: (1) high-tech exports/manufacturing exports and (2) medium-high and high-tech activities relative to manufacturing value added. One reason for the relatively high score is that manufacturing’s share of the GDP is of the order of 25 percent, which is rather low for a developing nation. Burgeoning exports in high tech (mainly IT) combined with modest manufacturing outputs (and value added) contribute to a relatively high score in application. China, though bracketed with India in the GIS categorization, outperforms India on both input and output measures, with the exception of diffusion where India, presumably owing to its software capabilities, fares marginally better. The difference is especially marked along the knowledge creation and application dimensions. Here again, we have findings that reinforce those from the SEI. China’s sustained efforts, through investment and reorganization, to upgrade tertiary scientific education in select fields, foster business R&D,

Innovation and intellectual property rights in China and India 25 make research institutes smaller and more effective, improve connections between public and private research institutions, have clearly paid dividends. Finally, in regard to intellectual property, particularly Triadic patents (patents filed in Europe, the US, and the US/Europe/Japan combined), India and China score near the bottom of the sample, though both have recorded much progress in the recent past. We discuss this at greater length in a subsequent section of the chapter. We now turn our attention to studies specifically devoted to investigating the state of innovation in each of the two Asian giants, starting with India.

World Bank report on India The World Bank study on India deals with a set of diverse factors that needs to be addressed to upgrade the country’s innovation capabilities and performance. In regard to technical education, the study notes that, though India graduates over a million engineers a year, this is low in relationship to the population and, therefore, its impact on the country as a whole is minimal. Moreover, the quality of engineering colleges is uneven with no more than 100 out of around 1,200 institutions being of acceptable quality.35 Considering that numerous graduates who are not from the elite colleges find jobs, one would expect that their employers would provide them with suitable training to compensate for their educational deficit. Undoubtedly, some of the more conscientious firms, such as Infosys Systems, do so. However, in total, only about 15 percent of Indian firms in manufacturing offer training, compared to over 95 percent in China.36 In regard to R&D researchers per million population (in 2004), as noted in the GIS, the country lagged behind comparable developing nations. India had 119, whereas Brazil had 344, China had 708 and even Mexico had a score of over twice India’s average. Enrolments in S&E degree programs, though low in per capita terms, may, on the whole, suffice to meet the demand in the foreseeable future. The quality of graduates leaves much to be desired, however, and support from governments (particularly regional), public institutions (such as the Council for Scientific and Industrial Research (CSIR)), and private firms (as firms such as Infosys Systems are already doing) would go toward addressing the issue. Some method needs to be adopted to induce firms to undertake more in-house remedial and reinforcement training. The shortage of educated people at various levels is clearly a major barrier for any country that seeks to be a high performer in innovation. As the World Bank observes, in addition to needing high levels of technical and scientific education, a strategy to improve the quality of engineers and the number of PhDs in S&E is needed (India graduates fewer than 1,000 PhDs in engineering a year, which is small compared to China, and a mere fraction of the output in the US37) as are more widespread employer-provided training, and educational institutions that foster entrepreneurship and innovative thinking among students. For instance, rather than encouraging rote learning, more play should be given to students’ creativity and initiative, small business advisory boards could be set up and shared among institutions, access to successful entrepreneurs be made available, financing sources could be linked to innovation centers at educational institutions, and so on.

26 Bernard Arogyaswamy and Lisa A. Dolak Even worse than the faltering investment in R&D mentioned earlier was the fact that over 75 percent of R&D spending was undertaken (till 2003) by public organizations, about 20 percent in the private sector, and only 3 percent by universities. The respective figures for OECD nations, on average, are 20, 70, and 10 percent. In China, private enterprise contributes 70 percent of the R&D effort. Of late, however, with the advent of more R&D by MNCs, the private share of R&D in India has risen and is estimated to be edging toward the OECD norm. It may be noted that the jump in private R&D is due to foreign investors seeking to make fuller use of India’s lower-priced knowledge resources. Scientific articles per million population are another surrogate measure of knowledge creation potential and, in this area, India comes in at about half China’s rate, one-third of Mexico, one-fourth of Brazil, and even lower fractions of the Russian and Korean publication productivities. However, the picture is not uniformly bleak as it might appear at first glance. More recent data suggest that the number of patent applications filed has been steadily rising since 1999. For instance, India’s share of patents filed in the US was about 0.40 percent of the total, still miniscule, but almost ten times the percentage in 1995. India ranked twenty-fourth in this category with mainly OECD countries ahead of it. However, China, Taiwan, and Korea placed ahead of India as well. It may be noted that within India, of the top 50 applicants for patents, 44 were MNCs from abroad, four were public institutions (e.g. CSIR), and only two were in the private sector – both in pharmaceuticals. Are the GIS data on patents, which indicate that number of Indian patents is negligible, then, merely an aberration? Not quite. For one, innovations in Indian firms are predominantly in the area of operations, or are, in general, zero-order innovations. For instance, products developed elsewhere may be modified and produced in more efficient ways. More suitable marketing approaches, strategies to manage the supply chain, etc., may be a part of the newto-market or new-to-world innovation. Though such actions may be construed as a continuation of the import-substitution strategies of the pre-liberalization era, they are, by and large, worthwhile stepping stones toward first- and higher-order work, which may be more radical in nature, and possess greater market appeal. Technology absorption and diffusion capacities are obviously critical to succeed with the predominantly incremental-innovation strategies in place today, and to be able to develop higher-order innovative capabilities in the future.

NKC’s survey on India In the Indian corporate context, the NKC’s38 survey indicates that skill shortages are a critical external barrier, as is the lack of collaboration with universities and research institutes. Internally, a poor understanding of customers’ needs, inadequate in-house training, traditional hierarchies, a lack of emphasis on innovation (in large firms), and a lack of vision coupled with pressure to achieve short-term results (in small and medium enterprises (SMEs)), are still impediments to innovation. Though innovativeness might appear to be lacking insofar as patenting is concerned, the NKC has found in a survey that Indian firms are not quite so deficient in innovative intensity (share of revenue from products introduced in the past three

Innovation and intellectual property rights in China and India 27 years). Moreover, 17 percent of SMEs and over 40 percent of large firms are “highly innovative,” that is, have implemented ideas that are new to the industry, domestic and worldwide. The findings for innovation intensity indicate that more than 60 percent of SMEs but only 25 percent of large firms have an innovation intensity of 20 percent. Most of the companies surveyed, particularly the larger ones, view innovations as a strategic priority. They are unanimous in their conviction that investment in innovation is critical to their survival and growth. The apparent contradiction between the findings of the SEI, GIS, and the World Bank, on the one hand, and the NKC, on the other, arises from the latter’s rather expansive perspective on innovation. The NKC includes new/improved products and services, operational techniques, and management processes within the rubric of innovation. The counting of zero-order innovation, therefore, offers an optimistic scenario of innovation in Indian firms, one that may not be warranted by data obtained from other public sources.

Innovation in China: OECD (2009) As remarkable as the rise of China from the ashes of the Cultural Revolution has been, an equally amazing phenomenon is unfolding in that country where innovation is concerned. Realizing the Sisyphean fate to which China would be condemned if it were to be satisfied with being the world’s factory, dependent for know-how on advanced nations, the government embarked on a strategy of making the country a leader in innovation as well. To this end, policy makers proposed raising the R&D/GDP ratio from 1 percent early in the decade to 2 percent in 2010, and to 2.5 percent ten years later.39 Considering that China’s GDP has been growing at about 8–9 percent, this meant that R&D expenditure, in absolute terms, would have to grow by 500 percent to achieve a doubling of the ratio in less than ten years. The projected growth in R&D spending appears to be on track. China ranks behind only the US and Japan in absolute R&D expenditure. A key role in the expansion has been played by the private sector, which is now responsible for 70 percent of all R&D spending, with research institutes contributing 20 percent, and educational institutions making up nearly 10 percent.40 It is worth noting that businesses provide around 10 percent of funding received by universities for R&D. Foreign (including MNC) spending on R&D in China stands at a negligible (barely 2 percent) level. The government has reinforced its support for research institutes by increasing its funding, shedding employees lacking the requisite skills, and cultivating applied and basic research. (The number of institutes fell by 70 percent as did the employee head count over a five-year period.) Another boost to innovation inputs has come in the form of an expansion in tertiary education in S&E. The tighter bonds between academia and business have served to revitalize these two pillars of China’s NIS. Among the notable achievements involving linkages among institutions is the socalled technology exchange. Knowledge generated in public educational and research institutions is made available to enterprises that need the technology and are willing to pay for it. This marketplace for ideas has been highly effective in technology diffusion. Originally a state-sponsored effort, the technology exchange

28 Bernard Arogyaswamy and Lisa A. Dolak now functions more like an independent trading space.41 Science and technology parks have also been a vital part of China’s technological rise by bringing together, in a limited geographic space, the main players in a modern innovation system: universities, research institutes, businesses pertaining to a particular industry and/or technology field, consultants, technology transfer professionals, financial and legal institutions, and so on. In a six-year period, the number of firms that were members of clusters doubled, as has employment within them, while production and exports from clusters have expanded fivefold and sevenfold respectively. A similar proliferation of firms and outputs has occurred in the numerous technology incubators that have sprouted across the country. With a view to maximizing the impact of the R&D effort mounted in China over the past decade, funding has been selectively targeted, by region, by institution, and by subject. For instance, the Beijing area has an R&D to GDP ratio over 5 percent, and the Shanghai and Shaanxi regions have ratios in excess of 2.2 percent. However, Xinjiang and Guangxi lag well behind with figures below 0.5 percent.42 Similarly, the top 50 universities have attracted over 60 percent of the funding directed to higher education for science and technology, and chemistry, physics, and material science have been the favored knowledge fields for the investment of state funds. The focus on specific areas in S&E has paid dividends. China now ranks fourth in the number of scientific articles published, with chemistry, physics, electronics, and material science research making up half the output. Home to the second largest corpus of R&D personnel in the world (after the US), China is well poised to continue on its present trajectory to contribute significantly to the world’s store of knowledge, and become a dominant force for innovation in the near future. There are, however, some issues and challenges that need to be addressed, which we shall return to later after reviewing the position adopted in both nations on the safeguarding of IPRs.

IPRs in India As a founding member of the World Trade Organization (WTO), India committed to revise its intellectual property regime to conform to the standards established by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).43 Developing countries were permitted to take up to ten years to fully implement and enforce those standards. Accession to TRIPs meant that India had to modify its trademark, copyright, and patent laws. However, the required patent law modifications were far more significant than those required for the other Indian intellectual property law regimes. India had already strengthened its copyright law, consistent with its interest in fostering its strong domestic film and growing software industries, and had relaxed restrictions on the use and protection of foreign brand names.44 The other IPR-related changes mandated by TRIPs were largely uncontroversial, with the important exception of the required patent system modifications. To comply with TRIPs, India had to make a number of changes to its patent law, but by far the most significant related to product patents. In the areas of food, chemicals, and pharmaceuticals, the Indian Patents Act of 1970 only authorized process patents, and then only for a period of seven years. The Indian pharma-

Innovation and intellectual property rights in China and India 29 ceutical industry, which centered on the development of cheaper processes for producing valuable drugs developed elsewhere, thrived as a result.45 The TRIPsmandated introduction of product patents via the Patent Act of 2005 has dramatically altered the business of pharmaceutical production in India for domestic and foreign firms alike. Generic drug makers in India have responded by boosting investment in R&D, increasing their reliance on patent protection in India and abroad, and even creating separate business units focused on the development of new chemical entities. They are also benefiting from increased opportunities for collaboration with MNCs seeking to reduce R&D costs and expand capacity. In some cases, these collaborations extend beyond outsourcing to profit sharing.46 Challenges and limitations remain, however. Foreign companies seeking to do business in India should be aware, for example, that Indian protections for trade secrets and data are limited. And India’s IPR enforcement regime is weak compared with those of most developed countries. The court system is backlogged and cases take years to come to trial. The damages available under Indian law provide limited deterrence to infringement. In addition, there is debate regarding whether some aspects of India’s revised patent law comply with TRIPs. In particular, patent protection for derivatives of known substances is significantly circumscribed under Indian law. Because pharmaceutical companies often seek to patent alternative forms of successful drug molecules, such as salts and isomers, and because India’s law in this regard is unique, this aspect is controversial and has the potential to significantly limit investment by foreign pharmaceutical companies. In 2007, for example, after an Indian court enforced this provision to deny Novartis a patent on its cancer drug, Glivec, the company reportedly reversed its plans to make hundreds of millions of dollars in R&D expenditures in India.47 In addition, India’s compulsory licensing provisions are broader than those of most countries, and Indian law provides for both pre- and post-grant opposition proceedings. These aspects of Indian law can complicate and delay the acquisition of patent rights. It is too early to draw conclusions about the effect TRIPs-related changes to India’s IPR regime will have on innovation and investment by foreign and domestic actors. Still, the early evidence tends to suggest that the economy has benefited, despite the upheaval and controversy surrounding the revisions.48 As even the above-described events of the last few years indicate, however, the extent to which the IPR regime will foster or hinder economic expansion in India will depend in large measure on how the government interprets and implements the new laws.

IPRs in China China has a history of cultural and political antipathy toward IPRs. Its IPR regime is only about a quarter of a century old, and viewed in that light, it has come a long way in a very short time.49 However, thanks in significant part to a substantial gap

30 Bernard Arogyaswamy and Lisa A. Dolak between the laws as written and as enforced, China has earned its reputation for inadequately respecting IPRs. China adopted a patent law in 1985, but has only meaningfully focused on enforcement of that law since becoming a member of the WTO in 2001. Its record of copyright enforcement is particularly poor.50 In recent years, both the International Chamber of Commerce and the United States Trade Representative have placed China at or near the top of their lists of the worst IPR offenders. Historically, piracy crackdowns have tended to result from external pressures or coincided with visits by foreign trade representatives. And private enforcement has been discouraged by anemic damages awards. As discussed below, recent data and events, however, evidence change, including movement from reflexive enforcement efforts in the direction of a more self-interested, proactive regime. Nominally, at least, Chinese legal protections extend across the full spectrum of intellectual property, including domain names and layout designs in integrated circuits. And China is a party to all of the major intellectual property conventions (in addition to TRIPs), including the Berne Convention for the Protection of Literary and Artistic Works, the Madrid Agreement Concerning the International Registration of Trademarks, the Paris Convention for the Protection of Industrial Property, and the Patent Cooperation Treaty. The patent system, in particular, is undergoing significant development. In 2007, China leapt ahead of the United States and Japan in the number of patent applications it received, and 2008 saw a 20 percent increase in patent filings in China over the prior year. The State Intellectual Property Office estimates that it will receive 845,000 patent applications in 2009. Approximately 85 percent of patent applications in China are filed by domestic applicants.51 With the increase in patent filings has come an increase in infringement suits, a small but growing number of which are being brought by Chinese plaintiffs against foreign defendants. In 2007, a Chinese company was awarded almost $49 million in damages for infringement against a French company. It was the largest damage award for patent infringement in Chinese history, and far above the amounts typically awarded. But foreign litigants can prevail in the Chinese courts, as well. In one recent closely watched case, Pfizer’s Chinese patent on its Viagra product was upheld. These and other recent cases are seen as evidence of the development of the intellectual property infrastructure in China. There are other signs of improvement in IPR enforcement in China. The government has taken steps to raise public awareness regarding IPRs, developed action plans relating to intellectual property protection, and established telephone and internet infringement complaints centers. And there is some evidence of increased public recognition of IPRs.52 Any evaluation of the IPR landscape in China is complicated by the size of the country and the extent to which intellectual property protections disparately affect different geographic regions and business sectors.53 Levels of economic development and innovation vary significantly between urban coastal centers and rural inland areas, and these differences are reflected in the domestic population’s interest in and respect for IPRs. These differences are also reflected in the court system,

Innovation and intellectual property rights in China and India 31 where the challenge for potential litigants, given that there is limited publication of judicial interpretations in China, is to try to determine the level of sophistication and commitment to the rule of law among courts in various regions. But trade officials and foreign investors are increasingly attentive to regional disparities respecting regard for IPRs.54 Despite the significant continuing limitations of the Chinese IPR regime, that the system is progressing is undeniable. The extent to which that progress is attributable to the various drivers is more difficult to assess. Traditionally, external trade levers, including the conditions imposed for WTO entry, have predominated. However, there are indications that Chinese business and government interests alike are increasingly cognizant of the economic benefits of securing protection for domestic technologies, creative works, and trademarks.55 Thus, China’s economic development self-interest is likely to play an increasingly important role in the development of its IPR regime in the future.

Discussion and suggestions As noted through much of this article, China’s institutions and policies for, inputs and outputs to, and overall performance in, innovation have proved to be consistently superior to India’s, by and large, over the past decade. In discussing our findings and discussing potential and avenues for improvement we will evaluate India using China as a benchmark. We follow this with an assessment of where China stands and its ostensible direction in regard to innovation and IPRs. We propose strategies using as templates technologically advanced countries where such strategies have worked. One of the deficiencies identified in India’s capabilities in high-tech innovation by the SEI is that the linkages among major institutions (corporations, the state and its agencies, universities, research centers, and so on) are weak. The willingness and ability to conduct R&D and the skills to bring acceptable outcomes to the market are, in part, driven by the intensity and number of such institutional linkages. Risk propensity, a market system where trust-based transactions are encouraged and enforced, and the availability of capital for high-risk, high-return ventures also contribute to the flow and stock of innovation, as the World Bank investigation points out. The SEI suggest that a managerial style based on top-down, inflexible approaches needs to be moderated as well. Theoretical skills are, no doubt, valuable, but need to be matched by the savvy required to create outputs that will gain market acceptance. Whether the outputs are in the form of products or services is immaterial. What matters is that they are market tested. Using China as a benchmark, India needs to address shortfalls in technological infrastructure, productive capacity, and socioeconomic factors. In regard to technological infrastructure, scientific and engineering education, a focus on R&D, corporate training, and the ability to link institutions such as universities, firms, research institutes, and public scientific bodies are among the actions indicated. While corporate–public partnerships in technical education are underway and ought to be encouraged, the training imparted by firms has to be increased in order to compensate for the existing

32 Bernard Arogyaswamy and Lisa A. Dolak deficiencies in graduate quality. Enhancing productive capacity would entail manufacturing more electronic and IT products as well as undertaking R&D in these areas. Upgrading managerial capabilities in these and other industries seems imperative. Socioeconomic infrastructure improvements may be achieved by reducing regulation, fostering competition, providing greater support – and legitimacy – for entrepreneurial ventures. A predominant project orientation (that is, funding provided only against viable proposals with concrete deliverables) in research institutes, incentives for businesses to collaborate with universities and research institutes conducting applied (project-driven) R&D, and a version of China’s technology exchange with rewards for scientists and engineers whose ideas are “purchased,” are some of the policies that might help. Products developed with government financing should become the property of the innovator, rather than reverting to the funder, while agencies at the regional and national levels could be established to monitor the active connections as they operate at various stages of the innovation process. The CSIR attracts a mere 8 percent of the government’s R&D budget.56 It should be funded more generously to accelerate institutional enhancement, and linkage among universities, research institutes, and firms, both on an industry-wise basis as well as separately for large firms and SMEs. One of the challenges facing Indian tertiary technical education is that it has succeeded in turning out large numbers of S&E graduates, but has yet to systematically demonstrate the ability to conduct original research, and even less of an ability to tie such work to market needs. In regard to the number of scientists in R&D, this can be addressed better by acting on some of the elements that emerge from the GIS. For instance, by providing more incentives for conducting R&D (e.g. tax breaks for business, fewer restrictions on scientists profiting from their ideas, etc.), the level of business R&D might be enhanced at the NIS level. However, regional and local authorities may also act to establish regional centers and clusters in areas such as ICT to serve as centers of excellence, and to develop “toolboxes” for other industries such as nanotechnology. The deficit in social capital even in a thriving IT milieu such as Bangalore coupled with the high degree of dependence on foreign customers has militated against the intimate interactions among diverse players, which are so vital to achieving a functional cluster.57 Reallocating government funds in R&D to focus on absorption would send a signal to firms and regional authorities that they need to act in a suitable fashion, by, for instance, investing in clusters, upgrading existing technologies and managerial competence, coordinating the strategies of SMEs, and so on. The willingness of firms to decentralize, to accept that knowledge and ideas often originate at lower levels of the organization, that the ability to garner ideas from outside the firm has to be cultivated, and so on, are critical to absorption, as well as in an innovation-driven race to the top. One of the clear conclusions of the World Bank report is that India needs to enhance its absorptive capacity for existing and emerging technologies, market trends, and managerial approaches. Absorptive capacity refers to the ability to acquire, assimilate, transform (where necessary), and apply/exploit knowledge,58 and the concept may be applied to firms as well as to regions. As Uotila, Harmaakorpi, and Melkas59 have shown, regional and national authorities have a

Innovation and intellectual property rights in China and India 33 leading role to play in building absorptive capacity. National policy on stimulating the transfer of developments from universities and research institutes, as well as enabling indigenous firms to learn from MNCs, are areas in which national actions would help. At the regional level, the ability to identify unique opportunities and to leverage existing capabilities to act on them help spur greater absorptive capacity. Such actions would also enhance the effectiveness of domestic firms, while possibly drawing more innovative firms into the industry. An equally fruitful angle to pursue would be for regions to benchmark themselves against competing regions with a similar specialization within and outside India, as is the case in the EU. The Innovating Regions in Europe (IRE) network, created by the European Commission (EC), has, for instance, since the mid-1990s, attempted to facilitate the exchange of ideas and best practice among regions in Europe. The intent is to foster the development of effective and competitive regional strategies.60 Techniques such as the Regional Development Platform Method (RDPM) could provide valuable insights in identifying areas of expertise that would result in the greatest potential benefit to a region.61 The RDPM provides guidance and support in developing a portfolio of core capabilities and aligning them with the broad trends and resultant market opportunities. Applied to the Lahti region of Finland, where educational levels and research efforts fell far short of the national average, the RDPM was instrumental in identifying an array of fields (plastics, environment, furniture, media, etc.) from which informed choices, employing criteria specified in the RDPM, were made. It may also be noted that the World Bank survey62 reports that both absorption and creation aspects of innovation were deficient in SMEs. It is, therefore, all the more important to link public institutions (such as CSIR), universities, and large firms with SMEs to bring the latter progressively into the innovation economy. In a country with the geographic spread of India, with its regional diversity and wide political spectrum, it is vital that a nationwide, unifying vision of innovation’s role in societal prosperity is articulated, and the set of resources, institutions, and interactions underpinning a functioning NIS is implemented. It is equally critical to mesh regional capabilities and cluster growth within the NIS. India’s success with innovation will likely be as much a matter of institutional capability building as it will involve political acumen and balancing of social needs. Though China is well ahead of India in most aspects of high-tech and societal innovation, there is much that needs to be done before the country could be considered to be in the leading ranks of innovative nations along with the US, Japan, Sweden, or Germany. For instance, though pruning down the number of research institutes and reducing their head count has increased the “teeth-to-tail ratio,” so to speak, in public research, the connections between enterprises and these institutes remain tenuous. Only about 2 percent of the institutes’ funding comes from business, unlike higher education in science and technology, which receives 10 percent of its budgeted expenditure from business firms. However, there is a less favorable interpretation to the university–company tie-up. It arises, in part from the reluctance of companies to invest in in-house R&D: over two-thirds of all large and medium enterprises were in this category. While the potential for spillover rises with shared and outsourced R&D, so does the potential for disputes over IPRs and the precise

34 Bernard Arogyaswamy and Lisa A. Dolak direction the research should take. (A similar concern applies to the technology exchanges too. For instance, if the research institute were to continue work on a development acquired by an enterprise, who holds title to such follow-on work? A firm legal basis for settling such issues and any subsequent claims that may arise is essential.) In a general sense, universities are likely to be more attracted to basic research while firms are likely to emphasize applied or experimental work with marketable outcomes. On the other hand, if universities were to conform to corporate preferences, their ability to pursue inquiries with future value and potentially far greater spillover benefits to society might be imperiled. Another area of concern is the relatively low level of R&D investment by foreign firms, which remains consistently below that of their Chinese counterparts in the same industries. It is, to be sure, a tangled task to assess the real extent of foreign involvement in R&D in China, since some MNCs invest in R&D mainly to acquiesce with the government’s directive to do so. Given the recently promulgated policy offering a 150 percent tax deduction for R&D expenses (in effect, a subsidy), there could well be a tendency on the part of foreign firms to overstate R&D expenditures and, indeed, to include a variety of expenditures under this umbrella. Moreover, much of the technology-related work is adaptive not inventive, albeit some of the adaptation is aimed at serving markets in developing nations that may have similar needs. The challenge of technology sharing between a firm’s R&D centers abroad and its Chinese subsidiary continues to bedevil the practice of collaborative innovation. Cultural differences, impediments to communication (including language), the often wide knowledge gap, and the persisting reluctance to share technology with a potential rival, which plagued firms such as Novo Nordisk, confront many other enterprises that intend investing in Chinese R&D.63 The obverse side of the coin is that, when foreign firms do invest in R&D in China, the question of whether this results in “crowding-out” local potential investors in the same field arises. In other words, does the foreign R&D presence and activity serve to dampen indigenous efforts (e.g. by attracting talented technical personnel with lucrative salaries) and, worse, help train a generation of researchers in imitation and diffusion of innovation rather in creative work? In other words, is foreign investment in R&D perpetuating zero- and first-order innovative capabilities instead of the higher-order activities needed for technology leadership, which is the avowed aim of the Chinese policy makers and leaders? Though some of the slack in R&D intensity among MNCs is being picked up by domestic firms and their partners, it means that cutting-edge technologies are not being developed in China by firms from the US, EU, Japan, Korea, and other nations whose technological capabilities in specific fields are more advanced than China’s. China’s disappointment with the results from its “technology-for-market” program, and the realization that foreign firms are not inclined to conduct original R&D in China, have compelled policy makers to launch a drive to build indigenous capabilities in innovation. Concerns over such “techno-nationalism” on the part of a country whose remarkable economic rise has been based, in large part, on openness to the global economy and technologies, has caused concern among foreign enterprises and policy makers, as well as some in the Chinese science and technology establishment.64 At any rate,

Innovation and intellectual property rights in China and India 35 much of the R&D work being done in China belongs to the zero- and first-order varieties. China’s second- and third-order capabilities, that is, those involved in pushing the envelopes of knowledge in developing new-to-world products and services, and in pursuing technologies near the interface with pure science, need bolstering. Chinese manufacturing capabilities in high tech are almost unmatched, and the country’s ability to use R&D to achieve improvements in high-tech products is outstanding. However, the ability to advance scientific knowledge and find market applications appears to need improvement. For instance, the average for the ratio of high-tech R&D to value added is 5.6 percent for China, with the US and Japan registering 29 percent and 26 percent respectively. The gaps in this ratio are particularly enormous in pharmaceuticals, computers, and medical equipment. The gap between knowledge and innovation runs through much of China’s technological efforts, its great strides in recent years notwithstanding. The situation in regard to patents is particularly telling. The number of patents awarded in China has spiked sharply in recent years, paralleling the rise in researchers and scientific articles. Foreign invention patents totaled over 30,000 and Chinese patents stood at over 20,000 (in 2005), both referring to patents awarded in China. The number of Chinese Triadic patents, however, came to some 400 with the US garnering more than 40 times that quantity. The field of nanotechnology offers striking evidence that China’s growing prowess in research has yet to be translated into product ideas with marketability. Chinese authorship or co-authorship of scientific articles stood at an impressive 20 percent, and the country’s share of its scientists’ work being cited by foreigners was a healthy 10 percent, which compared favorably with Japan’s record and was around one-third that of the EU and the US. On the other hand, China’s share of nanotechnology patents was less than 1 percent, with the US coming in at nearly 50 percent, the EU at 25 percent, and Japan at 15 percent.65 In addition China’s policy makers are justifiably concerned over clusters exacerbating regional imbalances, though this is hardly an uncommon phenomenon. Whether in the Ruhr area of Germany, around Paris in France, Tokyo in Japan, or parts of California and the eastern seaboard in the US, geographic locations with pre-existing capabilities tend to attract more attention and inward migration of companies, knowledge brokers, and investment. Attempting to redress the imbalance is no doubt a laudable aspiration, but one that may prove expensive and, in the end, futile. Among the challenges the country’s policy makers do need to address are the issues relating to possible subversion of the mission of universities, the disconnection between research institutes and business, the reluctance of foreign firms to locate and conduct R&D in China, and the apparent inability to leverage scientific knowledge into viable, market-ready innovations. China, starting within a steady flow of FDI, which later turned into a torrent, has built a strong manufacturing base from which it is attempting to launch its bid for leadership in innovation. Having adopted a technology-for-market approach with, in its policy makers’ view, disappointing results, China is repositioning itself with indigenous innovation as the driving force to help realize its vision of global technological leadership.66 While efforts are still underway to encourage foreign firms to conduct original R&D in China, the limited success of these efforts seems

36 Bernard Arogyaswamy and Lisa A. Dolak to have convinced governmental decision makers that no more than zero- or firstorder innovations (such as adaptations of products developed elsewhere for the Chinese and other developing countries’ markets) can be expected from MNC’s R&D in China.67 IPRs are also viewed as a hegemonic tool wielded by foreign firms and governments to perpetuate China’s follower role in technology. Seen in conjunction with MNCs’ reluctance to invest in R&D in China, attempts at rigid enforcement of the IPR regime by other nations is viewed as part of a conspiracy to keep China in a subsidiary technological position.68 With a judicial system that is not completely independent of the executive, enforcement of IPRs and imposition of penalties on offending Chinese firms, particularly, in “mega-industries” targeted by the policy makers for rapid growth (with or without out foreign assistance), therefore, appear increasingly unlikely. Though there is some disagreement within the Chinese policy establishment over the country’s commitment to the megaindustry path, the strategic focus on select industries seems to be proceeding with little modification. The country’s stance appears to be gradually hardening into one of economic and technological nationalism.69 The alternative energy industry provides illustrative indication of China’s likely direction where innovation and IPRs are concerned. With a larger carbon footprint than any other country, the Chinese have realized that urgent action is necessary to address global climate change as well as to avert an environmental disaster within their own borders. Though the bulk of Chinese electrical power is derived from coal-fired stations (which are expected to continue growing at about 3 percent a year), electrical companies are being required to add significant alternative energy sources to their portfolios.70 Exponential growth is expected in wind and solar power over the next ten years. Generous incentives have been offered to domestic firms for setting up solar power projects. Already the largest producer of photovoltaic panels (though the bulk of them are exported) China seems set to use its manufacturing capacity to satisfy domestic demand, even if better designs are available elsewhere. In wind power too, foreign firms with possibly superior and proven designs are being blocked out of the Chinese market ostensibly because their prices are higher. On the other hand, Chinese firms are being accused in Europe and the United States of dumping products such as solar panels. The conclusion is inescapable that China and the most technologically advanced countries are inexorably heading for a confrontation over denial of market access, allegations of dumping, MNCs’ willingness to share technology, and over the very intent of the IPR regimen.71 The World Intellectual Property Organization (WIPO), formed under the auspices of the United Nations, has no real enforcement authority. Action can only be taken under the aegis of WTO’s TRIPs, which means that issues relating to intellectual property are inextricably tied to trade agreements and disagreements.72 The recent action by the United States to impose tariffs on Chinese-made tires may be an indicator of what lies ahead.73 China’s alleged proclivity to make products in violation of intellectual property agreements and to export them in competition with the original patent holders could result in rising tensions over innovation articulated in trade relations. As Chinese capabilities in biotechnology, computer

Innovation and intellectual property rights in China and India 37 science, nanotechnology, and aerospace advance apace, disputes over intellectual property can only intensify. Technology leaders such as the United States, the EU, Japan, and Korea are likely to guard knowledge, as it evolves in these potential blockbuster areas, even more jealously than they do innovations in maturing fields. Truly it can be said that innovation has become both the fulcrum of economic growth and a matter, potentially, for geopolitical confrontation. India’s approach to innovation has, as mentioned earlier, has been far less systematic and resource-intensive than China’s. The government has pledged heavy investments to improve the educational infrastructure, revamp research institutes (such as the CSIR), foster corporate efforts, establish industrial parks and clusters, facilitate institutional linkage, and so on, but seems to have fallen short on most counts. The best laid plans of the government also seem to fall short when it comes to resource commitments to technology and future versus current budgets with competing constituencies. However, there are some silver linings in the cloudy picture of Indian innovation systems, processes, and results. The pharmaceutical industry, for example, whose capabilities lay in developing efficient production processes, has prior to and since the law changed in 2005, developed increased competence in bulk pharmaceuticals, low-cost generics, novel drug delivery, and even drug discovery research, the licensing of molecules, collaboration with the CSIR and other labs, and also served as contractors for clinical testing.74 While IPR violations by Indian pharmaceutical companies are no longer a major concern for foreign firms, rivalry over a rapidly growing market is intensifying. A strategy that seems to be emerging is for collaboration between Indian firms with foreign partners.75 Acquisition of major domestic firms (such as that of Ranbaxy by Japan’s Daiichi for over $4 billion, and other pending deals for firms such as Cipla and Piramal are cases in point) is likely to prove a popular strategy as well.76 Gradually, the disputes over IPR violations in the Indian pharmaceutical industry are diminishing with the adoption of a slew of collaborative strategies. Since the foreign players intend making deeper technological commitments in the country, we can expect more intensive R&D in all stages of the industry with less concern over IPRs. A similar picture emerges in the automobile industry. Though a late starter, Indian demand and manufacturing capability are growing apace in the small-car segment. While most of the early entrants – Toyota, Honda, and Ford – had entered the mid-size segment, targeting high-income consumers, firms such as Hyundai, Maruti-Suzuki, and Tata aimed lower in vehicle size and customer income. Now all the firms in the industry are aiming for the small-car market, investing in manufacturing and R&D conducted in India.77 The intent is to develop new-to-market and new-to-world products (that is second-order innovation) in India. Concerns over IPRs are less likely in this industry due to the presence of powerful domestic firms, supply chain hurdles for new entrants, and the government’s hands-off approach. Not being a frontier or cutting-edge technology (unlike, say biotechnology or IT), possible imitators are also unlikely to attract the attention of foreign governments.

38 Bernard Arogyaswamy and Lisa A. Dolak The Indian government’s stance on IPRs is, ostensibly, that it intends to protect the ownership of ideas and innovations. However, even with the establishment of the National International Property Organization exclusively for dealing with IPRs, the government’s record of enforcing IPRs has been patchy. Though it is not likely to result in ongoing, serious disputes at the government-to-government level, there is the likelihood that FDI, which has been picking up over the past few years, will be scaled back particularly in knowledge-intensive industries. Overall, India’s intent in creating greater innovative capabilities is rooted not only in the need to close the technology gap with developed nations, and build the talent and institutions to construct and sustain a knowledge-based society, but also to use knowledge as a means to developing manufacturing and service capabilities, which is the reverse of the sequence followed by China and most developed countries. India’s economic growth prospects could well depend on how effectively the country harnesses knowledge from domestic and foreign sources at diverse technological levels to build an industrial base, create jobs, and promote social welfare. Given the country’s solid record of private industry and entrepreneurship, the lead in innovation is likely to originate from businesses sensing and satisfying market opportunities rather than from any grand government plans. For instance, though the government has proposed investing $20 billion in solar energy research development, engineering, and manufacture over the coming decade, the lead is being taken by entrepreneurs. Starting at the village level, start ups and companies are developing small-scale solutions such as photovoltaic cells being used to provide electricity to villages without power connections. Companies such as Moses Bauer are investing in photovoltaic technology to serve power needs on a larger scale. In both cases, as in the instance of small cars, innovation is of the demand-pull rather than the technology-push type. As the world’s major economies attempt to effect a recovery, painful and gradual, from the financial tsunami that rocked the world in 2008, the focus on short-term financial engineering and profits is likely to shift to more durable forms of innovation. It could involve a slow process of altering mindsets, modifying systems of corporate governance, executive pay, and other such actions. It would appear, however, that hopes for a quick recovery rest on growth continuing in China and, to a lesser extent, India. Both these countries, while experiencing burgeoning output and consumer demand, are also engaged in the worldwide contest for leadership in ideas. It is indeed paradoxical that nations that have been technology-followers until now could well stimulate the revival of a surge in innovation among their erstwhile mentors.

Notes 1 Frieden, J. (2006). Global Capitalism: Its Rise and Fall in the Twentieth Century. New York: Norton, pp. 59–62. Cain, P.J. and Hopkins, A.G. (1993). British Imperialism: Innovation and Expansion, 1688–1914. London: Longman. 2 In fact, the process of innovation may be likened to a conversation involving interactions and mutual adjustments among numerous, interdependent players. 3 Storper, M. (2005). “Society, community, and economic development,” Studies in Comparative Economic Development, Vol. 39, No. 4, Winter 2005, pp. 30–57.

Innovation and intellectual property rights in China and India 39 4 What makes the task of simultaneously “catching-up” and “forging ahead” particularly complex is that the stakeholders in the innovation process, and the nature of the interaction among them, varies with the order of innovation. 5 Gu, Q., Li, H., Zhang, W., and Zhou, L. (2006). “Firm dynamics in transition: evidence from a Chinese science park.” In Li, H. (ed.). Growth of New Technology Ventures in China’s Emerging Market. Cheltenham, UK: Edward Elgar. 6 New York Times. (2009). “The Great Wallop.” November 16. 7 Europa (2004). “Innovation in a knowledge-driven economy.” http://www.europa.eu.int/ scadplus/leg/enieub/n26009.htm. OECD (2007). “Innovation and growth: rationale for an innovation strategy.” www.OECD.org. 8 SEI (2007). http://nsf.gov/statistics/seind06. 9 GIS (2006). Trendchart. Cordis. http://www.cross-works.eu/Brainport_C01/Default. asp?CustID=354&ComID=29&ModID=1931&ItemID=1384&SessionID=-1& bottest=. 10 World Bank (2007). Unleashing India’s Innovation. Washington, DC: The World Bank. 11 NKC (2007). Innovation in India. New Delhi: National Knowledge Commission. 12 OECD (2009). Measuring China’s Innovation System: National Specificities and International Comparisons. Paris: OECD Publications. 13 Ministry of Science and Technology (2006). China Science and Technology Report. Beijing: Chinese S&T Literature Press. 14 Lundvall, B.A. (ed.) (1992). National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning. London: Pinter Publishers. 15 Ibid. 16 Casper, S. and van Waarden, F. (eds) (2005). “Scanning literature on institutions, organizations, and innovation.” In Innovations and Institutions: A Multidisciplinary Review of the study of Innovation Systems. Cheltenham, UK: Edward Elgar, pp. 3–18. 17 Okimoto, D. (1989). Between MITI and the Market. Stanford, CA: Stanford University Press. Johnson, C. (1993). “Comparative capitalism: the Japanese difference,” California Management Review, Summer, pp. 51–67. Kitagawa, F. (2005). “Regionalization of innovation policies: the case of Japan,” European Planning Studies, Vol. 13, No. 4, June, pp. 601–18. 18 Hertog, P. and Remoe, S. (2001). Innovative Clusters: Drivers of National Innovation Systems. Paris: OECD. 19 McKendrick, D., Doner, R., and Haggard, S. (2000). From Silicon Valley to Singapore. Stanford, CA: Stanford University Press. 20 Young, T. (2007). “Innovation as the essential ingredient in American economic growth and future survival.” In Taplin, R. (ed.). Innovation and Business Partnering in Japan, Europe, and the United States. Abingdon, UK: Routledge. Innovate America (2005). http://www.compete.org/publications/detail/202/innovate-america/Jaunotte, F. and Pain, N. (2005). Innovation in the Business Sector. Economics Department Working Paper. Paris: OECD. 21 Cooke, P. (2002). Knowledge Economies: Clusters, Learning and Cooperative Advantage. London: Routledge. National Governors Association (2002). “A governor’s guide to cluster-based economic development.” www.nga.org. 22 Sabel, C. (1992). “Studied trust: building new forms of cooperation in a volatile economy.” In Pyke, F. and Senserberger, W. (eds). Industrial Districts and Local Economic Regeneration. Geneva: IILS, pp. 215–50. 23 Cooke, Knowledge Economies, 2002. 24 Ohmae, K. (2005). The Next Global Stage. Delhi, India: Pearson Education (Singapore). 25 Hilpert, U. (2003). Regionalisation of Globalised Innovation. New York: Routledge. 26 Ohmae, The Next Global Stage, 2005. 27 Vaidyanathan, A. (1983). The Indian Economy since Independence. In Kumar, D. (ed.). The Cambridge History of India, Vol. 2. Cambridge: Cambridge University Press.

