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Global Dimensions of Intellectual Property Rights in Science and Technology (1993)

Chapter: 5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation

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Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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5
Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation

EDWIN MANSFIELD

I. INTRODUCTION

This chapter addresses the issue of unauthorized use of intellectual property and its effects on the international environment for innovation, technology transfer, and economic development. More specifically, it considers the economic effects on developing countries, in terms of influencing foreign direct investment and technology transfer, and examines the economic effects on innovating firms, in terms of lost revenues and investment opportunities. The chapter also indicates what information exists and is needed to evaluate the relationships among intellectual property rights protection, unauthorized use, and technological innovation. My primary focus is on the unauthorized use of the products of research and development (R&D), rather than counterfeit consumer items.

Sections II-IV summarize briefly the rationale for the patent system, the current controversies over intellectual property rights, and the changes that often have occurred during industrialization in countries' attitudes toward such rights. After a discussion in Section V of the hypothesis that intellectual property rights protection influences the transfer of technology via foreign direct investment, Sections VI-IX present the preliminary results of a study of 94 U.S. firms that attempts to measure the perceived importance of intellectual property rights protection in this regard and to compare the perceived strength or weakness of intellectual property rights protection in 16 major countries. Sections X-XIV compare our findings with those of other studies and discuss the factors behind some of our results.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

In Sections XV and XVI an attempt is made to determine whether the extent of direct foreign investment is related significantly to the perceived strength or weakness of a country's intellectual property rights protection. Section XVII deals with the relationship between intellectual property rights protection, on the one hand, and the composition of direct foreign investment and the age of transferred technology, on the other. Section XVIII summarizes available evidence regarding the effects of the unauthorized use of intellectual property on the sales and profits of U.S. firms. Sections XIX-XXI discuss the results of recent studies of the effects of intellectual property rights protection on the rate of technological innovation and suggest a variety of kinds of research that might be carried out to shed new light on this very important, but inadequately explored, topic. Section XXII provides a summary and conclusions.

II. RATIONALE FOR THE PATENT SYSTEM

Intellectual property consists chiefly of patents, plant breeders' rights, copyrights, trademarks, and trade secrets. Economists have focused more attention on patents than other forms of intellectual property. Ever since the first U.S. patent laws were enacted about 200 years ago, the following arguments have been used to justify the existence of the patent system. First, these laws are viewed as an important incentive to get the inventor to put in the work required to produce an invention. Particularly for the individual inventor, patent protection is claimed to be a strong incentive. Second, patents are viewed as a major incentive for firms to carry out further work and make the necessary investment in pilot plants and other items that are needed to bring the invention to commercial use. If an invention became public property when made, a firm might be unwilling to incur the costs and risks involved in experimenting with a new process or product because another firm could watch, take no risks, and duplicate the process or product if it were successful. Third, it is said that patent laws result in inventions being disclosed earlier than otherwise, the result being that other inventions are facilitated by earlier dissemination of the information.

Despite these arguments, not all economists believe that the patent system is beneficial. Some stress the social costs arising from the fact that a patent is a monopoly right. They point out that patents have been used to establish monopoly positions in industries such as aluminum, shoe machinery, and plate glass. Also, they say that patents are not really important as incentives for innovation because long lead times ensure that most of the profits from many types of innovations can be obtained before imitators have a chance to enter the market. Further, they argue that new knowledge is not used as widely under the patent system as it should be, from the

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

viewpoint of static efficiency. This is because the price of the information should, according to static welfare economics, be set equal to its marginal cost, which is often practically zero. However, the fly in the ointment is that this, of course, would provide no incentive for invention. In essence, a nation's patent laws must reflect a balancing of incentives for inventors and rapid diffusion of new technology.

III. CHANGING POLITICAL ECONOMY OF THE PATENT SYSTEM: EFFECTS ON ECONOMIC DEVELOPMENT

Countries differ greatly in their attitudes toward the patent system. A country like the United States that is a world leader in technology and that carries out huge amounts of research and development obviously stands to gain more from the patent system than a small, impoverished country with practically no scientific or technological capabilities. A country's attitude is likely to change as it industrializes, since the perceived gains and losses from the patent system are likely to be altered considerably in the course of the country's economic development.

