Intellectual Property and Innovation in the Knowledge-Based Economy

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ABSTRACT � Intellectual property rights (IPR) are institutional tools

that allow for the creation of markets to stimulate private initiatives

in intellectual creation. Basically, this amounts to restricting access

to knowledge by granting temporary exclusive rights to new

knowledge and thus enabling the inventor to set a price for its use.

Patents and copyrights are the main intellectual property rights used

to guarantee a degree of exclusivity to knowledge. Creating

monopolies on knowledge lead, however, to serious problems in the

allocation of economic resources. Patents and copyrights create

static distortions in resource allocation due to monopoly pricing and

may encourage socially wasteful expenditures by urging innovators

to invent around the patent. An overview of the economic and

policy issues surrounding intellectual property rights is presented,

with a particular focus on patents and copyrights. The main

economic challenge raised by the patent system is to keep a

balance between the social objective of ensuring efficient use of

knowledge, once it has been produced, and the objective of

providing ideal motivation to the private producer.

RÉSUMÉ � Les droits de propriété intellectuelle sont des outils

institutionnels permettant la création de marchés en vue de

stimuler des initiatives privées en création intellectuelle.

Fondamentalement, cela revient à restreindre l’accès au savoir en

octroyant des droits temporairement exclusifs sur un nouveau

savoir et donc en permettant à l’inventeur d’établir le prix de son

utilisation. Les principaux droits utilisés pour garantir une certaine

exclusivité sur un savoir sont les brevets et les droits d’auteur.

Toutefois, la création de monopoles fondés sur le savoir suscite de

graves problèmes dans l’allocation des ressources économiques.

Les brevets et les droits d’auteur entraînent des distorsions

statiques dans l’allocation des ressources en raison de l’établis-

sement de prix de monopole et risquent d’encourager un gaspillage

social des dépenses en amenant les innovateurs à créer des

inventions tout en contournant les brevets. Le présent article offre

un aperçu des enjeux économiques et politiques entourant les

droits de propriété intellectuelle, en s’attachant plus parti-

culièrement aux brevets et aux droits d’auteur. Il se poursuit par une

analyse du principal problème économique soulevé par le système

des brevets, soit l’établissement d’un équilibre entre l’objectif social

d’assurer une utilisation efficace du savoir, une fois qu’il a été créé,

et l’objectif consistant à offrir une motivation idéale aux producteurs

privés. (Traduction www.isuma.net)

B Y D O M I N I Q U E F O R A Y

Intellectual Property and Innovation in the

Knowledge-BasedEconomy

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intellectual property and innovation in the knowledge-based economy

Two categories of property rights have becomepredominant as regards scientific and technologicalknowledge: copyright and patents. Surprisingly,

these two categories have moved closer together over time.Initially they were far apart, with copyrights covering liter-ary and artistic property rights and patents covering indus-trial property rights. But with the development of scientificand technological knowledge these different rights haveoften been applied to useful knowledge that enters the in-dustrial sphere. The merging of patents and copyrights isdue essentially to the fact that copyright has conquered newground. By becoming the right most frequently used by theinformation technology and culture and multimedia indus-tries, copyright has “entered the corporate world.”

Patents: definitionsThe patent, an instrument designed to protect innovators,ensures them the right to a temporary monopoly on thecommercial exploitation of a device or method. It is a prop-erty title that is valid in time (duration), in geographic space(range) and in the world of objects (scope or extent of thepatent). Filing a patent application means defining a set ofclaims concerning the concretization or application of anidea. After an investigation into anteriority and in somecases a study of patentability, the patent authority may ormay not grant property rights for a particular geographicalarea specified in the application. In exchange for patentrights the inventor has to divulge publicly the technicaldetails on the new knowledge.