40 Bernard Arogyaswamy and Lisa A. Dolak 28 29 30 31 32

33 34 35 36 37 38 39 40 41 42 43

44 45 46 47

48 49 50 51 52 53 54 55 56 57

“India invests in low tariffs” (2007). http://international-tariffs.suite101.com, January 28. Economist (2009). “The more the merrier.” March 3. World Economic Outlook (2009). Washington, DC: International Monetary Fund. SEI, 2007. Thomas, J. (2009). “Innovation in India and China: challenges and prospects in pharmaceuticals and biotechnology.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan. Knowledge@Wharton (2009). “Driving ambition: India’s emergence as a hub for compact cars.” http://Knowledge.wharton.upenn.edu. October 8. GIS, 2006. World Bank (2007). India and the Knowledge Economy: Leveraging Strengths and Opportunities. Washington, DC: The World Bank. Ibid. Ibid. NKC, 2007. OECD, 2009. Ibid. Ibid. Ibid. Abraham, B.P. (2000). “The emerging patents and intellectual property rights regime: implications for Indian industry.” In Bhattacharya, P. and Chaudhuri, A.R. (ed.). Globalisation and India: A Multi-Dimensional Perspective. New Delhi: Lancer’s Books, pp. 87–109. Banerji, S. (2000). “The Indian intellectual property rights regime and the TRIPs Agreement.” In Long, C. (ed.). Intellectual Property Rights in Emerging Markets. Washington, DC: The AEI Press. Ibid. Singh, S. (2007). “Lilly signs India’s Piramal,” Red Herring, January. Jack, A. (2007). “Novartis to move Indian R&D,” Financial Times, August. Rhodes, G.W. (2009). “A global perspective on Asian IP enforcement.” In IP Client Strategies in Asia: Leading Lawyers on Understanding Variations in Asian Intellectual Property Law Systems, Advocating for Improved Enforcement Practices, and Staying on Top of Local Patent Law Amendments. Eagan, MN: Aspatore. Mueller, J.M. (2007). “The tiger awakens: the tumultuous transformation of India’s patent system and the rise of Indian pharmaceutical innovation.” University of Pittsburgh Law Review, Vol. 68, No. 3, Spring. Chen, J. (2008). Chinese Law: Context and Transformation. Boston, MA: Martinus Nijhoff Publishers. Groombridge, M.A. (2000). “The political economy of intellectual property rights in the People’s Republic of China.” In Long, C. (ed.). Intellectual Property Rights in Emerging Markets. Washington, DC: The AEI Press, pp. 11–45. State Intellectual Property Office of the PRC (2009). http://www.sipo.gov.cn/sipo_ English/statistics/. Chen, Chinese Law, 2008. Gervais, D.J. (2007). Intellectual Property, Trade and Development: Strategies to Optimize Economic Development in a TRIPs-Plus Era. New York: Oxford University Press. Ibid. Chen, Chinese Law, 2008. World Bank, 2007. D’Costa, A. (2009). “Extensive growth and Innovation challenges in Bangalore, India.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 79–109.

Innovation and intellectual property rights in China and India 41 58 Todorowa Todorova, G. and Durisin, B. (2007). “Absorptive capacity: valuing a reconceptualization.” Academy of Management Review, Vol. 32, No. 3, pp. 774–86. 59 Uotila, T., Harmaakorpi, V., and Melkas, H. (2006). “A method for assessing absorptive capacity of a regional innovation system.” Fennia, Vol. 184, No. 1, pp. 49–58. 60 IRE (2007). www.innovating-regions.org. 61 Harmaakorpi, V. (2006). “Regional Development Platform Method (RDPM) as a tool for regional innovation policy.” European Planning Studies, Vol. 14, No. 8, pp. 1085–1104. 62 World Bank, 2007. 63 Kjersem, J. and Gammeltoft, P. (2009). “Knowledge exchange with offshore R&D units: Novo Nordisk, GN Resound, and BenQ Siemens Mobile in China.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 170–92. 64 Preeg, E. (2008). India and China: An Advanced Technology Race and How the U.S. should respond. Arlington, VA: Manufacturers Alliance. 65 OECD (2005). www.OECD.org. 66 Serger, R. (2009). “Foreign corporate R&D in China: trends and policy issues.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 50–78. 67 Liu, X. and Lundin, N. (2009). “The National Innovation System of China in transition: from plan-based to market-driven.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 27–49. 68 Cao, C., Suttmeier, R., and Simon, D. (2009). “Success in state-directed innovation? Development of science and technology.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 247–64. 69 Ibid. 70 Time (2009). “Tower of power.” November 2, pp. 49–51. 71 Preeg, India and China, 2008. 72 Bhagwati, J. (2004). In Defense of Globalization. New York: Oxford University Press, pp. 182–3. 73 New York Times (2009). “U.S. adds tariffs on Chinese tires.” September 11. 74 Chaturvedi, C. and Chataway, J. (2009). “The Indian pharmaceutical industry: firm strategy and policy interactions.” In Parayil, G. and D’Costa, A. (eds). The New Innovation Dynamics: China and India in Perspective. Basingstoke, UK: Palgrave Macmillan, pp. 138–69. 75 Thomas, “Innovation in India and China,” 2009. 76 Knowledge@Wharton (2009). “Cure for an ailing industry? Pharma multinationals seek a panacea in Indian acquisitions.” http://Knowledge.wharton.upenn.edu/india/article. cfm?articleid=4419. October 22. 77 Knowledge@Wharton (2009). “Driving ambition: India’s emergence as a hub for compact cars.” http://Knowledge.wharton.upenn.edu/india/article.cfm?articleid=4417. October 8.

3

African intellectual property law and the newly emerging African economies, with an emphasis on South Africa Nthabisheng Phaswana and Dario Tanziani

Introduction Intellectual property is not a strange concept in African countries outside of South Africa. South Africa has at all relevant times had a modern intellectual property law system, and has been continuously amending its intellectual property legislation to align it with international developments and best practice. Like South Africa most African countries do have laws that protect intellectual property. However, almost all these laws are remnants from their colonial past and are outdated. Furthermore, similar to South Africa, since the 1990s, a shift occurred in views regarding intellectual property rights. An increasing number of policy-makers in African countries with emerging economies recognized the role of intellectual property rights as an important element of the institutional infrastructure for encouraging private investment, especially in the industrial and scientific fields. In this chapter we explore whether there is an empirically demonstrable link between protection of intellectual property rights and the pre-recessionary growth in some of the more important sub-Saharan African economies, namely South Africa, Kenya, Nigeria, Ethiopia and Angola. The role of regional organizations in the promotion of intellectual property as an instrument of economic growth will also be considered. We conclude that African countries are realizing that intellectual property is a strategic and powerful instrument of economic growth.

Historical background According to the Department of Trade and Industry, South Africa is regarded as an investment gateway into Africa as it is one of the most advanced and productive economies on the continent. It is also seen as having the potential to be an investment destination offering a unique combination of a developed first-world economic infrastructure with a vibrant emerging market economy. Furthermore, in view of its membership of the World Trade Organization (WTO), its policies are seen to be encouraging free trade. We will analyse the progress South Africa has made in the development of its intellectual property legislation, compare this with progress in other emerging African economies (i.e. Ethiopia, Kenya, Nigeria and Angola), and attempt to draw conclusions as to whether or not South Africa’s relatively strong

African intellectual property law 43 economic position can be attributed to a healthy intellectual property regime when compared to other African countries. The concept of protection of intellectual property in South Africa can be traced back to before democracy in 1994, and indeed prior to unification in 1910. The first Patents Act formed part of the first consolidated South African intellectual property legislation, the Patents, Designs, Trade Marks and Copyright Act 9 of 1916. Prior to this date, the independent colonies, which made up the geographical area of South Africa before unification, had their own different intellectual property statutes dating back to the late 1800s, the earliest Patents Act being Act 17 of 1860 of the Cape of Good Hope. Like some developing countries, South Africa recognized early on the role of intellectual property in economic growth. Over the years South African intellectual property laws were based on similar legislation in developed countries and have continuously been improved and changed to conform to international standards and conventions. It is also worth noting that, according to World Intellectual Property Organization (WIPO) statistics, registration of intellectual property rights originating from South Africa has been on the increase. For example, South Africa acceded to the Patent Cooperation Treaty (PCT) in 1997. Figure 3.1 indicates that from 1999 to 2004, there was an increase of about 68 per cent in international patent applications filed under the PCT and originating from South Africa. This increase is comparable to the position in other economically active developing countries such as India and Singapore, but obviously lags behind the very successful developing countries such as Korea and China. This can be understood if the difference in population is taken into account. 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

1998 1999 2000 2001 2002 2003 2004

1998 1999 2000 2001 2002 2003 2004 R. Korea

China

South Africa

India

Singapore

Brazil

Mexico

485 790 1,514 2,318 2,552

322 240 579 1,670 1,124

0 281 386 418 407

0 61 156 316 480

127 144 225 271 322

114 126 161 193 204

67 51 71 107 128

2,947 3,553

1,205 1,704

376 401

611 667

313 423

221 278

123 118

Figure 3.1 PCT international applications originating from selected developing countries. Source: PCT Yearly Review, 1998–2004.

44 Nthabisheng Phaswana and Dario Tanziani WIPO emphasizes intellectual property as a powerful instrument for economic growth. Countries such as Japan and most recently the People’s Republic of China (the latter, significantly, also passing through a developing country stage), are utilizing intellectual property to support their economic growth. Recent reports indicate that China is set to become the largest PCT filing country in the world by 2012, outstripping the United States, Japan and Europe. Why should South Africa be an exception? On the contrary, South Africa has in the past, and is increasingly continuing to utilize intellectual property as an instrument towards wealth creation. The objective of this chapter is to explore how the development of intellectual property influences economic growth in South Africa, Kenya, Nigeria, Ethiopia and Angola.

Intellectual property and foreign direct investment Countries with weak IP protection receive less direct foreign investment; and the investment they receive is less technologically sophisticated. (Shapiro and Hassett, 2005)

The position could not have been better stated than in the above statement. Protection of intellectual property constitutes an important consideration for the intellectual property owner, which is frequently a highly resourced multinational company looking for new opportunities, in deciding whether or not to invest in a particular country. It stands to reason that anyone would be reluctant to put their products or technologies on the market in a country where their rights are not be protected, the result of which will be loss of competitive and marketing advantage and thus loss of profits and investments. An indication of the importance of intellectual property in attracting foreign investment is the emphasis that countries put on intellectual property when negotiating trade agreements. Take, as an example, the Trade, Development and Cooperation Agreement (TDCA) between South Africa and the European Union (EU), which came into full effect on 1 May 2004. During the negotiations, the negotiators were guided by the following three principles1: 1

2

3

The agreement had to be WTO compatible, i.e. substantially all trade in all sectors had to be covered, including intellectual property under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). The agreement had to be asymmetrical, i.e. the EU as the developed partner would open up its markets faster in respect of content and access than would South Africa, the developing partner. The agreement had to be to the benefit of the whole of Southern Africa.

It is worth noting that the four-year long negotiating period was characterized by intense debate regarding intellectual property, specifically in the form of geographical indications, which nearly caused the negotiations to collapse.2 The EU had to make sure that intellectual property in the form of geographical indications (‘port’, ‘sherry’ and the names of several other wines and spirits)

African intellectual property law 45 originating from its member states would be protected within the South African market and, furthermore, that South African producers would not use these geographical indications in both the domestic and the export market.3 The UK Department of Business Enterprise and Regulatory Reform reported that as a result of this agreement, the trade between UK and South Africa was given a significant boost as the total value of trade in goods between the two countries rose from £2,869 million in 1999 to £4,806 million in 2003. Of further interest in this regard is the trade relationship between United States of America and South Africa. In 1994, US foreign direct investment in South Africa was more than $1 billion. According to a report from the Office of the US Trade Representative, the issue of protection of intellectual property threatened this relationship in that foreign firms, including US firms, complained about trade mark infringements in the retail stores, in respect of franchise foods and in the clothing sectors. In order to more effectively address the problem of counterfeiting and piracy, South Africa enacted the Counterfeit Goods Act 37 of 1997, which provides for procedures to investigate, seize and eventually (in appropriate cases) destroy counterfeit and pirated products. Based on the complaints lodged, the South African government improved and enforced its laws by conducting raids of suspected counterfeit and pirated goods. Both the above examples clearly indicate that foreign investment from developed economies into developing economies goes hand in glove with the protection of intellectual property. The strength or weakness of protection of intellectual property in the developing economy seeking the foreign investment has a strong effect on foreign direct investment. A low level of protection of intellectual property can avert investment in technology-intensive sectors that rely greatly on intellectual property rights.4 This does not mean that strong intellectual property protection alone is an adequate incentive for foreign firms to invest in the country.5 Intellectual property rights play an important role within the whole regulatory system, which includes other elements such as competition rules and trade policies. Specifically in the context of intellectual property protection, it is worth noting that South Africa was a signatory member of the WTO/TRIPs Agreement in 1994 and in the period leading up to that date as well as the period thereafter introduced extensive amendments to its intellectual property legislation to ensure substantial compliance with TRIPs. In particular new legislation was enacted for trade marks and designs, the Trade Marks Act 194 of 1993 and the Designs Act 195 of 1993, and a comprehensive Intellectual Property Laws Amendment Act 38 of 1997.

Intellectual property and research and development According to the former head of WIPO, Dr Kamil Idris, some statistics support the relationship between economic growth, research and development and intellectual property; it has been suggested that intellectual property significantly influences the appreciation in value and the accumulation in quantity of human capital, and the rate and direction of technological change. Technological change is regarded as one of the most important sources of change in the economy. However, the capacity for science and technology in South Africa

46 Nthabisheng Phaswana and Dario Tanziani has not been adequately translated into innovative and dynamic business organization or enterprise. The former South African Minister of Science and Technology, Dr Mosibudi Mangena, has clearly acknowledged the importance of research and development in bringing economic benefits to South Africa. In his address to the Finnish–South Africa Business Forum, the Minister stated that South Africa has to be in a similar position to Finland regarding the strong public–private partnerships that facilitate the uptake and translation of research results into products that can be readily commercialized. He also mentioned that South Africa is making significant progress in promoting and monitoring research and developments outputs, as is evident from the passing of legislation aimed at the establishment of the Technology Innovation Agency and the National Intellectual Property Management Office. He stressed that intellectual property plays an important role in research and development and as a result, since 2004, there has been a growing emphasis on creation and exploitation of South African developed intellectual property to benefit the country. The emphasis on the importance of intellectual property has led to the formulation and implementation of a legislative and policy framework that provides for the establishment of a statutory mechanism and a dedicated agency that can identity and effectively manage intellectual property resulting from publicly financed research and development. Whilst South Africa has recognized the important link between research and development, intellectual property and economic growth, countries such as the United States of America have a long history of utilizing research and development towards economic growth. In 2008, Dr Joseph Allen of the US attended a South African parliamentary committee meeting for discussing the Bill on Intellectual Property Rights from Publicly Funded Research. Dr Allen had to make a presentation about the experience of the US regarding intellectual property and research and development. Addressing the parliamentary committee, Dr Allen indicated that in 1979, the US economy had stagnated while the world economy was moving in the direction of a knowledge economy and that knowledge needed to be protected in the same way as the products of the knowledge. Since universities in the US concentrated on early-stage research and did not attempt to create the end product, something had to change. Then the Bayh–Dole Act was passed in the US in 1980 to encourage partnerships between companies and the universities. According to Dr Allen, over the last 20 years American companies have ceased doing their own long-term research as they are now working with universities to turn early-stage research into marketable products.

Intellectual property and job creation Protection of intellectual property grants the owner of the intellectual property exclusive rights to exclude others from performing certain acts in regard to the protected product. In the case of patents these rights include making, using, exercising, disposing or offering to dispose of or importing the patented product. It will not serve any purpose if ideas are protected in terms of the intellectual

African intellectual property law 47 property laws, but thereafter failure to maximize the further development of the products and the commercialization of the products fails to benefit the South African community. The South African Patents Act requires that inventions should not just be patented; they must be worked otherwise compulsory licences can be applied for in terms of Section 56. In order to work an invention, the product must be commercialized by either exploitation or licensing, bearing in mind that TRIPs provides that importation will also count as exploitation. Commercialization of intellectual property plays an important role in job creation as some of the protected inventions will require manufacturing of the end product or at least parts thereof. The case of Prof. Vivian Alberts and the development of thin film photovoltaic or solar panel technology is a case in point.6 This technology will allow customers to purchase panels that provide a direct access to energy, independently of access to electricity grids. Prof. Alberts’ technology was developed in South Africa but initially licensed for commercialization in Germany as part of Germany’s alternative energy policy. The benefit of the commercialization and exploitation of this technology has been proven to be immense as in terms of direct job creation: in Germany there are more than 300,000 people employed in the industry. The CIGSse (copper indium gallium sulphur selenide) solar panels production for retail distribution will begin in the fourth quarter of 2010. It is reported that the plant construction in Paarl, in the Western Cape Province of South Africa, will make 30MW per year of panels that can be used for solar farms, rooftop installations and other purposes. It is believed that the solar panels will not only help create local energy self-sufficiency, but also dramatically increase the number of jobs as for every mega watt generated, one job will be created. This success story clearly indicates the potential that intellectual property has towards job creation if fully developed and utilized.

South Africa’s progress in respect of intellectual property Over the years, South Africa has amended its laws to be in line with international developments. Be that as it may, according to McLean Sibanda, Head of the Patent Department at the South African Innovation Fund, South Africa has been viewed as a resource-based economy with little appreciation of intellectual property as an instrument for wealth creation. This is about to change, as South Africa is striving to move towards a knowledgebased economy. The South African government, through the Department of Science and Technology, has put together an innovation plan (‘Innovation towards a knowledge-based economy: ten-year plan for South Africa’) to transform South Africa towards a knowledge-based economy. During the 2009 Bio2biz conference, the Minister of Science and Technology emphasized that the Department of Science and Technology has identified innovation as a key focus for the next ten years with an objective to encourage new ideas and the development thereof into business products and processes. The Minister highlighted a few successful initiatives wherein intellectual property and innovation contributed towards economic development. She mentioned the implementation of the biotechnology strategy,

48 Nthabisheng Phaswana and Dario Tanziani which over the past five years resulted in the establishment of 30 new start-up biotechnology companies stemming from university research and intellectual property generated by South African innovators, and creation of more than 1,000 research jobs. Intellectual property plays a crucial role in a knowledge-based economy. In early 2009, South Africa passed into law the Intellectual Property Rights from Publicly Financed Research Bill, which provided a clear guidance on the ownership of intellectual property rights ensuing from publicly funded research and development in South Africa. According to the Department of Science and Technology, the objective of this Act is to ensure that intellectual property originating from publicly financed research and development must be commercialized for the benefit of all South Africans, and be protected from appropriation. The Department also indicated that the aim of the Act is also to facilitate the creation of new knowledge originating from public funding and secure the knowledge by a way of intellectual property, which could have economic and social benefits. It is worth noting that the South African government views the Intellectual Property Rights from Publicly Financed Research Act as the anchor behind the Department of Science and Technology’s ten-year plan designed at transforming South Africa towards a knowledge-based economy. It is also interesting to see that both the objective of the Act and the ten-year plan is to ensure that innovative ideas protected in a form of intellectual property are commercialized to solve South Africa’s socioeconomic challenges and accelerate and sustain economic growth. Looking at the progress made by South Africa regarding intellectual property, it is clear that the movement towards utilizing intellectual property as an instrument for economic growth is gaining momentum and has made some breakthroughs compared to other African countries.

Economic development and intellectual property protection in sub-Saharan African countries Perceptions of the business community regarding sub-Saharan Africa had been dominated by descriptions of poverty and political volatility. This perception has changed as some economies in sub-Saharan Africa have grown quite strongly.7 In 2007, sub-Saharan Africa experienced one of its highest growth rates as real gross domestic product expanded by about 6.5 per cent. It is worth noting that while sub-Saharan Africa economies have been growing over a decade or more, something also happened regarding intellectual property as some of the sub-Saharan countries acceded to the regional organizations (African Regional Intellectual Property Organization (ARIPO) and African Intellectual Property Organization) and the PCT. Is it a mere coincidence that economies of subSaharan Africa experienced growth at the same time as the countries made important changes regarding protection of intellectual property? Did intellectual property play a role towards the economic growth? For the purpose of this chapter, we will concentrate on the following sub-Saharan countries in view of the economic developments and available information on intellectual property development in respect of these countries.

African intellectual property law 49 Kenya Protecting intellectual property is vital to economic growth and it is for this reason that Kenya decided to reform its laws in respect of intellectual property. According to the Kenyan Attorney General, failure to provide for adequate protection of intellectual property in Kenya resulted in a negative effect on foreign direct investment and discouraged the growth of local entrepreneurship. In the keynote address during the third Global Congress on Combating Counterfeiting and Piracy, the Attorney General stated that as a result of counterfeiting and piracy, intellectual property rights holders in Kenya lose an estimated US$ 420 million per annum. Counterfeiting and piracy also led to the closure of businesses in the textile and music industries, leading to job losses and causing the Kenyan government to lose about US$ 84 million per annum in revenue. He emphasized that realizing the importance of protection of intellectual property towards foreign direct investment and the threat that counterfeiting has on foreign direct investment, Kenya implemented legislative reforms. Below is a list of some of the legislative reforms implemented by Kenya to ensure effective protection of intellectual property: 1

2

3

4

5 6

Kenya amended the 1989 Industrial Property Act and passed the Industrial Property Act of 2001 that complies with the provisions of TRIPs. The 2001 Act provided for the creation of an independent statutory body to consider applications for industrial property rights, promote innovativeness and provide the public with industrial property information for technology and economic development. This Act also provided for the creation of a Tribunal that adjudicates on disputes regarding intellectual property. It is worth noting that the Tribunal has been functional in Kenya, deciding on intellectual property issues. Of recent note, the Tribunal adjudicated on a matter where Pfizer filed an application to prevent a Kenyan pharmaceutical company from infringing one of Pfizer’s granted ARIPO patents in which Kenya was a designated state. Kenya replaced the 1966 Copyright Act with the Copyright Act of 2001. The 2001 Act provides for the administration and enforcement of copyright and related rights. The Act also provides for the establishment of the Copyright Board that is mandated to administer and enforce copyright and related rights. It amended the Trade Marks Act of 1995 in 2002 to provide for the registration of trade marks and criminal proceedings, punitive and deterrent fines and imprisonment for infringement of intellectual property. It amended the Trade Descriptions Act in 2002 to provide for severe punishment in respect of mis-description of goods, services, accommodation and facilities provided in the course of trade. The Act was also amended to ensure compliance with international treaties and agreements that the country has acceded to such as the TRIPs agreement. It amended the Weights and Measures Act in 2002 to expressly prohibit the importation of goods bearing a false indication of the country of origin. Kenya introduced the Counterfeit of Goods Bill in 2005, which provides for the creation of the Counterfeit Agency to combat counterfeiting, trade and dealing in counterfeit goods.

50 Nthabisheng Phaswana and Dario Tanziani 7

8

It amended the Seeds and Plant Varieties Act in 2002. Since the liberalization of the Kenyan economy, seed companies have been engaged in plant breeding. The seed industry in Kenya is viewed as one of the key industries as the maximum expression of plant breeders’ rights is found in seed technology.8 Local Kenyan seed companies have been breeding food crops whilst foreign seed companies breed horticultural crops such as flowers.9 Since most foreign flower companies are breeding and developing varieties of flowers abroad, the Kenyan government has been trying to encourage foreign companies to register their varieties locally.10 By amending this Act, the Kenyan government is seen to try to encourage local breeding of varieties and modernize the law to attract foreign companies. Through a system of plant variety protection for breeders, Kenya has managed to increase the competitiveness of the Kenyan flower industry in the European market. It is reported by WIPO that in 2003, Kenya exported over 61,000 metric tons of cut flowers to Europe and the export was valued at US$ 216 million. It is estimated that on overall horticultural production, 7 million tons were produced in 2008 and 4 per cent of the total production (403,000 tons) was exported to the US. The export was valued to be around US$ 1 billion. The Kenyan floriculture and/or horticultural industry has managed to create jobs and has become an important source of income for Kenyan small-scale farmers located in the rural areas. It is estimated that the industry employs about 2 million people directly in breeding, production, packaging and transport. About 3.5 million people are also reported to be indirectly supported by the industry, i.e. within the marketing industry, hospitality industry and manufacturing of containers. It is worth noting that the industry is growing with over 160 professional-size growers. Finally, Kenya is attempting to introduce the Geographic Indication Bill in 2001, which provides for the protection of geographic indications and the remedies for infringement. The issue of geographic indications has been debated in Kenya over the years, in particular since 2001. To date the Geographic Indication Bill has not yet been passed into law. Currently geographic indications are provided for in the Trade Marks Act wherein geographical names or indications of geographical origin are registered as collective trade marks or service marks.

Kenya has shown interest in geographical indication with the aim that geographic indications will contribute to the Kenyan economy. However, Kenya’s experience with geographic indications is limited and lacks the necessary capacity to finance a suitable and sustainable geographic indication system. It is for this reason that in 2006, the Kenya Industrial Property Institute requested technical assistance of the Swiss Institute of Intellectual Property to start a project on effective protection of geographic indications. The proposal for a technical cooperation programme (i.e. the Swiss–Kenyan Project on Geographic Indications) between Switzerland and Kenya was approved by the Swiss Federal Institute of Intellectual Property in 2008. In May 2009, a memorandum of understanding regarding this project was signed

African intellectual property law 51 between the Swiss and Kenyan Industrial Property offices. According to the press statement released by the Kenyan Industrial Property Institute, the project ‘aims at contributing to the economic success of the Kenyan products by giving Kenyan geographic products the opportunity to fill new market niches in the national market and export trade and to achieve higher profits across the entire value-chain’. Kenya hopes that a sustainable geographic indication protection system will benefit the country as follows: 1

2 3

The promotion of rural development as production will increase in the agricultural sector and in turn creating more local jobs and prevent the rural urban exodus. The preservation Kenyan local know-how and natural resources. Providing a marketing and branding tool for genuine Kenyan products.

Kenya’s plans regarding geographic indications are advancing as the Kenyan government intends to use geographic indications within the Kenyan coffee and tea industries in order to ensure economic and sustainable development. By implementing a unique branding system through geographic indications, the Kenyan government expects economic reward in that demand for the branded Kenyan coffee and tea will increase, resulting in possible price increases for these products within the international markets, and earning more for the Kenyan farmers.11 By now Kenya should have realized the importance of registering creations originating within the country. Two Kenyan products have been at the centre of a dispute regarding intellectual property ownership. The first dispute was between the Kenyan and Japanese governments in respect of a design of the traditional handwoven sisal basket known as the ‘Kiondo’. Kiondo is a traditional basket originating from Kenya that became popular as a tourist souvenir in the 1980s due to tourism growth in the country. Whilst this basket is a Kenyan traditional product, Kenya lost its intellectual property ownership to Japan as the name was registered as a trade mark in Japan. It is reported that as a result of the trade mark registration, Kenyan Kiondo makers have to pay levies to use the name. Another recent dispute arose when a UK-based firm applied for the registration of the name ‘Kikoy’ as a trade mark for its clothing line. In Kenya, ‘Kikoi’ refers to an original 100 per cent hand-knitted cotton fabric historically worn by men and women along the East African coast. The good thing is that the UK firm did not proceed to satisfy the registration requirements and, as a result, the application was declined by the UK Intellectual Property Office. Be that as it may, one cannot help but wonder about the serious economic implications had the UK Intellectual Property Office registered the trade mark, which would have resulted in the UK firm having a monopoly over the Kikoi products. Consequently, similarly to the situation regarding Kiondo, Kenyans would have to request permission and/or pay levies to the UK firm in order to market or sell the Kikoi products. This would have resulted in job losses for many Kenyans whose livelihood is dependent on selling Kikoi products.12

52 Nthabisheng Phaswana and Dario Tanziani Table 3.1 Total number of trade mark applications filed by non-Kenyan and Kenyan residents, 2004–8 Year

Total no. of applications

2008

8,189 (6,302 applications filed by non-Kenyan residents and 1,887 applications filed by Kenyan residents) 7,237 (5,241 applications filed by non-Kenyan residents and 1,996 applications filed by Kenyan residents) 7,029 (5,568 applications filed by non-Kenyan residents and 1,461 applications filed by Kenyan residents) 5,873 (4,697 applications filed by non-Kenyan residents and 1,176 applications filed by Kenyan residents) 5,145 (4,253 applications filed by non-Kenyan residents and 892 applications filed by Kenyan residents)

2007 2006 2005 2004

Source: Kenya Industrial Property Institute.

Kenya introduced the Layout-Designs of Integrated Circuits Bill in 2001 to provide for protection of layout-designs of integrated circuits in order to comply with Article 35 of TRIPs.13 Did this initiative benefit Kenya’s economy? It is probable, taking into consideration that according to greenfield data from FDI Intelligence, Kenya had the biggest foreign direct investment during 2008 when 25 international investment projects in Kenya were recorded. Communication firms such as Finland’s Nokia launched a regional research centre in Nairobi with the aim of getting a better understanding of the needs of African consumers and also to work with universities and non-government organizations to develop model devices suitable for the African market. Besides the investment by Finland’s Nokia, companies such as South Africa Standard Bank, Dubai Bank, Bank of India and India’s Tata group also invested in Kenya. It is worth noting that the industries within which these companies operate are mainly driven by inventions and technology, and protection of intellectual property is one of the important factors. It is interesting to note the increase in trade mark applications filed at the Kenyan Industrial Property Institute over the past five years in respect of marks (Madrid marks, service marks and trade marks). It must be noted that Kenya acceded to the Madrid Agreement concerning International Registration of Marks June 1998. However, the registration of international marks in terms of the Madrid Agreement only became effective in Kenya in 2003 after the Kenyan law was amended to give effect to international registration. This might also explain the increase in number of applications received by the Kenyan Industrial Property Institute. More importantly is to note that the Kenyan Registry received the highest number of trade mark applications in the same year (2008) in which Kenya received the biggest foreign direct investment (Table 3.1). Nigeria Nigeria had an early experience of how innovation protected in the form of intellectual property can contribute towards sustainable development and attraction

African intellectual property law 53 of investments. The invention of the emergency auto transfusion set (EAT-SET) by a Nigerian doctor is a classical example in this regard. WIPO has also recorded the invention as one of the success stories in respect of the value of intellectual property rights in developing countries. Dr Ovadje invented the EAT-SET in Nigeria for recovering blood from the body during operations and re-infusing it into the patient after filtration. The invention was viewed as a breakthrough as the device was more suitable for developing economies where blood supplies are scarce, and the device reduced the risk of contracting AIDS and other infectious diseases through blood transfusion. In 1989, the Nigerian government financed a project to develop the device. The project attracted the attention of the United Nations Development Programme, which provided funding for developing and testing of the device. The United Nations Development Programme also provided assistance to the inventor with protecting the device by patenting and trade marking the device in nine foreign countries. In April 2001 a company was established for commercializing the device. It is reported that by protecting the device through patents and trade marks, the investors are more confident in investing in the company, with some investors willing to put in about one million US dollars. It is reported that over the years, the Nigerian economy has improved, which has resulted in growth of foreign direct investment. In 2008, Nigeria was listed among the ‘Next Eleven’ economies, and is one of the fastest growing in the world with the International Monetary Fund projected growth of 9 per cent in 2008 and 8.3 per cent in 2009. Below are few examples reported by a Nigerian law firm, G.R.F. Dalley and Partners, indicating improvement in the Nigerian economy: 1 2

3

In 2002 the flow of US foreign direct investment increased to US$ 1.8 billion. In 2005 Nigeria and China concluded a US$ 800 million crude oil sale deal between Petrochina International and the Nigerian National Petroleum Corporation for the supply of crude oil to China. In 2006, China’s offshore oil producer agreed to pay US$ 2.3 billion for a stake in a Nigerian oil and gas field.

Nigeria’s status as a favourable destination for foreign direct investment is threatened by infringement of intellectual property.14 According to Gerald Ilukwe, Microsoft regional manager for Ghana and Nigeria, counterfeiting and piracy has affected the Nigerian economy. It is estimated that Nigeria is the largest market in Africa for goods that infringe intellectual property. About 80 per cent of the international music CDs available in Nigeria are pirated. Infringement of intellectual property does not only affect international intellectual property right holders. It is estimated that 40 per cent of the local music products are being pirated and sold illegally. These kinds of statistics are not good for the Nigerian movie industry (Nollywood), which is reported to be second only to United States (Hollywood) and India (Bollywood) in the production of home videos and attracts multi-million dollar investment locally and internationally. Be that as it may, Nigeria has been trying to ensure greater protection of intellectual property resulting in the following developments:

54 Nthabisheng Phaswana and Dario Tanziani 1

2

3

Nigeria officially became a member of the PCT on 8 May 2005. It is worth noting that since Nigeria became a member of the PCT in 2005, the Nigerian Patent Office has received and granted more PCT applications in comparison with non-convention applications (Tables 3.2 and 3.3). Reviewing Nigerian intellectual property laws resulted in a new draft bill known as the Intellectual Property Commission Bill. The draft bill is set to ensure that Nigerian intellectual property laws are compatible with the provisions of the TRIPs Agreement. The new Nigerian Trade Marks Act, which provides for better protection of trade marks, is included in the draft bill. The new Trade Marks Act is expected to be promulgated within the next 12 months. The important feature of the new Trade Marks Act is that it provides for protection of well-known marks, sounds and smells, and geographical indications. The new Act also provides for the enlargement of the jurisdiction of the courts in order to empower the courts to grant ex parte injunctions and other interlocutory orders. In 1992 and 1999 the Nigerian Copyright Act was amended to cope with increasing national and international responsibilities within the copyright system. It is worth noting that the Nigerian Copyright Commission has been active in increasing public awareness in respect of copyright infringement. It has been reported that the Commission is waging an effective war against counterfeit and piracy as it has regularly raided the markets selling pirated goods and destroyed the pirated goods found. The recent reports from the Commission indicate that the copyright-based industries in Nigeria contribute

Table 3.2 Number of PCT/convention and non-convention/local patents filed, 2005–9 Year

No. of PCT/convention patents filed

No. of non-convention/ local patents filed

Total no. of patents filed

2005 2006 2007 2008 2009

297 248 562 657 450

81 98 93 87 61

378 346 655 744 511

Source: Nigerian Patent Office.

Table 3.3 Number of PCT/convention and non-convention/local patents granted, 2005–9 Year

No. of PCT/convention patents granted

No. of non-convention/ local patents granted

Total no. of patent applications filed

2005 2006 2007 2008 2009

297 248 562 657 450

81 98 93 87 61

378 346 655 744 511

Source: Nigerian Patent Office.

African intellectual property law 55 about N1.2 trillion to the country’s economy yearly. It is for this reason that the Commission has adopted an objective to prioritize the development of the copyright-based industries and intellectual property ensuring that they are integrated into the national economic planning and development agenda of the Nigerian government. The Commission is of the view that if this objective is well developed, the copyright-based industry can contribute between 5.5 per cent and 10 per cent of Nigeria’s gross domestic product. Ethiopia Recent reports indicate that sub-Saharan Africa has become a place of interest for the world, and the region can realize immense investment prospects in intellectual property rights development and protection, resulting in increased revenue. Light Years IP (a non-governmental organization, specializing in helping developing countries to increase export revenue through intellectual property rights) conducted a study, wherein it was indicated that African farmers can improve export revenues from agriculture by billions of dollars if they adopt intellectual property as part of their business strategic plan.15 Developing countries conceded at the Inter-sessional Intergovernmental Meeting on a Development Agenda for WIPO that they can and do benefit from having sound intellectual property systems. For example, the biggest Brazilian diversifying mining company (Companhia Vale do Rio Doce) with operations in 18 countries acknowledged that since the company started to protect its intellectual property, their export revenue increased and helped to contribute to Brazil’s sustainable development. The company also emphasized that, by licensing its patented technologies, the company contributes to the country’s economic growth and job creation.16 Similarly to Brazil, Ethiopia realized the value of intellectual property towards economic growth. According to the Common Market for Eastern and Southern Africa’s (COMESA) 2007–8 report on Ethiopia, Ethiopia’s economic growth was robust and largely impacted by agricultural exports. The report also highlighted that the Ethiopian gross domestic product relies on the agricultural sector to a large extent and the agricultural sector contributes most to the economic growth. Ethiopian coffee is regarded as a world-class product. However, over the past years, this world-class product was not utilized fully to benefit the country economically. In view of Ethiopia’s mission to maintain a competitive advantage in coffee exports in the regional and global markets, the country, with the assistance of Light Years IP, adopted a business strategy using intellectual property. According to the COMESA report, the Ethiopian government aimed to secure the intellectual property rights of coffee in order to capture more value on trade, to control the use of coffee in the markets and, as a result, enable the farmers to receive a greater share of the retail price. With the assistance of Light Years IP, Ethiopia has applied to register trade marks for its coffees in 40 countries and at the time of writing trade marks have been secured in over 30 countries. According to Light Years IP, the business strategy adopted by Ethiopia to utilize intellectual property, resulted in a

56 Nthabisheng Phaswana and Dario Tanziani Table 3.4 Laws passed in Ethiopia to ensure adequate protection of intellectual property, with dates of issue Elements of intellectual property

Title of law

Date issued

Patents, utility model and industrial design

Proclamation Concerning Inventions, Minor Inventions and Industrial Designs No. 123/95

10 May 1995

Copyright and related rights

Proclamation to Protect Copyright and Neighbouring Rights No. 410/2004

19 July 2004

Trade mark

Trademark Registration and Protection Proclamation No. 501/2006

7 July 2006

Plant variety protection

Plant Breeders Right Proclamation No. 481/2006

20 February 2006

Access to genetic resources, community knowledge and community rights

Access to Genetic Resources and Community Knowledge and Community Rights Proclamation No. 482/2006

20 February 2006

Unfair competition

Trade Practice Proclamation No. 329/2003

17 April 2003

Geographical indications

Draft law

Under process

Source: Ethiopian Intellectual Property Office.

US$ 12.5 million investment returning US$ 100 million per annum and improving the lives of millions of the 4 million farmers and small traders, benefiting the country’s economy. Over the years, Ethiopia has amended and updated its intellectual property laws to ensure compliance with best practices. Table 3.4 is a list of laws passed in Ethiopia since the early 1990s to ensure adequate protection of intellectual property. Besides the success story of Ethiopian coffee, Ethiopia has managed to adopt intellectual property as a strategic instrument for economic growth. Based on the statistics released by the Ethiopian Registrar, it appears that since the passing into law of the Proclamation Concerning Inventions, Minor Inventions and Industrial Designs in 1995, the Patent Office has received an increased number of patents, designs and utility models applications (Table 3.5). It is interesting to note that according to the Registrar’s report, Ethiopian residents are filing more applications as compared to non-residents. As a result, about nine inventions by Ethiopian residents have been commercialized resulting in profitable concerns being created. Angola Angola’s economy is regarded as one of the fastest growing economies in Africa and the fourth fastest growing economy in the world. Since the country found peace

African intellectual property law 57 Table 3.5 Applications received by the Ethiopian Intellectual Property Office by year Category

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Utility model

5

11

10

21

18

50

32

47

Industrial design

1

5

58

9

9

50

66

74 150

Patent

–

2

8

12

7

5

10

7

2

4

8

22

26

Patent of introduction

–

1

3

6

5

10

2

2

2

1

2

15

16

Total

6

19

79

48

39

58

115 110 131 212

43

60

74

98

120 172 246 129

167 242 357 269

Source: Ethiopian Intellectual Property Office.

and political stability seven years ago, the economy has been reforming. It is reported that the Angolan economic growth from 2005–8 registered an increase in gross domestic product of 20.6, 18.6, 23.3 and 13.8 per cent respectively. Reforms in Angola have not been in respect only of the economy, the Angolan government has also been reforming the Angolan intellectual property system. Set out below are two major recent activities by the Angolan government to reform the intellectual property system in Angola: 1

2

Angola acceded to the Paris Convention in December 2007. Even though Angola was not a member of the Paris Convention, prior to December 2007, the Angolan Patent Office accepted priority claims provided applications were filed within 12 months from the earliest application. Angola also acceded to the PCT. Angola became the 138th PCT Contracting State on 27 September 2007. The PCT came into force in Angola on 27 December 2007. Consequently, Angola may be designated in PCT international applications as from this date. However, the law in Angola has not yet been amended to recognize the PCT and Paris Convention. Be that as it may, the Angolan Patent Office currently accepts the filing of PCT national phase applications.