Patents often seem to be of little use in a nonindustrialized developing country, for reasons advanced several decades ago by Edith Penrose (1951):

Any country must lose if it grants monopoly privileges in the domestic market which neither improve nor cheapen the goods available, develop its own productive capacity nor obtain for its producers at least equivalent privileges in other markets. No amount of talk about the "economic unity of the world" can hide the fact that some countries with little export trade in industrial goods and few, if any, inventions for sale have nothing to gain from granting patents on inventions worked and patented abroad except the avoidance of unpleasant foreign retaliation in other directions.

However, when these countries industrialize, their views of the patent system may change, for reasons also pointed out by Penrose (1951):

If the country is a small one, with a small internal market and fairly specialized export industries, patents in foreign markets may not only be profitable but may be an important incentive to, and protection of, invention and innovation in exporting industries .... [Also], to the extent that imitation can be eliminated in foreign markets through patents, design patents, trademarks, and copyrights, the products will be more easily able to retain their specialty character and thus their markets.

Whether such a country will decide to protect foreign inventions within its own borders is a somewhat different question. As Frame (1987) has pointed out, some countries seek patent protection abroad, but offer weak protection to foreign inventors at home.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

IV. INTELLECTUAL PROPERTY RIGHTS: INDUSTRIALIZED VERSUS DEVELOPING COUNTRIES

There are well-known differences between the industrialized countries and the developing countries in their attitudes toward intellectual property rights. To the developing countries, such rights give inventors and innovators an undesirable monopoly on advanced technology that can be employed to raise prices and to impose unwarranted restrictions on the use of the technology. To them, the strong enforcement of intellectual property rights would do little to aid their own development; instead, it would tend to hinder their attempts to raise per capita income.

A view commonly expressed in developing countries is that knowledge should be made available at minimal cost to everyone since it is a common property of all, and that because the development of the relatively impoverished countries of the world is a goal that benefits everyone, the technology needed by these countries should be given to them at a low cost. For these and other reasons, many developing countries have relatively weak laws to protect intellectual property and less than diligent enforcement of the laws that exist. Also, they have adopted policies with regard to direct foreign investment and licensing designed to improve the terms on which they can get foreign technology.

The industrialized countries have a substantially different attitude. In their view, intellectual property rights must be respected to provide a fair return to the private investors who take the considerable risks involved in developing and commercializing a new technology. Unless such returns are available, the incentives for inventive and innovative activity will be impaired, to the detriment of all nations, rich or poor. Also, the industrialized countries sometimes assert that the establishment of stronger intellectual property rights would help to promote indigenous technological and innovative activities in the developing countries, although it is generally conceded that this is only one of many relevant factors influencing the indigenous rate of innovation.1

1  

For a discussion of recent pressures on developing countries to strengthen intellectual property rights, see Mody (1990); also, see Bale (1988), Benko (1987), Chin and Grossman (1990), Clemente (1988), Cortes (1988), Evenson and Ranis (1990), Pack (1987), Richards (1988), and other references.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

V. EFFECTS OF INTELLECTUAL PROPERTY RIGHTS PROTECTION ON THE TRANSFER OF TECHNOLOGY VIA FOREIGN DIRECT INVESTMENT

Having summarized briefly some of the current controversies over intellectual property rights, and the changes that often occur during industrialization in countries' attitudes toward such rights, we turn to one of the central topics of this chapter: the relationship between intellectual property rights protection and the transfer of technology through foreign direct investment. As is well known, foreign direct investment is generally regarded as an important means of transferring technology to developing countries.2 From both policy and analytical perspectives, it is important to obtain a better understanding of the effect, if any, that a developing country's system of intellectual property rights protection has on the transfer of technology to that country through foreign direct investment.

According to some observers, relatively weak intellectual property rights protection in a developing country may reduce the likelihood that multinational firms will invest there. Moreover, even if they do invest there, they may be willing (because of weak intellectual property rights protection) to invest only in wholly owned subsidiaries (not joint ventures with local partners) or to transfer only older technologies. For example, Robert Sherwood (1988) has argued that:

Those who might send a leading technology to . . . a country [with weak intellectual property rights protection] would soon learn of their folly upon losing it to a competitor. There is an efficient grapevine among companies which do business internationally. If one has a bad experience in a country, all the others soon learn of it. The newer technology is not withheld to harm or abuse that country. It is kept safe at home when safeguards in a host country are defective.