Certain legal limits ensure that not all the knowledgeproduced by an economic agent is patented. Patentability ofknowledge depends on conditions of absolute innovative-ness of the invention, of non-obviousness for an expert, andof the possibility of industrial application (or utility). Theo-retically, the condition of non-obviousness (or inventiveactivity) is intended to distinguish between that which isessentially the product of creative human work and thatwhich is primarily the work of nature. One can patent a newmachine but one cannot patent a fresh water spring even ifone has “discovered” it. As a result, recurrent debate on thenature of innovation in certain disciplines such as mathe-matics—is it an invention or a discovery?—has extensiveeconomic implications. The interpretation of this criterionis of course at the heart of discussions on the patentability ofgenetic creations.

One should note that the protection afforded by a prop-erty right is neither automatic nor free. The

onus is on the patent owner to iden-tify the counterfeiter and takethe matter to court, where itwill be assessed and inter-preted. The effectiveness of

property rights is thereforeinseparable from the cre-ator’s capacity to watchover them. These capac-

ities depend, in turn, onlegal facilities (can someone be sued

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for counterfeit?), technical capacities (microscopic analysis)and organizational capacities (information networks).Moreover, globalization of markets clearly has a negative af-fect on these surveillance capacities.

Patent: between exclusion and diffusion of knowledgeThe patent provides an obvious and recognized solution tothe economic problem of the intellectual creator. By in-creasing the expected private returns from an innovation, itacts as an incentive mechanism to private investments inknowledge production. The problem is that by imposingexclusive rights, the patent restricts de facto the use ofknowledge and its exploitation by those who might havebenefited from it had it been free. These situations occurbecause the person who has the knowledge is not necessar-ily in the best position to use it efficiently. The more dis-tributed knowledge is, passing “from hand to hand,” thegreater the probability of it being exploited effectively. It istherefore important to find some balance between the rightto exclusivity and the distribution of knowledge.

A medium for the dissemination of knowledgeDifferent devices exist for deliberately organizing the circu-lation of knowledge in a patent system. First, the granting ofa property right is accompanied by public disclosure con-cerning the protected technique. There is therefore dissem-ination of knowledge owing to the patent. Albeit partial(only the codified and explicit dimensions of the new knowl-edge are described), this dissemination is particularly im-portant in certain industries. If it is carried out “in time,”and in so far as the information thus constituted is avail-able at a low cost, it allows for a better allocation of re-sources, reduces the risk of duplication and favours the trad-ing of information. The case of pharmaceuticals clearlyillustrates the use of patents as a means of information andco-ordination. Patent databases are a unique medium forknowledge externalities. Each firm uses them to evaluate itsown strategies and identify opportunities for co-operation ortransactions concerning knowledge. Second, patents createtransferable rights.

Getting a good balanceIt is thus important to achieve an appropriate balance be-tween the exclusion value and the dissemination value. Sucha balance is based on the institutional articulation of ip thatcan vary a great deal across countries.

For example, the information disclosure rules matter:1 TheJapanese system is effective for sending signals and placing alarge amount of information in the public domain, thuscontributing to the essential objective of “collective inven-tion.” While the European system tends also to have an effec-tive signalling function (though less powerful), the U.S.system, until recently, was not effective in terms of signalling.Minor institutional differences are important to explain thedisparities of the value of patents as a source of informationand, thus, as a mechanism for efficient coordination. Wheninformation is properly disseminated (as in the Japanesesystem) and when the nature of the protection granted is

specified in ways that encourage patentees to make theirinnovations available for use by others at reasonably modestcosts (narrow patent as well as weak degree of novelty arecrucial in this way), the patent system becomes a vehicle forco-ordination in expanding informational spillovers, ratherthan for the capture of monopoly rents.

But finding the appropriate balance also depends on thekind of knowledge considered. And here the “cumulativenature of knowledge” has to be recognized as a decisiveparameter: the social cost of exclusion increases as knowl-edge becomes more cumulative. In this sense it is not possi-ble to consider and treat in similar terms knowledge as aconsumption good and knowledge as an investment goodlikely to spawn new (knowledge) goods. The more cumu-lative the use, the more social losses will be generated bystronger IP rights.

WHO OWNS THE KNOWLEDGE ECONOMY?