We requested statistics from the Angolan Patent Office to establish whether there has been an increase in filing of patent applications since the accession of Angola to the PCT and Paris Convention. At the time of finalizing this chapter, the statistics were still not available. Protection and enforcement of intellectual property have been viewed as weak in Angola due to lack of enforcement capacity. However, the Angolan government has been trying to create public awareness regarding protection of intellectual property. It is reported that in 2008, the Angolan Economic Police destroyed 2.5 tons of counterfeit medicines, CDs and DVDs at a public event aimed to create intellectual property awareness and reduce sales of counterfeit goods in Angola. The

58 Nthabisheng Phaswana and Dario Tanziani Angolan government has also been working with international computer companies on anti-piracy measures. With the aim of creating awareness regarding intellectual property rights, Angola hosted its first Inventor and Creator Fair in September 2009. According to the Angolan Minister of Ex-combatants and War Veterans, the fair will contribute to Angola’s technological development and also ensure that creative powers of the Angolan citizens are used and applied for the sustainable growth of the population. With all these initiatives by the Angolan government to reform and improve the intellectual property system, it is hoped that the national laws will be amended soon in order to enhance the confidence of inventors and applicants towards the Angolan intellectual property system.

Regional cooperation in development of intellectual property as an instrument for economic growth Within the sub-Saharan region, there are two regional bodies that were created with the objective of regulating the protection of intellectual property; i.e. the Englishspeaking ARIPO and the Francophone Organisation Africaine pour la Protection de la Propriété Intellectuelle (OAPI). These organizations have a rich history as they represent early post-colonial attempts to facilitate registration of intellectual property rights in Africa. The history of ARIPO goes back to the 1970s, whereas the history of OAPI goes back to the 1960s. Over the years, the two regional bodies have been trying to promote and encourage their member states to adopt intellectual property as a tool for economic growth. This chapter will consider some of the initiatives adopted by these regional bodies to encourage intellectual property as a tool for economic growth. ARIPO initiatives ARIPO has over the years appreciated that natural resources no longer assure economic prosperity and real wealth in today’s technological society. Realizing that wealth is now engineered by innovation, ARIPO put in place activities that, whilst not directly associated with the commercialization of inventions, were designed to create favourable conditions for the increased use of inventions and innovation through the patent system. Below are some of the activities adopted by ARIPO and reported at the Second International Forum on Creativity and Invention, held in Beijing in 2002. Establishment of the first African regional training centre on intellectual property ARIPO stakeholders expressed the need for capacity building and as a result, a training centre was established to provide, amongst other things, training on drafting intellectual property laws, drafting of specifications as well as negotiation skills.

African intellectual property law 59 Degrees in intellectual property and basic introductory courses were to be offered at the training centre. It is worth noting that in 2008, ARIPO, in association with WIPO, launched the first edition of its Master’s degree in intellectual property. According to WIPO, the Master’s programme was designed to contribute to the development of human resources in the field of intellectual property in developing countries. The programme aims to provide an in-depth examination of all areas of intellectual property and empower young professionals with skills required to play a leading role in the field of intellectual property. Infrastructure development ARIPO started a campaign for the member states to modernize their intellectual property laws. ARIPO provided the member states with modern legislation and some of the member states have already amended their legislation while others are still in the process of finalizing the amendments. Most of the ARIPO member states have modernized their intellectual property laws, for example, Kenya’s introduction of the Geographic Indications Bill, Counterfeit of Goods Bill and Layout-Designs of Integrated Circuits Bill, and the proposed amendments to the Botswana Industrial Property Act of 1996 to include protection of geographical indications, traditional knowledge and layout-designs of integrated circuits. Sierra Leone is also in the process of modernizing its laws, which will provide for independent filing of patents directly in Sierra Leone as compared to the current situation wherein UK-granted patents can be extended in Sierra Leone. Consequently, in 2008 Sierra Leone drafted the following bills, the Trademark Bill, the Patent and Industrial Designs Bill and the Copyright Intellectual Property Geographical Indication Bill. Cooperation with other organizations and industrial property offices ARIPO strengthened its working relationship with international organizations (WIPO) and cooperation with other patent offices that are willing to assist in achieving its objectives. Cooperation has been maintained with the United Kingdom Intellectual Property Office, the National Institute of Industrial Property of Brazil, the United States Patent and Trademark Office, the German Patent and Trademark Office and the Australian Patent Office. From 1992, ARIPO worked together with the European Patent Office on a project involving roving seminars to all ARIPO member states and prospective member states. The objectives of the project were to create awareness on patent information and protection, promote the use of patent information in research and development and encourage the protection of innovations and inventions. Recently ARIPO signed partnership agreements with the Japanese Patent Office and United States Patent and Trademark Office. The agreement with Japan was concluded in view of Japan’s unique understanding of intellectual property as an instrument for wealth creation and the help that Japan can offer to Africa in order to fully utilize its knowledge for sustainable development. As part of the agreement, the Japanese government created a fund for providing assistance to Africa.

60 Nthabisheng Phaswana and Dario Tanziani According to the ARIPO Director General, the fund will assist ARIPO in capacity building aimed at legal, commercial and economic exploitation of intellectual property for the advantage of ARIPO member states and Africa in general. In 2009, ARIPO and the United States Patent and Trademark Office concluded a bilateral agreement with the focus on enforcement and protection, and providing easy systems for foreign and African patent applicants. It is considered that the agreement will serve to ‘promote the development of effective intellectual systems in ARIPO member countries, increase public awareness about the importance of intellectual property issues and develop professional skills through information sharing and capacity building’.17 OAPI initiatives OAPI has also been advocating the utilization of intellectual property by its member states for economic development. But how will OAPI member states achieve the objective of adopting intellectual property as a strategic tool for national economic development while most of its member states are rated low in research and development, innovation and entrepreneurship? For example, the Central African Republic ranks lowest globally for both entrepreneurship and innovation and health.18 Whilst the OAPI member states agree that intellectual property must be integrated in the development policies and programmes, some of the member states have highlighted their problem in this regard. According to the Malian Minister of Industry, Investment and Trade, when they organize inventions and technology fairs, they discover a lot of talent. However, after the fairs they do not know what to do with the inventions.19 The Senegalese Minister of Mines and Industries pointed to the need for promoting better understanding of the benefits of the intellectual property system and training programmes for intellectual property professionals. The problem of intellectual property capacity building was highlighted by the Minister for Industry, Commerce, Tourism and Handcraft of the Republic of Guinea. The Minister pointed to the need for training, capacity building and modernization of intellectual property infrastructure.20 Regardless of the above problems addressed by the OAPI member states, OAPI has put in place plans to address the issue of intellectual property as a tool for wealth creation within its member states. Listed below are some of the initiatives: 1 2

3

OAPI has been cooperating with WIPO in respect of training and capacity building and improvement of infrastructure. OAPI has also recently signed a partnership agreement with the Japanese Patent Office in view of Japan’s unique understanding of intellectual property as a tool for wealth creation and the help that Japan can offer to Africa in order to fully utilize its knowledge for sustainable development. OAPI plans to use geographical indications to boost revenues from agriculture. According to the OAPI Director General, agriculture is practised by most member states; however its contribution to the gross domestic product is

African intellectual property law 61

4

5

6

7 8

minimal. The Director General pointed to the example of Senegal where 70 per cent of the population farms, but only 11 per cent of the gross domestic product is from agriculture.21 In June 2006, OAPI acceded to the Geneva Act of the Hague Agreement concerning the international registration of industrial designs. According to the OAPI Director General, accession of OAPI to the Geneva Act is not only designed to promote the flow of protection for foreign creations on the territories of the member states, the system is also designed to offer an opportunity to creators of the member states to easily extend protection of their creation abroad at a lower cost. OAPI provides its member states with technical assistance and advisory services to ensure that any text enacted within the member states after the Bangui Agreement (establishing OAPI) conforms to the Bangui Agreement. OAPI promotes intellectual property within its member states by organizing and participating in workshops, seminars and symposia on intellectual property related subjects, and also initiates and conducts projects relating to intellectual property and economic development. OAPI assists and advises nationals of its member states during the licence or technology transfer contract negotiations with foreign partner. Finally, OAPI assists small business enterprises to turn research results into assets.

Conclusion It is clear that investors attach importance to the protection of intellectual property as one of the factors in deciding whether or not to invest in a foreign country. Accordingly, although not the only factor determining the inflow of foreign technology and business and capital investment, we cannot disregard protection of intellectual property as a determinant of foreign direct investment. Many countries are using intellectual property as a strategic instrument for economic growth. South Africa is not an exception; it has a system of intellectual property laws that is not only substantially TRIPs compliant but is also in line with the systems of developed countries. As and when required, the laws have been amended and updated to ensure that the country has the legal framework to benefit economically from the protection and exploitation of intellectual property. Sub-Saharan countries are starting to realize the importance of intellectual property towards economic growth. Most of the countries are in the process of reforming their intellectual property laws to ensure greater protection of intellectual property and economic benefit and there are some, albeit very incomplete at this stage, statistical trends emerging to show that African economies that have modernized their intellectual property law systems are benefiting economically from those initiatives.

62 Nthabisheng Phaswana and Dario Tanziani

Notes 1 Craven, E. and Mather, C. (2001) Geographical indications and the South African–European Union free trade agreement, http://www.jstor.org/pss/20004168 (accessed 28 May 2009). 2 Craven, E. and Mather, C. (2001) Geographical indications and the South African–European Union free trade agreement, http://www.jstor.org/pss/20004168 (accessed 28 May 2009). 3 Craven, E. and Mather, C. (2001) Geographical indications and the South African–European Union free trade agreement, http://www.jstor.org/pss/20004168 (accessed 28 May 2009). 4 Javorcik, B.S. (1999) Composition of forewing direct investment and protection of intellectual property rights in transition economies, http://papers.ssrn.com/sol3/papers. cfm?abstract_id=180128 (accessed 26 May 2009). 5 Maskus K.E. (2000) Intellectual property rights and foreign direct investment, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=231122 (accessed 26 May 2009). 6 Khadija, S. (2008) South African solar panels can solve power dilemma, African Business, http://www.allbusiness.com/11717968-1.html (accessed 31 May 2009.) 7 Loundes, J. (2004) African renewal: business opportunities in South Africa, Botswan, Uganda, Mozambique and Kenya, http://www.tradersafrica.com/articles.asp? (accessed 19 May 2009). 8 Kameri-Mbote, P. (2005) Intellectual property protection in Africa: an assessment of the status of laws, research and policy analysis on intellectual property rights in Kenya, http://www.ielrc.org/content/w0502.pdf, page 11 (accessed 29 October 2009). 9 Kameri-Mbote, P. (2005) Intellectual property protection in Africa: an assessment of the status of laws, research and policy analysis on intellectual property rights in Kenya http://www.ielrc.org/content/w0502.pdf, page 11 (accessed 29 October 2009). 10 Kameri-Mbote, P. (2005) Intellectual property protection in Africa: an assessment of the status of laws, research and policy analysis on intellectual property rights in Kenya http://www.ielrc.org/content/w0502.pdf, page 12 (accessed 29 October 2009). 11 Leme, P.H. (2009) Geographic indications – Kenya: brands that could earn farmers more income from such products if a unique branding system is implemented, http://www. coffeeclubnetwork.com/redes/form/post?topico_id=364 (accessed 30 October 2009). 12 Mulama, J. (2007) East Africans may be stripped of the Kikoi, http://ipsnews.net/ africa/nota.asp?idnews=37165 (accessed 30 October 2009). 13 Kameri-Mbote, P. (2005) Intellectual property protection in Africa: an assessment of the status of laws, research and policy analysis on intellectual property rights in Kenya http://www.ielrc.org/content/w0502.pdf, page 21 (accessed 29 October 2009). 14 Ilukwe, G. (2005) Nigerian economy robbed of billions by intellectual property pirates, say experts, http://www.microsoft.com/africa/press/ng_nigeria_ip.mspx (accessed 15 June 2009). 15 Nwokocha, U. (2009) Sub-Sahara Africa: intellectual property rights development, 13 January 2009. Available from mondaq.com, http://www.mondaq.com/article.asp? articleid=70872&print1 (accessed 22 October 2009). 16 Yong-d’Hervé, D. (2005) How IP benefits developing countries, http://www.iccwbo.org/ collection20/folder54/id2930/printpage.html? (accessed 25 June 2009). 17 Philips, J. (2008) Light Years points the way for sub-Saharan IP growth, http://www. afro-ip.blogspot.com/2008/06/light-years-points-way-for-sub-saharan.html (accessed 24 June 2009). 18 Philips, J. (2009) African nations score poorly for entrepreneurship, innovation in latest Legatum Index, http://www.afro-ip.blogspot.com (accessed 5 November 2009). 19 New, W. (2009) USPTO–African regional IP organization agreement http://www. ip-watch.org/2009/09/25/uspto-african-regional-ip-organization-agreement/ (accessed 30 November 2009).

African intellectual property law 63 20 New, W. (2009) USPTO–African regional IP organization agreement, http://www. ip-watch.org/2009/09/25/uspto-african-regional-ip-organization-agreement/ (accessed 30 November 2009). 21 Mara, K. (2009) LDC’s commit to use IP for development at WIPO; use of exceptions, flexibility omitted, http://www.ip-watch.org/weblog/2009/07/27/ldcs-commit-touse-ip-for-development-at-wipo-use-of-exceptions-flexibilities-omitted/ (accessed 29 October 2009).

Bibliography Aluko & Oyebode, http://www.alukooyebode.com/publication/NL-IPDec06.pdf (accessed 20 June 2009). China IPR (2009) There is need to protect community rights, http://www.chinaipr.gov.cn/news/chinaworld/282812.shtml (accessed 30 October 2009). COMESA, http://about.comesa.int/attachments/027_ethiopia_country_profile.pdf (accessed 24 June 2009). Department of Foreign Affairs and Trade, Australia (2004) Africa renewal: business opportunities in South Africa, Botswana, Uganda, Mozambique and Kenya, http://www. tradersafrica.com/articles.asp?article (accessed 19 May 2009). Foreign Direct Investment (2009) Kenya leads FDI growth in 2008, http://fdimagazine. com/news (accessed 10 October 2009). G.R.F. Dalley & Partners (n.d.) Protection of service marks in Nigeria – a necessity, http://www.grfdalleyandpartners.com (accessed 25 June 2009). Light Years IP (n.d.) Ethiopia: coffee trademarking and licensing protect, http://www. lightyearsip.net/ethiopiacoffee.shtml (accessed 20 June 2009). Parliamentary Monitoring Group (2008) Intellectual property rights from publicly financed research bill: briefing, http://www.pmg.org.za/report/20080729-briefing-departmebntscience-and-technology-intellectual-property-rig (accessed 31 May 2009). Shapiro, R. and Hassett, K. (2005) The economic value of intellectual property. USA for Innovation report, October. South Africa Info, http://www.southafrica.info/pls/procs/iac.page? (accessed 24 June 2009). South African government information (2009a) Welcome remarks by Minister of Science and Technology Mosibudi Mangena at the Finnish–South Africa Business Forum, Innovation Hub, Pretoria http://www.search.gov.za/info/previewDocument.jsp?dk=%2 Fdata%2Fstatic%2Finfo%2Fspeeches%2F2009%2F09030213451003.htm%40Gov&q= +%3CAND%3E(+Category%3Cmatches%3Es+)+%3CAND%3E+(++%3CPHRASE% 3E+(+M+Mangena+)+%3CIN%3E+title+)+%3CAND%3E+(+dc.date+%3E%3D+200 8%2F02%2F26+)&t=M+Mangena%3A+Finnish+South+Africa+Business+Forum (accessed 31 May 2009). South African government information (2009b) Address by the Minister of Science and Technology, Naledi Pandor MP, on the occasion of Bio2biz South Africa 2009, http://www.search.gov.za/info/previewDocument.jsp?dk=%2Fdata%2Fstatic%2Finfo% 2Fspeeches%2F2009%2F09092809151001.htm%40Gov&q=(+(pandor)%3CIN%3ETitle+) +%3CAND%3E(+Category%3Cmatches%3Es+)&t=N+Pandor%3A+Bio2biz+South+ Africa+2009 (accessed 12 October 2009). The Office of the United States Trade Representative (1996) 1996 national trade estimateSouth Africa, http://ustraderep.gov/Document_Library/Reports_Publications/1996/ 1996_National_Trade_Estimate/1996_National_Trade_Estimate-South_Africa.html accessed 30 April 2009).

64 Nthabisheng Phaswana and Dario Tanziani Tostevin, Jonathan (n.d.) EU–South Africa. Article now archived, available from, http://tna. europarchive.org/20081112230737/http://www.berr.gov.uk/whatwedo/europeandtrade/ regional-trade/lcompleted-eu-regionaltradeageements/south-africa/page10127.html (accessed 28 May 2009). WIPO (n.d.) Interview with the Director General of the African Intellectual Property Organization, http://www.wipo.int/sme/en/documents/oapi_interview.htm (accessed 29 October 2009). WIPO (2007a) Promoting better legislation and enforcement of intellectual property rights in Kenya, http://www.wipo.int/enforcement/en/global_congress/docs/amos_wako.doc (accessed 20 June 2009). WIPO (2007b) Importance of IP for development in LDC’s emphasized at high level forum, http://www.wipo.int/pressroom/en/articles/2007/article_0087.html (accessed 29 October 2009). WIPO (Magazine) (2008) OAPI joins International Industrial Designs Treaty, http://www. ompi.ch/wipo_magazine/en/2008/04/article_0006.html (accessed 10 October 2009). WIPO (2009) WIPO conference on building partnership for mobilizing resources for development, http://www.wipo.int/meetings/en/details.jsp?meeting_id=19405 (accessed 30 October 2009). World Investment News (2008) Nigeria: gateway to the riches of Africa, http://www. winne.com/ssa/nigeria/reports/2008/prereport.php (accessed 25 June 2009).

4

Two types of University–Industry Technology Transfer intermediaries – TLOs and TMCs The case of Thailand and the United States Akio Nishizawa

Introduction University–Industry Technology Transfer (UITT) has been integrated into the US federal economic policy since 1980 when the Bayh–Dole Act was passed, and, under the Bayh–Dole Act, Technical Licensing Organizations (TLOs) were established to play an important role as UITT intermediaries in the US. The US economy has experienced prosperity in the 1990s because the above-mentioned new economic policy had created new high-tech industries such as information and communication technology (ICT) and bio-technology (BT) successfully.1 This was the miraculous economic revival from the severe economic situation in the 1970s when the US struggled against stagflation. This miraculous economic revival, while strengthening its industrial competitiveness, of the US in the 1990s made a deep impact on European and Asian countries, which were faced with recession and losing their industrial competitiveness. UITT was regarded as the core of revival of the US economy by the policy makers of these countries and has become a world-wide phenomenon. In Asia, UITT has been diffused among Japan, Korea, Taiwan, and, even in the Asian developing countries, especially Thailand, and Malaysia from the late 1990s. Asian countries regard UITT as an important measure to strengthen their industrial competitiveness through creating innovations. While the objective is to adopt UITT as the important measure for strengthening their industrial competitiveness through innovations in Asian countries, according to the comparative analysis on UITT activities between the developed and the developing countries, big differences can be found especially in their intermediaries, which can facilitate transferring technologies from the universities to industrial firms. In the developed countries, these intermediaries are called TLOs or OTTs (Offices of Technology Transfer) etc., which are independent organizations focusing exclusively on technology transfer activities between universities and industries. In the developing countries, these intermediaries are called Technology Management Centers (TMCs), which are composed of TLOs and business incubators (BIs) as shown later.

66 Akio Nishizawa In this chapter, based on the comparative analyses of TLOs in the US and TMCs in Thailand, the reason why such organizational differences appear in UITT intermediaries between the developed and the developing countries will be investigated. Universities should also play different roles according to the industrial and technological developments of their own particular countries. In this chapter, I attempt to investigate the reasons why two types of UITT intermediaries emerged between the developed and the developing countries through comparative analyses of TLOs in the US and TMCs in Thailand.

TLOs and TMCs: their homogeneity and heterogeneity While UITT intermediaries have been established to transfer patented technologies, or intellectual properties (IPs), that resulted from research activities in the top research universities, two different types of intermediaries have been established according to the economic development of their home countries; one is the TLOs in developed countries such as the US, Europe, and Japan, and the other is the TMCs in developing countries of the Association of Southeast Asian Nations (ASEAN) including Thailand and Malaysia. The research focus is on the investigation of the reasons why this difference emerged during the establishment of these practices in their home countries. In this chapter I assess the reasons that explain this difference by comparing TLOs in the US and TMCs in Thailand, because TLOs in the US have been used as the model for ones in the developed countries and TMCs in Thailand are the most advanced cases in ASEAN countries. Success in revealing the reason for this difference in the emergence of UITT intermediaries rests with the causes for bringing homogeneity and heterogeneity to TLOs in the US and to TMCs in Thailand. As for homogeneity between the TLO and the TMC, the TLO in the US now has outside institutions and organizations to support university start-up ventures. Therefore, the TLO in the US can be said to have quite a similar organizational structure to the TMC, if these outside supporting institutions and organizations can be taken as the important complementary institutions and organizations to the TLO. Now it should be investigated why the TLO in the US has such outside complementary institutions and organizations. This situation has emerged from the fact that the TLO alone could not transfer the university’s technologies successfully because the university start-up ventures became an alternative way to commercialize the university-based technologies from the mid-1990s (Figure 4.1). This situation was required due to the nature of university technologies, which are usually in the embryonic or early stage between the laboratory and the market. The university embryonic or early-stage technologies require technological incubation by startup ventures to create prototypes to be evaluated in the market. The university start-up ventures should play an important role to incubate the university’s technologies in the embryonic or early stage resulting from research activities2 (Figure 4.2). While the university start-up ventures have higher growth potential by commercializing the new technology as product innovation successfully, they also have

Two types of UITT intermediaries 67 700 628 595

600 553 555

University start-ups 500 462 424 426 400

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19

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3* 19 94

0

Figure 4.1 Growth of university start-up ventures in the US (based on the respondents of universities and hospitals). Source: AUTM, AUTM Licensing Survey: FY 2008, USA, 2009. Note: * Figure for this period shows average number of start-ups per annum.

higher risks compared with existing firms due to lack of affordable management resources to commercialize the embryonic or early-stage university technologies. Therein lies a dilemma for the TLO. If the TLO tries to commercialize the university’s technologies to existing firms, it lessens the odds for successful commercialization due to the avoidance of accepting the embryonic or early-stage technologies by existing firms. If the TLO tries to transfer the technologies to university start-up ventures, it becomes a higher risk due to scarcity of resources to bring these technologies onto the market successfully. It should be required for TLOs to assist these university start-up ventures, if the TLO takes a new strategy to commercialize the university-based technologies in embryonic or early stage through these start-ups. In addition to this risk, the new strategy to commercialize the university’s technologies through start-up ventures raises the conflict of interest problem of the TLO. In order to reduce higher risks and to avoid the conflict of interest for TLOs, the TLO should assist these university start-up ventures. But it cannot assist the university start-up ventures directly even though it should play a critical role in commercializing the embryonic or early-stage technologies resulting from

68 Akio Nishizawa

Low

Degree of technological resolution

High

Technology stage

Licensing strategy

Transfer destination

I. Early stage

Sponsored research: 11%

Large firms

High

Equity: 17%

New ventures

Degree of legal risk (vis-á-vis partners)

Cash: 72%

Large firms

II. Proof-of concept

III. Reducedto-practice

IV. Prototype

Low

Figure 4.2 UITT strategic model in the US. Source: G.D. Markman et al. “Entrepreneurship and university-based technology transfer,” Journal of Business Venturing, Vol. 20, No. 2, Elsevier, 2005, p. 257.

university research activities. The university start-ups are usually categorized as “minus two stage companies,” which means that they should bear the double risks of technology and business for starting their businesses.3 Then the TLO together with its parent university asks the regional government and industry to establish assisting institutions and organizations for the university start-up ventures near the university that can continue collaborative research and development (R&D) activities with their start-up ventures. If these assisting institutions and organizations can work effectively to facilitate start-up activities and for these start-ups to thrive, these new ventures in some high-tech areas such as ICT, BT, or Green Tech can grow to be successful and agglomerate to create high-tech industry based on the research results of the university in the region. These regional assisting institutions and organizations for the university start-up ventures have been created successfully first in Austin, Texas, from the late 1980s, which also makes Austin one of the most successful high-tech centers known as “Silicon Hills” in the US.4 Austin’s successful case can be highly regarded as the new model for regional innovation systems, which look set to become an important policy to rejuvenate regional economies in the knowledge-based economy in twenty-first-century United States. The university start-up ventures assisting institutions created in Austin are illustrated in Figure 4.3. The start-up ventures may have higher potentials to realize founders’ profits by bringing new products to the market, but they have also higher risks due to lack of resources. It is quite difficult for founders to obtain enough resources for starting their ventures; especially financial and human capital because these capital providers hesitate to put their monetary and/or human resources into these start-ups.

TLO

ty ersi Univ

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Embryonic technologies

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U-I-G consensus space Basic organization to initiate, maintain, and acknowledge regional assisting institution and its activities to the start-up ventures

s

t-up

star

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Tri-lateral hybrid organizations

Quasi-TMC

Procurement (= Charter Customer)

Figure 4.3 Austin model: university start-up ventures assisting institutions (quasi-TMC).

University– Industry Cooperative Research Center

R&D subsidiary

Existing companies

Bayh–Dole Act and SBIR etc. by federal government

Regional business circle

High-growth

Talented People Network

Emerging high-tech industry

Agglomeration

Initial public offerings (IPOs) and trade sale

70 Akio Nishizawa The reason for this lies with the difficulties for evaluating future outcomes because of their uncertainties and large information gaps. The regional assisting institutions and organizations for the university start-up ventures have two functions to facilitate start-up activities through (1) financial assistance and (2) encouraging growth by introducing “the Charter Customer” through procurement of the federal government and its prime contractors under Small Business Innovation Research (SBIR) in the US. SBIR introduced by the Small Business Innovation Development Act of 1982 was the second most important policy following the Bayh–Dole Act of 1980. SBIR has played quite an important role in reducing the double business risks by providing financial aid to R&D and procurement of the federal government.5 While homogeneity between the TLO in the US and the TMC in Thailand can be found (including the assisting institutions and organizations), there also exists heterogeneity between the two UITT intermediaries. The TLO is still an independent organization. Why should the TLO keep its independence in the US? Because it makes the TLO more reliant on university start-up ventures to commercialize the embryonic or early-stage technologies. As mentioned earlier, there emerges a conflict of interest problem if the TLO actively becomes involved in assisting the university start-ups. In fact, there have been some severe controversies on UITT through start-up ventures in the US.6 It may appear paradoxical, but the TLO in the US should definitely keep its independence because it becomes more reliant on university start-up ventures to commercialize the university’s embryonic or early-stage technologies while avoiding the problem of conflict of interest. The TLO in the US requires its independency and neutrality to evaluate which path will reap the higher commercial potential by comparing existing company or start-up ventures. In contrast with the TLO in the US, it can be speculated that the TMC will become more important in assisting companies than in technological transfer in Thailand. In the following section, I show the validity of this hypothesis in analyzing the process of establishment and development of the TMC at Chulalongkorn University, the most prestigious and highly regarded research and educational institution in Thailand.

Starting UITT in Thailand New science and technology policy in Thailand In the Asian economic crisis of 1997, Thailand was one of the most economically damaged countries. Under the strict monetary constrictions imposed by the International Monetary Fund (IMF), the Thai economy hit rock bottom in 1998, but it could not recover by relying on foreign direct investment (FDI) from developed countries as before the crisis. It was difficult even for Thailand to attract FDI without strong advantages because Thailand had lost its cost competitiveness due to newly emerging countries such as China, Vietnam, and India. After the Asian economic

Two types of UITT intermediaries 71 crisis of 1997, it was strongly required for Thailand to upgrade its industrial competitiveness. Prime Minister Thaksin Shinawatra, forming his cabinet in 2001, continued not only the urgent economic rescue policies, but also introduced “the Dual Policies” under “the 9th Social and Economic Five Year Plan,” which was composed of economic and income growth policies through industrial competitiveness strengthening and regional development.7 As for the strengthening of industrial competitiveness, one of the core factors to achieve “the Dual Policies,” new policy was discussed at the National Competitiveness Committee, which was newly established and chaired by the prime minister. It was the result of these discussions at the Committee to draw up “the National Science and Technology Strategic Plan from 2004 to 2013,” which focused on new economic growth based on strong industrial competitiveness with endogenous innovations created by Thai companies, instead of previous economic policies inviting FDI through promoting exports as much as possible, which were the traditional economic policies in Thailand before the Asian economic crisis. It was the first time in Thailand that science and technology policy was incorporated with economic policy.8 Under this new plan, the Thai government introduced selective policies focusing on its strategic industries to strengthen their competitiveness by realizing innovation through the “Clustering Strategy.” 9 The government selected the five industrial sectors of food, automobiles, fashion, tourism, and software, and regional development activity such as OTOP (one tambon (meaning “village,”) one product) to form the “clusters,” which were the important strategic sectors chosen to achieve “the Dual Policies.” Then the government facilitated Thai companies belonging to these clusters to create their own innovations relying on the basic technologies provided by public research institutes and/or universities. Under this Clustering Strategy, the government placed a definite objective for each cluster and assigned the roles for public research institutes and/or universities to assist the Thai companies by providing the technologies required for creating innovations in each cluster. It was said that the most important objective of the Clustering Strategy was to improve innovation capabilities of Thai companies, which also required the improvement of infrastructure including education of talented people and their appreciation of science and technology. While the Clustering Strategy was decided in the Industrial Restructuring Plan to save the Thai economy from the crisis of 1997, it was introduced by realizing that the Thai economy was over-reliant on FDI compared with Asian newly industrializing economies (NIEs), i.e. Korea and Taiwan, which had similar economic development levels to that of Thailand in the early 1970s. Korea and Taiwan had grown more rapidly than Thailand based on their own innovation capabilities. Then the Thai government started a new policy to promote strategic industries with strong competitiveness by upgrading their innovation capabilities. Under these new strategic plans, the public research institutes and/or universities began to establish their own TMCs in Thailand.

72 Akio Nishizawa The UBI and TLO at the Thai university While the TMC at the Thai university is composed of the TLO and BI, TLOs and BIs have been established separately with their own policy objectives and require an adjustment process to incorporate these two organizations into the TMC at the university. BI began under the BI policy started in 2002, which originally planned to train entrepreneurs and to assist business creation for facilitating community businesses under the OTOP policy. Under BI policy, the Department of Industrial Promotion, Ministry of Industry, established 12 BIs in Thailand to encourage community businesses to thrive.10 Following this BI policy, Kasetsart University initiated an agricultural industry development policy as the top agricultural university in Thailand, establishing its own BI at the campus, which was the first university business incubator (UBI), under the assistance of the Office of SME Promotion (OSMEP) in 2002.11 From 2005, the Commission on Higher Education (CHE), which has administrative power over the universities in Thailand, has assisted the universities to establish their UBIs (Table 4.1). Based on this background, the UBI has focused on the training of entrepreneurs to start their own small businesses in the regions, especially rural and/or regional areas of Thailand.

Table 4.1 Number of BIs in Thailand as of September 2007 Incubators

Types

Numbers

Established

Community business (DIP)

Non-specific industries

12

2002 (11 closed in 2005)

Software business (SWP, NSTDA)

Information technology

1

2002

Public university (OSMEP)

Non-specific industries

4

2002

Technology business (TSP, NSTDA)

Science/technology

4

2004

Thai–German Institute (DIP)

Mould and die industries

1

2005

Public university (CHE)

High-tough/high-technology 25

2005

Private university/enterprises (OSMEP)

Non-specific industries

12

2006

Public university (CHE)

High-tough/high-technology 10

2006

Suratthani Vocational College (KIASIA)

Generic fields

1

2006

Public university (CHE)

High-tough/high-technology 10

2007

Source: Naowarat Ayawongs, “Business incubators in Thailand and the challenging future,” in N. Ayawongs, A. Kanjana-Opas, and S. Chayabutra (eds) Development and Future Challenge of Business Incubators in Thailand, TMC NSTDA, 2007, p. 11. Note: DIP = Department of Industrial Promotion, Ministry of Industry; SWP NSTDA = Software Park at National Science and Technology Agency, Ministry of Science; TSP NSTDA = Technology Science Park at NSTDA; KIASIA = The Kenan Institute Asia.

Two types of UITT intermediaries 73 In comparison with the UBI, the TLO was established independently by several major universities such as Chulalongkorn University to assist its researchers’ IP acquisitions under the new IP system of Thailand in the 1990s. From the early 2000s, major universities in Thailand have actively established TLOs that assist their researchers’ IP acquisitions and exploitation influenced by the diffusion of UITT activities in Japan, Korea, and Taiwan, and also through “the National Science and Technology Strategic Plan from 2004 to 2013” adopted in 2004. But it was quite difficult for the universities in Thailand to transfer IP to the companies due to a lack of IP exploitation capacity on the side of the companies. In fact, there were 140 patents awarded to the universities during the ten years from 1995 to 2004, but only six of these patents could be transferred to the companies (Figure 4.4). Under these circumstances, to do UITT successfully, upgrading innovation capabilities and exploiting IPs of the Thai companies prior to UITT activities in Thailand should be required. The university then tried to use the UBI for training Thai companies both to upgrade innovation capabilities and to encourage exploitation of IPs. While CHE began assisting TLOs to facilitate successful UITT in Thailand from 2006, CHE did not accept the concept of TMC, which should have integrated UBI with TLO for successful UITT in Thailand in the early years. CHE should strongly insist that the university operates UBI and TLO separately with different objectives. There seemed to be strategic problems for separating UBIs and TLOs in the universities in Thailand as follows: (1) who should take care of the UBI and TLO within the university; (2) what relations between the UBI and TLO should be coordinated for achieving UITT; and (3) how the universities should allocate resources to the UBI and TLO. 35

35 30

29

No. of patents awarded No. of patents licensed

25 20

16

16

15

15

16

10 7 5

4 1

0 1995

1

0

1996

1 1997

0 1998

1 1999

2 0

0

0

2000

2001

2002

2003

1 1 2004

Figure 4.4 Patents awarded and transferred from Thai universities, 1995–2004. Source: N. Krisnachinda, “Thailand’s experience in fostering university–industry partnership,” WIPO Development of University–Industry Partnerships for the Promotion of Innovation and Transfer of Technology Thai Report, WIPO, 2009, p. 18.

74 Akio Nishizawa In Thailand, even the new IP system is not well organized as yet compared with those in developed countries and there are a scarce number of IP specialists and related service providers.12 The TLOs of Thai universities must play a critical role in assisting their researchers’ IP acquisitions and also IP exploitation of Thai companies. UITT in Thailand has faced these structural problems to be overcome with scarce resources, especially human resources. Chulalongkorn University has struggled to deal with these structural problems in relation to UITT as the top research university in Thailand and has been able to show the model to be appropriate to the current situation for strengthening the industrial competitiveness set forth under “the National Science and Technology Strategic Plan from 2004 to 2013.”

The case of Chulalongkorn University Establishment of CUIPI for IP acquisitions Chulalongkorn University, one of the most prestigious research universities in Thailand, had promoted joint research activities with industry to expand its research domain from basic to developed and applied from the mid-1980s. In 1986, Chula Unisearch was established to formalize joint research and consulting activities of its professors and researchers with income distribution rules for incomes arising from such university–industry collaborations. At that time, most Thai companies wanted to work with university professors and researchers for consultation in order to improve quality of their components and/or their upgrading of production engineering to be subcontractors of FDI. But there were no clear rules for university professors and researchers to work with these companies as consultants, which became the main mode of university–industry collaboration in Thailand.13 Chula Unisearch was the first organization dealing with new relations between university and industry in Thailand. In the 1990s, Thailand had to improve its IP system starting from 1992 when patent law was drastically changed and enhanced, and the Department of Intellectual Property (DIP) was established under the Ministry of Commerce. While other related IP laws, such as Petty Patents, Copy Rights and Trade Marks have been revised and expanded in Thailand in relation to World Trade Organization (WTO) demands, the university professors and researchers were not fully aware of the importance of the new IP system and not interested in IP acquisition, even less so IP exploitation. Chulalongkorn University began to enlighten its professors and researchers on the importance of IP and the new IP system from 1993, and established the Chulalongkorn University Intellectual Property Institute (CUIPI) under the Chulalongkorn University Intellectual Property Foundation to formalize these activities with a contribution of 10 million baht by Chulalongkorn University in 1995. In the early days of CUIPI, it focused on assisting the Chulalongkorn University professors and researchers to convert their research results into patents, but this activity didn’t produce any positive results due to the Asian economic crisis of 1997.

Two types of UITT intermediaries 75 Struggling for IP exploitations To achieve “the Dual Policies” under the name of “Thaksinomics” from 2001, and stimulated by the fact that UITT was becoming popular in Japan, Korea, and Taiwan, CUIPI reorganized its departments for effectively dealing with IP acquisitions and exploitation through transferring IP to private companies with the introduction of a distribution rule for royalty income in 2002. In fact, IP acquisitions have no meaning without being followed up by IP exploitation. If the university accumulates only IPs without any income, it deteriorates its financial position with bad assets. In 2002, CUIPI planned to strengthen its ability to transfer IP to the private companies of Thailand, and it required highly talented people with expertise for assisting the companies to exploit IP transferred from the university. CUIPI set up new departments to train its staff members dealing with both IP acquisitions and exploitation. On-the-job training was given under the name of “IP Research and Training,” which was the symbolic department demonstrating a change in focus from only IP acquisition to both IP acquisition and exploitation. After reorganization in 2002, CUIPI has been actively involved in both IP acquisitions and exploitation through university–industry collaboration. But there were two major limitations for UITT pursued by CUIPI in Thailand. The first one was the weakness of the DIP, which shows in Figure 4.5 as the broadening of the gap between IP patent filing and IP patent awarding. The second one was the lack of IP exploitation capabilities in Thai companies. The first limitation could not be solved by CUIPI alone because it is the problem of national government. The second problem was also challenging for CUIPI, because it showed that most Thai companies did not want to co-work with universities in the field of commercializing of IPs resulting from the university research activities. Figure 4.6 clearly shows there were quite scarce numbers of university–industry collaborations in Thailand even at the top-ranking research university. This situation meant that most of the big corporations preferred to have technologies transferred by FDI. While UITT target companies were not big corporations but small and medium enterprises (SMEs) in Thailand, SMEs were not accustomed to exploiting IP transferred from universities research results and small enterprises (SEs) in Thailand were too small to bear the cost of R&D. Therefore the medium enterprises (MEs) were the only possible candidates to exploit IP from the university. But even MEs have no experience in creating their own products based on the research results from the university. They were still not accustomed to coworking with the universities. Under these circumstances, CUIPI should invite MEs to work with its professors and researchers at the university and assist them to exploit IP by making business models from production to marketing of new products to transfer IP successfully to MEs in Thailand. CUIPI tried to integrate UBI with TLO for UITT effectively at first, but unfortunately this proposal offered by CUIPI was not accepted under the UBI policy of the CHE, which focused on the education of candidate entrepreneurs, not top management and/or R&D staff members of existing MEs.

