IP pro­tec­tion may ben­e­fit all of so­ci­ety

In­tel­lec­tual prop­erty rights can en­cour­age in­no­va­tion — but tak­ing them too far can lead to the sti­fling of cre­ativ­ity

China Daily European Weekly - - COVER STORY - The au­thor is a pro­fes­sor at the Guanghua School of Man­age­ment at Pek­ing Univer­sity. The views do not nec­es­sar­ily re­flect those of China Daily.

China is still at the building stage for a ba­sic level of IP pro­tec­tion and, as Pres­i­dent Xi Jin­ping men­tioned at the Boao Fo­rum for Asia in April, the coun­try will strengthen pro­tec­tion of IP rights.

Cre­at­ing an ef­fec­tive de­sign for in­tel­lec­tual prop­erty pro­tec­tion helps avoid two ex­treme sce­nar­ios: 1) there is no mu­sic avail­able to lis­ten to and 2) the avail­able mu­sic is not af­ford­able.

In­tel­lec­tual prop­erty takes the form of patents, copy­right and trade­marks, which grant the creators of an orig­i­nal work recog­ni­tion and fi­nan­cial ben­e­fit from what they pro­duce. Some ba­sic level of IP pro­tec­tion is nec­es­sary to en­cour­age the cre­ation of new work, but overzeal­ous IP pro­tec­tion lim­its the dif­fu­sion of in­ven­tions and harms so­ci­ety, as those who fol­low can­not build their re­search on the most re­cent find­ings. China is still at the building stage for a ba­sic level of IP pro­tec­tion and, as Pres­i­dent Xi Jin­ping men­tioned at the Boao Fo­rum for Asia in April, the coun­try will strengthen pro­tec­tion of IP rights.

We are ex­pect­ing a flow of in­no­va­tion to fol­low, but we should also be care­ful that pro­tec­tion doesn’t go too far.

A ba­sic level of IP pro­tec­tion en­cour­ages in­no­va­tion and cre­ation, as ev­i­denced by events dur­ing the Napoleonic Wars in Italy. The pri­mary pur­pose of IP pro­tec­tion is to re­ward its creators with some mone­tary pay­off to en­cour­age fur­ther cre­ation, and re­cent study of his­tory demon­strates that a ba­sic level of pro­tec­tion can suc­cess­fully en­cour­age the cre­ation of orig­i­nal work.

Pro­fes­sor Michela Gior­celli from the Univer­sity of Cal­i­for­nia, Los An­ge­les, and Pro­fes­sor Pe­tra Moser from New York Univer­sity — both in the United States — have stud­ied the ef­fects of copy­rights on the out­put of new op­eras in Italy around the year 1800. They have found that the in­tro­duc­tion of a ba­sic level of copy­right pro­tec­tion for the cre­ation of op­eras, where it had pre­vi­ously been ab­sent, in­creased both qual­ity and quan­tity of opera out­put.

A com­mon chal­lenge faced by this kind of study is dis­en­tan­gling the im­pact of IP pro­tec­tion from other ef­fects, such as so­cial trends. Gior­celli and Moser have ex­ploited the vari­a­tion in tim­ing of Napoleon’s mil­i­tary vic­to­ries in Italy to over­come this chal­lenge. More specif­i­cally, in the first quar­ter of the 19th cen­tury, two Ital­ian states that came un­der Napoleon’s con­trol be­fore the passage of the Civil Code in 1804 adopted copy­rights, while other states that came un­der his con­trol af­ter that year did not. By com­par­ing these two states with the rest, the study has been able to con­trol for other in­flu­enc­ing fac­tors.

In China, IP pro­tec­tion may ben­e­fit all so­ci­ety by en­cour­ag­ing in­no­va­tion in var­i­ous ways. First, it guar­an­tees the cre­ator the ex­clu­sive right to ben­e­fit from the work they have pro­duced. The mag­ni­tude of the ben­e­fit is de­ter­mined by the mar­ket, as works that are per­ceived to be of higher value will gen­er­ate higher fi­nan­cial re­turns, so the top creators re­ceive the great­est re­ward. Sec­ond, with the mone­tary pay­off re­ceived from their work, creators can free up their time from tasks not as­so­ci­ated with con­tent cre­ation, al­low­ing them to al­lo­cate their time more ef­fec­tively. Fi­nally, China is com­pet­ing with other coun­tries to cre­ate a healthy ecosys­tem for in­no­va­tion that can at­tract tal­ented in­no­va­tors. Strong IP pro­tec­tion is nec­es­sary to win this com­pe­ti­tion. With its mas­sive mar­ket and govern­ment sup­port, China will be the home for creators from all over the world, and do­mes­tic and in­ter­na­tional com­pa­nies alike will ben­e­fit.