Unbridled privatization of knowledge basesMany signs suggest that use of intellectual property is be-coming increasingly important and that within this generaldomain, use of the patent is growing rapidly. The greater in-tensity of innovation, characteristic of the knowledge-basedeconomy, and the increase in the propensity to patent (thatis, the elevation of the ratio number of patents/number ofinnovations) which indicates the emergence of new researchand innovation management techniques, are the main fac-tors of this quantitative evolution.2 A recent article in theWall Street Journal cites startling figures for the UnitedStates: 151,024 patents were granted in 1998, correspond-ing to an increase of 38 percent compared to 1997. But theevolution is also qualitative. Patents are being registered onnew types of objects such as software (17,000 patents lastyear, compared to 1,600 in 1992), genetic creations anddevices for electronic trade over the Internet, and by newplayers (universities, researchers in the public sector). Thisgeneral trend is also reflected in the increase in exclusivityrights over instruments, research materials and databases.All this contributes to the unprecedented expansion of theknowledge market and the proliferation of exclusive rightson whole areas of intellectual creation.3

ExplanationsThis trend is partly driven by three types of institutionalchanges that are resulting in a privatization of knowledgethat used to be a public good! • powerful commitments to basic research by private firms

in certain sectors (this is, for instance, the case in thegenomics area where we can observe the emergence of anew generation of firms that are highly specialized infundamental research and are, therefore, in direct compe-tition with the public research institutions);

• changes in the behaviour of open science institutionswhich are increasingly oriented toward the promotionof their commercial interests;4

• privatization of governmental civilian agencies whichbecome major players in the contractual research market.5



This evolution is to a large extent determined by howpatent offices and courts in the United States and Europeinterpret the three basic patentability criteria. Courts andpatent offices have always played a role of regulation,blocking or slowing down private appropriation in certainfields. For example, the patentability criteria of “industrialapplication” (utility) was a very effective basis for block-ing the patenting of the first genetic inventions in the late1980s. Nowadays, patentability criteria are being applied insuch a way as to allow most research results to bepatentable. This increasing ability to patent fundamentalknowledge, research tools and databases is part and parcelof a broader movement toward strengthening iprs.

From one IP conception to anotherThis trend does not necessarily lead to an excess of privati-zation of knowledge. Far from it. In many cases the estab-lishment of intellectual property rights strengthens privateincentives, allows the commitment of substantial privateresources and thereby improves the conditions of commer-cialization of inventions. Moreover, the establishment ofprivate rights does not totally prevent the diffusion ofknowledge, even if it does limit it. Finally, a large propor-tion of private knowledge is disseminated outside the mar-ket system, either within consortiums or by means of net-works of trading and sharing of knowledge, the foundationof the unintentional spillovers discussed earlier on.

There is, however, cause for concern when all theseevolutions seem to be in the same direction, strengtheningiprs.6 Traditionally, iprs were considered one of the incen-tive structures society employed to elicit innovative effort.They co-existed with other incentive structures, each ofwhich has costs and benefits as well as a degree of comple-mentarity. We seem to be moving toward a new view, inwhich iprs are the only means to commodify the intangiblecapital represented by knowledge and should therefore be acommon currency or “ruler” for measuring the output ofactivities devoted to knowledge generation and the basisfor markets in knowledge exchange.

Implications: higher transaction costs and potential blockagesA first range of implications involves various phenomena,which can be grouped, for the sake of convenience, underthe heading of “transaction costs increases.” First, sub-stantial ipr-related transaction costs may increase to suchan extent that the result can be the blockage of knowledgeexploitation and accumulation. We might characterize thisas an “excess of privatization.” Second, efforts and costsdevoted to sorting out conflicting and overlapping claims toipr will increase as will uncertainty about the nature andextent of legal liability in using knowledge inputs.