76 Akio Nishizawa 160 IP patent applications

152

140 IP patents granted 120 Cumulative IP patent applications

111

100 Cumulative IP patents granted 80 72 60 53 37

40 26

23

21 20 10

9 5 0

0 2001

5

41

39

11

12

16

27

19 14

16 7

1

2

2

2

2002

2003

2004

2005

2006

4

2007

Figure 4.5 IP applied and granted for CUIPI. Source: CUIPI Annual Report 2007.

Already described above, BI policy was introduced to achieve “the Dual Policies” for bridging the income gap through thriving community businesses and/or SEs in the rural regions. BI and UBI were originally expected to train entrepreneurs for community businesses, SEs, and also students for these enterprises, while CUIPI strongly insisted that UBI should assist MEs’ business model formations to commercialize IPs transferred through the TLO based on its extensive research activities from the experiences of the US and other developed countries’ BIs. From 2005, CHE financially assisted UBIs and CUIPI was expected to follow this strategy for training students as candidate entrepreneurs at UBIs under the CHE guidelines. CUIPI prepared the shared office facilities with assigned staff to assist these UBI activities with scarce human resources. But this UBI strategy did not only work well to train students as entrepreneurs, but also interrupted UITT due to their taking staff members from CUIPI.

Two types of UITT intermediaries 77 14

Joint research

12

Proof of technology Licensing

10

8

6

4

2

0 2003

2004

2005

2006

2007

Figure 4.6 Performance of university–industry collaboration at Chulalongkorn University. Source: CUIPI Annual Report 2007.

Establishment of TMC and its role In 2007, UBI policy was changed to accept the individual strategy of each university, which coincided with a change in Thai political administration. Chulalongkorn University started to integrate the TLO and UBI to the TMC. It also added the investment arm of Jamujuree Innovation Holding Company and the marketing assisting arm of Jamujuree Innovation Products Company to TMC under the umbrella of the university (Figure 4.7). According to the latest data, 95 percent of the licensees of IP transferred by TLOs are MEs and only 5 percent are start-ups. It is a major business for TMC at Chulalongkorn University to transfer IP to MEs, which are invited to the UBI for the purposes of creating new business models assisted by staff members of TMC through commercializing IP transferred by CUIPI. In order to achieve successful UITT, TMC at Chulalongkorn University focus on strengthening “IP Research and Training” because it is very important for commercializing IP successfully in Thailand to substitute the imported technologies for Thai-originated technologies

Private sectors/industry

Venture capital and angel investors

IP research and training

Office of Technology Licensing

IP service

Administration

CUIPI

New business creation and new venture creation

UBI

Jamujuree Innovation Holding Company

Chulalongkorn University Intellectual Property Foundation

Jamujuree Innovation Products Company Ltd

Faculties of law, architecture, commerce and accountancy etc.

Centers of excellence and research units

Science and technology related faculties

Chulalongkorn University

Technology commercialization for research results of Chulalongkorn University

Source: TMC staff member at Chulalongkorn University, February 2009.

Figure 4.7 TMC at Chulalongkorn University in 2009.

Two types of UITT intermediaries 79 more appropriate to domestic and foreign markets, which is done better by Thai specialists with knowledge and expertise on technologies and markets. It is a critical key for the success of UITT at Chulalongkorn University to expand the acceptability of MEs and to upgrade the innovation capability of Thai MEs for creating new products with higher quality and differentiation from the imported ones. According to the above-mentioned evolutionary process of UITT at Chulalongkorn University (Figure 4.8), the TMC has been established to assist business model formations of MEs of Thailand at the UBI for exploitation of IP transferred by CUIPI. Compared with the TLO in the US, the TMC at Chulalongkorn University should give the assistance to business model formations more priority over transferring of technologies. CUIPI must co-work closely with candidate MEs invited to the UBI for creating viable business models to commercialize IP transferred by CUIPI. The TMC has then been established to integrate CUIPI and UBI with related funding and management assisting organizations in Chulalongkorn University. Chulalongkorn University can be regarded as creating one of the most viable models of UITT in Thailand, which is led by highly talented specialists having profound knowledge about UITT in the US, Europe, and Asian countries. Other major research universities with TLO and UBI in Thailand then started to pursue the TMC model of Chulalongkorn University.

Conclusion: different roles and the different stages of economic development While this research is limited to only comparing the cases of the US and Thailand, it can be deduced that there may be two types of UITT intermediaries, TLO and TMC. As described earlier, in the US, the universities provide breakthrough technological seeds to create new high-tech industries through start-up ventures for diversifying its industrial structure in order to keep its industrial competitiveness through widening industrial scope from existing to new high-technologies. However, the universities in Thailand should play assisting roles with transferring more improved technologies than imported ones from the developed countries by upgrading the IP exploitation capabilities of its companies, especially MEs, for creating its own innovations to compete among developing countries successfully. This difference results in the intermediaries’ organizational differences in UITT activities between the developed and the developing countries. Research is scarce on UITT in developing countries, but Eun, Lee, and Wu insisted that UITT in developing countries requires different theoretical models from those conceptualized from the cases of developed countries, based on their research about “the university-run enterprises” in Mainland China.14 According to Eun, Lee, and Wu, there is an implicit assumption in previous research on UITT in developed countries that to transfer IP of “Generic Knowledge” for “Scientific Breakthrough” resulted from the advanced research activities at the research universities, which can be commercialized mainly by start-up ventures. But this assumption is not appropriate for UITT in the emerging economies where most of the industrial firms are lacking their own innovation capabilities because they are incorporated into the value chain of FDI. They are usually fragmented and cannot

• IP search • Patent filing

IP protection

2002

• Technology licensing • Matchmaking

Mixed use incubator

Source: TMC staff member at Chulalongkorn University, February 2009.

Specialized incubator

• Clustering • Networking • Virtual incubator • Mentoring

2007

CUBI

• Shared facility and administration service • Business and legal advice • Marketing • Access to venture capital and angel investors

2005

IP commercialization

CUIPI

Figure 4.8 Evolution of TMC at Chulalongkorn University.

• 18 faculties • 8 research institutes • 3 colleges • 17 centers of excellence • 92 research units

Research and development

1995

Chulalongkorn University

Innovation center

TMC

University research park

Two types of UITT intermediaries 81 create their own “Value Networks”15 with other domestic companies and/or universities required for their R&D activities in developing countries. It is said that the emerging economies tended to take “the Catch-up Industrialization” strategy, which has allowed the developing countries to accept, digest, substitute, and surpass the imported technologies from the developed countries. During “the Catch-up Industrialization” with exploiting Gerschenkron’s “Advantage of Backwardness,”16 the developing countries expect to compete with developed countries both in the domestic and foreign markets by bringing “Lowend Disruptive Innovation” categorized by Christensen into the markets, which can make the developing countries more competitive than the developed countries.17 If the developing countries are successful in realizing “Low-end Disruptive Innovation” during catching up with the industrializing countries, they can participate in the circle of the developed countries in the end. But the Asian economic crisis in 1997 clarified that Thailand and other ASEAN countries could not fully achieve this technological catch-up development strategy due to the lack of innovation capabilities.18 It became the most important factor for Thailand to strengthen its economic competitiveness to upgrade its technological capabilities, which can create the “Low-end Disruptive Innovation” domestically.19 According to Eun, Lee, and Wu, capability and resources are the critical factors for deciding whether universities in China establish university-run enterprises. The university can establish its running companies where external capability is weak and internal resources are enough. In Thailand, universities external capabilities are weak in commercializing IP and their internal resources are not yet robust enough to start running their own enterprises. It may then be an appropriate strategy for the Thai university to establish TMCs that can assist mainly MEs with resources to create new business models for commercializing IP derived from the universities. It is quite important to share the resources of the university and MEs through collaboration between them for creating “Low-end Disruptive Innovations” based on the country-specific research results derived from the university in Thailand as shown in the case of Chulalungkorn University.20 If the research results in this chapter have some validity, it might be unsuccessful for the emerging economies to follow the same strategies and policies of UITT as being adopted in the developed countries. The TMCs should originate their own policies and strategies appropriate to the necessities for upgrading their industrial firms’ innovation capabilities.

Notes 1 Passman, P., Brady, B., and Guidera, B., “Technology innovation and development: using the Bayh–Dole Act to advance development goals,” Journal of AUTM, Vol. 17, No. 1, 2005. 2 Link, A. and Siegel, D., Innovation Entrepreneurship, and Technological Change, Oxford: Oxford University Press, 2007. 3 Shane, S., Academic Entrepreneurship, Cheltenham: Edward Elgar Publishing, 2004. 4 Nishizawa, A., “University start-up ventures and clustering strategy in Japan,” in R. Taplin (ed.) Innovation and Business Partnering in Japan, Europe and the United States, Abingdon: Routledge, 2007.

82 Akio Nishizawa 5 Connell, D., “Secrets” of the World’s Largest Seed Capital Fund: How the United States Government Uses its Small Business Innovation Research (SBIR) Programme and Procurement Budgets to Support Small Technology Firms, Cambridge: Centre for Business Research, Cambridge: University of Cambridge, 2006. 6 Washburn, J., University Inc.: The Corporate Corruption of Higher Education, New York: Basic Books, 2006. 7 Emery, S., Ellis, W., and Chulavatnatol, M. (eds), Thailand Competitive Innovation Strategies, Bangkok: National Innovation Agency, 2005. 8 Intarakumnerd, P., “Thailand’s national innovation system in transition,” in B.A. Lundvall, P. Intarakumnerd, and J. Vang (eds) Asia’s Innovation System in Transition, Cheltenham: Edward Elgar, 2006 and Intarakumnerd, P. and Fujita, M., “Coping with a giant: challenges and opportunity for Thai and Vietnamese motorcycle industries from China,” Science, Technology & Society, Vol. 13, No. 1, 2008. 9 Intarakumnerd, P., “Thailand’s cluster initiatives: successes, failures and impacts on national innovation system,” in B. Ganne and Y. Lecler (eds) Industrial Clusters in Asia, Global Competitiveness, and New Policy Initiatives, Hackensack, NJ: World Scientific Publishing, 2009 and Intarakumnerd, P. and Chairatana, P., “Shifting S&T Policy Paradigm: An Experience of an RTO in Thailand,” International Journal of Technology and Globalization, Vol. 4, No. 2, 2008. 10 Ayawongs, N., Kanjana-Opas, A., and Chayabutra, S. (eds), Development and Future Challenge of Business Incubators in Thailand, TMC NSTDA, 2007. 11 OSMEP, 5th Annual Report 2006, Bangkok: OSMEP, 2006 and White Paper 2007, Bangkok: OSMEP, 2008. 12 Intarakumnerd, P., Pun-arj, C., and Tipawan, T., “National innovation system in less successful developing countries: the case of Thailand,” Research Policy, No. 31, 2002. 13 Monaiyapong, M.S., “The university–industry–government linkages and knowledge production: an arising concept of national innovation system in Thailand,” Doctoral dissertation accepted by Department of Economics, the University of Utah, 2004. 14 Eun, J., Lee, K., and Wu, G., “Explaining the ‘university-run enterprises’ in China: a theoretical framework for university–industry relationship in developing countries and its application to China,” Research Policy, No. 35, 2006. 15 Christensen, C.M. and Raynor, M.E., The Innovator’s Solution, Boston: HBS Publishing, 2003. 16 Gershencron, A., Economic Backwardness in Historical Perspective, Cambridge, MA: Harvard University Press, 1962. 17 Yusuf, S., Innovative East Asia: the Future of Growth, Oxford: Oxford University Press, 2003. 18 Krugman, P., Pop Internationalism, Cambridge, MA: MIT Press, 1996. 19 Lall, S., Learning from the Asian Tigers: Studies in Technology and Industrial Policy, Basingstoke: Palgrave, 1996. 20 APECC Industrial Science and Technology Working Group, Technology for Learning and Culture in the APEC Region to 2010, Bangkok: The APEC Center for Technology Foresight, 2000 and Rungpry, S. (ed.), ASEAN Innovation Management, Bangkok: National Innovation Agency, 2007.

5

The financial crisis, intellectual property and prospects for recovery The case of Poland and Central and Eastern Europe Alojzy Z. Nowak

The question whether the present economic crisis is already close to an end is given different answers by experts. Some argue that large-scale intervention by ultimate creditors (governments and central banks) will put an end to further escalation of loss of liquidity by principal economic and financial entities (commercial banks, investment funds, insurance funds, etc.) and that this brings more optimism to the real economy, which should soon translate into economic growth and, gradually, to pulling out of the crisis. Others point out that, first, due to the volume and diversity of financial means (including the so-called toxic assets) still in circulation, the present crisis was only slowed down and that the worst is still about to happen. Second, in their opinion serious problems still remain, including consumer confidence worsening, lack of faith in the future, lack of strategies for development of the global economy, of economies of leading countries and of economic-political organizations, as well as an increasing lack of moral and ethical principles in business. It seems that such a substantial difference of opinions stems from the fact that the present crisis is not like the previous cases of sudden breakdowns of business prosperity. Thousands of detailed, often mutually contradictory pieces of information flowing from various countries blur the image of changes occurring in the global economy even further, rather than making it any clearer. We have to deal with a staggering mix of information, both positive and negative, which may mislead and may cause incorrect conclusions to be drawn. This is especially the case in the ‘mixed’ economies of Poland, Central and Eastern Europe where the free market has not taken hold completely with sectors of the old planned economy working alongside the modern economy. In addition, as relatively new member states of the European Union (EU) they are expected to develop innovation and entrepreneurship. Therefore, in this chapter we intend to assess the impact of the current economic crisis on a region developing both its economy and intellectual property.

Economic crisis spreads The bursting of the bubble in the real estate market and the resulting crisis in the banking sector and slump in capital market caused a general decrease of prices of

84 Alojzy Z. Nowak both financial and material assets. Consequently, a strong effect followed propertywise – that of a serious decrease in aggregated demand, bringing reduction in its value. This, in turn, led to shrinking income on savings and on investments. In some cases this downfall achieved between over a dozen and several dozens per cent. Countries struck by the crisis experienced a decrease of private consumption, of investment volume and, as the crisis was spreading to most of the world, also of the volume of export. In this manner, the financial crisis infected the sphere of the real economy as well. The crisis in the real sphere may be illustrated using directions of changes of streams that compose the gross domestic product (GDP). Accordingly, there was a fall in private consumption (C), investments (I) and in foreign trade volume, thus also affecting net export (X). On the other hand, governmental expenses (G) increased in most countries, including the USA and the EU. As a consequence, in many countries budget deficits were seriously exceeded in relation to the reference level (3 per cent GDP). In countries particularly strongly affected and usually heavily indebted, governmental expenses not only did not diminish in proportion to reduction of private demand, but, on the contrary, increased. The trends that accompanied those changes may be expressed in the following way: GDP
C ↓  I ↓  G ↑  X ↓ Threats stemming from the present crisis (such as that of abrupt increase of unemployment, drop of production and investments, weakened consumption or increase in budget deficit and public debt), as well as negative experiences of previous economic slumps, including, in particular, memories of symptoms and consequences of the Great Depression of 1929–33, prompting most states to undertake intervention to control the crisis. The intervention was carried out through two separate channels: fiscal and monetary ones, both serving one and the same objective, i.e. first and foremost to maintain financial liquidity of principal financial institutions, including, in particular, commercial (deposit/credit and investment) banks, at adequate levels. Technically, the intervention consisted either in the purchase of threatened financial assets by the ultimate creditors or purchase of shares in threatened financial institutions, mainly in the form of shares, which in fact meant their nationalization. Consequently, most advanced and some emerging economies experienced an abundant issue of public debt, aimed at maintaining, on the one hand, financial liquidity of the financial system of individual economies and, on the other hand, at financing fixed expenditure as well as new expenses, related to attempts to retain aggregated demand at previous levels. Expenses related to giving governmental subsidies and guarantees to banks and to other financial institutions also increased. All these efforts took place under conditions of a decrease of budget income, caused by the worsening of business outlook. The growth of expenses made it necessary for governments of many countries to take on public debt, by, among other things, issuing debt instruments.

The financial crisis, intellectual property and prospects for recovery 85 These operations were carried out in different ways and with different effects from one country to another. Most effective and relatively cheap in terms of costs was the action undertaken in the USA in the form of issuing bonds and treasury bills. In the old established free market EU countries (such as Germany and France) it took more time and involved higher interest rates. However, new EU member states encountered difficulties in selling their debt papers, perhaps with the exception of Poland – one of the few developed countries worldwide to record a positive rate of economic growth throughout (even at the very peak of hardship and despite it) and to enjoy good prospects for future growth.

Peculiarities of the region The case of emerging markets in Central and Eastern Europe and in Baltic countries deserves separate analysis. It seems justified to assert that countries featuring the following characteristics generally coped better with consequences of the financial crisis: • • • • • •

having stable monetary policy; keeping their budget deficits firmly under control; stimulating domestic consumption growth; keeping significant reserves in foreign currencies; featuring better transparency in public finance; and better dynamics of services sector development.

In most countries belonging to Eastern and Central European and Baltic emerging markets such ‘dampers’ proved too frail. One particular problem that later translated into economic slump were high budget deficits in some of those countries. Average levels of GDP deficit in the Eastern and Central European countries in the period between 2005 and 2007 are shown (as percentages) in Figure 5.1. The principal trend in the area of budget deficits had already been present there on the eve of the global financial crisis. Poland, the Czech Republic and Slovenia had relatively low levels of budget deficit. However there were other factors as well influencing the fact that the Polish economy has not been hit as hard by the recession. Notably, the good condition of the banks, which – quite paradoxically – resulted from their conservative attitude towards expansion abroad, accompanied by relatively prudent credit policy, additionally supported by a restrained strategy of the National Bank of Poland. At the same time, the government in Warsaw behaved as if the Polish economy was immunized against external shocks. That strategy of playing down external impulses by relatively limited intervention brought some positive effects. In particular, as observed by some experts in social psychology, the crisis, while actually also taking place in Poland, has not been foremost in people’s minds. If the real crisis had been accompanied by some panic and fear in people’s minds – as it was in Germany, United States, Japan or France – according to experts, the situation would have been more dramatic.1 Fortunately, in Poland a psychological crisis did

86 Alojzy Z. Nowak BG

CZ

EA

LV

LT

HU

PL

RO

SI

SK

0

–2.36

–2.81

–2.89

–5

–7.18

–7.76

–10 –10.78

–10.86

–15 –14.91

–20

–18.65 –19.16

–25

Figure 5.1 Levels of budget deficit in countries under analysis (per cent). Source: Rosati (2009). Note: Country abbreviations used in the figures in this chapter are as follows: EA = Estonia; EZ = euro zone; BG = Bulgaria; CZ = Czech Republic; HU = Hungary; LT = Lithuania; LV = Latvia; PL = Poland; RO = Romania; SI = Slovenia; SK = Slovakia.

not follow suit. Poles were resistant to panic signals heard or read until they felt personally that their wealth was decreasing, but even with such a realization occurring, resilience rather than panic ensued. No matter how one evaluates the attitude of the Polish government, which perhaps should have done more to control the crisis, rather than wait for the story to unfold, Poland managed to largely defend and overcome the global financial crisis and its consequences. At the end of 2009 such an assessment seems entirely justified. However, the Polish outcome was not reflected in a number of Eastern and Central European countries where the peak of the crisis was accompanied by weakening of business activity – a trend that affected Baltic countries in particular. This can be seen in Figure 5.2, which illustrates a decrease of the GDP over the period from the first quarter of 2007 to the second quarter of 2009 in countries that have recently become the EU member states. Worsening conditions experienced in many emerging markets in Eastern and Central Europe were influenced by the breakdown of exports, caused by spreading recession in several member states of the ‘old’ EU. In fact, changes in accumulated exporting in the period between the third quarter of 2008 and the second quarter of 2009 demonstrate this. This is illustrated in data seen in Figure 5.3 – a decrease of exports in the period under analysis.

The financial crisis, intellectual property and prospects for recovery 87 15 BG 10

CZ EA

5

LV 0

LT

07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2

HU

–5

PL

–10

RO –15

SI SK

–20

EZ –25

Figure 5.2 GDP in recent EU member states, first quarter of 2007 to second quarter of 2009. Source: Rosati (2009).

0

BG

LT

SI

LV

SK

EA

CZ

HU

PL

RO

–5

–10 –9.9 –12.3 –13.2 –15 –14.1

–14.1

–16.8 –17.1 –20 –21.6 –25 –26.2

–24.7

–30

Figure 5.3 Decrease in exports in emerging markets of Eastern and Central Europe, third quarter of 2008 to second quarter of 2009. Source: Rosati (2009).

88 Alojzy Z. Nowak The relation between a decrease of export and a decrease of GDP is shown in Figure 5.4. This graph illustrates this relation for the period from the second quarter of 2008 to the beginning of third quarter of 2009. However, it should be observed that the decrease of GDP on the Eastern and Central European and Baltic countries’ markets was not only related to the breakdown of export in effect of recession affecting the ‘old’ EU or, in broader terms, global markets. Many countries that became the EU member states in 2004 opened up to free movement of capital once entered into the single European market. Conditions of relative stabilization in European markets with such a growing financial integration were bringing positive impulses for further growth. Figure 5.5 shows how accelerated credit expansion influenced economic growth in individual countries (annual rate of growth in the years 2004–7).

European tigers? However, when the crisis began and conditions for economic growth worsened seriously, countries most dependent on this sort of development strategy began to face the negative consequences. Growing deficits in budgets of yesterday’s European ‘tigers’ – i.e. mainly Baltic countries – called for radical, often nervous cost-cutting actions on the part of governments and their economic and social policy. In addition, some Baltic countries, tied by fixed exchange rates of their currencies to the euro, were not allowed to weaken their currencies in order to improve the competitive edge of their goods. A similar blocking mechanism also occurred in the case of Slovenia, Slovakia and, in part, Bulgaria. Worse still, in Baltic countries it 5 PL

Cumulative fall of GDP

0 –30

–25

–20

–15 SK

–5

–10 HU

CZ

SI

–5

2

R = 0.5132 RO –10

EA –15 BG LV –20 LT –25

Cumulative fall of exports

Figure 5.4 The relationship between the cumulative fall of GDP and the cumulative fall of exports, third quarter of 2008 to second quarter of 2009 (per cent). Source: Rosati (2009).

The financial crisis, intellectual property and prospects for recovery 89 16 LV 14 EA

12

2

R = 0.5104

SK

10

CZ

8

PL

6

BG

LT

RO

SI

HU

4 2 0 10

20

30

40

50

60

70

Loans, average growth rate

Figure 5.5 The relationship between GDP and loans, 2004–7 (per cent). Source: Rosati (2009).

transpired that whilst in the ‘good times’ an inflow of capital from abroad favoured dynamic economic growth, under condition of the crisis it soon occurred that the previous feeling of comfort was largely based upon the so-called nomadic (i.e. speculative) capital. In effect, those countries were exposed to external shock to a much higher degree than other countries. Figure 5.6 shows that countries that had relied for their development upon capital flowing from abroad suffered the most in conditions of financial crisis.

Poland’s economic future remains steady In the case of Poland, history once again demonstrated that investors purchasing government’s securities are not only driven by their assessment of current economic conditions, but also by historical reliability of the country, combined with its development strategy and future prospects. The future for Poland seems to be rather optimistic. According to the latest data of the Central Statistical Office sold production of industry in fixed prices (in enterprises employing nine or above) was, in October 2009, 1.2 per cent lower than a year ago but 1.9 per cent higher than in September 2009. After deduction of seasonal factors it occurs that production in industry achieved a level higher than in the respective month of the past year and higher compared to September 2009 – in both cases by 0.6 per cent. Compared to October 2008, a decrease in sold production was recorded in 19 (out of 34) branches of industry, including manufacturing of machinery and equipment (–17.7 per cent), extraction of hard coal and lignite (–17.5 per cent), production of metal goods (–9.8 per cent), goods made of other non-metallic mineral raw materials

90 Alojzy Z. Nowak 5 PL –0 20

30

40

50

60

70

80

90

100

CZ

–5 RO

HU

SK

SI

–10 2

R = 0.3616

EA

–15 BG

LV

–20 LT –25 Bank credit to GDP ratio

Figure 5.6 The relationship between GDP fall and bank credit to GDP ratio (per cent). Source: Rosati (2009).

(–4.3 per cent), coke and oil refining products (–2.8 per cent). An increase of sold production of industry, compared to October 2008, occurred in 15 branches, such as production of computers, electronic and optical goods (13.9 per cent), paper and paper goods (9.5 per cent), beverages (7.8 per cent), electrical equipment (6.5 per cent) and food (3.2 per cent). During the period from January to October 2009 sold production of industry was 5.4 per cent lower than over the same period of the past year. But the way dynamics of sold production of industry developed, compared to an average monthly level in 2005, is illustrated in Figure 5.7. Production in construction and assembly industry (in fixed prices), including investment and overhauling work, performed in the territory of Poland by construction enterprises employing nine or above, was, in October 2009, 2.7 per cent higher than the previous year and 7.6 per cent higher than in September 2009. After deduction of seasonal factors, construction and assembly production achieved a level 5.3 per cent higher than in the respective month of the past year and 0.2 per cent lower than September 2009. Compared to October 2008, there was a growth of production in entities mainly involved in construction of new buildings (7.6 per cent) and in construction of land and water engineering structures (6.2 per cent). Entities dealing mainly with specialist construction work (such as demolition work, land preparation, provision of building installations and finishing work) recorded a decrease of production by 13.6 per cent. In comparison to September 2008 a growth of production was seen in all sectors of the construction industry, achieved in enterprises mainly involved in construc-

The financial crisis, intellectual property and prospects for recovery 91 140 135 130 125 120 115 110 105 100 95 90 85

I

II

III 2009

IV

V 2008

VI

VII 2007

VIII

IX 2006

X

XI

XII 2005

Figure 5.7 Sold production of industry, 2005–9. Source: Central Statistics Office, Poland, November 2009. Note: Monthly average in 2005 = 100.

tion of new buildings (18.4 per cent), in those involved in construction of land and water engineering structures (0.7 per cent) and in those dealing mainly with specialist construction work (0.1 per cent). The level of sold production of industry in the areas of construction and assembly production in the period from January to October 2009 was 4.4 per cent higher than in the same period of the past year. The dynamics of construction and assembly industry production, compared to an average monthly level in 2005, is illustrated in Figure 5.8.

EU supporting innovation It also seems to be important to add that as Poland and other Central and Eastern European countries became EU member states in May 2004, this was accompanied by emergence of new opportunities for social and economic development by taking advantage of the potential of a single market and the European Community (EC) programmes, enabling new entrants to significantly stimulate their entrepreneurship as well as innovativeness and competitive edge of their economies. It seems that the key EC programme has been the Seventh Framework Programme, 2007–13, providing for cooperation in many significant areas, such as health, biotech, information society, nanotechnologies, energy, environment, transport, socioeconomic matters, security and space. Alongside the vertical research sectors, it is

92 Alojzy Z. Nowak 235 225 215 205 195 185 175 165 155 145 135 125 115 105 95 85 75 65 55 45

I

II

III

2009

IV

V

2008

VI

VII

VIII

2007

IX

2006

X

XI

XII

2005

Figure 5.8 Construction and assembly production, 2005–9. Source: Central Statistics Office, Poland, November 2009. Note: Monthly average in 2005 = 100.

important to take horizontal activities into account, such as international cooperation, innovation and small and medium enterprises, human resources potential etc. This EU Framework Programme, by creating networks of enterprises with horizontal and vertical links and networks between industrialists and scientists, is potentially a very powerful and effective catalyst of innovation. Nevertheless, one must not forget that, both in Poland and other Central and Eastern European countries ranked as emerging markets, there remain parts of the past system, such as habits rooted in times when the economy was centrally planned and managed by the state. Over recent years some desirable changes in the business mentality have obviously taken place, but attitudes and expectations of entrepreneurs encounter serious obstacles to enterprise innovation and management. In addition, there is too much bureaucracy in institutions and far too many stifling rules bound in ‘red tape’. However, one optimistic sign is that a number of new institutions, both public and private, created recently in Poland, offer more and more effective training that familiarizes people with the assumptions of the Lisbon Strategy and with goals of the EU member states’ policy of cohesion, which favour development of human and social capital, contributing to the growth of the Polish economy’s competitiveness. On the other hand, unfortunately, Poland still has to be ranked on the lower end in a ranking of countries in terms of funds allocated to research and development

The financial crisis, intellectual property and prospects for recovery 93 National defence

2.0

1.5

1.0

R&D

0.5

19

97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

0.0

Figure 5.9 Comparison of Poland’s levels of spending on national defence and R&D, 1997–2007. Source: Central Statistics Office, Poland, 2008.

(R&D). This is shown in Figure 5.9, highlighting the percentage of GDP spent in Poland on R&D compared to expense on national defence. The percentage of outlay on R&D as part of the country’s GDP (the so-called GERD/GDP) was at the level of 0.56 per cent, still ranking among the lowest in the EU.

Increasing importance of intellectual property The present financial crisis also made it evident that, along with innovativeness and competitiveness of economies, the issue of protection of intellectual property (IP) is an area that becomes increasingly important. Within this area, three different fields of protection may be distinguished: •

•

•

rights of industrial property – including patents, patterns, designs, trade marks, the right to plant protection and geographic markings – which have to be registered in every EU member state; copyright, covering original literary and artistic works, musical works, TV broadcasts, software, databases, advertising and multimedia creations by automatically awarded protection, without the need of official registration; trade strategies, such as trade secrets, confidentiality clauses or fast production.

In the case of Poland, and perhaps also in other countries ranked at present as European emerging markets, it is mainly the former field – i.e. the rights of industrial property – that are especially significant. The number of inventions is increasing in Poland, mainly because of the economic growth rate, while the EU, during the present financial crisis, has had to deal with economic recession. The Polish

94 Alojzy Z. Nowak economy in 2009 has recorded a growth in GDP of roughly 1.5 per cent. At the same time, Poland now has the same IP regime as the rest of the EU and has developed in IP rights remarkably since its low base of the communist era. Poland is a member of the Stockholm Text of the Paris Convention on the Protection of Industrial Property. Since 1990 Poland is also a signatory to the Patent Cooperation Treaty. IP in Poland is governed by two principle legal acts: the Copyright Act and the Industrial Property Act. During the last 20 years the Polish parliament has amended acts on copyright and related rights many times, in line with global standards. According to information provided by the Patent Office of the Republic of Poland2 concerning the number of notifications of inventions and the number of patents issued, in the first half of 2009, in comparison to the first half of 2008, the data was as follows. During the first six months of 2009, the Patent Office of the Republic of Poland received 1,420 notifications of inventions domestically. During the same period the Office decided to issue 1,952 patents on inventions. Over the first half of 2008 respective numbers of applications to the same Office were 1,328 and 2,200. Accordingly, there are still no real grounds to observe significant dynamics of growth as regards to numbers of notified and registered patents in Poland during the period when the global crisis spread across the world. All Central and Eastern European countries classified as emerging markets reveal a growing awareness of the role and importance of innovativeness and competitiveness of their economies on the one hand and of better protection of IP on the other. At the same time, the present global crisis, coupled with significant and equally consequential changes in the functioning of the EU that become valid as the Lisbon Treaty enters into force in 2010, imply an evident need to rethink the strategy of development of the EU. Interests of Poland, but also those of other Central and Eastern European member states classified as emerging markets, probably favour a strategy that promotes the EU as an increasingly important global economic leader. In fact, in my estimation, the EU’s new member states should be proactive in supporting and implementing solutions, ideas and projects preparing the EU to assume such an ambitious role. It seems there are three areas potentially most important within this context: •

•

Internal reform of the EC management structures. The EU should undergo radical reform delivering it from excessive bureaucracy; procedures behind managing the Brussels-based machine should be simplified substantially. Consistent economic reform of the EU. The EU should become more economically competitive. The free market should prevail, lower taxes and investment in development of intellectual capital and modern technologies will equip the EU to be highly competitive within the global economic context. This will be fraught with difficulties, considering that governments of some member states will, in the face of the global financial crisis and its aftermath, be required to find resources to cover substantial budgetary expenses to fight the results of recession in their countries. The case of Poland is – as mentioned above – rather exceptional. The Polish government avoided being involved in

The financial crisis, intellectual property and prospects for recovery 95

•

direct financial intervention, relying instead on the adaptive capabilities of Polish enterprises and believing in the rational behaviour of Polish consumers. More effective protection of IP rights across the entire EU. The EU possesses two important bodies to carry out this mission: the Office for Harmonization in the Internal Market (OHIM), which is responsible for the registration of EC trade marks and designs, and the European Patent Office (EPO). The Commission is currently campaigning for the effective introduction of a Community Patent System, which would be less costly and more legally effective, as a guarantee of competitiveness for European industry. Finally, the protection of these rights also entails protecting them against piracy, illegal trade and counterfeiting. It is, however, absolutely crucial that Poland and other European emerging markets learn from their experience that the better protection of IP benefits innovativeness and improved competitiveness of their economies and, accordingly, regard harmonization of European patent policy as a crucial factor in their economic development.

It remains, then, to see how other (non-emergent) markets have fared.

The future of the economies Central banks, for their part, loosened their monetary policy, offering relatively cheap and readily available credit to commercial banks. Some of them, including the Bank of England, issued some extra money. It is especially basic interest rates that have been lowered significantly (this mainly relates to the USA and most EU countries, including the Economic and Monetary Union and the European Central Bank) as well as the level of obligatory reserves required. Expansive fiscal and monetary policy, expressed in the GDP equation as ‘G’ means, in the present understanding, an increase of governmental expenses. It is not, therefore, regarded in a Keynes-like way, as a demand-creating mechanism, using a multiplier. It seems that it wouldn’t be right to treat it in that way, since if the way Keynes understood ‘G’ expenses was applied, then such an attitude, apart from actually opening a way to get out of the crisis as well, would also allow the process to accelerate and in doing this it would probably assist in controlling the growth of unemployment. In reality, however, a different, more complex way was chosen – to act indirectly upon private demand. It seems that such an idea was mainly targeted at preventing banks from a wave of bankruptcies as this could have entailed further bankruptcies of companies in the real sphere leading to the domino effect. Therefore, the combined action of governments and central banks was targeted at both controlling the wave of banks going bankrupt and maintaining private demand. Altogether, governments’ spending and monetary expansions (especially those by the Federal Reserve and the Bank of England) prevented the present crisis – at least as far as the real sphere is concerned – from becoming a total disaster. To back the argument by quoting the scale of the crisis, rather than specific figures, it is possible to argue that the decrease of GDP achieved 5 per cent instead of 20 per cent,

96 Alojzy Z. Nowak the latter being the scale experienced during the Great Depression (1929–33), while the growth of unemployment, compared to the pre-war period, was twice as low. Certainly, this is not meant as reassurance suggesting there’s nothing to fear for the future, but to explain, to a certain degree at least, methods applied by individual governments and central banks to counteract both the reasons and symptoms of the crisis. Prompt intervention on the part of governments and central banks made it possible, first, to maintain financial liquidity of many commercial banks and financial institutions, which in practice offered a lifeline to a number of them, originally seriously facing prospects of imminent bankruptcy. Second, it managed to retain demand, thanks to governmental expenses on collective consumption, personal services and infrastructural investments (e.g. construction of roads). In achieving this, the intervention managed to maintain aggregated demand at a certain level, despite a serious drop in demand by the private sector. Third, consistent action of governments and central banks managed to maintain credit, thus preventing a drop in business activity and ensuring financing of the real sphere with no major obstacles. Guaranteeing security of bank deposits, buyout of ‘toxic’ assets from banks, reduction of central banks’ interest rates and more generous crediting of commercial banks have been targeted – as mentioned above – at supporting business activity, aggregating demand as well as production and employment. In effect, a drop in production, employment, consumption and investments, especially financed from public funds, was less serious than it could have been should such a strong and determined state intervention had not been implemented. As a result of resolute intervention on the part of governments and central banks, it was possible to avoid a crisis probably as devastating as the Great Depression. A deep recession has in fact remained, but even if we are right in describing the present condition as a crisis, it needs to be noted that disaster has been averted. Nonetheless, even a crisis unfulfilled, controlled at an enormous expense, mainly at the cost of public resources by using a mass of money pumped into the economy by both governments and central banks, still creates a lot of problems related to efforts to improve the situation and to rebuild the process of growth. Many economists and politicians remember with anxiety the crisis in Japan, at the start of 1990s, which was stopped by a strong monetary and fiscal intervention by Japan’s central bank and government, but immersed in the end the country in inertia for most of the subsequent decade, thus interrupting three decades of dynamic growth. While it is not very likely for such a scenario to be repeated, either in the USA or in Europe, if only due to different tendencies towards savings and different traditions in forming the aggregated demand, it nevertheless seems worthwhile to analyse several variants of economic growth.