Although these hypotheses may be true, there is little or no evidence to support (or deny) them. With regard to licensing, an Organization for Economic Cooperation and Development (OECD) survey indicates that exchange controls, government regulations (particularly prior approval), and weak protection of intellectual property rights were the most frequently cited disincentives to licensing in developing countries (OECD, 1987: Table 40). Very little seems to be known, however, about the effects of intellectual property rights protection on the nature and amount of technology transferred to a country via direct foreign investment. Clearly, the answer may vary, depending on the industry in question and on the characteristics of the

2  

For a recent study bearing on this topic, see Blomstrom and Wolff (1989).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

developing country. Also, the answer may vary depending on the nature of the technology.

VI. INTELLECTUAL PROPERTY RIGHTS PROTECTION AND DIRECT FOREIGN INVESTMENT

To test the foregoing hypotheses concerning the effects of intellectual property rights protection on the transfer of technology via foreign direct investment by American firms, I chose a random sample of 100 major U.S. firms in six industries—chemicals (including drugs), transportation equipment, electrical equipment, machinery, food, and metals.3 Information was requested from each firm concerning the importance of intellectual property rights protection to whether or not the firm would make direct foreign investments of various kinds. Complete or partial data were obtained from 94 of the firms, a very high response rate. The respondents were a mixture of patent attorneys, specialists in the firm's international operations, and top executives. The limitations of survey and interview data of this kind are well known, but with proper caution, such data can be useful.

In practically all of these industries, the proportion of firms indicating that intellectual property rights protection has a strong effect on their foreign direct investments depends heavily on the type of investments in question (Table 5-1). For investment in sales and distribution outlets, only about one-fifth of the firms reported that intellectual property rights protection was of importance. For investment in rudimentary production and assembly facilities, less than one-third said that such protection was important.4 However, for investment in facilities to manufacture components or complete products, about half said it was important, and for investment in R&D facilities, about four-fifths said it was important.

Also, some industries, more than others, regard intellectual property rights protection as important. For all types of investments other than in sales and distribution outlets, the chemical industry (which includes pharmaceuticals) has the highest percentage of firms regarding intellectual property rights protection as important in this regard. The food and transportation equipment industries tend to have the lowest percentages, and the electrical equipment, metals, and machinery industries tend to rank in the middle. It

3  

The frame for this sample was the comprehensive list of major firms in Business Week, June 15, 1990; see Mansfield (1991) for details. Note that our results pertain only to U.S. firms. Firms from other countries may have different views concerning the role and importance of intellectual property rights.

4  

Rudimentary production and assembly facilities are ones involving basic technologies that are reasonably well known to all firms in the relevant industry.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

TABLE 5-1 Percentage of Major U.S. Firms in Six Industries Where Strength or Weakness of Intellectual Property Rights Protection Reportedly Has Strong Effect on Whether Direct Investments Will Be Made

Industrya

Type of Investment

 

Sales and Distribution Outlets

Rudimentary Production and Assembly Facilities

Facilities to Manufacture Components

Facilities to Manufacture Complete Products

Research and Development Facilities

Mean

Chemicalsb

19

46

71

87

100

65

Transportation equipment

17

17

33

33

80

36

Electrical equipment

15

40

57

74

80

53

Food

29

29

25

43

60

37

Metals

20

40

50

50

80

48

Machinery

23

23

50

65

77

48

Mean

20

32

48

59

80

48

SOURCE: Mansfield (1991).

a The number of firms in the sample in each industry is chemicals, 16; transportation equipment, 6; electrical equipment, 35; food, 8; metals, 5; machinery, 24. However, not all firms in the sample responded to all questions.

b The chemical industry includes pharmaceuticals.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

is interesting to note that there is a very high correlation between an industry's rank in this regard and its rank in previous studies with respect to rough measures of the importance of patents in the innovation process (see section XIX below). Thus, these findings seem to conform with those of earlier studies.

Based on these results, it seems likely that, to the extent that foreign direct investment by U.S. firms is largely devoted to sales and distribution outlets and to rudimentary production and assembly facilities, a country's intellectual property rights protection will have little effect on the total amount invested by U.S. firms in that country. However, it may have a considerable effect on how much is invested in facilities to manufacture components and complete products, as well as R&D facilities.