Patent scope and anti-commonsWe have an excess of privatization when private propertyrights block the exploitation of the knowledge that theserights are in fact meant to improve. We have identified twosuch situations. First, initial patents that are too broad andreward the pioneer inventor too generously, block possi-bilities for subsequent research by others and thus reducethe diversity of innovators in a field and the probability ofcumulative developments.7 Second, an excess of privatiza-tion relates to excessive fragmentation of the knowledgebase, linked to intellectual property rights on parcels andfragments of knowledge that do not correspond to an in-dustrial application. This situation is described by the con-cept of an anti-commons regime and illustrated with thecase of biotechnology: when private rights are granted tofragments of a gene, before the corresponding product isidentified, nobody is in a position to group the rights (i.e.,to have all the licences) and the product is not developed.8

Basically, these problems stem from the fact that patentsand innovations are two different realities that do not coin-cide. In some cases a single patent covers many innovations(especially when the field is too large or when the patentprotects generic knowledge). In other cases, a single inno-vation is covered by many patents. This case is the anti-commons regime.

By staking a set of claims, inventors delimit the territorythey want to have recognized as their property (the sameprinciple as fencing off a field). If the field more than coversthe territory of the innovation, subsequent innovations byother inventors, based on the first one, will be blocked. Butif the field is too narrow, the pioneer’s efforts may not berewarded at their full value. Note that a large field is not amajor problem in the case of a discrete innovation. Themetaphor of minerals prospection is useful here. In a giventerritory where there is only one deposit surrounded bynothing else, whether the prospector closes off the territoryvery close to the deposit or far from it, creating a vast field,makes no difference since the additional space appropri-ated is of no value.

The problem is different in the case of interdependentand cumulative innovations. If an initial patent is too broad,it blocks possibilities for subsequent research by others. Itthus reduces the diversity of innovative agents in thedomain and the probability of cumulative developmentstaking place. A case in point is breast cancer genetics where

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The distinction between private and anti-commons property12

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patents owned by private companies protect all reproduc-tion and use of the sequence and related products, includ-ing diagnosis, irrespective of the technique used. Very broadpatents are a real problem in the life sciences, for examplein genomics, as a number of recent studies suggest.9

After studying numerous cases, Merges and Nelsonsuggest that, in a context of interdependent innovations, anintellectual property policy that allows very broad patentsleads to a number of blockages which have an impact onthe general dynamics of innovation in the sector: “In thecumulative systems technology cases, broad, prospect claim-ing, pioneer patents, when their holders tried to upholdthem, caused nothing but trouble… Nor is there reason tobelieve that more narrowly drawn patents wouldhave damped the incentives of the pioneers andother early comers to the field.”10

Another type of situation is called “anti-common” to indicate that its consequencesare the exact inverse of the effects ofcommon resources. It is a situation thathas produced parcels of private prop-erty rights on “indivisible” goods,11 sothat each party, being the owner of aportion of the indivisible good, has theright to exclude others from its shareand no one has the effective privilege ofuse. The distinction between the privateproperty regime and the anti-common regimeis represented in the following figure wheregoods 1, 2 and 3 are represented by cells, and theinitial property rights of individuals A, B and C are repre-sented by lines in bold type.

The private property regime structures the material worldvertically because owners A, B and C each own exclusiverights, 1, 2 and 3 to an entire good (e.g., a piece of land). Inother words, this regime does not prohibit exploitation ofthe resource. In the anti-common regime the lines are hori-zontal since private rights fragment the goods.

Tragedy results from the fact that multiple owners ofparcels or fragments of a good each have the right toexclude others from their parcel, so that nobody can exploitthe good in its entirety. This property regime thus breaksdown and fragments objects. If too many owners have suchexclusive rights (i.e., if there is too much fragmentation),there is a chance that the good will be under-utilized.

How does this regime apply in the knowledge economy?It corresponds to excessive fragmentation of the knowledgebase: in genomics, rights are created on portions of knowl-edge before the corresponding product is identified (whereaspreviously it was the genes corresponding to products thatwere patented, e.g., therapeutic proteins, diagnostic tests).The proliferation of patents on fragments of genes ownedby different agents hugely complicates the co-ordinationrequired by an agent wanting to develop a product. Inparticular, if the acquisition of all necessary licences is toocomplicated or expensive, the product will never material-ize.13 Certain situations in the domain of icts also pose thistype of problem.