Variants of economic growth First we shall consider the growth potential of GDP from the demand side, separately in terms of its basic components: private consumption (C), investments

The financial crisis, intellectual property and prospects for recovery 97 (I) and net export (X) in conditions, when an ‘extra drive’ in the form of public expenses (G) stops and monetary policy becomes more stringent again, or even restrictive. To begin with private consumption (C), economic growth that survived in certain countries (China and India being notable examples) despite the global crisis, has been stimulated by a growth of internal consumer and investment demand. Also in Poland domestic demand, including, in particular, consumer demand, along with exports, managed to stop the drop of production and made it possible to maintain an additional rate of GDP growth, both in 2008 and in 2009. In most countries suffering from the crisis, especially those where households were heavily indebted, the slump of consumption contributed to profound recession (Ireland, England, USA and others). A very serious slump of consumer demand also occurred in the Baltic countries (Estonia, Lithuania and Latvia). Signs of recovery, coming from industrial companies that already started to rebuild their resources in many countries, and – in particular – signs of recovery on stock exchanges and in general on capital markets also seem to give evidence of gradual reconstruction of consumer demand. Still, our optimism in this area remains muted. There is the question of whether billions of dollars and euros pumped into the financial system will cause an increase in consumer demand or even a consumption boom. This unfortunately, cannot be given an unconditional positive answer. This at least means at the same time that we are probably not facing an imminent and direct threat of inflation (although one hears about it now and then) resulting, on the one hand, from increasing demand and, on the other hand, from an excessive mass of money having been pumped into the economy in the form of financial aid and, in some cases, by the creation of too much money. Instead, it seems there are at least a couple of reasons why the likelihood is small that a consumer boom will follow in the near future causing inflation. First, in rich countries and in particular in the United States, in the years preceding the present crisis, earnings were increasing very slowly and the growth of average pay was largely due to the dynamic growth of earnings of people belonging to the highestincome groups, including, in particular, members of managing boards of banks, investment funds, insurance institutions, high-level investment advisers, members of managing boards and experts of counselling companies and so on. Pay increases offered to regular employees were in general little or none. This led to a larger stratification of earnings and income, which resulted in decreased effective demand. No acceleration of earnings growth should be expected soon, due to, among other things, a higher and ever-growing rate of unemployment (at present, in November 2009, c.10.5 per cent). Second, households’ indebtedness on consumption is not going to increase to levels as high as it was before the crisis, because consumers first have to cope with debts they made during the period of optimism. In short, one has to pay them back together with interest, before one decides to take new credits. In fact, all seems to indicate circumstances will move in this direction. Additionally, banks will probably examine potential borrowers more carefully, in order to avoid situations where people prove unable to pay back their debts. Also, the price of credit will probably

98 Alojzy Z. Nowak rise, as a result of lowering the level of leveraging banks’ assets and in consequence of banks’ new cautionary procedures, applied in order to provide better security for credit given. Third, it is almost as certain that even a renewed increase of prices of material and financial assets (e.g. in reaction to a significant boom on stock exchanges) will not cause a strong effect property-wise for consumption, at least in the short term. If anything, such an effect will probably be asymmetrical i.e. the impact of decreasing prices upon financial and material assets being stronger than the impact of increasing prices upon such assets, caused by an increase resulting from prosperity. Therefore, it doesn’t seem right to expect that extra income from capital investments, appearing in the hands of households, will translate into any additional increase of consumer demand. Households are more likely to tend to rebuild their savings, partially eroded by the crisis first and only then become interested in increasing consumer demand. In fact the Piegou effect seems to work in such situations with nearly no exceptions, which is easily confirmed by observing consumer behaviour after similar economic crises in the past. The depth of the present crisis suggests it may be the same way this time and that it will take a long time to rebuild aggregated demand. If, therefore, the impact of intensified public expenses will cease or, in other words, the engine driving private consumption (subsidies added to private purchase of cars being a good example) will be turned off, then consumer demand may decrease once more. This may mean that the process of recovery from the crisis to a better economic condition will rather look like the letter ‘W’ than like a ‘V’ (at least with respect to consumption). Such a situation could translate not only into a lack of significant improvement of rates of economic growth, of income growth, of consumption growth and, in effect, of growth of employment, but also into economic stagnation or, worse still, stagflation (economic stagnation accompanied by inflation), in consequence of too much money being pumped into circulation by ultimate creditors. In business cycles we know that the past recovery that followed the stage of depression always seemed to start with an increase in investments (I). It was due to a number of reasons, of which the following were most important: •

•

•

A large number of bankruptcies of companies and other business entities are no longer able to stand competition, either due to the lack of funds or to general chaos on the market during a crisis. This process usually served to cleanse the market and, in effect, improved opportunities for healthy businesses, strong enough to survive the period of hardship. An emerging need of renewal of productive capacities as they become obsolete, even at the time of depression. This resulted, on the one hand, in increasing demand for investment goods such as machinery, equipment and new technologies and, on the other hand, for renewal or replacement of inventories. New opportunities to implement innovation created or made public during depression. Usually a period of crisis prompts universities and research institutes to intensify their activities, often subsidized by central or local

The financial crisis, intellectual property and prospects for recovery 99 budgets, in order to absorb the potential of talented, jobless young people or to improve skills of its employees. Experience shows that this process, combined with stimulated business-like attitudes of enterprises and their staff, tends to promote innovation and to create and implement new technologies and to greater patenting. In the present, not really fulfilled crisis, largely held in control by intervention on the part of governments and central banks of many affected countries, such impulses encouraging an increase in investments may become much weaker. This, in turn, may result from the following reasons. First, there still remains largely unused productive potential. Its only partial utilization results, among other things, from a significant rate of its growth and development over a period prior to the crisis. Prosperity on financial markets, combined with a relatively high rate of economic growth and globalizing world economy, motivated many investors to renew their productive scientific parks, implement innovation and apply technological changes. This was very apparent both in the United States and in the EU countries, where this was also done as an attempt to meet the Lisbon Strategy requirements, calling for acceleration of technological changes with a view to increase innovativeness of European countries’ economies, to improve environmental protection and to decrease the level of utilization of energy resources. Other European and Asian countries, undergoing systemic transformation, modernized their economies as well. Productive capacity of many countries has not become obsolete, also because the present stage of depression is still relatively short. Second, prospects of sales of many finished goods are poor. This is especially evident in the real estate market and durable consumer goods, including, in particular, the car market. In many countries sales of houses, apartments and cars dropped by between a dozen or so to even several dozens per cent. This trend has been well documented both in the USA and the EU, and even in some Asian countries. Due to forecasts for growth of consumer demand not being too optimistic, many companies limit their production and large distributors hold mass sell-outs at reduced prices. These phenomena clearly discourage the raising of production and, in consequence, an increase in investments. Worse still, this may become even more evident once consumers, impoverished by the crisis, start choosing cheaper goods offered by foreign manufacturers, in particular Asian ones (from China, India, Malaysia, Indonesia, Vietnam, etc.). Third, in the consumption structure, and therefore also, indirectly, in the GDP structure, a relatively large share goes to services. Services, obviously, do not demand very high outlays on fixed assets, unless in the case of information technology or other highly specialized type of services requiring state-of-the-art equipment, technologies and organization. Such services, however, whilst very important to the economy, still haven’t achieved a significant share in the area of services as a whole. Fourth and finally, it seems that a boom in global capital markets, which could be observed recently, will not stimulate investments in new production capacities3 since it is neither reliable in the long term, nor does it result from reasons fundamental to

100 Alojzy Z. Nowak particular economies, except for some countries of rather minor importance on the economic and financial map of the world. Also, it is increasingly pointed out, discussed and seriously feared, that the boom in question may in fact result from new machinations in financial markets, which may lead once again to another speculative bubble. There is, therefore, much evidence suggesting that material investments (in productive capacity) are not going to substitute for public expenses (G) in the role of a motor driving economic recovery, unless financial markets will again witness emergence of a new speculative bubble, one similar to those seen in the past (in real estate or in the internet area), rather than – or perhaps together with – a financial one. Such a phenomenon could contribute to a growth in investments. However, considering the consequences of the financial crisis and attitudes assumed by regulators and governments in individual countries, which seem to be focused upon dynamic development relying on fundamental premises for growth, such a scenario seems quite unlikely. Facing this, what really remains is just to count on further stimulation of economic growth through influencing the economy by governments of individual countries i.e. through increasing of G. We are well aware that this is neither an easy solution nor – even less so – a universally accepted one. Nonetheless, scenarios sketched above seem to leave no room for any other viable solution, at least in a short-term perspective. Another factor that may play an important role in increasing GDP is net export (X). If, however, most countries in the world are affected by the crisis – the situation we actually have to deal with at present – the ultimate export balance is only neutral and fails to stimulate the global economy. While we know only too well that foreign trade contributes to economic growth and, indirectly, to improvement of general welfare, this only happens in conditions of a stable positive rate of growth of the global economy. Under conditions of crisis, on the other hand, and in particular during a stage of depression, we rather have to deal with the so-called Keynes’s situation. Generally speaking, it happens when export really becomes an export of unemployment and import becomes an import of unemployment. It is, accordingly, quite evident that even if the world manages to avoid protectionism during the present crisis – protectionism that is judged so detrimental by many economists and, verbally at least, by as many politicians dealing with economy – then it would be next to unreasonable to expect that export will be capable of driving the world out of depression, especially if we consider the present condition of lack of financial balance, both internal (budget deficits in many countries) and external (balance sheets on current and capital accounts).

Conclusion In conclusion, it should be made clear that none of the components of potential growth, taken separately, seems to guarantee prompt recovery. Neither private consumption manages to promise this, nor do investments, nor exporting. If there is a chance, it is in all those components operating together in concert.

The financial crisis, intellectual property and prospects for recovery 101 The problem is whether it would be possible to achieve such a dynamic combination of growth factors in each individual country, or whether it is going to be more effective to organize this sort of combination on an international basis, going for some specific distribution of tasks or perhaps division of roles into particular countries. Further development of the global economy may follow along one of two different paths. It may enter another period of protectionism, as it was in the time of the Great Depression, although this time it would certainly be a different type of protectionism than in the 1930s. What we have in mind is rather protectionism exercised by large countries and their coalitions as well as international organizations of countries, both formal, such as the EU and less formal, such as, for example, G-8, G-20, or even a potential G-2 (China/USA). Under present conditions small economies have few opportunities for development by themselves. Most of all, they are short of effective means of protecting their markets from all sorts of economic turbulence and of defending their currencies against potential speculative attacks. This particularly relates to situations of protectionism, where there is an additional factor that has to be taken into account, i.e. that of distribution of participation in access to resources, or, more specifically, participation in distribution of limited resources, fixed a priori under either bilateral or multilateral arrangements. It may be assumed that this path will not be chosen as a viable way to get out of the crisis. At the same time, it will not be possible to carry on the present path – that of unlimited liberalization of flows of capital, goods and services, as this has led to a profound imbalance in the global economy, thus becoming a serious source of tensions, some of them underlying the present crisis. Global organizations and international institutions (International Monetary Fund, World Bank, European Bank for Reconstruction and Development etc.) as well as various groupings of countries, such as G-20, G-7, G-2, are in search of common solutions. This way, in many different bodies and on various plans there is at present a great effort being made consisting of thinking about the proper regulation of global flows and how to reinstitute the state as close as possible to balance. Unfortunately, endeavours to achieve global balance are not just about regulating streams of goods, capitals and technologies. They are also about changes in the way people behave, including consumers, producers, creditors and debtors, governments and citizens. For example, in order to achieve the state of balance in material terms, the Chinese, Hindus, Japanese and most Asians from the Far East have to consume more. On the other hand, Germans, Americans, Irish, Britons and especially the Baltic peoples, should produce more and save more. What can be concluded from this is that the US dollar and pound sterling should be weak, in order to promote export and the euro, due to Germans, should be strong, as should the Japanese yen and Chinese yuan. The euro seems be a troublesome case as it really should be weak and strong at the same time (the Irish vs. Germans). Or perhaps would it be advisable to introduce limits of deficit in current accounts or surpluses in the same way in specific countries? Some economists and politicians will need to take such solutions into consideration.

102 Alojzy Z. Nowak However, before any adequate international order is developed, the global economy is finally going to gradually get out of the crisis, even assuming a potential repeated slump in business conditions (i.e. in the case of the curve assuming the ‘W’ shape). Considering still a persistent high rate of unemployment, governments of individual countries will discipline their budgetary outlays very cautiously and make their monetary policies more restrictive. The vast mass of money pumped into the economy at the peak of monetary intervention will remain in the market. Here is where a question arises about the threat of inflation. Due to reasons mentioned above, as we discussed opportunities for an increase in consumer demand, inflation seems less of a threat than does a new speculative bubble on the market of financial assets. Cheap money, low central bank interest rates on the one hand, and corporate shares, over-valuated in effect of the crisis on the other hand, present an extraordinary opportunity for strong stock exchange players, especially for banks involved in investment activities. In fact, such big and strong entities that survived the crisis – thanks to state aid– enjoy easy access to credit. Prosperity stimulated by capital market tycoons will attract other investors, both strong and small players. According to a pessimistic scenario, it is possible that large investors, those driving the prosperity, manage to run in time, while small players will pay dearly for their illusions, contributing – in a certain sense – their premiums to consolidate tycoons’ fortunes ever further. Therefore, this is another possibility with no happy ending. Indeed, not every symptom of recovery in the economy should be welcomed as something good. The question of whether Anglo-Saxon (AS) European, Asian or some other form of capitalism works best is being actively discussed. By and large, the prevailing opinion seems to be that the AS model has been shown to be deficient and even downright disastrous. It is true, of course, that much of the toxicity in financial assets originated in mortgage loans made and securitization carried out in the United States. Much of the process of financial engineering slipped under the ‘regulatory radar’, met with the approval of numerous experts in macroeconomics and financial economics, was popular with shareholders and so on. It might appear that one needs to address loopholes that have become obvious in the subprime mortgage loan, clamp down on the hedging products offered, limit systemic risk and so on to prevent a repeat of the collapse of 2008. As evidence that such a tight monitoring regime would be effective, one might point to countries such as China and India, which have, to some degree, insulated themselves from the turmoil that has rocked financial intuitions elsewhere. By picking and choosing what they will permit, these countries appear to have found a magic formula for financial stability. But the growth of Asian economies has been inextricably tied to investments, technologies and instruments from abroad. If China and India become more consumption driven, they might well have to develop innovations (including financial) to sustain or accelerate economic growth. While it is true that, as Santayana famously wrote, those who fail to learn the lessons of history are condemned to repeat them, it is probably equally true that those who learn the wrong lessons are condemned to make other mistakes that could prove as disastrous. Concluding that the origins of the crisis facing financial institutions and economies worldwide lie in a lack of

The financial crisis, intellectual property and prospects for recovery 103 sufficient regulation, or with any one segment of industry, would be a clear indicator that we have not learnt the right lessons. In my estimation, in order to avert a repeat financial meltdown, a mix of strategies and approaches needs to be adopted. A combination of regulation (intra- and transnational), promoting ethical awareness and actions based on values (avoiding moral hazard and cowardice), the incorporation of diversity and independence in decisions in financial institutions, incorporating checks and balances in corporate governance, bringing greater pressure on fund managers to hold corporations to account and achieving a balance of product/service and financial innovation and so on, needs to be implemented, with the appropriate amalgam depending on a particular society’s context and needs. So, fortunately, an optimistic scenario is also a possibility. Let us assume that the growth of production, recorded in the third quarter of 2009 in a number of countries, means the beginning of the process of getting out of the crisis. This may turn into a new stage of recovery and – perhaps not as spectacular as it was before, but in any case – prosperity. Such a case means we would have to deal with the multiplier effect of intervention undertaken by governments and central banks. Credits given by central banks managed to stabilize financial liquidity of commercial banks and governmental spending, by generating income, stimulating growth of private consumption. This way, the business cycle influenced by intervention applied by ultimate creditors would become ‘V’ shaped. And for the mainstream of macroeconomy theorists, including, in particular, neoclassics, this would signify pure defeat. John Maynard Keynes believed to have been buried 30 years ago, would rise again from the dead and prove that state intervention brought desired effects. If this scenario comes to pass, one will be tempted to say that the intellectual heritage of neoclassic economy from recent decades really comes down to attempts to draw a map of virtual mountains.

Notes 1 2 3

This can be concluded from the statement of Professor Janusz Czapi´nski given at a conference held at the Warsaw University School of Management in 2009, dedicated to problems and nature of the crisis in Poland and worldwide. The official information by Adam Taukert, spokesman of the Patent Office of the Republic of Poland, 22 December 2009. According to James Tobin’s coefficient ‘q’.

Bibliography Czerniak, A. (2009) Uwaga: model nie prognozuje kryzysu! (Beware: no model foresees a crisis!), Warsaw, Parkiet, 7–8 September. Davis, J. (2009) Managed by the Markets, How Finance Re-Shaped America, Oxford: Oxford University Press. Ferguson, N. (2008) Ameryka´nska Nemezis – czy kryzys gospodarczy zwiastuje koniec hegemonii? (American nemesis – is the economic crisis heralding the end of hegemony?), Warsaw, Europa, 27–8 September.

104 Alojzy Z. Nowak Galbraith, J. (2009) Konserwatyzm – _ywa skamielina (Conservatism – live fossil), Warsaw, Europa, No. 2, October. Godłów-Lebie˛d´z, J. (2008) Strukturalistyczna teoria zatrudnienia Edmunda Phelpsa (Edmund Phelps’s structural theory of employment), Warsaw, Gospodarka Narodowa, Vol. 9. Kehoe, T.J. and Prescott, E.C. (2007) (eds) Great Depressions of the Twentieth Century, Minneapolis: Federal Reserve Bank of Minneapolis. Krugman, P. (2008) The Return of Depression Economics and the Crisis of 2008, New York: W.W. Norton. . Mankiw, G. (2008) Makroekonomia jako naukowiec i inzynier (Macroeconomy as scientist and engineer), Warsaw, Gospodarka Narodowa, Vol. 4. Mead, W.R. (2009) Dobroczynny wp_yw kryzysu? (Beneficial influence of the crisis?), Warsaw, Europa, 24–5 January. Nawrot, W. (2009) Globalny kryzys finansowy XXI wieku (The 21st-century global financial crisis), Warsaw: CeDeWu Sp z o.o. Rosati, Prof. (2009) The new EU member states’ responses to the global economic crisis: why so different? Presentation at a conference in Wroclaw, Poland, 25–6 September. Soros, G. (2008) The new paradigm for financial markets: the credit crisis of 2008 and what it means, Public Affairs, May. Stiglitz, J. (2002) Globalization and Its Discontents, New York: W.W. Norton. Stiglitz, J. (2006) Making Globalization Work, New York, W.W. Norton. Stiglitz, J. (2008) The triumphant return of John Maynard Keynes, Guatemala Times, 5 December. Stiglitz, J. (2009) Capitalistic fools, Vanity Fair, January. Stojano, A. (2006) Research, Quality, Competitiveness: European Union Technology Policy for the Information Society, New York: Springer. Wojtyna, A. (2008) Współczesna ekonomia – kontynuacja, czy poszukiwanie paradygmatu (Contemporary economy – follow-up or search for a paradigm?), Warsaw, Ekonomista, Vol. 1.

Internet sources http://wapedia.mobi/pl/Kryzys_finansowy_2007-9 http://globaleconomy.pl http://vlib.org/BusinessEconomics http://www.tnsglobal.com/global/

6

Socio-economic changes effected by intellectual property rights The Indian perspective Mohan Dewan

Introduction The advent of the twenty-first century predictably ushered in subtle but profound changes in the industrial and commercial climate in India. India as a nation has always been delicately poised between the inscrutable Far East and the industrialized West. With a large English-speaking work force and a relatively more tolerant and salubrious regulatory set up, India has generally looked less intimidating than other countries in the Asia Pacific region, including China. In the field of intellectual property rights (IPRs) too, the changes after the year 2000 have significantly appeared on the horizon and have been all pervasive. Newer forms of IPRs have been created and archaic ones have been abolished. For instance, in the field of patents exclusive marketing rights gave way to product patents tempered with the stringent requirements of section 3(d), which has felled several robust molecules in the field of pharmaceutical new chemical entities. In the field of trade marks, the Part B Register for less distinctive marks and defensive registrations were both abolished. At the same time, service marks, collective marks and the concept of well-known trade marks came into force along with a vastly broadened and reinforced infringement right. New IPRs were also spawned. In the field of copyright, apart from recognizing a computer program as a distinct class of work, the government has recently approved amendments to the Copyright Act in favour of the actual creators of works particularly in the field of music and films. The amendment intends that every person who was involved in the creation of a work must not only be recognized as a right holder but should also be compensated, not only at the time of the creation of the work but also when the work is subsequently reproduced in material form thereafter. The government intends to considerably enhance the performer’s moral rights and loosen the tight grip of the film producer and the music companies on content, particularly in the fields of cinematographic films and music. For the first time the director’s right to be called the co-author of the film will be recognized. At the same time measures are being introduced to unfetter public access to literary, musical and dramatic works and computer programs and to remove the burden of copyright on works specially meant for the differently abled. The proposal of the Human Resources Ministry drew favourable responses from legendary artistes in Bollywood and music creators.

106 Mohan Dewan Sitar player Pandit Ravi Shankar said he had suffered as an artist for many years because the music companies took away all his rights. Speaking to Financial Express, an Indian financial newspaper1 Ravi Shankar said: I personally feel that when a musician creates something, that is solely his property, legally as well as morally. And when he dies his family owns it. But for the past 50 to 60 years, artists have been exploited. The music companies take away all the rights. They can publish it, give it to anybody and even meddle with the composition. Most of the other musicians echoed his views and came out strongly against the latest trend of version recordings where the music companies published remixes of popular numbers sung or played by upcoming artistes at very low costs, sometimes distorting the original music to a great extent. Sui generis legislation brought about the creation of geographical indications (GIs) and plant variety rights as distinct IPRs. At the same time groups of people and individuals who possess traditional knowledge were sought to be compensated, the use of the traditional knowledge regulated and fortified in favour of the actual holders of the knowledge by the coming into force of the Biological Diversity Act and the empowerment of the tribal population and forest dwellers by sections in the Recognition of Forest Rights Act, 2006. There is a lot of material available on the developments in India in the field of the well-known IPRs such as trade marks, patents, copyrights and designs, the socalled major IPRs, which are largely private owned. In fact, according to some schools of thought these major rights are looked upon as instruments of oppression of the industrialized world over the developing and under-developed groups of people. The reforms of liberalization starting with the TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement are looked upon as a form of neo-colonialism – a form of economic colonization by the private IPR stakeholders over the collective have nots. The governments in developing countries, such as India are aware of these views. Therefore, they needed to balance the bringing in of reforms in the major IPRs in their own jurisdictions, by looking at and providing newer forms of IPRs having a social face. This led the Indian legal think-tank to focus on traditional knowledge. The newer forms of IPRs and fortification of the laws have therefore been centred around this theme. The Geographical Indications Act, the Plant Varieties Law and the laws protecting biological diversity and the rights of forest dwellers regarding the intellectual property (IP) of the forest produce have this common central focal point. Because of the paucity of experts in the field of social economic law, as well as less prolific litigation, the newer forms of IP in India are neither well known nor even recognized per se. This chapter proposes to focus on the socio-economic significance of these lesser known but nevertheless noteworthy developments in the Indian IPR field. This chapter also intends to examine each one of these areas: the Geographical Indications Act, the Plant Varieties Law and the law protecting biological diversity and the rights of forest dwellers separately.

Socio-economic changes effected by intellectual property rights 107

The Geographical Indications Act Nowhere has the immediate impact of the promulgation of an IPR legislation been more socially dramatic than in the field of GIs in India. This impact is not immediately felt in the urban commercial world because the changes have affected not the large corporate houses and scientists in research institutions but the village artisan, the ethnic craftsman and the farmer, who make up the faceless rural poor and constitute nearly 70 per cent of the Indian population. GIs, as their name implies, are indications that relate to the geography of the place or region in which an article is produced or a produce is grown or even a service is provided. Thus, a GI is any indication conveying the unique characteristics of a region. Historically, GIs were known as appellations of origin and indications of source with different connotations and were employed in the protection of an entirely different interest. GIs differ from other forms of IPR in the scope of the protection they provide, the theme of common or collective ownership of an essentially private right. Although classifying products according to their geographical origins was attempted earlier, the origins of GIs as an IPR as applied to wines is attributed to the French law of July 1824,2 which advocated criminal sanctions for fraud with reference to misleading appellations of origin. The essential purpose of this provision was to regulate buyers and sellers and thereby protect the interest of the consumers, giving protection from being deceived as to the source of the goods. This law did not take into account the interest of the producer or trader. So prevention of consumer deception was the one focus. The first national appellation system that resembled GIs was introduced by Portugal in 1908. However, it was not until 1919 that the producers’ interests were first protected, again, by the French. In the European context, protection of GIs is positioned chiefly in protecting commerce in the field of wines and spirits and, to a lesser extent, food produce such as cheeses.3 The Scotch Whisky Association must be given credit for their worldwide effort to protect GIs of their members in many countries of the world. In India too, the Scotch Whisky Association or its members fought several legal battles to prevent Indian manufacturers from using marks such as Scotch and essentially Scottish words and names for their products.4 Their initial efforts in the field of trade marks made Indian jurists wise to the association of trade marks with geography as a form of IPR. Extending and applying the same principles of association between product and geography to the plethora of household goods, handicrafts and textile products, which are typical of different regions in India was the next logical step. Names of geographical regions, including those of towns, cities and villages, cannot be generally protected as trade marks. The basis for this rule is that all producers have a right to use their physical location details, including the name of the city, town or region where they manufacture their products on their trade mark label and no trader can monopolize a geographical name to the detriment of other traders or manufacturers in the area. As compared to trade marks there are various advantages for the protection of GIs available under the legal framework of the Geographical Indications of Goods (Registration and Protection) Act of 1999. A

108 Mohan Dewan main advantage is to protect producers’ collectives and associations in a region against misuse of GIs by producers outside the region. It is in this context that wherever GIs have been protected, the economic benefits have immediately trickled down to the producers of the goods to which the indication could be applied. A secondary advantage is to prevent consumers from being misled. A further advantage is to encourage investment first in the production of the goods and second in their sale and promotion. Unlike the European experience, in India GIs have been used to provide protection to the marginalized sections of society: the rural artisan or agriculturalist or manufacturer of produce or provider of services. The protection of the GI is seen as a way of protecting the traditional knowledge in the product or service to which the GI is applied. Most of the registrations have been obtained in the fields of traditional textiles, handicrafts, village produce and toys. Registration is obtained and granted, typically, to an association of the artisans, craftsmen, farmers or producers involved in making the products or growing the produce. Once a GI is registered only producers in a defined region who are authorized users can refer to their products by the GI. Not only can unauthorized use be injuncted against, but the unauthorized user can be criminally liable, fined and be sentenced to imprisonment and their goods can be confiscated. Two representative case studies that illustrate the dramatic effect of GI registration in India are now discussed. The case of the Pochampalli GI5 Pochampally/Pochampalli represents a region with a population of more than 15,000, consisting of about 40 villages near the city of Hyderabad in the state of Andhra Pradesh, in central India. The region is well known for the production of woven hand-made silk saris, dress material, cotton products and bed sheets of a distinctive design referred to as the ‘ikkat’. The major uniqueness of the Pochampalli ikkat is that it is made by a process of tying and dyeing the yarn prior to the weaving process. The ikkat makes use of a diamond-shaped design motif having diagonals or square grids into which geometrical floral or figurative patterns or other abstract variations are woven. The art form is over 500 years old and therefore fits squarely within the realm of traditional knowledge. The weavers were not organized and operated as individual craftsmen, often exploited by the traders. With the advent of the power looms sector and the organized sector, the rural artisans and weavers were finding it more and more difficult to sell their wares and compete either in the domestic or export markets. More than 50 per cent of these artisan families were living below the poverty line. On average their monthly income was around 3,000 rupees [US$ 50]. As a result of poor links with institutions and marketing organizations, they had little exposure to the market and consumers. More than 100 suicide deaths of these skilled craftsmen and women have been reported since 1991. The power loom sector and the large weaving mills in other parts of the country were copying their designs and calling their products ‘Pochampalli ikkat’.

Socio-economic changes effected by intellectual property rights 109 In 2003, the weavers rallied together under their associations to form the Pochampalli Handloom Weavers Cooperate Society and the Pochampalli Tie and Dye Manufacturers Association and filed an application for registration of the GI ‘Pochampalli ikkat’. For this purpose they received financial support from the National Bank for Agriculture and Rural Development (NABARD), a central government agency, and technical and legal support from the Andhra Pradesh Development Corporation (APDC), a state government agency. The purpose of the GI registration was to protect the name Pochampalli, prevent its unauthorized use from fake and counterfeit products and from power loom owners and large textile mills. Additional reasons included the promotion of Pochampalli as a brand, to create IPR awareness among the weavers and improve the marketing of the products manufactured in accordance with this traditional craft. Pochampalli ikkat was awarded the GI registration on 31st December 2004. It was the first GI application to be granted in the textile sector and handicrafts industry in India. It was the second GI registered after Darjeeling tea. The entire process of registration was completed in the span of a year. The immediate benefit of the GI registration was a lot of media attention for the Pochampalli cluster in the print and electronic media. It acted as a motivational and moral boost for the weavers. Commercially, there was an increase of 15 to 22 per cent in the market for one item alone: Pochampalli saris. Sales over the internet also increased. There was networking amongst the master weavers, who came together and developed the Pochampalli Weavers Private Limited and Ikkat Art Private Ltd. The government of Andhra Pradesh also provided an active role. Multi-tiered committees were set up to leverage the benefits of the GI registration for the benefit of weavers to enable them to use it as a competitive tool for socio-economic prosperity, particularly to facilitate and coordinate action with the involvement of the state enforcement machinery, and combat counterfeiting by developing a database of genuine manufacturers. There was also a concerted move to strive for the revitalization and emancipation of the Pochampalli brand image in domestic and international markets. A Pochampalli Handloom Park was set up as a role model for other traditional knowledge service providers. The main aim of the Park was bulk production to meet large orders, quality assurance and financial guarantee of the weavers’ livelihood and an assurance of reasonable wages to the workers employed in these units. The Park received additional financial support from the central government for setting up a research and development lab and a design centre, around which an infrastructure was created for value addition to the existing line of products, improvement of the skill of the weavers and a marketing team to explore the possibility of increased sales domestically and overseas. Very encouraging responses were sensed by the cluster, which collectively participated in the International Trade Fair at Mumbai in 2007 and at Frankfurt in 2008 and at other exclusive exhibitions at various other commercial centres around the world. The end result is that the basic wages and the standard of living of the craftsmen has increased multi-fold. All this can be directly attributable to the registration of ‘Pochampalli ikkat’ as a GI.

110 Mohan Dewan The case study of Kota Doria 6 Kota is a district in Rajasthan in India within which handloom weavers create a fabric having a distinctive square-check pattern with or without motifs known as Kota Doria. The origin of the fabric dates back at least a century when a ruler of the Kingdom of Kota invited weavers from Mysore to settle in Kota and weave a special fine variety of turban cloth known as ‘Massoria’. The Kota Massoria weavers subsequently shifted to saris and created a fabric of their own known as Doria, which involves using two types of yarn cotton and silk in the weave, both in the warp and in the weft. The fabric is well known, has a reputation and is famous by the name of its place of origin: ‘Kota’. Production of Kota Doria involves a number of steps, a high level of skill, patience and concentration of the weavers who are able to create virtually endless patterns with different ratios of cotton and silk yarns with the permutation and combination of various designs. The weaving of Kota Doria fabric is largely done by the rural folk in and around Kota, the skill being passed from generation to generation. Women form the backbone of the master weavers and artists. Since 1970, with the advent of power looms in the country, the traditional craft of Kota Doria faced serious competition from counterfeit products made on power looms. Although the products that were made on the power looms did not match the quality of the original, they were cheap, easy to manufacture and therefore outsold the original. The weaver clusters in Kota started losing their artists who migrated to other professions and seemingly greener pastures and this cultural heritage threatened to become an ‘endangered species’. The United Nations Industrial Development Organization, with the assistance of the state government of Rajasthan, identified Kota Doria as a suitable example for a GI and undertook a cluster development programme. A capacity building project was set up for weavers of the Kota Doria fabric in the region. The weavers were organized into associations and all the associations into a federation. Eventually, the federation applied for and obtained a GI registration for ‘Kota Doria’. After obtaining registration the federation along with members of the business community of Kota Doria started pursuing in earnest activities to prevent the sale of power loom-made saris in the name of Kota Doria. To prevent the sale of fake Kota Doria fabrics a logo was developed by the federation with the consent of all the weavers. This logo consists of the word ‘KOTA’ woven on one side of the fabric and ‘DORIA’ woven on the reverse side. This logo can be created on the fabric only on the hand loom and not on the power loom. This logo cannot be destroyed without tearing or destroying the fabric. This satisfied the weavers since fake or powerloom saris cannot be sold in the name of Kota Doria bearing the logo. A survey conducted by the Textile Commission reveals a dramatic social impact on the lives of the weavers and their families. The income of the weavers tripled after the GI registration. A majority of the weavers reported that they were getting more orders and therefore more work. The number of looms that were used for making the fabric increased by at least 50 per cent. Workers, including weavers who had left for other professions, returned to the profession. Business houses expressed

Socio-economic changes effected by intellectual property rights 111 interest in investing in the area by setting up manufacturing units in the region. This has further created employment opportunities for the primary art and for support businesses. Master weavers were now able to dictate and negotiate wages and sales price and were thus able to make more profit. A positive social impact was dramatically visible in terms of an improved standard of living, affordability of weavers to educate their children in better schools and colleges, neatness and cleanness of their homes, their environment and their working areas, all of which was unaffordable before the GI registration. Women weavers in the region have started earning the respect of their families and now have a greater say in the running of their households. The girls of weaver families, expert in this heritage art, were now in great demand and their matrimonial prospects improved. Use of the brand Kota Doria on power-loom fabrics is now a punishable offence. At least one criminal case was filed, which had a deterrent effect. The traders in the region became aware of the GI registration and the use of the logo to differentiate and distinguish the original product from the counterfeit. The federation was now able to put funds and efforts into research and development, which has resulted in improved designs and even better quality of the weave. The master weavers were offered opportunities to interact with urban designers and fashion houses and started extending the use of the fabric to other non-traditional garments such as skirts, men’s garments and home furnishings. The potential for export of the fabric and the garments has therefore increased immeasurably. The profile of the customer who cherishes Kota Doria items has also noticeably altered. Buyers said that they were ready to pay a higher price for genuine Kota Doria not only because its texture and softness was better than the power-loom product, but also that the inherent nature of a hand-made product made it unique and one of a kind. It has now become prestigious to own a genuine Kota Doria sari or other garment or even a wall hanging. This customer preference for the original has further led to the prosperity of the weavers. However, this is only the beginning and much still needs to be done such as creating greater awareness in the society at large. The enforcement machinery has to initially educate and explain the significance of the movement so that infringement by unscrupulous traders is prevented and even becomes a moral issue. Here support is needed from the state government and from potential buyers. Dr Rashmi Banga7 presented a paper at a GI seminar in New Delhi in December 2009 in which she discussed an UNCTAD-India (United Nations Conference on Trade and Development) project funded by the Department for International Development, London. The paper discusses details of other surveys conducted in India on the benefits of GI marking and registration by comparing products and services that possessed a GI with those that did not and the effect on the producers, artisans and craftsmen before and after GI registration particularly, the economic benefits to producers, consumers, traders, and what a consumer would be willing to pay for a product that was marked with a GI, particularly a GI that was registered under the Act. Tests were conducted on per capita income earned by similar households producing the same product, one having a GI and the other that did not.

112 Mohan Dewan An example discussed in the paper related to a comparison of producers of oranges bearing a ‘Coorg’ GI certificate (Coorg is a district in the State of Karnataka) with producers who grew oranges but did not sell it with the certification. The per capita income of these two households were compared to establish to what extent the GI certificate affected per capita income and the standard of living and to what extent consumers were willing to pay higher prices over the existing prices if the product had a GI certificate. What came out was that the wages earned by workers involved in the production of GI registered products were significantly higher than those of workers involved with non-GI products. Another finding was that the workers with traditional skills preferred to work with products having the GI certification. Interestingly it was found that, both in the agricultural sector and in the non-agricultural sector, when comparing similar households, the per capita incomes and the standards of living were consistently higher for households associated with GI certified products. GI status therefore had a positive impact on household earnings but, over time, the rate of change may be reduced as complacency sets in. Thus, for example, in the case of Pochampalli saris discussed above the price of the saris rose dramatically after GI certification but the change in price became less over the years. This also showed that immediately visibility and recognition is achieved when the GI gets registered, resulting in an increase in the price of the product but to sustain the rate of increase marketing skills are needed. The study revealed a price premium on GI products. Consumers were willing to pay more than 10 per cent over the prevailing price for a GI registered product in the agricultural product sector. For non-agricultural products the consumers were willing to pay between 5 to 10 per cent over the prevailing price. The paper also discusses the actual experience of the Kota Doria detailed above. Overall the study revealed that although GI registration can be an important tool and the benefits accrue to producers in terms of higher prices with improved standard of living, registration itself was not sufficient and it was also important for consumers to feel confident about the standardization of the quality of the GI products. The results showed that over time the rate of growth of price premium through GI registration may dip. In conjunction what was needed was brand building, targeted marketing and constant improvement in quality, coupled with a suitable mechanism for enforcement. What these studies leave unsaid, both in the case of Pochampalli and Kota Doria, was that an art form that was in danger of becoming extinct was not only revived but was also made to flourish after registration of the GI. Exploitation of GIs In the past, there has been unfortunate exploitation of GIs of various products of Indian origin. For instance, ‘Darjeeling’ a well-known hill station in the north-east of India is equally well known for the tea that is grown around it. Darjeeling has been wrongfully misappropriated as a part of trade marks by non-Indian entities in other parts of the world that have no connection whatsoever with this hill station. After the coming into force of the Geographical Indications Act of 1999, it is

Socio-economic changes effected by intellectual property rights 113 expected that such GIs would be recognized and their unauthorized use would be prevented. Registration under the Act would prevent imports of products with a similar indication into India. It is also expected that a GI certificate will increase the visibility of the product as a result of which it can indirectly boost not only exports but also domestic sales. The GI certification is also expected to promote the economic prosperity of the producers of goods on the premise that a GI distinguishes the product itself and if a product is differentiated with respect to other products a producer is able to command a higher price. The consumers have confidence in buying a product that has a GI certificate, which assures them about the quality of the product and certain unique ethnic characteristics of the product.

Protection of Plant Varieties and Farmers’ Rights Act 2001 (PPVFR Act 2001) Before the coming of age of modern technology in the agricultural sector, inventions relating to the breeding or propagation of new plant varieties were considered to be in the realm of natural and obvious evolutions or discoveries that were not entitled to any patent or other IPR protection. Innovation in biotechnology requires substantial investment but once these are commercially developed the end results can be replicated with ease. Without adequate protection for the innovation and therefore little chance of proper returns, commercial enterprises will be loathe to invest in the field of development of new plant varieties. Farmers breed new varieties of plants and conserve biodiversity in the flora around them as a natural corollary to and an extension of their profession, generally without the expectation of any returns or other commercial benefits. For them it has largely been a passion to give expression to their creativity. On the other hand, farmers often develop new varieties of plants on a basis of need because they want to develop sturdier plants that are resistant to disease or that give better and quicker yields or just because they want better looking or bigger fruit. Their entire labour in agricultural research and development was hitherto seen as being spent for the public good rather than as an activity for commercial gain. On the one hand the demand for extending IP protection to agriculture in developing countries has often been met with considerable resistance by individuals who believe that these innovations are developments for the public good and therefore not worthy of private protection. On the other hand there have been counter demands from investors for protection of plant varieties and breeders’ and farmers’ rights. Under the TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement it is obligatory on the part of a member state to provide protection to a new plant variety either through a patent, via an effective sui generis system or a combination of these two systems. Developing countries are currently attempting to fulfil these demands by evolving new IPR regimes that simultaneously protect the rights of breeders and farmers. The US for instance has both systems that operate in tandem. India opted for the sui generis system and enacted the Protection of Plant Varieties and Farmers’ Rights Act 2001.

114 Mohan Dewan The sui generis system for plant variety protection in India The need for a sui generis system for plant variety protection in India was to enable the nation to protect and preserve its farmers’ rights on the one hand and on the other hand grant rights to plant breeders and thereby provide an incentive to this group for creating new plant varieties. Advantages of developing an effective sui generis system for plant variety protection in India include: 1 2

3 4

It allowed for superior planting material, leading to increased agricultural production. It facilitated investment by private sector enterprises in the development of superior plant varieties and also gave an impetus to the building up of a commercial infrastructure for the seed industry. It encouraged competition between the private and public sectors in the field of plant breeding effectively and efficiently in the larger national interest. It enabled India to meet its national obligations under the international General Agreement on Tariffs and Trade (GATT).

Objectives of the PPVFR Act 2001 India is one of the first countries in the world to have passed a legislation granting rights to both breeders and farmers simultaneously under one Act. It is the only legislation in this area that grants formal rights to farmers in a way that prevents their self-reliance from being jeopardized while at the same time recognizing the efforts of the plant breeders in developing new plant varieties. By giving protection to the farmers’ plant variety, the Act recognizes the farmer as both a cultivator and a conserver of the agricultural plant variety. The objectives of the Act include an effective system for protection of plant varieties, protection of rights of farmers and plant breeders and acceleration of investment for research and development in the growth of the seed industry, thereby ensuring the availability of high-quality seeds and planting material of improved varieties to farmers and other growers such as horticulturists. The Act therefore attempts to optimize and balance claims for protection by both plant breeders and farmers. In India the plant variety protection law is still in its infancy. Advantages of the PPVFR Act 2001 The Act seeks to protect farmers from exaggerated claims by seed companies regarding the performance of their registered varieties. The Act also seeks to ensure that the seeds of these new varieties are of good quality, or at least that farmers are adequately informed about the quality of seed they buy. In addition, safeguards are provided against innocent infringement by farmers. It establishes a system for an effective means of protecting plant varieties and the rights of farmers and plant breeders, while at the same time encouraging the development of new plant varieties ensuring farmers’ rights to save, use, exchange and sell seed in this way must be seen as a success with regard to this component of farmers’ rights.

Socio-economic changes effected by intellectual property rights 115 The plant variety protection law in India benefits registered breeders to save, use, sow, re-sow, exchange and share or sell their new variety and breeders who obtain registration of a new plant variety can stop any person who sells, exports, imports or produces such variety without prior permission. They can also prevent the use, selling, export, import or production of any variety deceptively similar to their registered variety. Types of plant varieties The PPVFR Act allows for four types of varieties to be registered, thus reflecting the interests of various entities associated with the growing and development of plants: 1 2

3

4

A new variety is defined as a variety of a plant that confirms to the criteria of novelty, distinctiveness, uniformity and stability. A farmers’ variety is a variety that has been traditionally cultivated and evolved by the farmers in their fields, and is a wild relative or land race of a variety about which the farmers possess common knowledge. An extant variety is a variety that is notified under section 5 of the Seeds Act 1966, a farmers’ variety, a variety about which there is common knowledge or any other variety that is in the public domain. An essentially derived variety is a variety that is predominantly derived from another variety (protected or otherwise) referred to as the initial variety and conforms to the initial variety in all aspects except for differences that result from the act of derivation, and yet is clearly distinguishable from such initial variety.