To see whether—and, if so, how—firms regarding intellectual property rights protection as important with respect to investment in facilities to manufacture complete products, differ from those regarding it as unimportant, we compared the sales volume and percentage of sales devoted to R&D of the firms in each group.5 The results, shown in Table 5-2, indicate that the firms regarding intellectual property rights protection as important in this respect tend to be larger (in terms of sales) and more R&D-intensive than firms that do not. However, although this is true in all industries combined and in four of the six industries, it is not true for the remaining two industries, as shown in Table 5-2.

VII. INTELLECTUAL PROPERTY RIGHTS PROTECTION AND JOINT VENTURES

Some countries press foreign firms to participate in joint ventures with local firms. These joint ventures generally require the foreign company to share technology with its local partner. Also, foreign firms manufacturing in developing countries may be asked to introduce relatively new technology and to use components produced locally. Coupled with weak patent protection, the foreign firm's technology may become available to local firms at relatively low cost.

The U.S. firms in our sample were asked to indicate whether, in their view, any of 16 countries—Argentina, Brazil, Chile, Hong Kong, India, Indonesia, Japan, Mexico, Nigeria, Philippines, Singapore, South Korea, Spain, Taiwan, Thailand, and Venezuela—had intellectual property rights protection that was too weak in 1991 to permit them to invest in joint ventures (where they contributed advanced technology) with local partners in that country. These countries were chosen because of their size and

5  

The data regarding sales and R&D expenditures pertain to 1989.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

TABLE 5-2 Sales and R&D Expenditures of Firms, by Reported Effect of Intellectual Property Protection on Direct Foreign Investment in Facilities to Manufacture Complete Products

 

Industrya

Firms Reporting 

That Intellectual Property

Rights Protection Has

Chemicalsb

Transportation Equipment

Electrical Equipment

Food

Metals

Machinery

Total

Strong effect

Mean salesc

656

731

349

61

10

238

150

R&D (percentage of sales)

19.1

4.6

5.8

2.9

1.6

5.5

8.2

No strong effect

Mean salesd

100

100

100

100

100

100

100

R&D (percentage of sales)

2.7

4.4

9.2

0.6

1.2

6.0

5.5

SOURCE: Mansfield (1991).

a See note a, Table 5-1.

b The chemical industry includes pharmaceuticals.

cMean sales of firms in each industry reporting that intellectual property rights protection has a strong effect on direct foreign investment are expressed as a percentage of the mean sales of those reporting that it does not have a strong effect.

d Mean sales of firms in each industry reporting that intellectual property rights protection does not have a strong effect on direct foreign investment is set equal to 100 (see note c).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

importance, as well as the frequency with which they have been cited in connection with controversies over intellectual property rights protection. With two exceptions (Japan and Spain), these countries are major developing or newly industrialized countries. We include Japan and Spain to enable comparisons to be made to a developed country whose intellectual property rights protection has sometimes been a subject of controversy and to a relatively poor country in Western Europe.

More than 30 percent of the U.S. firms felt that intellectual property rights protection in India, Nigeria, Brazil, and Thailand was too weak to permit them to invest in joint ventures there (Table 5-3). On the other hand, 10 percent or less felt that this was true in Japan or Spain. As would be expected, the proportion of firms feeling that intellectual property rights protection in these countries is, on the average, too weak to permit such investments tends to be highest in the chemical industry, where patents are relatively important, and lowest in the metals and food industries.

VIII. INTELLECTUAL PROPERTY RIGHTS PROTECTION AND TECHNOLOGY TRANSFER TO SUBSIDIARIES

Many firms prefer direct investment in wholly owned subsidiaries as a channel by which to transfer their technology to other countries, particularly if they believe that licensing will give away valuable know-how to foreign producers who are likely to be competitors in the future. Also, firms prefer direct investment over licensing when the technology is sophisticated and foreigners lack the know-how to assimilate it, or when a firm is concerned about protecting quality standards. For example, if a firm licenses technology to a less-than-capable foreign firm and if the foreign firm produces defective merchandise, it may reflect adversely on the firm whose technology was used.

