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Discussion

During the conference, the panel moderator, Arden L. Bement, Jr., invited members of the audience to offer comments and to ask questions of the panelists.

A copyright attorney in the audience expressed sympathy with Robert Lucky's comment about the establishment of technology standards and the inability of R&D-intensive companies to capture fully the benefit of many years of investment when the technology it has developed on a proprietary basis suddenly becomes the international standard. She noted, however, that there is a problem in developing consensual regulations when, for example, proprietary software is being included in a standard. Some would advocate an approach whereby, if proprietary material is to be brought to the negotiating table, it must be labeled as proprietary and a prior agreement must be reached to license it under certain terms and conditions. This differs from Lucky's view that technologies can simply be appropriated as part of the standard-setting process.

Robert Lucky: I did not mean to give the impression that the typical pattern is for an individual and company to work on something for 30 years and then have it expropriated as a standard. It does happen, but the more usual practice is that the standard arises out of an international collaboration that is very deep and where there is a real process of invention taking place in the standards bodies. I recall a meeting at which the chief scientist of AT&T met with researchers and said, "Whether



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Global Dimensions of Intellectual Property Rights in Science and Technology Discussion During the conference, the panel moderator, Arden L. Bement, Jr., invited members of the audience to offer comments and to ask questions of the panelists. A copyright attorney in the audience expressed sympathy with Robert Lucky's comment about the establishment of technology standards and the inability of R&D-intensive companies to capture fully the benefit of many years of investment when the technology it has developed on a proprietary basis suddenly becomes the international standard. She noted, however, that there is a problem in developing consensual regulations when, for example, proprietary software is being included in a standard. Some would advocate an approach whereby, if proprietary material is to be brought to the negotiating table, it must be labeled as proprietary and a prior agreement must be reached to license it under certain terms and conditions. This differs from Lucky's view that technologies can simply be appropriated as part of the standard-setting process. Robert Lucky: I did not mean to give the impression that the typical pattern is for an individual and company to work on something for 30 years and then have it expropriated as a standard. It does happen, but the more usual practice is that the standard arises out of an international collaboration that is very deep and where there is a real process of invention taking place in the standards bodies. I recall a meeting at which the chief scientist of AT&T met with researchers and said, "Whether

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Global Dimensions of Intellectual Property Rights in Science and Technology you people like it or not, the future systems are being designed by the standards committees." I also want to comment on the software issue and whether the software would be put on the table and would be proprietary. What is put on the table are algorithms, rather than software. I share the feeling of many that the real essence of software is the algorithms, really the unpatentable part of it. That is where the real genius and the real invention are, not clothing the algorithms in the code itself. If the algorithms are put on the table, people think they are mathematics and they are available to the world, but that is what the work and investment went into. Another participant commented on Robert Lucky's frustration about his company's inability to recapture fully its R&D investment and speculated whether it was representative, in microcosm, of U.S. unwillingness to recognize that it had lost its technological hegemony. He suggested that this raised again the question of whether the United States should support a differentiated or undifferentiated international intellectual property right (IPR) system, and he asserted that a differentiated system runs counter to the U.S. view of the world, circa 1945 or 1950, and that a differentiated system may well make more sense in terms of the realities of the current world. The speaker suggested looking at the evolution of IPR issues over time in the context of trade negotiations. He used Robert Evenson's country categories and asserted: Trade preferences have absolutely no value for the Bangladesh's, the type 1 countries of the world. They were important for a short period of time for the newly emerging countries, and they became quite irrelevant very quickly once the Taiwans and Koreas made it in the export world. When they were withdrawn, there was not a whimper. A differentiated IPR system, which might involve letting the developing countries of the world have a different kind of patent protection and possibly longer periods for differential treatment in the length of patents and so on, is now being discussed in Geneva and elsewhere. But the NICs are now realizing, and not just under pressure from the United States, that it is in their own interest (particularly if they are investing elsewhere) to worry about a homogeneous kind of IPR protection. So, one can have differentiation without great cost to the innovation process in the advanced countries and still provide incentives for investment in the LDCs (less-developed countries). Unlike some of the panelists, I do not believe that there is a necessary conflict here. I think these are global issues that do have positive-sum games, if we are just a little more flexible in our own attitude and realize that the world is changing and we have to march with the times.

