How Does Intellectual Property Encourage Innovation?

The intellectual property rights system provides incentives to innovators for producing new creations and inventions, by providing forms of protection for creators and inventors, for limited timescales. This timescale enables originators to profit from their work.

What Are ‘Intellectual Property Rights’ (IPR)?

Simply, an original technology or process is patentable, or an original work in music or art (even software code) may enjoy a copyright. Ideas cannot be patented or copyrighted. Computer software cannot be patented, but the code within it can be copyrighted. The timescales of the rights vary. For example, patents last for, typically, 25 years. Authors’ works are copyrighted until 70 years after their death. Timescales vary internationally, and not all countries are parties to international agreements.

A key exception to the IPR framework is the business model. A company which develops an innovative business model cannot protect that model from being copied – Amazon has many competitors. However, some techniques (such as ‘1-Click’) used in the business model can be patented.

Patent protection is a complex area, and expert advice is essential if an innovation or other work is to enjoy protection.

How new creations and innovations benefit all.

Technologies and inventions that have benefited millions may not have existed without a patents framework. Lifesaving drugs, plant science products, kidney dialysis machines and other inventions help improve lives all around the world.

Copyright stimulates the arts, including music, literature, film and television works, which entertain billions. On the back of these artistic outputs, whole industries exist, and these in turn generate IPR. For example, special effects equipment for the cinema evolved, and a whole industry now exists to provide computer animation – with many patents.

Innovation drives business, but if an innovation can be copied without any form of protection, then there is little incentive to develop it. Indeed, there is little incentive to ‘invent’ at all. So, ‘benefit for all’ is founded on commercial returns from IPR.

How markets can finance innovation and creation.

Financing is the key to creation and innovation.

Venture capitalists and sophisticated investors seek out companies which have patent banks or other IPR which can be exploited, but a lack of cash to capitalise on their IPR assets. Other forms of funding are available too – government grants, even private foundations.

Companies who have innovation strategies find external finance for exploiting their IPR by working through IPR licensing, strategic partnerships, and venture capitalists. Innovation is seen as being at the riskier end of business investment, so the usual public capital markets are less practical.

A continuous cycle of innovation.

Patent applicants are required to publish details of their inventions. These published patents and patent applications in the patent office database are a publicly available source of scientific and technical information. This knowledge pool creates a cycle of innovation by stimulating further research and development.

Publication also helps avoid duplication of research effort. However, many patents are ‘defensive’ – for example protecting alternative production processes for a new drug which may have twenty or more patents associated with it. This makes it more difficult for competitors to circumvent patents, but still they try – and then generate patents of their own during the ‘reverse engineering’ process.

An example of how intellectual property helps.

The IPR system was instrumental in the development of indigenous technologies by companies in Korea. A poor farming economy in the 1960s, it had a per capita income of less than $100. Today, Korea is a highly industrialised country with a per capita income of over $12,000. Several Korean companies are now world market leaders.

This transformation was the result of a systematic trade and economic development policy that provided incentives for technological innovation together with an IPR legal framework.

Source by Edward Jamieson

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