Each of the U.S. firms in our sample was asked whether, if it had a wholly owned subsidiary in one of the 16 countries listed, it would be willing to transfer its newest or most effective technology to such a subsidiary—or whether the weakness of the country's system of intellectual property rights protection would make such transfers very unlikely.6 According to Table 5-4, 30 percent or more of the firms reported that they would be very unlikely to transfer such technology to India, Thailand, or Nigeria, but less than 5 percent felt this way about Japan or Spain. Singapore seems to

6  

Firms with subsidiaries (or joint ventures) in the country in question were asked this question. Firms without subsidiaries (or joint ventures) were asked whether they would be willing to transfer such technology if they had such a subsidiary. The data in Table 5-4 pertain to all firms but are highly correlated with those pertaining only to firms having such subsidiaries (or joint ventures).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

TABLE 5-3 Percentage of Major U.S. Firms Reporting That Intellectual Property Protection Is Too Weak to Permit Them to Invest in Joint Ventures with Local Partners, by Industry and Country

Country

Industrya

 

Chemicalsb

Transportation Equipment

Electrical Equipment

Food

Metals

Machinery

Mean

Argentina

40

0

29

12

0

27

18

Brazil

47

40

31

12

0

65

32

Chile

31

20

29

12

0

23

19

Hong Kong

21

20

38

12

0

9

17

India

80

40

39

38

20

48

44

Indonesia

50

40

29

25

0

25

28

Japan

7

40

10

0

0

0

10

Mexico

47

20

24

25

0

17

22

Nigeria

64

20

39

29

20

24

33

Philippines

43

40

31

12

0

18

24

Singapore

20

40

24

12

20

0

19

South Korea

33

20

21

12

25

26

23

Spain

0

0

10

0

0

4

2

Taiwan

27

40

41

25

20

17

28

Thailand

43

80

21

12

0

20

31

Venezuela

40

20

19

12

0

20

18

Mean

37

30

28

16

7

21

23

SOURCE: Mansfield (1991).

a See note a, Table 5-1. Some firms reported they had too little information and experience regarding particular countries to provide this information. For these countries, firms of this sort are excluded. The number of firms that had to be excluded for this reason is generally very small.

b The chemical industry includes pharmaceuticals.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

TABLE 5-4 Percentage of Major U.S. Firms Reporting That Intellectual Property Protection is Too Weak to Permit Them to Transfer Their Newest or Most Effective Technology to Wholly Owned Subsidiaries, by Industry and Country

Country

Industrya

 

Chemicalsb

Transportation Equipment

Electrical Equipment

Food

Metals

Machinery

Mean

Argentina

44

20

21

12

0

14

18

Brazil

50

40

24

12

0

39

28

Chile

47

20

21

12

0

27

21

Hong Kong

21

20

38

12

0

14

18

India

81

40

38

38

20

41

43

Indonesia

40

20

31

25

0

23

23

Japan

0

0

14

0

0

0

2

Mexico

31

20

21

25

0

22

20

Nigeria

67

20

25

25

20

23

30

Philippines

47

40

28

12

0

17

24

Singapore

12

40

21

12

0

0

14

South Korea

31

20

28

12

40

22

26

Spain

0

0

7

0

0

1 3

3

Taiwan

19

40

41

25

0

35

27

Thailand

60

80

31

12

0

18

20

Venezuela

50

20

18

12

0

18

20

Mean

38

28

25

15

5

20

22

SOURCE: Mansfield (1991).

a See note a, Table 5-3.

b The chemical industry includes pharmaceuticals.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

be regarded reasonably well, with only about 14 percent of the firms being unwilling to transfer such technology there. The percentage of firms feeling that intellectual property rights protection in these countries is, on the average, too weak to permit such technology transfer is particularly high in the chemical industry and particularly low in the metals and food industries; the industry ranking is the same as in the previous section.

IX. INTELLECTUAL PROPERTY RIGHTS PROTECTION AND LICENSING OF TECHNOLOGY

Firms often prefer to license their technology when the foreign market is too small to warrant direct investment, when the firm with the technology lacks the resources required for direct investment, or when advantages accrue through cross-licensing. Also, as is well known, direct investment has been discouraged by the governments of some countries. Particularly in the developing countries, sometimes there has been considerable hostility toward multinational firms. Some governments feel that their sovereignty is threatened by the great power of the multinational firm over their national economies.