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Global Dimensions of Intellectual Property Rights in Science and Technology A government official in the audience questioned whether Robert Lucky's example of companies that compete with AT&T in telecommunications' markets, but do not invest in R&D, was something analogous to the case of secondary drug manufacturers. That is, is it a case of a generic type of manufacturer attempting to create a niche to make money on an older technology that is in the public domain, or is it really stealing current technology? Robert Lucky: I really did not say that they are stealing, but maybe they are. It may be wrong to equate the other company in my example with AT&T. We really are two different kinds of companies. The other company is more equivalent to one of the business units within AT&T, but that business unit happens to contribute a great deal to research, which is not duplicated by the efforts of AT&T's competitors. So, I believe that this is a process of international knowledge pooling, and here you have a company that is not contributing to the knowledge pool but is living off the work contributed by others. Another government official stated his sense that IPRs could be important, but that many other things affect technology flows and international competitiveness, and they are more difficult to get at. He asked whether some of the attention to the problem of IPRs both internationally and within the U.S. government is simply a way of dealing with something more tangible because we are impotent with regard to the other factors. David Mowery: In my limited and perhaps somewhat heretical view, intellectual property reform bears a close relationship to antitrust reform in that these are gestures that do not have on-budget costs. The consequences are uncertain, but they are political gestures that certainly suggest that something is being done. In recognizing the uncertainty of the ultimate benefits and costs in both of these policy areas, they are actions that the federal government can take for which it does not bear the whole cost. Eugene Skolnikoff: Let me add that while I agree with David Mowery, one ignores at one's peril the momentum of government. It is worth recalling that the patent system has been around since 1790 and there are people in Washington very much concerned with it. A whole industry exists, and it is very natural for the government to want to focus on it. Thus, I do not think that we focus on IPRs because we do not want to do something about other problems. Nevertheless, the net effect is that we are not doing very much about those other problems. An audience member offered four brief comments on what has been going on in industry with respect to IPRs. He noted that uncertainty in the IPR area is worse than wrong decisions, so it is important to do whatever

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Global Dimensions of Intellectual Property Rights in Science and Technology can be done to accelerate the process of stabilizing the rules. His second comment was that failing to deal with IPRs because they may not be the central competitiveness problem will just make things worse, so we should do what we can even though the IPR community does not have any direct influence on capital formation, which is a major business problem. The speaker's other comments offered a longer-range perspective. One had to do with the viability of giving an IPR monopoly to a sequence of things (e.g., numbers or genetic code) that is found in nature. He argued for the need to think seriously about what we are doing (or not doing) with sequences of things that are put together in a novel way by human beings. He suggested that as the world moves into a global information age, a lot of thought is needed about that simple construct or question. Finally, he took note of the assertion made earlier that the historical and cultural roots of our monopoly abilities, grants or whatever, are really different in other cultures than they are in the Western World. If true, this point will require attention from the IPR community before international rules can be solidified. An industry representative commented that he had hoped to hear more about IPR problems in the context of the aerospace sector. He focused particularly on the effort to develop a national aerospace plane by three airframe manufacturers and two engine manufacturers, who have formed a consortium to build within about a decade an airplane that takes off like a plane, goes to space, and returns to earth. They have a contract that involves two departments of the U.S. government. The industry executive raised a question about the technology implications and rights to data that bear upon industry consortiums, particularly in areas of high risk. Robert Lucky: The whole business of consortiums has suddenly come of fashion. AT&T wants to do it. I am in the midst of forming three consortiums with different groups, including other companies and universities. In every case, we have submitted proposals that say we will work out the intellectual property rights if you give us the money. Everybody knows that if you bring in the IPR people, it will kill the whole thing. This is a very fundamental issue. For example, in the case of the consortium on optical networks we have with a bunch of competitors, we are asked, "When are you working for the consortium and when are you working for your company?" We just cannot resolve it, and yet we want to pursue this kind of cooperative behavior. A final commentator noted that there has been a significant paradigm shift underway regarding the way in which R&D is conducted. He suggested that it used to be undertaken in a serial fashion, that is, first "R," then "applied R," then "applied D,'' then "D," and so on. However, in the past decade or so, this has shifted gradually into a more parallel paradigm in