The explosion of litigation costsThere is a persistent policy debate in the United States aboutthe litigation explosion. The U.S. patent system has seen adramatic increase in both litigation and administrating pro-ceedings over the past decade. Critics have suggested that the1982 reform of the patent system has led to aggressive ef-forts by large firms to extract favourable settlements fromsmaller concerns.14 Beyond the direct cost for the economy,Lerner15 estimates indirect costs, which correspond to thedistortion of innovative behaviours of small companies. Forexample, small companies in biotechnology try to avoid un-dertaking research in fields with many previous awards byrival biotechnology companies and they tend to choose less

crowded fields. Moreover, those companies tendto avoid fields with companies having large

experience in litigation. Such behavioursintroduce new bias in the choice of

r&d projects, which increase a riskof sub-optimality in the process ofresource allocation among thosevarious research fields.

Certain national patent systemshave some peculiar features thatprove to be effective in minimiz-

ing that problem. For example,European and Japanese systems

provide for the possibility of oppos-ing the application before the rights

have been granted. This is possible oncondition that information concerning the

application is published early enough (within 18 monthsof the application). These mechanisms can avoid potentialconflict, a source of high legal costs. In the United States,where publication occurs at a later stage, once the propertyrights have been granted, this possibility of pre-emptingconflict is not used. Late publication of information createslegal uncertainty.

The “patent-granting culture” matters. The fact of beingindulgent with inventors by granting them everything theyapply for (e.g., a patent that includes subsequent develop-ments, which are not yet defined) creates fragile areas inthe protection of rights and increases the likelihood ofconflict. A patent more strictly limited to innovation reducesthe probability of future conflict.

The institutional diversity is in danger

The asymmetric fragility of open scienceOpen science is caught between the constraints of publicbudgets (to be related to the increase in scientific researchcosts) and growing demands from firms for research ser-vices (following the restructuring of these firms and the con-sequent outsourcing of their r&d activities). In this contextwe witness increasing commercialization of open scienceactivities.16 This represents a real risk of irremediable al-teration of modes of co-operation and sharing of knowl-edge. Restricted access to knowledge and the retention ofknowledge produced by universities comes in several forms,



e.g., delayed or partial publication and communication, se-crecy and patents. A significant form is the exclusive licence(new knowledge is sold exclusively to one firm). When thereis nothing left but exclusive bilateral contracts between uni-versity laboratories and firms, we have forms of quasi-in-tegration that undermine the domain of open knowledge.

As well developed by Argyres and Liebeskind,17 “univer-sity institutional mechanisms have been designed to developand protect the intellectual commons, not to exploit it.Weakening these institutional mechanisms to any significantdegree may rob the university of its unique identity and func-tion as a social institution, and end with its capture by privateinterests.” As a matter of illustration, Mowery et al. notethat in the United States new laws authorizing universitiesto grant exclusive licences on the results of research financedby public funds (especially the Bayh-Dole Act) are based ona narrow view of the channels through which public researchinteracts with industry. In reality these channels are multiple(publication, conferences, consultancy, training, expertise)and all contribute to the transfer of knowledge, while theincentives created by such laws promote only one channel(patenting and licences), with the risk of blocking theothers. The authors’ conclusion is unambiguous: “TheBayh-Dole Act and the related activities of U.S. univer-sities in seeking out industrial funding for collaborativeR&D have considerable potential to increase the‘excludability’ of academic research results and toreduce the ‘knowledge distribution’ capabilitiesof university research.”18

Institutional diversity in dangerA further cause for concern is thefact that the diversity of institu-tional arrangements are beingundermined. The various institu-tions, be they public, private or amix of the two, each fulfils spe-cific functions and somestrong complementaritiesexist between them. However,the space for public research is shrink-ing, and functions which were assumed by openscience are no longer assumed at the same level.