A plant variety that is not capable of identifying such a variety or consists solely of figures is liable to mislead or to cause confusion concerning the characteristics, value, identity of such variety, the identity of the breeder of such variety or is likely to deceive or confuse the public regarding the identity of such variety; or comprises any matter likely to hurt the religious sentiments respectively of any class or section of the citizens of India; or is prohibited for use as a name or emblem for any of the purposes; or is comprised of solely or partly of geographical name in not registrable under the Act. Terms of protection Before the passing of the Act, the different varieties of plants that were developed by various breeders and the needs of the growers were examined and it was decided to provide varied terms of protection under the Act for different types/categories of plants. Thus trees and vines are offered protection for a period of 18 years, while protection for all types of crops is for a period of 15 years. The certificate of registration issued is valid for an initial period of nine years in the case of trees and vines and six years in the case of other crops, and may be

116 Mohan Dewan reviewed and renewed for the remaining period on payment of the relevant fees on the condition that the total period of validity shall not exceed 1 2 3

in the case of trees and vines, 18 years from the date of registration of the variety; in the case of extant varieties, 15 years from the date of the notification of that variety by the central government; and in other cases, 15 years from the date of registration of the variety.

The PPVFR Authority The central government of India has established an authority to be known as the PPVFR Authority consisting of a chairperson and 15 members as representatives of different concerned ministries and departments, seed industry, farmers’ organizations, tribal communities and state-level women’s organization, etc. A Standing Committee advises the Authority on all issues including farmers’ rights. Duties of PPVFR Authority The PPVFR Authority is entrusted with the duty of 1 2 3 4 5 6 7 8

promotion and development of new varieties of plants and of protecting the rights of the farmers and breeders; providing measures for registration of extant and new plant varieties; developing characterization and documentation of varieties; maintaining a catalogue of farmers’ varieties; compulsory cataloguing facilities for all varieties of plants; collecting statistics with regard to plant varieties; promoting evolution or development of any plant variety in India or in any other country; and maintaining the register of plant varieties.

Registration procedure and requirements To date around 1,700 applications have been received and 160 varieties have been registered. Registration requirements are as follows: 1 2

The breeder deposits the seed or propagating material and parental seeds of registered variety including the seed quality test report to the Authority. Application forms with questionnaire in triplicate and prescribed fee are to be submitted.

Registration procedure is as follows: 1

The received seed samples are properly tested for their purity and germination and for conducting DUS (distinctiveness, uniqueness and stability) tests at the

Socio-economic changes effected by intellectual property rights 117

2

test centre. DUS tests are conducted for two years at two different locations at a time particularly suited to the crop. The tested-for features of distinctiveness, uniqueness and stability must be present in order to get a plant variety registered. Other procedural requirements of the Authority take around one year. Therefore one can expect to get their plant variety registered in around three years from submission of application.

Species information There are in total 21 species at present that could be registered, which are broadly divided into three categories: 1 2 3

pulses; coarse cereals; oil seeds.

There is another set of 22 species that has been sent for approval, including the following: 1 2 3 4

eight vegetable crops; one fruit – mango; one flower plant – rose; ten oil seed crops;

The approval is expected to take between 15 days and one month. After approval the total number would rise to around 42 species. The Plant Varieties Act does not extend to the protection of new varieties of micro-organisms including fungi. However, these micro-organisms, provided they satisfy the requirements of an invention i.e. they are novel, possess an inventive step and have an industrial application. The PPVFR Authority benefits from 0.2 per cent of turnover of the particular variety that is registered with the authority.

The Biological Diversity Act 2002 read with the Scheduled Tribes and Other Forest Dwellers (Recognition of Forest Rights) Act 2006 The Biological Diversity Act is an act to provide for conservation of biological diversity, sustainable use of its components and, most importantly, the fair and equitable sharing of the benefits arising out of the use of biological and genetic resources and traditional knowledge. India is considered one of the 12 mega-biodiversity countries in the world. Although India encompasses only 2.5 per cent of the world land area, it accounts for 7 to 8 per cent of the recorded species of the flora and fauna of the world. It is

118 Mohan Dewan also acknowledged that several of the species are endangered and that such species need to be conserved, protected and rehabilitated. The Recognition of Forest Rights Act 2006, on the other hand, is a comparatively new and relatively unknown entrant in the field of IPRs. Traditionally, India as a subcontinent has been steeped in ancient wisdom. This ancient wisdom, which is also referred to as traditional knowledge or customary know-how, is most visible in the use of forest products, mainly the flora, in the treatment of disease. A little publicized fact about India is that there are around 100 million forest dwellers in the country, most of whom belong to tribal communities. The forests provide them with sustenance, providing both timber and non-timber forest produce. In turn the forest dwellers have over the centuries gathered knowledge from the natural environment around their community. This community has in one sense been thankfully insulated from the ways of modern man and has carried on the traditions of their ancestors. As a whole the forests and their dwellers give to India an abundant knowledge about the traditional value of various forest products. The way IPRs have been designed in modern commerce, traditional knowledge cannot be protected. For instance, traditional knowledge cannot be patented because such knowledge lacks inventive character because of the inherent lack of novelty. Traditional knowledge is also often held collectively by communities, rather than by individual owners. This traditional knowledge is information that is transmitted from generation to generation generally within the community or within families in an oral form without any adequate documentation. This has caused traditional knowledge to be undervalued and marginalized. In fact one of the fears in these communities is that if the knowledge were to be documented it would be lost to the community by expropriation. The Recognition of Forest Rights Act itself acknowledges this fact and provides a framework for documentation of such knowledge and the nature of evidence required for recognition of the rights of these communities in the domain IP in respect of such knowledge. The provisions of the Biological Diversity Act and Recognition of Forest Rights Act provide a shield for tribal traditional knowledge by, on the one hand, respecting and protecting the knowledge of the local communities related to biodiversity and, on the other, declaring that the IPRs related to such knowledge belong primarily to members of the community collectively. The two Acts acknowledge that the traditional knowledge of the tribal/forest dwellers is to be considered as equal to that of documented scientific and technological information otherwise prevalent in society thereby redressing the historical injustice done to the forest dwellers who are integral to the very survival and sustainability to the ecosystem. As a corollary the amendments made to the Indian Patents Act in 1970 echo this sentiment. For instance, the amendments to section 25 and section 64 provide for additional grounds for opposing or revoking a patent on the grounds that what is claimed as an invention is already known within the realms of traditional knowledge. It is envisaged that in the application of these provisions the standards of evidence required to prove these grounds will be considerably less rigorous than those required for establishing the other grounds of opposition or revocation such as lack of novelty and inventive step.

Socio-economic changes effected by intellectual property rights 119 Along with the right, the responsibility and authority is also bestowed on the holders of traditional knowledge, for the sustainable use of these diverse forest resources, conservation of biodiversity, maintenance of the delicate ecological balance and strengthening the conservation regime of the forests. The Recognition of Forest Rights Act provides for the fact that the IPRs in all forest produce belong to forest dwellers themselves whereas the Biological Diversities Act has provisions by which the forest dwellers and other individuals and communities conserving biological resources and holders of knowledge and information relating to the use of biological resources will secure and share benefits from these IPRs. The Biological Diversity Act also provides for conservation and development of areas that are declared as biological diversity heritage sites. The biological resources envisaged under the Act include plants, animals, microorganisms and parts of the above, genetic material and by-products. Human genetic material is specifically excluded. The Biological Diversity Act specifically provides (section 6 of the Act) that if any person applies for a patent within or outside India for an invention based on any research or information on a biological resource obtained from India, such a person will have to obtain approval from the National Biodiversity Authority for making such an application. This approval may be delayed up to the time of sealing of the patent. At the time of granting of the approval the National Biodiversity Authority may impose a benefit sharing fee or royalty or both or impose conditions including the sharing of financial benefits arising out of the commercial utilization of such rights. It is envisaged that these royalty benefits will be transferred to the communities who grow or rear the biological resources and who have the traditional knowledge relating to their properties, which are utilized by the applicant for a patent. The scheme of the Act provides for two methods for royalty collection. On the one hand, when a patent application relates to a biological resource per se and the invention is, for instance, for the extraction, treatment, modification or purification or use of the biological resource, such approval has to be obtained from the National Biodiversity Authority. On the other hand for the commercial use of the biological resource in a value-added product such for example in a formulation with other ingredients or excipients, royalties will be payable to state authorities. The use of traditional biological resources by practitioners of traditional medicine, the ‘medicine men’,8 is exempt. The Act also has provisions for the equitable distribution of any benefits arising out of inventions and innovations and practices associated with the use and applications of knowledge. The benefit sharing includes the following: 1

2 3

Granting of joint ownership of IPRs to the benefit claimants, which include all the conservers of the biological resources, creators and holders of knowledge and information and individuals or communities practising such benefits. Transferring of technology for adequate consideration from the benefit sharers to bodies wanting to use the technology. Locating of production, research and development facilities, which will provide employment to and otherwise facilitate the betterment of living standards of the benefit claimants.

120 Mohan Dewan 4

5

Asking the bodies that are applying for a patent to associate with Indian scientists, benefit claimants and the local people with the research and development in the biological resources bio-surveys and bio-utilization. Finally, the direct payment of monetary compensation and other non-monetary benefits to the benefit claimants.9

The example of the Kani tribe I now discuss a bitter-sweet episode relating to the practical implementations of the combined effects of both these legislations, which actually occurred before the coming into force of these legislations. There is a group of around 20,000 tribals in the southern state of Kerala in India known as the ‘Kani’. Although these tribals were traditionally nomads travelling from forest to forest, for the past 150 years they settled down in tribal hamlets of between 10 and 20 families in the forest of the Agast-Hymalai hills of the Western Ghats. The Kanis are subsistence dwellers of the forest and are collectors of nontimber forest produce. Their society includes medicine men and women who have expert knowledge of the medicinal and nutritive value of the plants, herbs and tree products of the vegetation that grows around them. They consider this knowledge secret and sacred and the knowledge is passed on from generation to generation by the oral tradition. A group of scientists working on the All India Co-ordinated Research Project on Ethnobiology (AICRPE) was assigned to survey the Kani tribal settlements. The group, in the absence of any road network through the region, was in 1987 trekking through the tropical forest hills. They were accompanied by some Kani tribesmen who acted as pointsmen. Members of the group grew tired and had to halt periodically. However, their Kani guides continued to be fresh and energetic throughout the trek by occasionally munching small wild-growing blackish fruit. One of the guides offered the fruit to some of the tired scientists who were astonished to find their fatigue disappearing and that they were able to continue the trek at a faster pace. After considerable cajoling, the guides who were initially reluctant to give up the secret of this sacred tradition were finally persuaded to disclose the plant from which they sourced the fruit. The members of the group reported this episode to the Tropical Botanical Gardens Research Institute (TBGRI) in Kerala, which was assigned the task of scientifically testing the plant. This plant was identified as Trichopus zeylanicus, subspecies Travancoricus, colloquially referred to as Arogyappacha. Chemical and pharmacognosical investigations showed that the leaf of the plant contained various glycolipids and some other non-steroidal compounds with profound adaptogenic and immmunoenhancing properties and that the fruit of the plant has stress and fatigue combating properties. Using this plant, and after standardization, the TBGRI formulated a drug named ‘Jeevani’. The Kani tribe members were using only the fruit of the plant whereas Jeevani was developed from its leaves (never used by the Kani tribe members). Only 13 to 15 per cent of the plant was used for the final product, while the

Socio-economic changes effected by intellectual property rights 121 remaining ingredients were based on other ingredients developed from Ayurvedic knowledge and wisdom. The commercial formulation contained: 1

2 3

4

5

Arogyappacha (15 per cent) (Trichopus zeylanicus): a powerful adaptogenic tonic herb from the Southern Himalayan rain forests of the Western Ghats (Kerala). Ashwagandha (Withania somnifera): a powerful adaptogenic, immunoenhancing and aphrodisiac herb. Shankhpushpi (Evolvus alsinoides): considered to be the most powerful memory-enhancing herb and nerve tonic used in Ayurveda. In Jeevani Shankhpushpi is used to enhance mental calmness. Pippali (Piper longum): a type of black pepper used in Ayurveda for improving metabolic heat, sperm count and ejaculation, without causing any toxic side effects. Pippali is also quite suitable for women, as it is believed to improve female sexual response. Other ingredients: permitted preservatives and binding materials.

Twelve active compounds were isolated from Arogyappacha. Five patent applications emanated from the research work. Five process patent applications have been filed since 1994. Out of them, there were three patent applications in which the plant Arogyappacha was included. One was for diabetes, the second a sport medicine and third for cancer. Following is an overview of the drugs based on these patent applications filed: • • • • • • •

‘Jeevani’, a novel immuno-enhancing, anti-fatigue, anti-stress and hepatoprotective herbal drug. ‘SISAIROSP’, a herbal formulation for control of psoriasis and dandruff. A new anti-diabetic herbal drug from the plants Trichopus zeylanicus, Withania somnifera and Piper longum. A new sports medicine from Trichopus zeylanicus named ‘Vaji’. A new anti-inflammatory and analgesic oil/ointment. A new anti-pyretic herbal formulation. An anti-cancer formulation from Trichopus zeylanicus and Janakia arayalpathra.

Patent applications were filed by TBGRI for the process of making the novel formulations. No product patent was applied for at that time since India did not have a product patent regime in place but only a seven-year process patent was available. It appears that no patents were applied for outside India. The TBGRI licensed the process for manufacturing and marketing the drug to Arya Vaidya Pharmacy, a private company, for a period of seven years (the term of the patent) for a consideration of an upfront licence fee of 1 million rupees ($25,000) and a right to receive royalties from the sale of the drug at a rate of 2 per cent ex-factory price on the sales of the product. ‘Jeevani’ was successfully sold in India as well as in other countries such as the USA and Japan.

122 Mohan Dewan TBGRI voluntarily agreed to share 50 per cent of the licence fee and 50 per cent of the royalty from the licensing agreement with the Kani tribals although at that time10 neither the Biological Diversities Act nor the Regulation of Forest Rights Act had come into existence. With the help of officials from the Kerala state government, the Kanis set up a trust that kept the money in a fixed deposit, and used the interest for activities benefiting the Kani community. The trust started with nine members in 1997, and by 1999 had 1,000 members. Subsequently a majority of the Kani families became members of the trust. There were however some negative reactions. First, many of the Kani elders believe that the knowledge relating to the use of the plant and other plants indigenous to the area was sacred and should have remained exclusive within the tribe. Second, Kanis from other areas expressed unhappiness about the fact that only a few Kanis had been consulted by the TBGRI and had given ‘permission’ to use the knowledge, though the knowledge belonged to the Kani tribe as a whole. Third, traditional healers were upset because of the fact that they had not been consulted about the use of this traditional medical knowledge. TGBRI trained 25 tribal families to cultivate the plant around their dwellings in the forest. In the first year, each family started to earn from the sale of leaves from cultivation of T. zeylanicus. But unfortunately, as often happens, what was given with one hand was taken away with the other. The Forest Department that controlled the use of the forest land objected to the cultivation on the pretext that cultivation of the plant in the forest was a non-forest activity that the tribals were indulging in and that the tribals might remove the plants from the natural population of the species in the forests and thereby make it endangered. Before Jeevani, the Forest Department had turned a blind eye to the Kani’s activities in collecting the plant but after the properties of the plant became well known traders started entering the forest directly in search of the plants and removed the plant in large quantities. The Forest Department had to halt all collection activities, thus curtailing and punishing even the traditional collection by the Kanis. Attempts were made to grow the plant in nurseries outside the forest, but it was found that these nursery-grown plants did not have the some properties as the forest variety. By 1999 the drug could not be produced in sufficient quantities. Financially, therefore, everyone lost out – not only Arya Vaidya Pharmacy and TBGRI, but also the Kanis, who were probably the biggest losers, first because they had sold their sacred knowledge but now had little prospect of receiving royalties from the sale of the drug; and second because even their traditional collection of the plant had been curtailed.11 This probably would not have happened under the new regime of the Biological Diversity Act and the Recognition of Forest Rights Act where the Kani tribe would have been directly involved in the making of Jeevani and the Biological Diversity Authorities would have been able to control the exploitation of the plant to the exclusions of the traders. Unfortunately lack of foresight prevented the holders of the patent applications or the licensees protecting the trade marks or the patents outside India. A US-based company Nutriscience Innovations, the US distributor for the licensees, registered Jeevani as a trade mark in the US. The product was sold in the US market without

Socio-economic changes effected by intellectual property rights 123 the knowledge of TBGRI. Nutriscience was sourcing Jeevani in bulk quantities from Arya Vaidya Pharmacy. This was also discontinued. The American company and another company Good Earth are now using Jeevani in its product ‘Jeevani Jolt 1000’ without technically infringing the IPRs of the original Jeevani. The ingredients mentioned in the American products are the same as those in the original Jeevani, including Arogyappacha.12 Another feature of both the Biological Diversity Act and the Recognition of Forest Rights Act is the setting up of the biological heritage sites under the Biological Diversity Act and the bestowal of the IPRs and land tenure to forest dwellers who guard these sacred groves as envisaged under the Recognition of Forest Rights Act. Sacred groves are a method for conservation of this green resource. These groves are dedicated to a local deity and are a traditional means of biodiversity conservation. Today, there are only about 1,000 square kilometres of undisturbed sacred groves, which are dotted all over the country. These groves are a storehouse of a large number of rare plant species, some of them not even found outside the grove. They are priceless treasures of great ecological, biological, cultural and historical value. Apart from plants and shrubs, the groves house reptiles, birds and animals, which could have free living without fear of poaching or interference by man. The local people believe that the forest spirit will kill anyone who damages the plants and other life forms in the groves. This has contributed greatly to the preservation of these groves. The survival of these very groves depends entirely on the control of the forest dwelling community. It is believed that the next series of pharmaceutical research will utilize the plants and shrubs in these sacred groves and protected forests for the development of newer medicines.

Conclusion It is beyond doubt that IPRs greatly impact the way we conduct business both at the local and the international level. The focus hitherto has been largely on patents and copyrights and to a lesser extent on trade marks. These rights, which are ‘the rich man’s rights’, however, are rarely significant for the population that lives on the fringes of society. The GI, plant variety rights and the rights created by the Biological Diversities Act and the Recognition of Forest Rights Act are largely directed towards this population in India. These rights recognize and regulate the knowledge skills of the poor. India is well on its way to be recognized as a knowledge economy. I believe in the coming decades, the traditional knowledge reposed in the marginalized, whose minds are certainly not marginal, will get its due recognition and respect through the IPR avenue.

Notes 1 28 December 2009. 2 Charters, S. (2006) Wine and Society: The Social and Cultural Context of a Drink. Oxford: Butterworth-Heinemann.

124 Mohan Dewan 3 See, for example, the efforts of the Greek producers of feta cheese in preventing other European producers from calling their cheese ‘feta’. 4 See, for instance, the various cases filed by Scotch Whisky Association against various whisky manufacturers in India e.g. AIR 1992 BOMBAY 294 ‘Scotch Whisky Assocn. v. Pravara Sahakar Shakar Karkhana Ltd’. 5 See GI No. 4, details of which were published in Geographical Indications journal No. 2 dated September 2004. Available on the IP India website at www.ipindia.nic.in. 6 See GI No. 12 dated 22 July 2004, details of which were published in Geographical Indications journal No. 5 dated 1 March 2005. Available on the IP India website at www.ipindia.nic.in. 7 Dr Rashmi Banga is currently a senior economist in United Nations Conference on Trade and Development (UNCTAD-India). 8 Such as practitioners of the Ayurveda and Unnani school: the Vaids and the Hakims and the herbalists. 9 Mashelkar, R.A. (2001) ‘Intellectual property rights and the Third World’. Current Science 81 (8): 955. 10 In 1995. 11 Apte, Tejaswini (2006) A Simple Guide to Intellectual Property Rights, Biodiversity and Traditional Knowledge. Pune/Delhi: IIED. P. 52. 12 Francis, P.A. (2006) Editorial: ‘Protecting IPR of Jeevani’. Pharmabiz.com dated 25 January.

7

Development of intellectual property rights in Turkey and its implications for the Turkish economy Erhun Kula and Selin Ozoguz

Introduction The protection of intellectual property rights (IPRs) is becoming more important in Turkey due to its growing links with the European Union (EU) as well as the rest of the world. It is well known that advanced countries developed partly because they had managed to create an environment in which inventiveness and creativity were highly rewarded and spoils protected. Rapid technological developments that took place during the last 15–20 years in areas such as information technology and genetics sustained the economic growth in many countries including Turkey.1 During that time negotiations in General Agreement on Tariffs and Trade (GATT) increasingly focused on IPR issues and eventually member countries agreed to restructure their intellectual property (IP) system to enhance the global trade. The mid-1980s was a turning point for Turkey as it recognized that economic development with protectionist policies was not possible any more and thus the country opened up its doors to world trade and competition. The new understanding was that economic development would come from the growing world trade. This led to the tightening up of the IP laws in which two agreements helped: the signing of the World Trade Organization (WTO) and the Customs Union Agreement with the EU. In the former Turkey agreed to comply with the rules of IPRs that were integrated to the WTO by the TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement. In the Customs Union Agreement Turkey promised to streamline its existing laws as well as the introduction of the new ones in line with the EU’s requirements. At a practical level, however, there have been widespread infringements throughout the country especially in the form of counterfeit goods and piracy of copyrights. The EU’s Progress Report in 2007 stated that laws on IPRs have not been rigorously enforced and as a result Turkey remained as a problem country. For example, in 2007 the average rate of illegal software use was about 35 percent worldwide, but it was 65 percent in Turkey. Software products were not sold only in Turkey but also exported to many other countries. It is quite clear that the rapid legal reforms that took place during the last 15 years or so have not taken a firm root in the country and the eradication of the property rights violations is going to be an uphill struggle for the government in years to come. This chapter looks at the development of the Turkish economy alongside the reforms of the IPRs that have taken place over the years. As the country is already

126 Erhun Kula and Selin Ozoguz negotiating with the EU with a view to becoming a full member, improvements in the enforcement of IP laws are more urgent than ever. A brief comparison in respect of some recent EU member states is considered. It is emphasized that the most pressing issue in Turkey is the implementation of the IPR laws.

Progress in Turkish economy Turkey has the world’s fifteenth largest economy in terms of purchasing power parity criterion. In 2008 its total gross domestic product (GDP) was $915 billon, GDP per capita was $13,920, which made it an upper-class middle-income country.2 In terms of nominal GDP Turkey stands out as the world’s seventeenth largest economy and the present government’s objective is to make the country the world’s tenth largest by the year 2023, the 100th anniversary of the creation of the modern republic. The Turkish economy is dominated by modern industries and the service sector. The country is amongst the world’s leading producers of agricultural goods, textiles, machinery, motor vehicles, ships, construction materials, steel and consumer electronics. Turkey has reached this position from a very humble beginning in 1923 when it was created from the ashes of the Ottoman Empire, once a major world power. Years of wars had depleted the country in terms of geography, economy and human resources. In 1923 the vast majority of its 14 million people were living in the rural areas engaged in subsistence agriculture. During the first seven years of its creation great efforts were made to modernize the Turkish economy and as a result it grew rapidly; annual economic growth reaching 10 percent.3 The Great Depression and then the Second World War undermined Turkey’s efforts to industrialize, but after the war Turkey began to develop once again. Membership of the World Bank and International Monetary Fund (IMF) helped and the country received substantial amounts of foreign aid during the Marshall Plan period. The 1950 elections brought the Democratic Party into power, which believed in a mixed economy but led by the private sector. During the next ten years the Turkish economy grew rapidly at an annual rate of 7 percent. However, increased trade with the rest of the world created its own problems, the main one being the balance of payment deficit. Acute foreign currency shortage was remedied partly by foreign aid, partly by devaluation. In 1960 the Turkish economy was in a bottleneck, which led to political turmoil and the Democratic Party was ousted. During 1961–81 ideologically driven governments employed the import substitution method to advance the economy. The State Planning Organization put together an industrialization program, which was endorsed by all political parties in power. In the mid-1960s a windfall occurred in the form of exporting the country’s unemployed and underemployed to Western European countries such as Germany, France, Holland, Belgium and Austria. This not only cushioned the unemployment problem but also remittances brought in much needed foreign currency. There were ups and downs but by and large the development program was a success as the Turkish economy grew by 5 percent per annum despite two major oil crises of 1973 and 1978. Unfortunately, the economic progress began to falter towards the end of the 1970s largely due to budget deficit and inflation. By 1980 Turkey was bankrupt.

Development of intellectual property rights in Turkey 127 The greatest transformation of the Turkish economy occurred after 1981. The reforms focused on export-led growth and openness in the form of import liberalization. Turkish exports were valued at $2.3 billion in 1979, which later jumped to $8 billion in 1984. In 1985 Turkey had its first current account surplus in a long time. Special emphasis was placed upon financial market development and state support for the private sector. In 1989 the Turkish lira became fully convertible. During this period devaluation and tax rebates subsidized Turkish exports and as a result budget deficit and inflation became chronic again. Unstable coalition governments and the collapse of the social security system were the final straws and thus between 1994 and 2001 Turkey entered a period of economic crises. During that period GDP growth averaged 1.8 percent despite a resourceful and resilient private sector. The Turkish lira lost massive value and several banks went under. In the mid-1990s Turkish inflation reached an all-time high of 150 percent and compound interest rate on government bonds had to rise to a nominal 450 percent to obtain external funding. These problems were largely created by incompetent coalition governments. Following the Asian crises of 1997 and Russian moratorium of 1998, Turkish total budget deficit reached a disastrous level of 23 percent of gross national product (GNP). In the autumn of 1999 Turkey signed an agreement with the IMF and accepted an exchange rate based on an anti-inflation program. These measures were appreciated by the EU, which in its Progress Report of 2000 praised Turkey for coping well with economic problems and urged the country to continue with reforms by emphasizing that it has not attained the degree of macroeconomic stability required for full EU membership. In 2001 the country was hit again with a financial crisis leading to many banks becoming bankrupt, which made the EU lose its optimistic tone about the reforms in the Turkish economy. That year Turkish GNP fell by 9 percent and unemployment hit a record high. A well-known economist, Dr Kemal Dervish, Vice President of the World Bank, was called in to rescue the Turkish economy and the IMF provided about $40 billion for the rescue and as a result Turkey began to move again. One year later the Copenhagen Summit of the European Council had irreversibly linked Turkey’s future with the EU, which was a landmark for the Turkish economy that needed a clear direction. In the same year there was a general election won by a new reformist party, Justice and Development, who commanded an overall majority in the parliament. The new government quickly announced that it would continue the IMF program and speed up the policy of accession to the EU. These reforms turned out to be a great success as the Turkish economy began to grow rapidly with rising exports, nearly 90 percent of which was made up of industrial goods. Turkish exports were under $30 billion in 2001, but they rose to $75 billion in 2005 and to $132 billion in 2008. Imports too increased from under $50 billion in 2001 to $202 billion in 2008 creating a substantial balance of payment deficit. Tourism revenue and inflow of foreign capital helped to meet the foreign exchange requirement of the country. Most of the foreign money came in to take advantage of high interest rates in time deposits and to speculate on the Istanbul Stock Exchange, which was booming alongside the Turkish economy. A relatively small part of the foreign capital ended up in the manufacturing, software, chemical and pharmaceutical sectors, which

128 Erhun Kula and Selin Ozoguz were not sufficiently protected by the laws on IPRs. Some studies reveal that the foreign direct investment (FDI) inflows to Eastern European countries were a mere trickle due to the weaknesses shown in the IPR protection that undermined donor companies’ decisions to invest in such regions.4 In this respect, the software, chemical and pharmaceutical sectors in Turkey failed to achieve their full potential. Had the IPR reforms taken place earlier on and had their implementation been tighter the Turkish economy would have been better placed today.

Influence of the EU and the wider world The importance of IPRs in the European Community (EC) emerged early in its formation when the EC decided to establish a structure with a view to securing free movement of goods and services on its territory. One of the earliest steps was on the monopoly rights granted by individual states. It was agreed that these rights should be protected throughout the EC in the same manner otherwise it would give way to conflicting situations. Laws on IPRs never stay the same, especially with globalization and developments in international trade driven by the rapid technological advancements, and thus changes to these laws are inevitable. By issuing directives the EC has been trying to harmonize the IPR legislation in its jurisdiction. In Turkey reforms on IP laws started in earnest in the 1990s and gathered momentum with the signing of two important international agreements, which are mentioned above. In agreement with the EU Turkey promised to comply with the rules of IPRs that were integrated to the WTO by the TRIPs Agreement. The speed and span of legal reforms have been remarkable in Turkey. Most of the contents of the new IPR laws were taken from the EU countries, especially Germany. Turkey’s new Trademark Decree-Law, No. 556, was published in the Official Gazette on June 1995, and replaced the legislation dating back from 1965. The new Patent Decree-Law, No. 551, was published in the Official Gazette on June 1995, and includes the utility model rights. The new Industrial Design Decree-Law, No. 554, was published in the Official Gazette on June 1995. This is the first one in the area of industrial designs. The new Geographical Designation Decree-Law, No. 555, was published in the Official Gazette on June 1995, and was the first one in the field of geographical designations. Table 7.1 shows the details of Turkey’s participation in international convention and agreements in the area of industrial property rights. The above-mentioned decree-laws of industrial property rights bring Turkey into compliance with TRIPs and the EU Customs Union legislation. Furthermore, the promise that Turkey made by entering the Customs Union with the EU ensured a continuous change in line with new additional directives that will come out of Brussels in due course. Patent rights are granted with an examination procedure, which takes up to one year, but in other areas of industrial property rights the granting of trademark and industrial design rights are unexamined procedures with the right of opposition of the third parties. Trademark Decree-Law, No. 556, Geographical Designation Decree-Law, No. 555, Patent Decree-Law, No. 551 and Industrial Design DecreeLaw, No. 554, are implemented through one and the same institute, the Turkish

Development of intellectual property rights in Turkey 129 Table 7.1 Conventions and agreements on industrial property rights in Turkey Name

Number of parties

Last developments and participation

Convention Establishing World 1967 Intellectual Property Organization (WIPO)

182

1976

Paris Convention for the Protection of Industrial Property

1883

169

Stockholm Act Article (1/13) Since 1995

Patent Cooperation Treaty (PCT)

1970

128

01.01.1996

Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of Registration of Marks Vienna Agreement Concerning International Classification of the Figurative Elements of Marks Strasbourg Agreement Concerning the International Patent Classification (IPC) Budapest Agreement of the International Registration of the Deposit of Micro-Organisms for the Purposes of Patent Procedure Locarno Agreement Establishing an International Classification for Industrial Designs Protocol Relating to Madrid Agreement The Hague Agreement Concerning the International Deposit of Industrial Designs (Geneva Act) Trademark Law Treaty (TLT) European Patent Convention

1957

76

01.01.1996

1973

20

01.01.1996

1971

55

01.10.1996

1977

61

30.11.1998

1968

45

30.11.1998

1989

66

01.01.1999

1999

42

01.01.2005

1994 1973

33 31

01.01.2005 01.11.2000

1995

148

26.03.1995

Agreement Establishing WTO

Establishment date

Source: TPI, 2009, http://www.tpe.gov.tr/portal/default.jsp.

Patent Institute (TPI), based in Ankara. The TPI is a legal entity administered by the Ministry of Industry and Trade but it has its own budget. The law relating to copyright and related issues that was amended several times goes back to 1951; the last amendment was in 2001 and contains several texts that regulate all relevant issues. The Law on Intellectual and Artistic Works, No. 4, 630, contains the following: • • •

Regulations on Neighboring Rights to the Authors of Works 1997. Copyright (Marking Works) Regulations 1997 (consolidation). Copyright (Unions Owners of Neighboring Rights) Statute 1999.

130 Erhun Kula and Selin Ozoguz Table 7.2 shows the international conventions and agreements that Turkey participated in on copyrights and related rights. The official body in charge of copyrights and related rights is the Ministry of Culture’s Directorate General of Copyrights and Cinema, which is based in Ankara. Apart from this official institution several collective management societies do work closely with the Ministry in issues concerning copyrights and related rights. Application to patent and trademark rights is an indication of a country’s endeavors in technological progress, competitiveness and economic growth as well as its integration with the rest of the world. Thus, it is revealing to look at the IPR application and grant statistics in order to see the progress made by Turkey over the years. Table 7.3 shows that since the introduction of the new patent law in 1995 the number of applications increased steadily over the years. In 1995 the national applications to the TPI was 170 but in 2008 the figure increased to 2,159. Domestic applications to the Patent Cooperation Treaty (PCT) started in 1997 with only one application and the number increased to 93 in the year 2006, but has declined slightly since then. Applications to the European Patent Convention (EPC) started in 2003 with one application, the number went up to 40 in 2008. When we look at the foreign applications the situation is different. In 1995 the foreign patent applications numbered 1,520 but have declined ever since becoming 28 in the year 2008. This is largely due to the fact that foreign corporations are farming out their IPR-related businesses to Turkish firms, sometimes in partnership and sometimes through licensing agreements. Although we can interpret the increasing number of applications in Turkey as a progress, it still lags behind the major EU countries. Table 7.4 shows the successful applications that were able to obtain actual grants. It is clear that the foreign applications are far more successful than the domestic ones. This difference can be due to a number of reasons. First the examination procedure is costly, which deters Turkish companies. Second some unsuccessful Turkish applications lack in the necessary inventive step and are thus refused. Third the consultancy process is time-consuming and cumbersome largely due to the lack of trained patent and trademark attorneys, another discouraging factor. Although the rate of success of Turkish originating patent applications is not high, the fact Table 7.2 Conventions and agreements on copyright and related rights in Turkey Name

Date of participation

Berne Convention (on literary and artistic works)

January 1952

WIPO Convention

May 1976

Rome Convention (protection of performers, producers of phonograms and broadcasting organizations)

April 2004

TRIPs Agreement

January 1995

Customs Union with the EU

January 1996

Source: Euromed, 2009, http://www.euromedaudiovisuel.net/general.aspx?menu=1&treeID=6280 &lang=en&documentID=6289.

Development of intellectual property rights in Turkey 131 Table 7.3 Patent applications by year Year

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

National

Foreign

Grand total

TPI

PCT

EPC Total

TPI

PCT

EPC

Total

170 189 202 201 265 258 298 387 454 633 895 979 1,747 2,159

0 0 1 6 11 19 39 27 35 49 33 93 60 69

0 0 0 0 0 0 0 0 1 3 7 18 31 40

1,520 687 598 596 524 442 119 88 43 68 75 71 71 68

0 26 730 1,680 2,220 2,714 2,756 1,335 305 167 143 89 139 107

0 0 0 0 0 0 2 37 314 1,342 2,308 3,915 4,141 4,694

1,520 713 1,328 2,276 2,744 3,156 2,877 1,460 662 1,577 2,526 4,075 4,351 4,869

170 189 203 207 276 277 337 414 490 685 935 1,090 1,838 2,268

1,690 902 1,531 2,483 3,020 3,433 3,214 1,874 1,152 2,262 3,461 5,165 6,189 7,137

Source: TPI, 2009.

Table 7.4 Patent grants by year Year

National TPI

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

58 47 7 31 23 17 41 44 74 52 59 89 183 253

Foreign PCT 0 0 0 0 5 6 17 28 18 16 29 18 114 48

EPC Total 0 0 0 0 0 0 0 1 1 0 7 15 21 37

58 47 7 31 28 23 58 73 93 68 95 122 318 338

TPI 705 554 443 340 301 267 237 349 226 225 210 142 130 96

Grand total PCT

EPC

Total

0 0 0 403 796 846 1,814 1,351 685 686 525 410 202 154

0 0 0 0 0 0 0 11 176 957 2,342 3,631 4,140 4,281

705 554 443 743 1,097 1,113 2,051 1,711 1,087 1,868 3,077 4,183 4,472 4,531

763 601 450 774 1,125 1,136 2,109 1,784 1,180 1,936 3,172 4,305 4,790 4,869

Source: TPI, 2009.

that the applications are in large numbers shows that firms are aware of the importance of having patent rights. Table 7.5 shows where the main applications are coming from. In the table the EU countries feature prominently, which is due to Turkey’s geography and historic trade links especially with Germany, France, Italy, Holland and Finland.

1995

170 17 14 31 0 8 117 0 0 289 10 0 17 0 100 80 0

Country

Turkey Austria Australia Belgium Bulgaria Canada Switzerland China Czech Rep. Germany Denmark Estonia Spain Finland France UK Greece

189 8 4 15 0 5 78 2 2 179 0 0 15 4 67 18 0

1996 206 12 6 32 1 16 111 1 0 319 11 0 16 1 104 84 1

1997 220 22 11 58 1 24 144 2 3 483 20 0 18 15 176 146 5

1998 294 26 17 71 0 19 147 1 1 524 20 1 21 15 229 185 4

1999 338 36 20 80 1 30 204 4 1 612 32 0 35 18 215 172 4

2000 393 30 20 62 0 32 172 4 1 636 30 0 30 15 155 138 3

2001

Table 7.5 Distribution of patent applications to the TPI according to country

480 21 11 20 0 15 128 2 4 268 29 0 13 16 71 43 3

2002 589 11 5 11 0 8 60 3 2 152 4 0 12 7 77 31 1

2003 739 37 1 19 1 13 125 3 0 469 26 0 28 17 148 61 1

2004

974 56 8 53 0 23 163 7 1 744 35 0 45 34 259 121 4

2005

1,100 88 8 96 1 41 357 11 4 1,070 48 1 76 74 372 158 6

2006

1,863 91 15 107 5 49 325 22 6 1,158 59 2 85 75 373 187 10

2007

2,268 88 16 94 0 45 434 14 13 1,320 73 2 68 69 470 173 5

2008

1 11 7 0 55 36 0 11 4 1 1 79 4 0 65 2 0 545

1 0 3 2 44 30 1 9 1 1 0 24 0 0 7 0 0 179

3 4 7 0 71 45 0 11 2 1 0 62 5 1 35 0 0 339

6 16 22 3 107 64 0 7 1 4 4 128 8 2 92 2 0 639

Source: TPI, 2009. Note: TRNC = Turkish Republic of Northern Cyprus.

Hungary Ireland Israel India Italy Japan TRNC Korean Rep. Lichtenstein Luxemburg Monaco Netherlands Norway Portugal Sweden Slovenia Slovakia USA

10 8 27 0 122 73 0 14 1 5 5 169 11 0 102 0 1 884

5 5 33 0 119 96 0 38 4 13 1 173 10 2 120 1 1 1,016

5 8 14 7 121 116 0 25 4 12 1 197 13 4 123 3 0 846

6 6 7 12 62 72 0 26 1 4 0 94 6 0 26 1 1 459

0 1 3 11 36 20 0 10 0 2 1 41 4 0 6 1 0 124

6 7 8 4 158 28 0 10 3 6 0 68 8 1 45 1 0 239

9 9 12 19 210 66 1 16 8 9 2 119 15 1 54 4 0 357

15 15 33 16 404 99 0 42 5 9 3 202 21 6 103 4 1 603

11 20 35 19 364 115 0 34 8 18 2 241 28 1 146 3 2 635

10 26 44 17 415 150 0 45 5 22 1 245 31 6 115 7 3 731

134 Erhun Kula and Selin Ozoguz Trademark applications are also an important indication of Turkey’s development in the field of IPR. Table 7.6 shows the progress since 1985. Looking at the national applications and grants, the progress has been rapid. But the figures for foreign applications are more or less the same. One reason for the high rate of increase in Turkish trademark applications is that the law does not require inspection but a three-month period for objections by the registered trademarks.