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Global Dimensions of Intellectual Property Rights in Science and Technology which research, market input, design input, and manufacturing all proceed in parallel. He speculated that the paradigm shift may have been brought about by radical changes in the time scale in which new technology approaches the marketplace, as well as by the ability to ask marketing and engineering questions in a more scientific way. One implication may be that research funds could become easier to obtain when the work goes on in a parallel, rather than a serial, mode. Moderator's Summation ARDEN L. BEMENT, JR. I would like to pass on some reflections on this interesting panel discussion. First, it has been clear throughout the conference that there are many dialectics and dichotomies in this field that are driving changes. We can expect that this evolution in thinking will continue. Second, there clearly is a need for additional research and intellectual content. It is like one economist addressing another and saying, "Well, if this works in practice, will it really work in theory?" If we are going to do research, it really does need to be interdisciplinary; researchers from law, business, management of technology, and public policy are needed so the IPR problem can be examined in a much broader context. Third, in listening to the various presenters, it seems that ideology is giving way to pragmatic reality. This may be due to external pressures in the global context that are causing many nations to redefine their self-interest and to trade-related internal pressures stemming from entrepreneurial activity in the development of a domestic economy. It seems that those countries in which political, economic, and cultural ideologies are less strongly coupled probably will be able to adjust more rapidly than those countries where these ideologies are much more closely linked. Fourth, we talk about strong versus weak IPR systems in terms of high stimulation and high diffusion. It occurs to me that the LDCs are caught somewhere in the middle. One might observe that diffusion rates are becoming less and less dependent on the strength of the IPR regime in terms of concurrence of discovery. There is greater investment around the world in R&D in general, but also a leveling of technical capability and R&D infrastructure. So it does not necessarily follow that a weak IPR regime equates with higher diffusion rates. Further, based on comments made during the conference, it seems that three conditions must be met if a country is to benefit from a strong IPR system. One is a strong national science and technology infrastructure. A second is industries that are skilled in developing globally competitive strategies,

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Global Dimensions of Intellectual Property Rights in Science and Technology as well as the management of technology in the global context. The third is strong protection mechanisms. Having a strong regime without a strong protection mechanism is much like having a national border that is not defended. Moreover, the United States is not strong in all three areas. We certainly have a strong science and technology infrastructure, but we are not uniformly strong across our industries. We do not possess all the capabilities necessary to develop effective global competitive strategies and the management of technology in terms of not only the acquisition of technology but also its adaptation and integration for competitive advantage. Fifth, during the conference we discussed congruency in international IPR systems, which it seems to me is going to be more and more important because of the collapse in time and costs, as Robert Lucky points out in Chapter 16. If you look at the time span from the application for intellectual property protection, to the discovery of an infringement, to final litigation and eventual resolution, one could go through—over that time span—three or four product generations or product cycles; perhaps as many as 30 improvement patents; and in the case of biotechnology, perhaps three or four progeny generations. In looking to the future, it seems to me that we are now getting close to an IPR analogue of quantum theory: namely, the "attempt rate" against IPR barriers will be much greater and will accelerate. Given enough time, the opportunities to circumvent or tunnel through the competitive barriers that are established by IPRs will become greater. It also occurs to me that there is an uncertainty principle at work as well—that time and uncertainty or error rate seem to be equal to a constant. The more you try to compress time in the protection of intellectual properties, the greater is the error rate, and that error rate equates with the litigation costs. So we could be facing a point of diminishing returns in trying to push that too hard. Sixth, in the developed countries, much more so than in the LDCs, invention tends to be more "want oriented" than "need oriented." Creative marketing is really translating wants into perceived needs so that market invention is becoming almost as important as product invention. Whereas in the past, necessity was the mother of invention, more and more invention is becoming the mother of necessity. So again, the ability to establish markets as a competitive strategy will become increasingly important. The significance of that is if I can flood the market with patents, if I can be the first to commercialize and perhaps the first to dominate in global market share, and if I can do that before I have to face litigation, then I can certainly afford to be fairly expansive, fairly generous when it comes to possible infringement. This is where the time constants become very important, especially with regard to relatively strong IPR regimes.

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Global Dimensions of Intellectual Property Rights in Science and Technology Finally, we have discussed sui generis IPR approaches in almost every session of the conference. This strikes me as the "je ne sais quoi" part of IPRs; namely, it deals with "intrinsic beauty," where embedded intelligence is going to become more and more the way in which value will be created in the future. I expect that this will be an expanding area of IPR protection, and the degree to which other parts of the IPR regime will be able to adapt to it is uncertain.