Excessive privatization may undermine the long-terminterests of industry itself (which will benefit from less publicknowledge, less training and screening externalities). Further-more, the scenario of a pure functional substitution (theprivate sector would simply carry out the functions that wereformerly assumed by the public sector) is wrong. We knowthat private companies will never fund the same type of basicresearch that the public sector abandons.19 Similarly, the needfor scientific training could be satisfied only very partially bymarket-based institutions. As argued by Cohen et al.,20 thespillovers from the downstream r&d conducted by firmsengaged in basic research are not likely to fully substitute forthe information flows initially blocked for several reasons.First, firms will try to restrict spillovers to retain proprietaryadvantage. Second, there will typically be considerable lags

between the time the firm receives the privileged informa-tion and the time information spills over to the other firms.

Economic studies on the U.S. model reveal, thus, a degreeof concern. We note one of the conclusions of Cockburnand Henderson: “policies which weaken these institutions[of open science], make public sector researchers moremarket-oriented, or redistribute rents through efforts toincrease the appropriability of public research throughrestrictions in the ways in which public and private sectorswork with each other, may be therefore counter-productivein the long run.”21 This is a strong conclusion that promptsus to scrutinize this new model without being blinded bythe brilliance of its undeniable short-term performance.

NEED FOR NEW POLICIES

In the knowledge economy: “good fences do not make good neighbours”

As Paul David claims, good fences make probably goodneighbours where the resource is land or any other kind ofexhaustible resources.22 But simple considerations of the“public goods” nature of knowledge suggest that this is not

so when the resource considered is knowledge. Knowl-edge is not like forage, depleted by use for consumption;data-sets are not subject to being “over-grazed” but, in-

stead, are likely to be enriched and rendered more accu-rate, and more fully documented the more that re-searchers are allowed to comb through them.

Thus, the shift toward a new policy mix is raisingmany problems and may lead ultimately to major social

losses. In most research fields, “creative discoverycomes from unlikely journey through

the information space.”23 If toomany property rights are assigned to

the micro-components of the informa-tion space, travelling through it proves to

be extremely costly, even impossible, becauseat every point the traveller must nego-tiate and buy access rights. We arefacing here a great paradox that iprs,

which are traditionally used to support theexploitation of knowledge, are becoming ulti-

mately a way to shrink the knowledge base.Of course, the new system of knowledge produc-

tion generates its own regulation, which can bring about acertain equilibrium in some instances. We can list fourclasses of solutions, dealing with the various problems devel-oped below.1. Mechanisms are devised to support, in certain circum-

stances or for certain classes of economic agents, the fastdissemination and free exploitation of private knowledge.There are three main mechanisms:• Compulsory licensing (compulsory diffusion of private

knowledge for the general interest).• The State or international foundations buy patents to

put them back in the public domain. To illustrate thismechanism Kremer24 uses the historical case ofDaguerre, the inventor of photography who neither

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exploited his invention nor sold it for the price hewanted. In 1839 the French government purchased thepatent and put the rights to Daguerre’s invention in thepublic domain. The invention was developed very fast!

• Ramsey pricing rule suggests price discriminationbetween users whose demands are inelastic and thosefor whom the quantity purchased is extremely price-sensitive. The former class of buyers therefore will bearhigh prices without curtailing the quantity purchased ofthe goods in question, whereas the low prices offered tothose in the second category (e.g., scholars and univer-sity-based researchers) will spare them the burden ofeconomic welfare reducing cutbacks in their use of thegood.25

2. Granting non-exclusive licences, presumably with mini-mal diligence or exclusive licences with diligence, offersa partial solution to the problem of licensing knowledgeproduced by publicly funded research programs inuniversities.

3. Cross-licensing mechanisms may be a way out of theanti-commons trap. Transactions costs can be reducedthrough mutual concessions and through the trading ofrights (for example, within a consortium). However, thisis a solution that can only work with a small number ofcompanies. In that regard, the rapid growth of new kindsof firms does caution against over-confidence that theanti-commons problems can be surmounted. For exam-ple, the computer hardware industry had few problemswith its cross-licensing arrangements, until new kinds ofsemi-conductor companies arose.