Implementation of IPRs in Turkey and the problems therein The enactment of the laws is one thing, the implementation is another, and most of the problems occur in the latter area in Turkey. After the enactment of the new laws the most significant tool for enforcement, namely the specialized courts, was absent. This problem has now been resolved in many areas by creating a number of specialized courts dealing with IPR issues. But problems with counterfeit goods and piracy of copyright are still persisting. A recent Progress Report of the EC on Turkey is likely to be a great help in dealing with persisting problems.5 The report observed some progress in the area of industrial property rights mostly on the legislative framework. Indeed the TPI had published several amendments to the regulations implementing the legislation on patents, geographical indications and industrial designs in follow-up studies led by the Prime Minister’s Office on administrative simplification and reduction of bureaucracy. There was a problem regarding effective communication between the IPR holders and their representatives with the TPI and for this the staff of TPI received some legal and language training. A long-standing problem is about registration of similar trademarks and industrial designs, which needs to be sorted out. Table 7.6 Trademark applications by year National

National

Foreign

Foreign

Year

TPI applications

TPI grants

TPI applications

TPI grants

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

12,815 15,860 16,118 14,632 18,277 21,188 20,289 28,534 30,507 38,524 48,981 54,788 58,713 60,597

5,259 7,190 9,778 6,676 12,355 10,668 10,150 13,502 14,542 18,931 26,963 34,543 40,757 35,543

3,379 4,802 4,982 5,158 3,659 3,237 2,417 2,244 2,174 2,388 3,096 3,530 3,925 4,229

3,241 3,589 5,589 3,241 5,876 3,678 2,282 2,337 1,715 2,094 2,227 2,953 3,537 3,195

Source: TPI, 2009.

Development of intellectual property rights in Turkey 135 There was some progress on the long-winded debate regarding pharmaceuticals and their data exclusivity. First, the Ministry of Health published an amending regulation on the licensing of pharmaceuticals for human use in April 2009. According to this report the regulation did not provide legal certainty on the issue of regulatory data exclusivity, because it codifies the requirements for combination products in a way that is not in line with the acquis (i.e. the total body of EU law accumulated thus far) on fixed combinations. Apart from this the main criticism in the report was that the regulation introduced more bureaucracy and thereby complicated the application for market authorization. In the field of copyrights and related issues, the progress seems to be rather slow. Recently the Ministry of Culture and the Directorate General for Copyrights conducted an inspection of the collective rights societies and as a result the situation has improved. Four collecting societies in the music sector signed a cooperation protocol between themselves, which led to the signing of licensing agreements with hotels and broadcasters. The piracy of books, CDs, DVDs and the infringements of non-tangible goods with copyrights and related issues are still widespread. This fact supports the view of the report that Turkey’s enforcement capacity is lagging behind most of the countries of Europe. However, recently a number of steps were taken to moderate the problem. The Intellectual and Industrial Property Coordination Board (cochaired by the Ministry of Industry and Trade and the Ministry of Culture) was established for the purpose of fostering cooperation between relevant institutions in order to improve the level of IPR protection, and met twice in November 2008 and February 2009. The Turkish police were also active in combating piracy and counterfeit production activities by conducting a number of successful operations against the culprits. However, the problem with enforcement is due to the fact that the enforcing authorities do not have the right to conduct ex officio investigations. The current process depends upon complaints and tip offs. Another flaw is that of insufficient border controls. Turkey has long borders that attract smugglers. There were some gaps in terms of compliance with the international agreements that Turkey is already a party. In the report it is observed that there has been a violation of Article 61 of the TRIPs Agreement. In July 2008 the Turkish Constitutional Court annulled the criminal provisions of the trademarks decree because only laws had the legal capacity to regulate crimes and punishments, and not decrees as such. In order to fill this legal gap the parliament adopted a new law in January 2009 but due to the time that had passed between two legislations around 3,357 accused were acquitted in 2,861 counterfeiting cases in Ankara, Istanbul and Izmir alone. Persistent problems in the area of trademarks affected the decisions on other industrial property rights such as patents, industrial designs and geographical designations, which are also protected by decrees. The consequence was that new draft laws regulating criminal sanctions for infringements of patents, industrial designs and geographical designations were submitted to the parliament in April 2009 but they are still pending.

136 Erhun Kula and Selin Ozoguz Finally the report argued that Turkey was not showing a real willingness in establishing a dialogue with the EU. A successful engagement in the area of dialogue on IPRs is considered as one of the benchmarks for closing this particular chapter on IPRs of the accession negotiations.

Comparison of Turkey with some recent EU member states In order to understand the situation in Turkey in terms of level of protection in IPRs, it is necessary to compare and contrast the FDI inflows with some of its comparative countries, especially the recent EU members. The correlation between IPR protection and FDI is an indicator of the strength of the IPR regime in a country. Field studies made on the relationship between IPR and FDI illustrate that a weak IPR regime impedes the FDI inflows and is damaging to the commercial appeal of the country. The International Property Rights Index ranking demonstrates the situation of Turkey in comparison to other countries. Turkey ranks forty-fourth among 70 countries in the 2007 IPR protection index rating of the Property Rights Alliance (PRA). Figure 7.1 compares Turkey with some recent EU members such as Hungary, the Czech Republic, Bulgaria, Romania and Poland. Hungary ranks twenty-seventh, the Czech Republic twenty-ninth and Poland thirty-fourth. Only two new EU countries, Bulgaria and Romania, lag behind Turkey. A review of the FDI inflows to Turkey since 2000 reveals that most of the activities took place in the manufacturing industry, which is not a technologyintensive sector. For example, the FDI Technology Indices for the year 2006 were calculated as 1.39 for Hungary, which means that the technological intensity of FDI in Hungary was 39 percent higher than Turkey.6 The fact that Turkey is not successful in attracting FDI in high-technology areas affects the country’s export potential negatively. In order to decrease its trade deficit Turkey needs to put an end to its import dependency through enhancing its technology-intensive sectors. In

International Property Rights Index

7 6 6

5.6

5.2

5

4.4

4

3.5

3.4

Bulgaria

Romania

3 2 1 0 Hungary

Czech Rep.

Poland

Turkey

Figure 7.1 Turkey in comparison according to International Property Rights Index rating. Source: PRA report, 2007, www.internationalpropertyrightsindex.org.

Development of intellectual property rights in Turkey 137 25

Billion US$

20

15

10

5

0 Hungary

Czech Rep.

Poland

Slovakia

Turkey

Figure 7.2 High-technology exports in 2006. Source: OECD (2007) Micro-policies for Growth and Productivity, Summary of Key Findings, Paris: Directorate for Science and Technology, OECD.

this respect it is of significant value to view Turkey’s technological content of exports in comparison with some of the recent EU members. The statistics of the Organisation for Economic Co-operation and Development (OECD) demonstrate that Turkey is considerably behind its rivals. Figure 7.2 shows the high-technology exports and Figure 7.3 the share of such exports in total amount in the year 2006. Clearly Turkey is lagging behind recent EU members. When we look at the rate of increase of the capacity of the exports through 2002 to 2006, Turkey is one of the slowest countries among its competitors.7 The remedy is in rigorous implementation of the IPR laws. Despite looking at the rate of protection of patents over the years in Turkey the progress is clear. A recent study evaluates the quantitative correlation between IPR protection level and FDI inflows by using the Ginarte–Park Index, which is an indicator of the performance of patent protection in a country.8 Figure 7.4 shows the latest position of Turkey, which moved up to a score of 4 from a very low level.

Future of the Turkish economy and IPRs Growth, especially in developed countries, depends to a great extent on the capacity of the economy to generate innovation and put new products on the market. IPRs play an indispensable role in the formation of innovative capacity. No firm would invest a substantial amount of time and money to develop new products if it believes that the products can be copied and sold at a cheaper price by others. It is in everybody’s interest to promote innovation by protecting the rights of the innovators. This is the main reason behind the international collaboration aimed at the development of legal instruments to protect IPRs.

138 Erhun Kula and Selin Ozoguz 35 30

29.79

Percentage

25 20 17.2 14.33

15 10

7.56 5.2

5 0 Hungary

Czech Rep.

Poland

Slovakia

Turkey

Figure 7.3 Share of high-technology products in total exports in 2006. Source: OECD (2007) Micro-policies for Growth and Productivity, Summary of Key Findings, Paris: Directorate for Science and Technology, OECD.

Ginarte–Park Index

4.6 4.5

4.5 4.4

4.4

4.3

4.3

4.3 4.2

4.2 4.1

4

4 3.9 3.8 3.7 Bulgaria

Hungary

Czech Rep.

Slovakia

Romania

Turkey

Figure 7.4 Ginarte–Park Patent Rights Index scores. Source: Park, W.G. and Lippold, D.C. (2008) Technology transfer and economic implication of strengthening of intellectual property rights in developing countries, OECD Trade Policy Papers, No. 62, Paris: OECD.

These developments on the international arena have had an impact on the economic policies followed by Turkey as well as others. During the last 10–15 years Turkey has achieved significant progress integrating into the world economy. In the Customs Union Agreement with the EU in 1996 Turkey tightened its legislation but this did not prevent the production and sale of counterfeit goods. This in turn discouraged the flow of international capital into the country aimed at developing new products for domestic as well as foreign markets.

Development of intellectual property rights in Turkey 139 Turkey’s economy is already developing rapidly and attracting substantial amounts of foreign capital but the remaining problem with IPRs is that they are preventing even a larger inflow of foreign capital. There is a close relationship between IPR protection and a country’s economic performance. IPRs affect the FDI inflow, technological transformation and thus economic growth. There is also an adverse effect on the balance of payment performance. Whenever protection is insufficient FDI remains weak and this fuels import dependency of the country creating foreign currency deficiency. It has been estimated that a 1 percent rise in the Patent Rights Index would generate a 1.6 percent increase in FDI. In 2008 Turkey’s FDI stock has amounted to $120 billion, thus a 10 percent improvement in the index would generate about an additional $19 billion of foreign investment. Sectors to benefit most would be chemicals, pharmaceuticals and software, which are vulnerable. The manufacturing sector would also benefit substantially due to the increased confidence of the foreign business community in the country’s future prospects. A company requires a property advantage to plan an investment in a foreign country. Reinforcement of IPRs promotes technology-intensive FDI. It has been argued that significance given by US companies to IPR protection in the countries where they plan to invest is most dominant in sectors such as pharmaceuticals, chemicals, transportation equipment and machinery. If US companies believe that the IPR protection is ineffective in a country instead of choosing to produce there they only set up sales-based operations. Conversely, they boost their technology investments there in response to serious tightening of IPRs. This also speeds up the technology transfers of large corporations that already have links there. According to a recent study a large number of research and development activities by major companies, by and large, used to take place at their headquarters.9 These investments are now beginning to move out to other countries and the most affected sector is pharmaceuticals. These companies carefully select countries where IPRs give sufficient protection. Due to prevailing problems regarding the enforcement of IPRs, Turkey failed to attract investments that are technology based. Therefore compared with other middle-income countries such as the Czech Republic, Slovakia and Poland, average rate of increase in high-technology capital exports to Turkey has been very slow. Turkey’s chronic trade gap largely lies here. Overcoming this problem would attract FDI in sectors with high-technology content, which are also less import dependent. This could only happen by rigorously enforcing IPR legislation. It has been argued that informatics, communication and information sectors have the greatest impact on economic growth mainly because of the substantial multiplier effect that has spread over the entire economy and generates enhanced productivity and income.10 Unfortunately the information technology sector is an area where IPR violations are widespread in Turkey. Therefore Turkey like other middleincome countries should give priority to the protection of this sector. The study reveals that if the usage of counterfeit software can be reduced from 66 percent to 56 percent this would generate about 40,000 new jobs in information technology and related sectors.

140 Erhun Kula and Selin Ozoguz

Conclusion The level of protection for IPRs affects the Turkish economy in many ways such as technological transformation, export orientation, employment protection and FDI inflow. There are significant benefits ahead of Turkey for improving its longterm economic growth performance provided that the government strengthens its muscles on the IPR regime. The new IPR laws were enacted in 1995 in Turkey. The two driving forces were the WTO Agreement and the Customs Union Agreement with the EU. The IPR laws were harmonized in respect of the TRIPs Agreement within the WTO and the directives and the regulations of the EU in the area of IPRs. The necessary changes were made rather swiftly into laws. Turkey has participated in most of the international agreements in the area of IPRs. The high rate of applications for IPRs since 1995 shows the growing awareness about the importance of this issue in Turkey. Although the number of applications is large, the actual grants given are not as high, which is a weakness for protection. Another factor indicating the weakness of IPRs is the inflow in FDI. The studies show that Turkey has not been as successful as its neighboring nations especially the new EU members in bringing outside money into the country. Concerning the development of IPRs from their modern establishment until today, it can be said that some progress has been made on the harmonization of the laws with the EU and TRIPs Agreement but there is still a long way to go especially in the area of enforcement. At the early stages there was a lack of specialized courts but this problem has now been partially resolved by their creation in several major cities of Turkey. There are persisting deficiencies in terms of the protection of the industrial property rights due to the problems regarding registration. Moreover, Turkey needs to strengthen its cooperation with the IP holders within and outside the country especially the EU member states. The Turkish economy is growing and diversifying rapidly. In 2008 Turkish exports exceeded $130 billion and imports $200 billion, which made Turkey a noticeable trader in the world market. For this trend to continue serious steps must be taken regarding the protection of IPRs in the country. The immediate effect of this would be on the decisions of transnational corporations that are planning to increase their investment in Turkey. This would not only boost economic growth but would also create much needed employment opportunities for the country, which is suffering from a chronic unemployment problem.

Notes 1 See Brown-Keyder, V. (1996) Intellectual Property Rights and Customs Union, Istanbul: Intermedia. 2 See World Bank (2008) World Economic Indicators, GDP PPP 2008, Washington DC: World Bank. 3 See Gokce, D. and Ercan, M. (2009) Turkish economy, past present and future, Istanbul 2009 World Economic Summit, RLC, Paris, France.

Development of intellectual property rights in Turkey 141 4 See Park, W.G. and Lippoldt, D.C. (2008) Technology transfer and the economic implications of the strengthening of intellectual property rights in developing countries, OECD Trade Policy Working Papers, No. 62, Paris: OECD. 5 See EU (2009) Turkey 2009 Progress Report – Enlargement Strategy and Main Challenges, Brussels, October 14. 6 See Smartzynska, B. (2004) The composition of foreign direct investment and protection of intellectual property rights; evidence from transition economies, European Economic Review, No. 48. 7 See Mansfield, E. (1994) Intellectual property protection, foreign direct investment and technology transfer, International Finance Corporation, Discussion Paper 19, London. 8 This index, initially constructed by Ginarte and Park in 1997, is one of the most frequently used IPR indicators. It was lastly updated in 2005. The index scores vary between 0 (worst) and 5 (best). A country’s score is obtained by adding up the grades given in five different patent rights categories. These are: the extent of coverage of patent protection; membership in international patent agreements; duration of patent protection; potential patent rights limitations; and enforcement mechanisms. The highest grade permissible for any category is one point. 9 See YASED (2008) Impact on Foreign Direct Investment, Istanbul: International Investors Association of Turkey. 10 See Coleccia, A. and Schreyer, P. (2002) The contribution of information and communication technologies to economic growth in 9 OECD countries, OECD Economic Studies, No. 34, Paris: OECD.

8

Cluster development, intellectual property and global competitiveness1 Prospects of the nano sector in Hsinchu Science Park Chyi Yih Luan

Introduction The Taiwanese government has heavily invested in infrastructure to support nanotechnology-related academic research and industrial applications since 2003. In this chapter, nano patent counts and projections of nano industrial output have been surveyed to assess prospects of the Taiwanese nano sector in revitalizing Hsinchu Science Park (HSP). Quantitative measures of competitiveness and linkages indicate that the competitiveness of certain high-tech clusters is positively linked to strong cross-cluster linkages among HSP firms. Based on the empirical evidence, this chapter proposes that nano science and technology may provide opportunities for HSP firms to strengthen existing or creating new business linkages, and advance their global competitiveness. This chapter also presents a case study involving the Taiwan Semiconductor Manufacturing Corporation (TSMC), a flagship HSP firm. The HSP is the largest among three science parks in Taiwan. Two research universities, the National Chiao Tung and National Tsing Hua universities, are located in close proximity to the National Nano Device Laboratory (NDL) and the Industrial Technology Research Institute (ITRI) in Hsinchu. The HSP, home to world-class high-tech companies such as TSMC, Macronix, Epistar, and AU Optronics, has experienced double-digit annual growth in number of tenants and their combined sales during the past 25 years. Maintaining this impressive performance over the next 25 years through cluster development in the face of an increasingly competitive global economy, and particularly an emerging China and India, is likely to be extremely challenging. As noted by Lee, Miller, Hancock, and Rowen,2 the sustainability of agglomerative effect in a cluster depends primarily on its strength in terms of new firm creation and self-renewal. To revitalize the HSP requires not only preserving and supporting existing strong sectors, but also establishing and promoting sectors with future potential. It remains unclear exactly which sectors offer the best future prospects for promoting HSP and Taiwan. The US National Nanotechnology Initiative (NNI) predicts that the size of the nanotechnology-based product market may extend to US$ 1 trillion annually during

Cluster development, intellectual property and global competitiveness 143 the next decade to decade and a half.3 Driven by the expectation that commercialization of nanotechnology across a wide range of industries will undoubtedly create novel products or process innovations, worldwide research and development (R&D) investment in nano science and technology has increased rapidly during the past decade.4 The US NNI anticipates that early progress can be realized mainly in the areas of material science and electronics. Since 2002, nanotechnology research in Taiwan has been supported by the National Science and Technology Program for Nanoscience and Nanotechnology (NSTPNN). Supported by strong government funding of R&D projects of nanotechnology, the Taiwanese nano sector has begun to launch new products, especially in the information technology, communications, integrated circuit (IC), and optoelectronics industries. Additionally, relying on local strengths in semiconductor and optoelectronics manufacturing, the Taiwanese nano sector can stimulate ample opportunities for industrial applications in ICs, material science, and displays. The Nanotechnology Research Center (NRC) within the ITRI expects nanotechnology to contribute considerably to the revenues of associated Taiwanese industries, with an annual contribution of US$ 1.3 billion in 2005 and US$ 15 billion in 2010. Should the nano sector be perceived as a sector with the potential to revitalize HSP? Scholars of the new economic geography argue that agglomeration advantage is a key source of regional economic growth.5 The advantages of HSP are based on knowledge spillovers and business linkages developed during the past quarter of a century. Particularly close links have been established among HSP firms involved in the vertically disintegrated IC industry.6 Furthermore, interconnected high-tech firms in agglomerative economies can increase the possibility of knowledge spillovers.7 Recent empirical studies of Taiwanese high-tech clusters have confirmed that knowledge spillover is relatively strong when firms are located in close geographical and technological proximity.8 Besides knowledge spillovers, some studies conducted since the early 1990s have advocated the benefits of business linkages across and/or within clusters. Business linkages are a key building block of clusters in that they facilitate competitive and collaborative institutions and firms in exploring the advantages of “learning by interacting” and then creating collective learning and innovation via implicit and explicit coordination.9 The close interaction among entrepreneurs and scientists comprises a form of intangible process reflecting linkages.10 Furthermore, related literature has recently focused on developing linkages across regions or countries so as to position clusters in global value chains.11 Cooke12 stressed that regional economic achievement can be attributed primarily to international competitiveness and innovation capacity. Through linking to two national research universities and one national research institute, HSP firms can easily access new scientific and technical knowledge. Hence, the outcome of exploring technological innovation and novel applications in nanotechnology may hinge on the outcome of exploring technological innovation and novel applications in nanotechnology thus may depend on the ability of the HSP nano sector to leverage industrial agglomeration, particularly channels of knowledge spillovers, and linkages among existing interconnected high-technology firms and scientists.

144 Chyi Yih Luan Based on evidence regarding competitiveness and linkage for HSP firms, nanotechnology can be expected to provide HSP firms with opportunities to become players in the global market. The recent literature has not empirically investigated the degree of interconnections among HSP firms. Additionally, no firm-level data are available on international linkages. However, the competitiveness of HSP firms has implications for the closeness of links between such firms and the global economy. This investigation constructs quantitative measures of competitiveness and linkages to assess the association between competitiveness and linkage for firms in HSP. Several competitive clusters are identified within the HSP using two measures to assess the export performance of HSP clusters: Balassa13 revealed comparative advantage (RCA) and net export ratios. The RCA ranking of exporting goods reveals that half of the top 20 products produced in the HSP belong to the semiconductor cluster. Next, this study measures the strength of linkages among clusters in the HSP. One conventional method of identifying linkages between various industries is to use an input-output table. However, this investigation is interested in examining linkages within and across clusters in HSP, not input-output relations at the industry level. This study generates firm-level pseudo input-output data from the financial statements of annual company reports of HSP firms publicly listed in Taiwan. This data set approximates the business linkages associated with the provider–customer connections of HSP firms. Subsequently, cluster analysis is applied to the pseudo input-output data. This study finds that the semiconductor manufacturing cluster has strong backwards links with the semiconductor equipment and materials cluster, and strong forwards links with the IC design cluster. These results indicate that outstanding competitive performance for a hightech cluster may relate to strong links with other clusters, or vice versa. The remainder of this chapter is organized as follows. Public investment in the domestic nano sector and patent grants relating to nanotechnology are studied in the next section. The section after that then constructs and analyzes the competitiveness and linkage indicators. A case study involving TSMC is also provided.

Government investment and patents granted in nanotechnology Over 40 Taiwanese-produced products ranked number one globally in terms of market share in 2004.14 These products mostly come from just three local industries, namely the semiconductor, optoelectronic, and communication industries. Although Taiwanese IC products have strong global sales, some IC technologies lag leading global technologies. For example, Taiwanese firms lag behind the global leaders in dynamic random access memory (DRAM) and Flash memory. Local DRAM makers thus depend on Japanese partners for core technologies. Furthermore, in the fields of magnetoresistive random access memory (MRAM) and ovonic unified memory (OUM), the technologies of Taiwanese firms remain immature. To advance their global competitiveness, industries and research institutes in Taiwan are endeavoring to focus on next generation IC memory by developing nano-electronic technology in three key areas: volatile DRAM, non-volatile MRAM and OUM, and complementary metal-oxide-semiconductor organic electronics.15

Cluster development, intellectual property and global competitiveness 145 Following a 2002 decision by the National Science Council (NSC), nanotechnology research in Taiwan has been initiated and is supported under a six-year program called “NSTPNN.” Under this program the Taiwanese government is expected to spend over US$ 1 billion on nano science and technology during the period 2003 to 2010. This budget will be shared between the basic research supervisor, NSC, including the NDL, and the ITRI. The research funding to ITRI will be focused on the industrialization of nanotechnology. NSTPNN is devoted to developing nanotechnology platforms necessary for academic excellence and industrial applications via collaboration among related industries, academics, and research centers. In September 2006, the New York-based analyst firm Lux Research forecast that Taiwan would become a major player in nanotechnology within the next three years. Furthermore, according to Lux Research, Taiwan ranked number one internationally in terms of per capita government funding for nanotechnology during 2004. The NSTPNN program first coordinates the research efforts of various government organizations to promote academic excellence, and establishes common core facilities and educational programs to facilitate the development of industrial applications. Second, based on the global competitiveness of the semiconductor, optoelectronic, and communication industries, the NSTPNN program aims to improve academic excellence and develop innovative industrial applications. Furthermore, by establishing international competitive nanotechnology platforms, the NSTPNN strives to boost advanced innovative research to accelerate the commercialization of nanotechnology. The NSTPNN program is implemented through promotional collaboration among universities, industries, and public organizations. Table 8.1 and Figure 8.1 list government projects for budget allocation among different programs in NSTPNN from 2003 to 2008. Since nano R&D requires significant investment in infrastructure, the Taiwanese public sector subsidizes and encourages private nano R&D investment by building up/establishing common core facilities. Approximately one-fifth of the funds for nanotech research are distributed in core facilities. One focus of nano science and technology development in Taiwan is the industrialization of innovations. Based on nano R&D infrastructures and research capacities as well as the achievements of academia, this sub-program stresses innovative applications by leveraging industry entrepreneurship and linking industry to academia to increase the core competencies of industries. The bulk of the public nano R&D funding (76 percent) has been allocated to the industrialization sub-program. Table 8.1 NSTPNN budget, 2003–8 (in million US$) Program name

2003

2004

2005

2006

2007

2008

Academic Excellence Industrialization Core Facilities Education

13.5 49.52 19.96 0.7

13.31 59.69 21.85 1.6

16.06 47.25 21.94 2.2

27.7 83.91 16.73 2.55

20.06 91.19 17 2.55

11.43 98.4 17.31 2.55

146 Chyi Yih Luan 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003

2004

2005

Academic Excellence Program Core Facilities Program

2006

2007

2008

Industrialization Program Education Program

Figure 8.1 Shares of cross-year and cross-program budget for NSTPNN.

The industrialization sub-program operated primarily by ITRI recently launched a “2008 Target” emphasizing product differentiation among electronics, materials and chemicals, and metals and machinery. To achieve this target, ITRI has dedicated itself to developing “star” nanotechnologies in innovative applications involving IC, display, data storage, photonics, electronic packaging, and nano-biomedicine. Nanotechnology patents The achievements of the Taiwanese nano sector can be assessed based on patent records and industrial production. This chapter uses the keyword “nano” to gather data from patent records provided by the Intellectual Property Office in Taiwan (TIPO). The patent statistics are listed under one-digit International Patent Classification (IPC). Almost 2,500 approved nano patents were found during 2000–6.16 Nationalities of foreign applicants of nano patents granted by TIPO include some 22 countries. Domestic applicants including companies, individuals, and research institutes are most active applicants, accounting for 60 percent of the nano patents. As shown in Figure 8.2, applicants from the US and Japan represent the second and third most significant groups. Figure 8.3 shows the top ten applicants and their number of nano patents approved by TIPO. The leading applicant ITRI accounted for almost 10 percent of nano patents during 2000–6. Six of the top ten applicants are domestic. The nano patents are classified into eight one-digit IPCs, from IPC_A to IPC_H. The IPC system, designed for administrative purposes, groups inventions by product or process. However, this study is more interested in specific industrial sectors contributing to the innovations or their subsequent use, since the innovative

Cluster development, intellectual property and global competitiveness 147 Korea Others 4% Germany 2% 5%

Japan 14%

Taiwan 60% US 15%

Figure 8.2 Nationality distribution of nano patents, 2000–6.

ITRI Foxconn IBM TECO Nanotech tsmc Sharp NCKU Infineon Intel NCTU 0

100

200

300

Figure 8.3 Top ten patent applications, 2000–6.

productivity of an industry can be assessed based on patents per unit of R&D expenditure. Conventionally, it requires a concordance table between the IPC and International Standard Industrial Classification (ISIC), so that patent data can be classified at the industry level.17 Alternatively, simple and quick matches can be established between the one-digit IPC and industrial classifications via two steps. The first step involves selecting and examining representative firms from among a group of HSP tenants, ITRI clients or nanotechnology licensees, and firms actively applying for nano patents. The next step is to survey the official websites of these firms and classify them by industrial sector based on descriptions of their businesses. The coarse nano sectors considered in this study include nano-materials,

148 Chyi Yih Luan nano-equipments, and nano industrial applications in the IC, display, biomedical, and traditional industries. Appendix A presents the simplified matches between one-digit IPC and coarse nano industrial sectors. Most IPC_F, IPC_G, and IPC_H patents result from innovations by companies in the Taiwanese IC and display industries. Table 8.2 lists the distribution of Taiwanese nano patents among eight one-digit IPCs. In most IPC categories, Taiwanese nano patents demonstrated rising trends during 2000–6. Nano patent counts are focused primarily in IPC_C, IPC_G, and IPC_H, which correspond to the nano-materials, display, and semiconductor industrial sectors. Figure 8.4 illustrates the distribution of nano patents in different IPC categories among domestic companies and research institutes. For IPC_G and IPC_H, firms located in HSP, other firms in the Hsinchu area, and research centers in the Hsinchu area contribute approximately half of the total nano patents. Twenty-two HSP firms applied for nano patents during 2000–6, eight of which ranked first in nano patent grants. Figure 8.5 illustrates the names of these companies and their numbers of patents in IPC_G and IPC_H. Foxconn was the leading handset and digital camera manufacturing services provider in 2005 and 2006. Meanwhile, TSMC is the leading global foundry company. An alternative assessment of the achievements of the nano sector in Taiwan could be based on estimates of industrial production. Since the Taiwanese nano sector was only established in 2003, it is still too early to judge its overall performance based on sales records. According to a survey of the potential of the Taiwanese nanotechnology market (Table 8.3) by the Nanotechnology Research Center (NRC), ITRI, in March 2005, currently the most important products are nano-materials and nano-biomedicals. The NRC survey projects that nano-electronics and display may be potential future stars. Meanwhile, an updated projection of the potential of the Taiwanese nanotechnology market in July 2006 forecast that new non-volatile memory will appear in 2008, and CNT-FED will be the main material used in manufacturing display. According to the NRC, as of 2005 there were more than 250 nanotechnology firms in Taiwan. Around half of these firms are involved in nano industrial applications, including IC, displays, optoelectronics, biomedical devices, Table 8.2 Taiwan’s nano patents in eight IPC classes, 2000–6 Class

A B C D E F G H Total

Year 2000

2001

2002

2003

2004

2005

2006

Total

6 11 32 0 1 1 35 67 153

8 17 64 0 1 1 64 124 279

15 41 103 1 2 9 102 178 451

33 64 80 3 6 15 119 189 509

64 65 69 4 4 34 69 233 542

42 37 30 3 5 18 42 130 307

22 21 7 4 0 7 12 9 82

190 256 385 15 19 85 443 930 2,323

Cluster development, intellectual property and global competitiveness 149 100%

Individuals

50%

Other research centers Other firms not in Hsinchu Research centers in Hsinchu Other firms in Hsinchu Firms in HSP

0% A

B

C

D

E

F

G

H

Figure 8.4 Nano patents applied for by domestic firms and research institutes in Taiwan.

Foxconn

54

TSMC

41

ProMOS

10

Macronix

5

AU Optronics

5

UMC

6

Toppoly

4 G – Physics

Phoenix

4

H – Electricity

18

Others 0

20

40

60

Figure 8.5 Nano patents applied for by HSP firms in IPC_G and IPC_H.

and energy. Currently there are more than 50 and 15 companies engaged in nanomaterials and nano-tools, respectively. Prospects of the nano sector in HSP This study uses nano-specific patent records and projections of industrial output to assess the prospects of the Taiwanese nano sector. For most IPC categories, Taiwan’s nano patents increased during 2000–6. These patents are focused on display and semiconductors at the industry level and the applying firms disproportionately include HSP tenants, firms located outside HSP and within the Hsinchu area, and research centers in the Hsinchu area. The recent NRC survey

150 Chyi Yih Luan Table 8.3 Forecast nanotechnology market opportunities in Taiwan (NTD billion)

Nano-electronics Display Data storage Photonics Nano-materials Nano-fiber Tools Molds Energy Bio Services Total

2002

2003

2004

2005e

2008f

2012f

– – – – 0.45 0.09 0.315 0.4 – 1.85 0.75 3.86

– – – – 0.68 0.18 0.69 0.6 – 1.93 0.83 4.91

8.0 – – – 1.21 0.36 1.75 0.8 0.006 2.05 0.85 15

20.6 – – 0.07 6.81 0.72 3.06 1.5 0.36 3.7 1.0 37.8

321.5 48.0 3.0 2.1 23.8 5.8 3.09 4.5 16.3 5.4 1.3 434.8

1,009.7 223.8 75.0 11.0 74.4 31.1 27.4 7.9 89.8 8.1 2.0 1,560

Notes: The ITRI 2005 survey estimated the market size in 2005 (e) and forecasted the potential market size in 2008 and 2012 (f); NTD = New Taiwan Dollars.

forecast that nano-electronics and display would be future star nano industrial sectors. However, whether the nano sector will be an important sector for the HSP in future remains unclear. This section assesses the potential of the nano sector based on advantages of agglomeration of HSP in terms of linkage and competitiveness.

Competitiveness and linkage indicators A common approach to measuring comparative advantage involves the principle developed by Balassa of RCA. Certain indicators of RCA can be assessed by using import and export data since trade is generated by underlying comparative advantage. This study applies the RCA Index proposed by Balassa to measure comparative advantage using HSP export and import data in 2004.18 One index of RCA is as follows: RCAiHSIP


XiHSIP

XiTW


i XiHSIP
i XiTW




xiHSIP xiTW

where XiHSIP denotes the exports of good i by HSP, xiHSIP represents the share of good i in the total exports of HSP, and xiTW is the share of good i in total Taiwanese exports.19 If laptop computers are more important in HSP’s exports than in total Taiwanese exports, then it suggests that HSP has a revealed comparative advantage in laptop computer production. Consequently values of the RCA Index exceeding 1 are considered to indicate a comparative advantage, while values below 1 indicate a disadvantage. An alternative measure of RCA is the net export ratio, λ, as:

λHSIP
i

XiHSIP MiHSIP XiHSIP MiHSIP

Cluster development, intellectual property and global competitiveness 151 where MiHSIP denotes imports of good i into HSP. When a country or region exports more of a good than it imports, it is considered to have a comparative advantage in that particular good. To avoid the scale effect, net exports are divided by total trade. Net export ratios range from a minimum value of –1 to a maximum value of 1.20 Negative λiHSIP indicates a disadvantage, while positive λiHSIP indicates an advantage. As noted by Ballance, Forstner, and Murray,21 the RCA indices are useful in providing criteria for distinguishing and thus ranking regional or national comparative advantage or disadvantage in production of a particular good. However, they are meaningful only when comparisons are made among regions, industries, or countries. Table 8.4 lists summary statistics of two measures of comparative advantage for the 50 most frequently traded goods in HSP. Details regarding the descriptions and values of RCA and λ for those goods are demonstrated in Appendix B. “Parts of epitaxial deposition machines for semiconductor wafers,” produced by firms in the semiconductor cluster, has the largest RCA in HSP. Ranking those 50 goods according to RCA, the top 20 goods together with their corresponding industry clusters are listed in Appendix C. Half of these goods are produced by the semiconductor cluster. Approximately one-third of these goods are assigned to the computer and communication cluster. The net export ratios of most goods from the semiconductor cluster are near 1, suggesting that most of these companies are exporters rather than importers. A cluster with high global competitiveness is more likely to create linkages and learn from them, while connected clusters are likely to improve their competitive advantage. To examine the practical association between competitiveness and linkages in the HSP, this study continues to measure the strengths of cross-cluster linkages. The complete vertical disintegration of the IC industry is a phenomenal characteristic of high-tech clusters in HSP.22 Based on the 2005 annual reports of 77 publicly listed HSP companies, this study generates firm-level input-output data based on records of the provider–customer connections reported in their annual reports.23 Since these publicly listed HSP companies report material and intermediate input items without corresponding values, this study employs a binary (0–1) variable for each item to indicate whether these input items are used. According to reported sales of major products, a ratio of sales of each product to total sales is constructed to avoid a scale effect in measuring output. Over 200 Table 8.4 Summary statistics for the RCA and net export ratios, 2004 Statistics*

RCA

λ

Mean Median Maximum Minimum Standard deviations

5.23 4.39 15.90 0.20 3.60

0.58 0.75 1.00 –0.76 0.49

Note: * Sample size = 50.

152 Chyi Yih Luan products are reclassified into 32 categories, including materials, intermediate inputs, and finished products, to create the pseudo input-output data set for the 77 HSP firms. Cluster analysis is performed on this data set to determine the number and contents of clusters based on the similarities in the materials and intermediate inputs used by HSP firms. Input rather than output data are used to determine the number of clusters since some foundry firms in the vertically disintegrative IC industry specialize in producing just one product. Cluster formation requires measuring distances between individual pairs of objects (categories of inputs) in the 77 dimensional space. A familiar method of doing this is to calculate Euclidean distances between two objects x and y as: DSTx,y

i = 1(xi  yi)2 77

⁄2

1

where x = [x1, x2, . . ., x77] and y = [y1, y2, . . ., y77]. The results of distance measures suggest that testing, packing, mask, and wafer fabrication are proximate to each other in the sense that firms using either one input provided by this cluster often also use inputs from the remaining clusters.24 These clusters are grouped into a cluster called “Foundry.” Similarly, lead frame, substrate, packing equipment and materials, and other packing materials can be classified as a “packing equipments/materials” cluster. The materials and intermediate inputs used in wafer fabrication including silicon, chemicals, photoresist, gas, and semiconductor equipments, can reasonably be grouped into an alternative cluster, called “semiconductor equipments/materials.” The remaining objects in the 77 dimensional space could not be clearly divided. An alternative approach of clustering is to generate a hierarchical tree plot. Figure 8.6 shows the horizontal hierarchical tree plot. The horizontal axis indicates the linkage distance in the plot. Starting by examining each object in a cluster individually, the decision threshold for declaring that two or more objects belong to the same cluster can then be gradually lowered. Consequently more and more objects come to be linked together, leading to the aggregation of larger and larger clusters of increasingly dissimilar elements. Finally, all the objects are joined together in a single large cluster. Five clusters are suggested by this tree plot, confirming the three clusters found earlier. Additionally, IC design, color filter, circuit board, and optoelectronic devices form a fourth cluster. Since a large portion of HSP firms engages in IC design, this cluster is termed the “IC design” cluster. Remaining objects contain a set of versatile categories ranging from memory to LED elements. There are insufficient data available to facilitate further clustering, and thus this last cluster is termed “others.”25 The next step involves measuring the strength of the links between clusters in the HSP. Each cluster can be recognized as either an input or an output cluster. For a firm f, a set of its inputs that are shared with the output cluster i is denoted as C1i,f . O C i,f is assumed to represent the set of products produced by firm f and is classified as the output cluster i. C Oj denotes the set of products provided by an input cluster j. A dependency measure between an output cluster i and an input cluster j is defined as:

Cluster development, intellectual property and global competitiveness 153

φi, j

fF IΓ ( f )s˜

i, f

where s˜

i, f



o s ( ql ) qlCi,f

i, f

and IΓ( f ) is an indicator function of a subset Γ
 f Ci,If
COj   of a set of HSP firms, F, such that



IΓ ( f )
1, f ∈ Γ 0, f ∉ Γ si,f (ql ) is the sales ratio of firm f for the specific product ql in Ci,Of . Hence, s˜i, f denotes the sum of the sales ratio of firm f over the products in Ci,Of . The dependency indicator φi,j totals the sale ratios of firms providing products classified in output cluster i, provided these firms use at least one category of inputs from input cluster j. Table 8.5 lists the results. Figure 8.7 shows a directional graph representing the cross-cluster dependency in HSP. Each circle in the graph represents a cluster, the size of which roughly indicates how many firms it contains. The strength of the linkage can be approximated by the dependency between two clusters. The figure only shows the 8

Linkage distance

7 6 5 4 3 2

0

Semiconductor equipments Chemicals Gas Photoresist Silicon IC design Color filter Circuit board Optoelectronic devices Coating Metals Resistance Capacitor Mask materials Communication Memory Cutting Solar energy LED elements Computer pheripherals LCD LED Glass Backlight Substrate Other packing materials Lead frame Packing equipment Wafer fabrication Mask Packing Testing

1

Figure 8.6 Horizontal hierarchical tree plot.

154 Chyi Yih Luan Table 8.5 Cross-cluster dependency measures Clusters

Semiconductor equipments/ materials (input)

Packing equipments/ materials (input)

Foundry (input)

IC design (input)

Others (input)

Semiconductor equipments/materials (output)

1.19

0.00

0.00

0.00

0.08

Packing equipments/ materials (output)

2.29

1.00

0.00

0.29

1.92

15.30

7.73

1.37

1.16

7.94

IC Design (output)

2.77

3.01

28.07

3.51

2.13

Others (output)

5.82

5.67

11.33

12.17

11.26

Foundry (output)

dependency measures exceeding 3. The number of firms in each cluster is its sum of sales ratios, that is, the sum of the strengths of incoming linkages. Notably, the two clusters, the semiconductor equipments/materials cluster and the packing equipments/materials cluster, have no up-stream connection with other HSP clusters. The strongest linkage is between the up-stream IC design cluster and the down-stream foundry cluster, implying one thing that the IC design cluster contains more firms than other clusters. The link between the semiconductor equipments/ materials cluster and the foundry cluster is also significant. This importance is consistent with the fact that many foundry firms are highly focused on producing one product. The cluster “others” has a significant self-connecting linkage, implying that further study of sub-clusters is necessary in future studies. Semiconductor equipment/ materials (1.2)

Packing equipment/ materials (5.5)

5.7 15.3

7.7 5.8

7.9

Foundry (33.5)

3.0

28.1 3.5

11.3 11.3

Others (46.2) 12.2

IC design (39.4)

Figure 8.7 Directional graph representing cross-cluster dependency in HSP.