How­ever, we should not go too far.

Strict im­ple­men­ta­tion of IP pro­tec­tion, brings ben­e­fits to so­ci­ety. How­ever, the de­sign of the pro­tec­tion has other di­men­sions, such as the length of time for which an in­di­vid­ual’s cre­ation can be pro­tected and how broadly the pro­tec­tion may ex­tend to other re­lated ideas. An IP pro­tec­tion pol­icy last­ing too long or ex­tend­ing too broadly will stop the dif­fu­sion of new cre­ations and harm so­ci­ety as a whole.

I re­cently pub­lished a pa­per, with Pro­fes­sor Me­gan MacGarvie from Bos­ton Univer­sity and Pro­fes­sor Moser from New York Univer­sity, that iden­ti­fies a con­sid­er­able price in­crease due to the ex­ten­sion of the length of copy­right in 19th cen­tury Bri­tain. We ex­am­ined Bri­tain’s Copy­right Ex­ten­sion Act of 1814, which ap­plied dif­fer­ing copy­right lengths to books by liv­ing and dead au­thors, to tease out the ef­fect on the price of books. In our anal­y­sis, we found that dou­bling copy­right length had in­creased the price of a book by 50 per­cent, which was twice the weekly wage for a work­ing class man in 19th cen­tury Bri­tain. Be­cause of high prices, read­ers had limited ac­cess to newly pub­lished books.

Many stud­ies in eco­nomics find that the ef­fect of IP pro­tec­tion is al­ways over­stated. Copy­right pro­tec­tion lim­its the dif­fu­sion and later adop­tion of sci­en­tific dis­cov­er­ies. The patent is not a good mea­sure of the level of in­no­va­tion, so the need to pro­tect patent rights is weak. The in­tro­duc­tion of the patent sys­tem in phar­ma­ceu­ti­cals lim­its consumers’ choices and is detri­men­tal to their wel­fare. On the other hand, some in­fringe­ment of IP rights is found to do lit­tle harm. Stud­ies of Nap­ster, the file-shar­ing ap­pli­ca­tion that was be­lieved to en­cour­age mu­sic piracy, have found that its bur­geon­ing use in the 1990s did not lead to a de­crease in mu­sic pro­duc­tion, ei­ther in terms of qual­ity or quan­tity. In fact, com­pul­sory li­cens­ing, which force­fully trans­ferred Ger­man patents to US com­pa­nies dur­ing wartime, even had a pos­i­tive spillover ef­fect of spurring fur­ther in­no­va­tion, both in the US and in Ger­many.

With the strict im­po­si­tion of IP pro­tec­tion, the du­ra­tion and how broadly it is ap­plied both need care­ful thought. A copy­right that out­lives the au­thor can­not lead to more in­no­va­tion, as the work’s cre­ator can­not gain from the money gen­er­ated af­ter his or her death. Over­pro­tec­tion of patents may slow down the pace of in­no­va­tion if later sci­en­tists are not al­lowed to “stand on the shoul­ders of giants” and build their re­search upon ex­ist­ing knowledge. Another down­side is the anti-com­pet­i­tive ef­fect, as the patent may pro­vide the patent holder with a mo­nop­oly for too long.

At its cur­rent stage, China does not need to worry too much about the down­sides of IP pro­tec­tion, as we are im­prov­ing our im­ple­men­ta­tion of ba­sic IP pro­tec­tion to give peo­ple an in­cen­tive to cre­ate and in­no­vate. How­ever, we should bear in mind that pro­tec­tion should not go so far that it makes it dif­fi­cult for an orig­i­nal cre­ation to be widely dis­trib­uted.


Li Xing

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