4. There is a great deal to be done in terms of the ways inwhich patent offices enforce patent requirement (i.e.,make their assessments of utility requirement, non obvi-ousness, patent scope). One should note however thathybrid and complex objects — such as genes, dnasequences, software, databases—generate a lot of uncer-tainties about what ipr policy is appropriate, making thetasks of patent offices very difficult. It is difficult toprovide non-ambiguous and clear answers to the ques-tion whether these new objects should be privately appro-priated; and if yes, what class of ipr should be used. However, the main policy challenge is far beyond the

implementation of those partial solutions. It deals with theachievement of the right balance in the joint deployment ofthe three institutional devices. With such a balance, thesystem can be expected to find quite naturally the properappropriability mechanism for each kind of knowledge(whether the knowledge is highly cumulative or is more likea “final product” or like a consumption capital). However,meeting such a challenge is strictly dependent upon restor-ing some large public and private funding to the patronagesystem. The reinforcement of the patronage system has to becombined with the provision of some kind of intellectualproperty aiming at protecting a good from private appropri-ation (something like a general public licence used to protectopen software). A large room for policy thinking deals,finally, with the creation of new categories of intellectualproperty such as that of the “common good.” The latter is

proposed by lawyers who think that some new complex andhybrid objects (like genes) do not fit in the usual categories ofprivate-public goods and propose to work on a new cate-gory: the common good. Under a common good regime,innovation defies patrimonial and commercial appropriation.The private company that is in possession of it for industrialexploitation is not the owner of the good but serves as a sortof manager. Such a regime would allow for the emergence ofan industry while avoiding private and exclusive rights.

Understanding what a “strong” patent systems actually means The arguments developed here may create the impressionthat we are pleading for shifting towards a weaker patentsystem. Before saying that, one needs a more precise defin-ition of what is a strong (and a weak) patent system. Theidea of “strong” has not necessarily to be related with theexclusionary value of patent. In fact, many of the solutionsproposed are weakening the exclusionary value, whilestrengthening the system as a whole. Compulsory licens-ing, Ramsey pricing rule, narrower patent, new commongoods regime and licences with diligence are actually meansto diminish the private value of individual increments tothe privately owned knowledge base, even though they mayraise its social value. Approaching that problem dictatesthat we make more attractive the forms of intellectual prop-erty protection that require detailed disclosure and generateinformational spillovers. This can be done by educatingpeople that all these various solutions, in fact, contributeto the strengthening of the system by reducing legal uncer-tainties and the probability of legal conflicts and litigations,and thus increasing the confidence of agents to the system.

Reinforcing the protection of IP, which is a matter ofinstitutional and legal adjustments (in the sense of unifyingpatent doctrine for minimizing ambiguities and uncertain-ties in patent suits or of decreasing the cost of patent appli-cation or improving enforcement conditions) aiming atincreasing legal certainty, does not mean reinforcing theexclusivity value of patents, which impedes knowledgedissemination and the collective progress of industries. Andactions and policy recommendations aimed at reducing theexclusion value of patents are compatible with this versionof what a strong system of iprs is.

Dominique Foray is Principal Administrator at the Center for Education,Research and Innovation, OECD. This paper has benefited immeasurably fromprevious and present collaborative projects with R.Cowan, Paul David,Bronwyn Hall, Jacques Mairesse and Ed Steinmueller. Insightful discussionswith them as well as the remarks of participants to the EC STRATA workshopon IPR aspects of integrated Internet collaborations (Brussels, January 22-23,2001) have contributed substantially to improving the exposition.