Cluster development, intellectual property and global competitiveness 155

A case study: TSMC It is important to consider whether the same association between linkage and competitiveness identified above also occurs at the individual company level. This chapter presents a case study involving TSMC regarding its business linkages, competitiveness, and prospects of success in nanotechnology. Established in 1987, TSMC cooperated with Philips to launch the foundry model in the semiconductor industry by specializing in the manufacture of custom wafers under contract to chip designers. The local pure play foundry model has been successful since the early 1990s partly as a result of the infeasibility in Taiwan of the IDM approach, requiring simultaneous development of the next generation of process and product design technologies. TSMC has performed outstandingly in promoting rapid growth of fabless and foundry companies during the past decade. The center of IC manufacturing has gradually relocated from North America to the Asia-Pacific region. Specifically, according to the WSTS, IC Insights, the share of IC products manufactured in the Asia-Pacific region has surpassed that of any other region since 2001. This shift in the IC market has encouraged the development of a fully-fledged vertically disintegrative industrial structure in Taiwan. In 2005, the supply network of the Taiwanese IC industry included 268 fabless design houses, four mask manufactures, 13 fabrications, 33 packaging companies, and 35 testing houses. Additionally, Taiwan also has material providers of bare wafer, chemical, lead frame, and PCB substrate. Clustering is a key feature of the Taiwanese IC industry since over 80 percent of these IC companies are co-located in the HSP. The interconnected IC cluster in the HSP facilitates efficient communication between customers and providers and movement of human resources between companies. Consequently, the vertical collaboration developed among firms in clusters together with synergy of clusters can promote business linkages and knowledge spillovers, and ultimately enhance competitiveness by stressing agile and rapid responses to the market. TSMC ranked seventh and sixth among the top ten global IC companies in 2005 and 2006 respectively, with 20 percent annual sales growth (Table 8.6). Specifically, TSMC has formed a design center alliance (DCA) with fabless IC design companies in the HSP, such as GOYA and Alchip. This close connection encourages new firm formation, making HSP an attractive base for innovation enterprises. Not only will the innovative activities of HSP tenants achieve benefits via the agglomeration effect of industry clusters, but new enterprises will also be attracted to the HSP. Furthermore, DCA of TSMC has been established around the world, and most of the products of HSP IC design firms have been sold to major international companies. Global linkages mean important sources of technology and markets for HSP foundry and IC design firms. Recently there has been intensive development of nanotechnology collaborations and alliances among TSMC, Electronics Research and Service Organization (ERSO) in ITRI, university research centers, and global companies. For example, an MRAM TSMC/ERSO joint project was launched in 2002. Recent breakthroughs in nano scale processing include the “45-nanometer chips” and the “functional

156 Chyi Yih Luan Table 8.6 Top ten IC companies worldwide 2005 rank

2006 rank

Company (HQ)

2006 sales ($ million)

06/05 percentage change

1 2 3 5 4 7 9 6 10 8

1 2 3 4 5 6 7 8 9 10

Intel (US) Samsung (S. Korea) TI (US) ST (France) Toshiba (Japan) TSMC (Taiwan) Hynix (S. Korea) Renesas (Japan) Freescale (US) NXP (Netherlands)

32,268 19,670 13,200 9,854 9,782 9,748 8,009 7,900 6,049 5,875

–9% 10% 17% 11% 8% 19% 43% –4% 8% 4%

Source: IC Insights, www.icinsights.com/news/bulletins/bulletins2007/bulletin20070315.html.

65nm embedded DRAM device.” TSMC began making smaller, more energy efficient, and more powerful 45nm chips in September 2007.26 Moreover, the 65nm DRAM device offered by TSMC provides higher bandwidth, lower power consumption, and a close to 50 percent reduction in cell and macro size compared to previous high-density memory generations.27 Figure 8.8 illustrates the rapid progress of TSMC in nanotechnology compared with the International Technology Roadmap for Semiconductors (ITRS). Consequently, TSMC has attracted collaborative opportunities with world-leading IDM chip makers such as TI, NXP (formerly Phillips), and Nvidia, a US fabless company.28 150

120

ITRS_2000

90

ITRS_2001

60 ITRS_2005 30 2000

2002

2004

2006

2008

2010

Figure 8.8 ITRS vs TSMC roadmap of foundry technology. Source: ITRS.

2012

2014

2016

Cluster development, intellectual property and global competitiveness 157

Conclusion Whether HSP can maintain its highly successful track record into the future will depend on its performance in new firm creation and self-renewal. This chapter sheds some light on sectors with significant future potential for the HSP and Taiwan. To encourage advanced innovative research and accelerate the commercialization of nanotechnology, the national nano program of Taiwan, NSTPNN, has provided the nanotechnology infrastructure required for academic researches and industrial applications. Lux Research reported that Taiwan was the global leader in terms of per capita government spending on nanotechnology in 2004. Furthermore, overall nano development in Taiwan is generally satisfactory compared to other Asian countries, though Taiwan still lags behind Japan and Korea. This chapter used numbers of nano patents and projections of nano industrial output to gauge the prospects of the Taiwanese nano sector. Numbers of nano patents in Taiwan increased during 2000–6 for most IPC categories. Focusing on display and semiconductor at industry level, most of the patents are held by HSP tenants, firms located outside of HSP and within the Hsinchu area, and research centers in the Hsinchu area. Encouraged by the massive government funding of nanotechnology related R&D projects, the Taiwanese nano sector in Taiwan has recently begun to launch new products, particularly for the IC and optoelectronics industries. The recent NRC survey forecast that nano-electronics and display could be star nano industrial sectors in the future. As noted by Bianchi and Humphrey and Schmitz,29 more interdependent clusters indicate the potential for increased competition since competitive sectors are more likely to create and learn from linkages. On the other hand, strengthening forward and backward linkages among high-technology clusters may enhance the competitive advantage of both ends of linkages so that, for example, product development between IC design firms and mobile telephone manufacturers boosts the global reputation and export prospects of the former and the product cost and capabilities of the latter. This chapter applies cluster analysis to measure the strengths of cross-cluster linkages, and employs the identified comparative advantage concept to measure competitiveness for key traded goods in HSP. The results suggest that the excellent international competitiveness of the Taiwanese semiconductor industry may be positively related to its strong cross-cluster linkages. Based on the above findings, this chapter gauges that nano science and technology provide opportunities for HSP firms to strengthen existing business linkages or create new ones, thus boosting their global competitiveness. Specifically, through links with two national research universities and one national research institute, HSP firms can easily access new scientific and technological knowledge. The HSP nano sector thus could become extremely globally competitive by leveraging industrial agglomeration through the channels of knowledge spillovers and linkages with existing interconnected high-technology firms and scientists. A case study involving TSMC is conducted to illustrate that the same association between linking and competitiveness arises for HSP companies. TSMC is collaborating with ERSO, ITRI, and nearby university research

158 Chyi Yih Luan labs on nanotechnology projects, and its recent progress in nano scale processing technology has attracted alliance opportunities with leading global IDM chip makers. According to the Macro Statistics Database provided by the Directorate General of Budget, Accounting and Statistics, Executive Yuan, Taiwan, the annual average growth rate of real gross domestic product (GDP) of manufacturing industry in Taiwan has been close to 8 percent from 2003 to 2008. The Taiwanese industries in computers, communication, and electronic products approximately contribute to 10 percent of manufacturing industry GDP in 2007. The public investment in nanotechnology during the past five years has initiated essential projects involving nano-knowledge and nano-techniques, and subsequently created new business opportunities for information technology, communication, ICs, and optoelectronics industries. Hence, rapid developments in nanotechnology could be one of key sources of future growth of manufacturing industry GDP in Taiwan and as this chapter illustrates such economic growth and prosperity is firmly linked to increases in patenting.

Notes 1 This chapter by Chyi Yih Luan appeared in an earlier version in Journal of Interdisciplinary Economics, 2008, 19(2&3), pp. 101–27 and has the editor Ruth Taplin’s and the publisher’s permission to be represented in this book in an updated form. 2 See Lee, Miller, Hancock, and Rowen (2000). 3 The US NNI is an inter-agency program that coordinates federal support for nano scale R&D. 4 According to Lux Research, a New York-based analyst firm, central governments around the world had invested more than eight times in nano R&D from 1997 to 2004. 5 See Fujita, Krugman, and Venables (1999); Ottaviano and Puga (1998); Krugman (1991). 6 A full range of firms in IC industry has been vertically developed in the HSP and has generated close linkages among the park firms. Many competitors with similar technologies, such as United Microelectronics Corporation and TSMC, have also operated horizontally in the HSP. Yuan, Chang, and Chen (1998) note that semiconductor firms often collaborate with vendors or buyers. 7 Bresnahan and Gambardella (2004). 8 Tsai (2005); Chyi and Lai (2007). 9 Bianchi (1993); Humphrey and Schmitz (1996). 10 Voyer and Roy (1996); Quandt (1997). 11 Humphrey (2001). 12 Cooke (2001). 13 See Balassa (1965). 14 The data and information sources were obtained from the Industrial Economic and Knowledge Center, ITRI, in April 2005. 15 Wey (2005). 16 It takes at least six months from application until patents are approved by the TIPO. Thus, the cut-off point is chosen on January 11, 2007, not the end of year 2006. 17 The matches suggested by the concordance table developed by the United States Patent and Trademark Office or the Organisation for Economic Co-operation and Development are usually used. 18 The export and import data of HSP are accessed from the HSP Administration website: http://service.sipa.gov.tw/WEB/Jsp/Page/index.jsp?thisRootID=321.

Cluster development, intellectual property and global competitiveness 159 19 The data of world export in ten-digit HS codes are not available, hence we cannot provide RCA measures of HSP relative to the ratio of Taiwan to world exports. 20 A number of goods are only exports for HSP and are not imports, in which case λ has its maximum value of 1. 21 Ballance, Forstner, and Murray (1986). 22 See for example, Yuan, Chang, and Chen (1998) and Jou and Chen (2001). 23 This study focuses on HSP firms in two highly concentrated clusters: the IC manufacturing and optoelectronic industries. These also are the most active sectors in generating nano patents. 24 The results of distance measures are available on request, having been excluded here to save space. 25 “STATISTICA” is used to perform the cluster analysis and graphs are produced and displayed in Figures 8.7 and 8.8. 26 “45-nanometer chips is coming soon,” reported by www.PCHome.com on April 10, 2007. 27 This news was reported by www.physorg.com, on March 6, 2007. 28 In the 2006 ranking of the top 25 global semiconductor released by the IC Insights in first quarter of 2007, Nvidia ranked twenty-fifth. 29 See Bianchi (1993) and Humphrey and Schmitz (1996).

References Balassa, B. (1965) “Trade liberalisation and ‘revealed comparative advantage’.” The Manchester School of Economic and Social Studies 33, pp. 99–123. Ballance, R., Forstner, H., and Murray, T. (1986) “More on measuring comparative advantage: a reply.” Weltwirtschaftliches Archiv 122, pp. 375–78. Bianchi, Patrizio (1993) “Industrial districts and industrial policy: the new European perspective.” Journal of Industry Studies 1(1), October. Bresnahan, T. and Gambardella, A. (eds) (2004) Building High-Tech Clusters: Silicon Valley and Beyond. Cambridge: Cambridge University Press. Chyi, Yih Luan and Lai, Yee-Man (2007) “Knowledge spillovers and growth in the Hsinchu Science-based Industry Park,” in H.S. Rowen, M. Gong Hancock, and W.F. Miller (eds) Greater China’s Quest for Innovation. Stanford, CA: Shorenstein Asia-Pacific Research Center, Stanford University, distributed by the Brookings Institution Press. Cooke, P. (2001) “Clusters as key determinants of economic growth: the example of biotechnology,” in A. Mariussen (ed.) Cluster Policies – Cluster Development? Stockholm: Nordregio, pp. 23–38. Fujita, M., Krugman, P., and Venables, A.J. (1999) Spatial Economy. Cambridge, MA: MIT Press. Humphrey, J. (2001) “Opportunities for SMEs in developing countries to upgrade in a global economy.” Paper downloaded from http://www.ids.ac.uk/. Humphrey, J. and Schmitz, H. (1996) “The triple C approach to local industrial policy.” World Development 24, pp. 1859–77. Jou, S.C. and Chen, D.S. (2001) “Keeping the high-tech region open and dynamic: the organizational networks of Taiwan’s integrated circuit industry.” GeoJournal 53(1), pp. 81–7. Krugman, P. (1991) Geography and Trade. Cambridge, MA: MIT Press. Lee, C.M., Miller, W.F., Hancock, M.G., and Rowen, H. (eds) (2000) The Silicon Valley Edge: A Habitat for Innovation and Entrepreneurship. Stanford, CA: Stanford University Press.

160 Chyi Yih Luan Ottaviano, G. and Puga, D. (1998) “Agglomeration in the global economy – a survey of the new economic geography.” The World Economy 21, pp. 707–31. Quandt, Carlos (1997) “The emerging high-technology cluster of Campinas, Brazil.” Prepared for International Development Research Centre, Technopolis 97 Conference, Ottawa, Canada, September 9–12. Tsai, H.A. (2005) “Knowledge Spillovers and high-technology clustering: evidence from Taiwan’s Hsinchu Science-based Industrial Park.” Contemporary Economic Policy 23, pp. 116–28. Voyer, R. and Roy, J. (1996) “European high-technology clusters,” in J. De La Mothe and G. Paquet (eds) Evolutionary Economics and the New International Political Economy. New York: Pinter, pp. 220–37. Wey, Chin-Long (2005) “Nanoelectronics: silicon technology roadmap and emerging nanoelectronics technology in Taiwan,” in Industrial Electronics Society, 2005. IECON 2005. 31st Annual Conference of IEEE. Piscataway, NJ: IEEE, pp. 2400–5. Yuan, J.C., Chang, C.Y., and Chen, L.M. (1998) “Strategies of semiconductor industry in Taiwan.” Manuscript, Institute of Technology and Innovation Management, National Chiao Tung University.

Appendix A Table 8.7 Matching IPC to industrial sectors One-digit IPC and description

Firm representatives

Nano industrial sectors

A: Human necessities

New Herb Cosmetics Internaional Co., Ltd Jing Wang Nano Technology Co., Ltd* Taiwan Fluorescent Lamp Co., Ltd Cook Pot Great Force Biochem Tech., Ltd

Biomedical

B: Performing operations; transporting

Microjet Technology Co., Ltd Teco Electric & Machinery Co., Ltd Eternal Chemical Co., Ltd* Foxconn Electronics Inc.

Nano-equipments Traditional industry Home appliances Nano-materials Display

C: Chemistry; metallurgy

The Beaming Company Ltd TECO Nanotech Co., Ltd* Applied Vacuum Coating Technologies Co., Ltd Foxconn Electronics Inc.

Nano-materials

Traditional industry Home appliances Nano-materials

Display

D: Textiles; paper

China Petrochemical Traditional industry Development Corporation Textile (CPDC)* Nan Ya Plastics Corporation (NPC)

E: Fixed constructions

Hua Fong Marble Co., Ltd Chen-Chang Plastics Co., Ltd

Traditional industry Constructions

Cluster development, intellectual property and global competitiveness 161 Table 8.7 continued One-digit IPC and description

Firm representatives

Nano industrial sectors

F: Mechanical engineering; lighting; heating; weapons; blasting

Foxconn Electronics Inc. TECO Nanotech Co., Ltd*

Display

G: Physics

Optimax Technology Corporation (OPTIMAX) AU Optronics Corp. Eternal Chemical Co., Ltd* Toppoly Optoelectronics Corp. Ritdisplay Corporation Foxconn Electronics Inc. Macronix International Co., Ltd

Display

H: Electricity

IC

Powertip Technology Corporation Display Chunghwa Picture Tubes, Ltd (CPT) AU Optronics Corp. Foxconn Electronics Inc. TSMC* Advanced Semiconductor Engineering, Inc. Promos Technologies Inc. IC

Source: Industrial Economics and Knowledge Center, ITRI, 2004. Note: * = ITRI clients or licensees.

Appendix B Table 8.8 RCA and net export ratios: top 50 traded products in terms of export value, HSP HS ten-digit codes

Descriptions

RCA

Net export ratios

85422910905 85426090105 90138030219

Chips and wafers of other monolithic ICs Hybrid ICs, without software Thin film transistor liquid crystal display devices (TFT-LCDs) Other monolithic ICs, without software Wafers of other monolithic digital ICs Other parts and accessories of the machines of subheading no. 8471.10, 8471.30, 8471.41, 8471.49, 8471.50, 8471.60, and 8471.70 DRAM ICs Monolithic digital ICs, without software Other apparatus, for carrier-current line systems or for digital line systems

8.59 3.82

0.97 0.26

2.00 2.71 5.86 2.02

0.96 0.91 0.21 0.40

5.08 1.46 6.54

0.50 0.97 0.95

85422990105 85422110967 84733010905

85422190201 85422190504 85175090000

162 Chyi Yih Luan Table 8.8 continued HS ten-digit codes

Descriptions

84713000008

Portable digital automatic data processing machines, weighing not more than 10 kg, consisting of at least a central processing unit, a keyboard, and a display Chips of other monolithic digital ICs Other radio transmission apparatus incorporating reception apparatus Color video projector Parts of LCDs Other chips and wafers of light emitting diodes Monolithic digital ICs, with Mask-ROM Wafers of DRAM ICs Unrecorded discs for hard disc devices Static random access memory (SRAM) ICs Other parts suitable for use solely or principally with the apparatus of headings nos. 85.25 to 85.28 Other chips and wafers of hybrid ICs Other telephone sets Indicator panels incorporating TFT-LCDs Modem Other hybrid ICs Improved/enhanced high definition televisions (horizontal line resolution in excess of 1,000 lines) Other digital automatic data processing machines, presented in the form of systems Image scanners Chips of DRAM ICs Other electrical machines and apparatus Other printed circuit boards Other antenna Other objective lenses, for cameras, projectors or photographic enlargers or reducers Wafer of silicon, dimension of 8 inch or more but less than 12 inch Other monolithic ICs

85422110958 85252090007 85283010009 90139010006 85414021908 85422190915 85422110921 85232030100 85422190309 85299090008

85426010905 85171990000 85312000115 85175010007 85426090999 85281290200

84714900007 84716090100 85422110912 85438999905 85340000900 85291019904 90021100908

38180010148 85422990999 JP A1521000 KR A0981000

RCA

Net export ratios

4.00

0.99

8.38 3.00

0.78 0.90

8.87 1.28 4.68

1.00 0.42 0.80

10.18 2.84 7.94 10.26 11.31

N/A 0.77 1.00 0.98 0.13

6.34 10.47 0.23 5.48 0.49 4.99

0.73 0.92 0.73 0.49 –0.54 1.00

6.96

0.98

6.40 11.12 6.16 0.67 3.34 9.05

0.97 0.15 0.76 0.68 0.92 0.26

3.86

–0.76

4.11 N/A N/A

0.73 0.75 0.97

Cluster development, intellectual property and global competitiveness 163 Table 8.8 continued HS ten-digit codes US A1222040 84716090903

85332100201 39269039001 US A0981040 HK A1101000 85422110930 84717010105 38180010905 US A5162040 84799038003 85045090005 85312000204

Descriptions

Other input or output units, whether or not presented with the rest of a system and whether or not containing storage units in the same housing Fixed chip resistors, for a power handing capacity not exceeding 20W Other articles solely for industrial use, of plastics

Chips of SRAM ICs Hard disc devices Other wafer, doped Parts of epitaxial deposition machines for semiconductor wafers Other inductors Indicator panels incorporating LEDs

RCA

Net export ratios

N/A 0.20

0.67 –0.08

2.54

0.24

3.47

–0.46

N/A N/A 8.37 3.12 3.11 N/A 15.90

0.14 0.98 0.96 –0.46 –0.69 0.75 0.90

1.86 0.93

0.73 1.00

Appendix C Table 8.9 Top 20 goods by ranking of RCA, HSP Industry cluster

Description of good

RCA

λ

Semiconductor

Parts of epitaxial deposition machines for semiconductor wafers Other parts suitable for use solely or principally with the apparatus of headings nos. 85.25 to 85.28 Chips of DRAM ICs Other telephone sets

15.90

0.90

11.31

0.13

11.12 10.47

0.15 0.92

SRAM ICs Monolithic digital ICs, with Mask-ROM Other objective lenses, for cameras, projectors or photographic enlargers or reducers Color video projector

10.26 10.18 9.05

0.98 N/A 0.26

8.87

1.00

Chips and wafers of other monolithic ICs Chips of other monolithic digital ICs Chips of SRAM ICs

8.59 8.38 8.37

0.97 0.78 0.96

Electronic components Semiconductor Computer and communication Semiconductor Semiconductor Optoelectronics Computer and communication Semiconductor Semiconductor Semiconductor

164 Chyi Yih Luan Table 8.9 continued Industry cluster

Description of good

RCA

λ

Computer and communication Computer and communication Computer and communication Computer and communication Semiconductor Electronic components Semiconductor Computer and communication Semiconductor

Unrecorded discs for hard disc devices

7.94

1.00

Other digital automatic data processing machines, presented in the form of systems Other apparatus, for carrier-current line systems or for digital line systems Image scanners

6.96

0.98

6.54

0.95

6.40

0.97

Other chips and wafers of hybrid ICs Other electrical machines and apparatus

6.34 6.16

0.73 0.76

Wafers of other monolithic digital ICs Modem

5.86 5.48

0.21 0.49

DRAM ICs

5.08

0.50

Index

Figures in italic type indicate relevant figures and tables. The spelling of entries has been standardised to normal UK usage.

absorptive capacity, India 32–3 Acts/Bills see legislation Africa 3; see also South Africa; subSaharan Africa African Regional Intellectual Property Organization see ARIPO African Regional Training Centre on Intellectual Property 58–9 agriculture: India 113–17; sub-Saharan Africa 50, 60–1 Alberts, Prof. Vivian 47 Allen, Dr Joseph 46 All India Co-ordinated Research Project on Ethnobiology (AICRPE) 120 American Intellectual Property Law Association (AIPLA) 5 Angola 56–8 application, GIS 23, 24 ARIPO (African Regional Intellectual Property Organization) 58–60 Arogyappacha plant, India 13, 120–3 AROPI (Association Romande de Propriété Intellectuelle) 9 Arya Vaidya Pharmacy, India 121–3 Asia: relationships with Japan 4–5; see also China; Japan; Taiwan; UITT, US/Thailand Association Romande de Propriété Intellectuelle see AROPI Austin, Texas, ‘Silicon Hills’ 68, 69 automobile industry, India 37 Baltic countries 85–9, 86–9, 90; see also Central and Eastern Europe Banga, Dr Rashmi 111–12

Bangui Agreement see OAPI banks, and global crisis 95–6 Bayh–Dole Act 1980, USA 65 biodiversity, India 113, 117–23 Biological Diversity Act 2002, India 117–23 biotechnology: India 113–17; Kenya 50; South Africa 47–8 Brazil 3, 5, 55 business incubators (BIs), Thailand 2, 72, 72–3, 75–6, 79 business linkages, HSP, Taiwan 143–4, 150–6, 151, 153–4, 156, 161–4 carbon footprint, China 36 ‘Catch-up Industrialization’ 81 Central and Eastern Europe 3–4; EU Framework Programme (2007–13) 91–2; and global economic crisis 85–9, 86–9, 90; see also Poland CHE see Commission on Higher Education, Thailand China: infringement 2, 3, 4, 7, 30–1; oil deals with Nigeria 53; SAC standard setting 6–7; Zhongguancun Science Park 17; see also China, innovation/IPRs China, innovation/IPRs 29–31, 33–7; comparison with India 31–3; and economic growth 17–18, 21–2, 35; OECD reviews/analyses 27–8; societal innovation 23–5 Chulalongkorn University Intellectual Property Institute (CUIPI), Thailand 74–9, 76–8, 80 climate change 36

166 Index Clustering Strategy, Thailand 71 clusters 19–20, 35, 157; cluster analysis 152–4, 153–4; Pochampalli, India 108–9; science and technology parks, China 17, 28; ‘Silicon Hills’, Austin, US 68, 69; see also Hsinchu Science Park, Taiwan coffee industry, sub-Saharan Africa 51, 55–6 colonial legacy 3 COMESA report, Ethiopia 55 commercialization/industrialization, inventions 47; ‘Catch-up Industrialization’ 81; Taiwan 145–6; see also UITT, US/Thailand Commission on Higher Education (CHE), Thailand 72–3 Community Patent System 95 Companhia Vale do Rio Doce, Brazil 55 consumer demand 98 Coorg oranges, India 112 copyright: India 105; sub-Saharan Africa 49, 54–5; Turkey 135 counterfeit goods: China 7; South Africa 45; sub-Saharan Africa 49, 53, 57–8; Turkey 125, 134, 135 cross-border IP 1–2, 9–13; Asia and Japan 4–5; and generic drugs, India 7–8; patent replication/examination 8–9; SAC standard setting, China 6–7; theoretical models 2–4 CUIPI see Chulalongkorn University Intellectual Property Institute, Thailand cultures, attitudes to IP 13 Customs Union Agreement, Turkey 125, 128, 138 Darjeeling tea, India 112 debt 97–8 design centre alliances (DCAs) 155 diffusion, GIS 23, 24 Dr Reddy’s Laboratories Ltd 8 drugs see pharmaceuticals ‘Dual Policies’, Thailand 71, 75, 76 earnings 97 Eastern Europe see Central and Eastern Europe EAT-SET (emergency auto transfusion set), Nigeria 53 education/training: in IP 13, 58–9; in technology, India/China 25, 27–8, 31–2 Ethiopia 55–6, 56–7

Europe: geographical indications 107; Open Source Systems 12; SMEs 7 European Patent Convention (EPC) 130, 131 European Patent Office (EPO) 2, 12, 59 European Union (EU) 3–4, 33, 85, 94–5; supporting innovation 91–3, 93; and TDCA, South Africa 44–5; and Turkey 127, 128–34, 129–34, 136–7, 136–8, 138; see also Central and Eastern Europe exports: coffee, Ethiopia 55–6; flowers, Kenya 50; and global economic crisis 86, 87–8, 88, 100; high-tech, India/China 22–3, 24; Taiwan 144, 150–1, 151, 161–4; Turkey 127, 137, 137–8 FDI see foreign direct investment financial crisis, global 83–5, 100–3; Central and Eastern Europe 85–9, 86–9, 90; and economic growth 96–100; EU and innovation 91–3, 93; future of the economies 95–6; importance of IP 93–5; Poland’s future 89–91, 91–2 financial innovation 17 Finland 19, 33, 46, 52 ‘first-order’ innovation 16–17 flower industry, Kenya 50 foreign direct investment (FDI) 1, 5, 19, 98–100; China 34; South Africa 44–5; sub-Saharan Africa 52, 53; Thailand 70; Turkey 127–8, 136–7, 136–7, 139 forest rights, India 117–23 foundry technology, semiconductors 155–6, 156 Framework Programme (2007–13), EU 91–2 France, geographical indications 107 FRAND (fair, reasonable and nondiscriminatory) 6 generic drugs: India 5, 7–8, 28–9, 37; see also pharmaceuticals Geneva Act 61 geographical indications (GIs): India 106–13; sub-Saharan Africa 50–1, 60–1 Geographical Indications Act 1999, India 107–8 Germany, Licence of Rights 12 Ginarte–Park Patent Rights Index 137, 138, 141

Index 167 GlaxoSmithKline 8 Global Innovation Scoreboard (GIS) 23–5 Global Summary Innovation Index (GSII) 23 hierarchical tree plots, cluster analysis 152, 153 Hitachi 4 Hsinchu Science Park (HSP), Taiwan 142–4, 148, 149, 149–50, 157–8; competitiveness and linkage 143–4, 150–6, 151, 153–4, 156, 161–4 ICs see integrated circuits ‘idea-innovation’ chain 18 Idris, Dr Kamil 45 ‘ikkat’ design, India 108–9 Ilukwe, Gerald 53 imitative technologies 16; Japan 4–5 India 3; biodiversity/forest rights 113, 117–23; geographical indications 106–13; pharmaceutical industry 5, 7–8, 13, 28–9, 37, 120–3; plant variety protection 113–17; technical education 25, 31–2; see also India, innovation/IPRs India, innovation/IPRs 17–18, 21–3, 28–9, 31, 37–8, 105–6; comparison with China 31–3; and economic growth 20–1; NKC survey 26–7; societal innovation 23–5; World Bank report 25–6 Indian Patents Act 1970 28–9 Indigenous Innovation Product Accreditation Program 6–7 industrialization see commercialization/ industrialization, inventions Industrial Property Act 2001, Kenya 49 industrial property rights, Turkey 128–9, 129 Industrial Technology Research Institute (ITRI), Taiwan 145, 146 infringement 1–2, 13; China 2, 3, 4, 7, 30–1; innocent infringement/Soft IP 12; Japan 5; South Africa 45; sub-Saharan Africa 49, 53, 57–8; Turkey 125, 134, 135 Innovating Regions in Europe (IRE) network 33 innovation 5, 15–18; EU supporting members 91–3, 93; financial 17; innovative capabilities, pharmaceuticals 8; ‘Low-end Disruptive Innovation’ 81; National Innovation Systems 18–20, 33;

South Africa 45–6, 47–8; sub-Saharan Africa 52–3, 58; see also China, innovation/IPRs; India, innovation/IPRs; patents; R&D; UITT, US/Thailand innovation drivers, GIS 23, 24 integrated circuits (ICs): Kenya 52; Taiwan 144, 155–6, 156 Intellectual Property Commission Bill, Nigeria 54 intellectual property, GIS 23, 25 intellectual property rights (IPRs): correlation with foreign investment 136; definition 1; see also China, innovation/IPRs; geographical indications (GIs); India, innovation/IPRs; Turkey Intellectual Property Rights from Publicly Financed Research Act 2009, South Africa 48 international cooperation see cross-border IP International Maritime Law 8–9 International Patent Classification (IPC) 146–8, 148–9, 160–1 International Property Rights Index 136, 136 International Technology Roadmap for Semiconductors (ITRS) 156 inventions see innovation investment see foreign direct investment (FDI) Ireland 19 IRE network 33 Islands of Innovation 20 ITRI see Industrial Technology Research Institute, Taiwan Japan 1, 18–19; infringement 5; ‘Kiondo’ dispute with Kenya 51; and the PPH 11–12; relationships with other Asian countries 4–5 Japan(ese) Patent Office (JPO) 12; and ARIPO 59–60; and OAPI 60 Jeevani herbal drug, India 13, 120–3 job creation, South Africa 46–7 Kani tribe, India 120–3 Kasetsart University, Thailand 72 Kenya 49–52, 52, 59 Keynesian economics 95, 100 ‘Kikoi’ dispute, Kenya/UK 51 ‘Kiondo’ dispute, Kenya/Japan 51 knowledge-based economy, South Africa 47–8

168 Index knowledge creation, GIS 23, 24 knowledge spillovers, HSP, Taiwan 143 Koizumi government, Japan 4 Kota Doria, India 110–11 language and IP 13 Latin America see Brazil Law on Intellectual and Artistic Works, Turkey 129 Layout-Designs of Integrated Circuits Bill, Kenya 52 legislation 1; China 2, 30; India 28–9, 107–8, 113–23; South Africa 43, 47–8; sub-Saharan Africa 49–50, 52, 54, 56, 56, 59, 61; United States 5, 65 Licence of Rights (LOR) 12 Light Years IP 55 ‘Low-end Disruptive Innovation’ 81 Mangena, Dr Mosibudi 46 Matsushita 4 medium enterprises (MEs) see small and medium enterprises (SMEs) multinational corporations (MNCs), India and China 21, 34 nanotechnology 9; China 35; US National Nanotechnology Initiative 142–3; see also Taiwan National Biodiversity Authority, India 119 national categories, GIS 24 National Innovation Systems (NIS) 18–20, 33 National Knowledge Commission (NKC), India 26–7 National Nanotechnology Initiative (NNI), US 142–3 national orientation, high-tech products 22 National Science and Technology Program for Nanoscience and Nanotechnology (NSTPNN), Taiwan 143, 145, 145–6 Nigeria 52–5, 54 Nokia 52 Notice 618 see Indigenous Innovation Product Accreditation Program Novartis 29 Nutriscience Innovations, US 122–3 OAPI (Organisation Africaine pour la Protection de la Propriété Intellectuelle) 58, 60–1 OECD (Organisation for Economic Cooperation and Development) 26, 27–8, 137–8

oil industry, China/Nigeria 53 one tambon one product (OTOP), Thailand 71, 72 Open Source Systems (OSS) 12 Ovadje, Dr 53 Paris Convention 57 Patent Cooperation Treaty (PCT) 11, 43–4, 43, 54, 54, 57, 130, 131 Patent Prosecution Highway (PPH) 11–12 patents 8–9; China 30, 35; India 8, 26, 28–9, 105, 119; international cooperation 9–11; and levels of technology 13; Licence of Rights 12; Poland 94; SAC standard setting 6–7; South Africa 43, 46–7; Taiwan 146–9, 147–9, 160–1; Thailand 72–3, 72–3, 75, 76; Turkey 128–9, 130–1, 131–3; see also infringement; innovation Patents Acts, South Africa 43 PatentScope Gateway 11 PCT see Patent Cooperation Treaty Pfizer 49 pharmaceuticals: data exclusivity, Turkey 135; generic drugs, India 5, 7–8, 28–9, 37; Jeevani herbal drug, India 13, 120–3 Piegou effect 98 piracy: sub-Saharan Africa 49, 53, 57–8; Turkey 125, 134, 135 plant variety protection: India 113–17; Kenya 50 Pochampalli ‘ikkat’, India 108–9 Poland 3; economic future 89–91, 91–2; and global economic crisis 85–6, 97; importance of IP 93–5; R&D/defence spending 92–3, 93; see also Central and Eastern Europe PPH see Patent Prosecution Highway productive capacity, high-tech products 22 Protection of Plant Varieties and Farmers’ Rights (PPVFR) Act 2001, India 113–17 Ranbaxy 8 R&D 2; China 22–3, 27–8, 34; FRAND 6; GIS 23, 24; India 8, 22–3, 26, 31–2; Kenya 52; Poland 92–3, 93; South Africa 45–6; Taiwan 143, 145; Turkey 139; see also innovation; UITT, US/Thailand RCA see revealed comparative advantage, HSP, Taiwan Recognition of Forest Rights Act 2006, India 117–23

Index 169 Regional Development Platform Method (RDPM) 33 regional innovation systems 20 research and design/development see R&D research institutes, China 27–8, 33–4 revealed comparative advantage (RCA), HSP, Taiwan 144, 150–1, 151, 161–4 royalties 6; forest rights, India 119, 121–2 SAC see Standardization Administration of China sacred groves, India 123 SBIR see Small Business Innovation Research, US Scheduled Tribes and Other Forest Dwellers (Recognition of Forest Rights) Act 2006, India 117–23 Science and Engineering Indicators (SEI) 21–3, 31 science and technology parks: China 17, 28; see also clusters Scotch Whisky Association 107 ‘second-order’ innovation 16–17 seeds see plant variety protection Seeds and Plant Varieties Act 2002, Kenya 50 SEI see Science and Engineering Indicators semiconductors, Taiwan 155–6, 156, 157–8 Shankar, Ravi 106 Shinawatra, Thaksin 71 Sibanda, McLean 47 Sierra Leone 59 ‘Silicon Hills’, Austin, Texas 68, 69 Singapore 5, 19 small and medium enterprises (SMEs) 7, 33; Thailand 75, 79 Small Business Innovation Research (SBIR), US 70 societal innovation, China and India 23–5 socioeconomic infrastructure, high-tech products 22 Soft IP 12 solar panels: China’s dumping of 36; commercialization of 47 Sony 4 South Africa 42–4, 61; IP and FDI 44–5; IP and job creation 46–7; IP and R&D 45–6; progress in IP and innovation 47–8 South African Patents Act 47

South Korea 4, 5 Standardization Administration of China (SAC) 2, 6–7 standards: SAC standard setting 6–7; see also TRIPs Agreement start-up ventures, US universities 66–70, 67–9 sub-Saharan Africa 48–58, 54, 56–7, 61; ARIPO initiatives 58–60; OAPI initiatives 58, 60–1 sui generis system, India 106, 113–14 Sun Pharmaceutical Industries Ltd 8 Swiss–Kenyan Project on Geographic Indications 50–1 Taiwan 3; investment and patents 144–50, 145–50, 160–1; see also Hsinchu Science Park (HSP), Taiwan Taiwan Semiconductor Manufacturing Corporation (TSMC) 142, 155–6, 156, 157–8 TBGRI see Tropical Botanical Gardens Research Institute, India TDCA see Trade, Development and Cooperation Agreement tea industry: India 112; Kenya 51 technical education: China 27–8; India 25, 31–2 Technical Licensing Organisations (TLOs) see UITT, US/Thailand technological infrastructure, high-tech products 22 technologies see innovation; R&D Technology Management Centres (TMCs) see UITT, US/Thailand technology transfer/exchange: China 27–8, 34; IRE network 33; see also UITT, US/Thailand ‘techno-nationalism’, China 34 Thailand see UITT, US/Thailand Thaksinomics, Thailand 75 theoretical models 2–4 ‘third-order’ innovation 16–17 TLOs/TMCs see UITT, US/Thailand TPI see Turkish Patent Institute Trade Descriptions Act 2002, Kenya 49 Trade, Development and Cooperation Agreement (TDCA) 44 trade marks: and geographical indications 107; India 105; Kenya 52, 52; Turkey 134, 134 Trade Marks Act, Nigeria 54 Trade-Related Aspects of Intellectual Property Rights see TRIPs Agreement

170 Index traditional knowledge 3, 5, 12–13; forest dwellers, India 13, 106, 117–23; Kenya 51; Kota Doria, India 110–11; Pochampalli ‘ikkat’, India 108–9; see also geographical indications (GIs) training see education/training Triadic patents 25, 35 TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement 28–9, 36, 45, 106, 113, 128, 135 Tropical Botanical Gardens Research Institute (TBGRI), India 120–3 TSMC see Taiwan Semiconductor Manufacturing Corporation Turkey 125–6, 140; comparison with EU members 136–7, 136–8; economic progress 126–8; EU and world influence, IPRs 3–4, 127, 128–34, 129–34, 138; future of economy and IPRs 137–9; implementation of IPRs 134–6 Turkish Patent Institute (TPI) 128–9, 130–1, 131–4 UITT (University–Industry Technology Transfer), US/Thailand 2, 65–6; Chulalongkorn University 74–9, 76–8, 80; science/technology policy 70–1; TLOs/TMCs 66–70, 67–9; UBIs/TLOs 2, 72–4, 72–3, 75–6, 79

United Kingdom (UK): ‘Kikoi’ dispute with Kenya 51; Licence of Rights 12; trade with South Africa 45 United Nations Development Programme (UNDP) 53 United States (US) 1, 5, 46, 139; innovation system 19; and Jeevani herbal drug, India 122–3; National Nanotechnology Initiative 142–3; and Open Source Systems 12; trade with South Africa 45; see also UITT, US/Thailand United States Patent and Trademark Office (USPTO) 12, 60 university business incubators (UBIs), Thailand 2, 72–4, 72–3, 75–6, 79 University–Industry Technology Transfer see UITT, US/Thailand valuation of IP 12–13 World Bank, report on India 25–6 World Intellectual Property Organization (WIPO) 5, 9–11, 36, 44, 59 World Trade Organization (WTO) 125, 140; see also TRIPs Agreement ‘zero-order’ innovation 16–17 Zhongguancun Science Park, China 17