Endnotes1. W. Cohen, A. Goto, A. Nagata, R. Nelson and J. Walsh, “r&dSpillovers, Patents and the Incentives to Innovate in Japan and theUnited States,” Working Paper (2001).2. S. Kortum and J. Lerner, “Stronger Protection or TechnologicalRevolution: What Is Behind the Recent Surge in Patenting?” HarvardBusiness School, Working Paper (1997), pp. 98-012.3. A. Arora, A. Fosfuri and A. Gambardella, “Markets for Technol-ogy—(Why Do We See Them, Why Don’t We See More of Them,



and Why We Should Care),” Universidad Carlos iii de Madrid,Working Paper (1999).4. R. Henderson, A. Jaffe and M. Trajtenberg, “Universities as aSource of Commercial Technology,” Review of Economics and Statis-tics (February 1998).5. A. Jaffe and J. Lerner, “Privatizing r&d: Patent Policy and theCommercialization of National Laboratory Technologies,” nber,Working Paper, no. 7064 (1999).6. W.E. Steinmueller, “Problems and Challenges of Integrated Inter-net Collaborations in the Intermediate Area Where Both Commer-cial and Open Science Issues Are Operative,” strata–etanWorkshop, Brussels (January 22-23, 2001).7. S. Scotchmer, “Standing on the Shoulders of a Giant,” Journal ofEconomic Perspectives, Vol. 5, no. 1 (1991).8. M. Heller and R. Eisenberg, “Can Patents Deter Innovation? TheAnticommons in Biomedical Research,” Science, Vol. 280 (1998).9. M. Cassier and D. Foray, “Appropriation Strategies and Collec-tive Invention: New Findings from Case Studies,” InternationalConference, Paris (November 19, 1999), sessi, French Ministry ofIndustry; S.M. Thomas, “Les brevets en surrégime,” Biofutur, Vol.191 (1999).10. R. Merges and R. Nelson, “On Limiting or Encouraging Rivalryin Technical Progress: The Effect of Patent Scope Decisions,” Journalof Economic Behavior and Organization, Vol. 25 (1994).11. M. Heller, “The Tragedy of the Anticommons: Property in theTransition from Marx to Markets,” Harvard Law Review, Vol. 111,no. 3 (1998).12. Heller, ibid.13. M. Heller et al., op.cit.14. A. Jaffe, “The U.S. Patent System in Transition: Policy Innovationand the Innovation Process,” nber, Working Paper no. 7280 (1999).

15. J. Lerner, “Patenting in the Shadow of Competitors,” HarvardBusiness School, Working Paper (1994).16. D. Foray, “Science, Technology and the Market,” World SocialScience Report (London: unesco Publishing/Elsevier, 1999).17. N. Argyres and J. Porter Liebeskind, “Privatizing the IntellectualCommons: Universities and the Commercialization of Biotechnology,”Journal of Economic Behavior & Organization, Vol. 35 (1998).18. D.C. Mowery, R.R. Nelson, B. Sampat and A.A. Ziedonis, “TheEffects of the Bayh-Dole Act on US University Research and Technol-ogy Transfer: An Analysis of Data from Columbia University, theUniversity of California, and Stanford University,” Kennedy Schoolof Government, Harvard University (1998).19. K.M. Brown, Downsizing Science (Washington DC: The aei Press,1998).20. W.M. Cohen, R. Florida, L. Randazzese and J. Walsh, “Industryand the Academy: Uneasy Partners in the Cause of TechnologicalAdvance,” in R. Noll (ed.), Challenge to the Research University(Washington, DC: Brookings Institution, 1998).21. I. Cockburn and R. Henderson, “Public-Private Interaction andthe Productivity of Pharmaceutical Research,” nber, Working Paper,no. 6018 (1997).22. P.A. David, “Digital technologies, Research Collaborations andthe Extension of Protection for Intellectual Property in Science: WillBuilding ‘Good Fences’ Really Make ‘Good Neighbors’?”strata–etan Workshop, op. cit, supra note 6.23. G. Cameron, “Scientific Data, the Electronic Era, Intellectual Prop-erty,” ibid.24. M. Kremer, “Patent Buy-Outs: A Mechanism for EncouragingInnovation,” nber, Working Paper no. 6304 (1997).25. P.A. David, “The Digital Technology Boomerang: New IntellectualProperty Rights Threaten Global ‘Open Science’,” forthcoming in theWorld Bank Conference Volume: abcde–2000.

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