Each of the U.S. firms in our sample was asked to indicate whether the protection of intellectual property rights in each of the 16 countries listed was too weak to permit it to license its newest or most effective technology to unrelated firms in that country. More than 30 percent of the firms said that this was the case for India, Taiwan, Brazil, Thailand, Nigeria, and Indonesia (Table 5-5). Less than 10 percent said this was the case for Spain and Japan. The percentage of firms feeling that intellectual property rights protection in these countries was, on the average, too weak to permit licensing is particularly high in the chemical industry and relatively low in the metals and food industries. It is worth noting that more than two-thirds of the chemical firms believe that intellectual property rights protection in India, Indonesia, Nigeria, Thailand, and Brazil was too weak to permit licensing of their newest or most effective technology there.

X. COMPARISON OF VARIOUS MEASURES OF INTELLECTUAL PROPERTY RIGHTS PROTECTION

In the three previous sections, we have provided three crude measures of the perceived strength or weakness of intellectual property rights protection in 16 countries: (1) the percentage of U.S. firms in our sample feeling that protection there is too weak to permit them to invest in joint ventures with local partners; (2) the percentage feeling that protection is too weak to transfer their newest or most effective technology to a wholly owned subsidiary in that country; and (3) the percentage feeling that protection is too

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

TABLE 5-5 Percentage of Major U.S. Firms Reporting That Intellectual Property Protection is Too Weak to Permit Licensing Their Newest or Most Effective Technology, by Industry and Country

Country

Industrya

 

Chemicalsb

Transportation Equipment

Electrical Equipment

Food

Metals

Machinery

Mean

Argentina

62

0

26

12

0

29

22

Brazil

69

40

29

25

0

73

39

Chile

47

20

22

12

0

25

21

Hong Kong

33

20

38

12

0

14

20

India

81

40

38

38

20

50

44

Indonesia

73

20

33

25

0

37

31

Japan

12

20

17

0

0

0

8

Mexico

56

20

28

25

0

36

28

Nigeria

73

20

32

38

20

25

35

Philippines

47

40

34

12

0

24

26

Singapore

25

40

24

12

20

0

20

South Korea

38

20

34

12

40

29

29

Spain

6

0

14

0

0

14

6

Taiwan

44

40

55

25

20

36

37

Thailand

73

80

36

12

0

25

38

Venezuela

62

20

21

12

0

26

24

Mean

50

28

30

17

8

28

27

SOURCE: Mansfield (1991).

a See note a, Table 5-3.

b The chemical industry includes pharmaceuticals.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

weak to permit them to license their newest or most effective technology to unrelated firms in that country. The roughness of these measures should be emphasized. However, given the fact that other available measures also have many important limitations, these measures should be of interest.

There is a very high correlation between a country's standing based on one of these measures and its standing based on another. The coefficient of determination between the first two of the above measures averages about .73; the coefficient of determination between the first and third measures averages about .85; and the coefficient of determination between the second and third measures averages about .82. The correlation tends to be higher in the food and chemical industries than in the others. If we consider the mean of the six industries, the correlation is higher than in individual industries, the coefficient of determination being more than .90 in each of the three cases. Thus, since these three measures are so highly correlated, which one we use makes relatively little difference for many purposes. In subsequent sections, we often will use (in each industry) the mean of these three measures for a particular country as a rough index of the perceived strength or weakness of intellectual property rights protection in that country (for this industry).

Perhaps surprisingly, there is little correlation between one industry's evaluation of the strength or weakness of intellectual property rights protection in a particular country and another industry's evaluation of the strength or weakness of intellectual property rights protection in the same country. For example, consider our first measure of the strength or weakness of a country's protection system—the percentage of U.S. firms reporting that a country's protection is too weak to permit them to invest in joint ventures with local partners. Although generally there is a moderate amount of correlation (r2 greater than or equal to .40) among the evaluations by the chemical, food, machinery, and electrical equipment industries, there is little or no correlation between these four industries and the transportation equipment industry or between these four industries and the metals industry. To some extent, the lack of correlation seems to reflect the fact that intellectual property rights protection plays a somewhat different role in each of these industries, as discussed below.7

7  

Note that the percentage of firms in the metals and transportation equipment industries with foreign subsidiaries or joint ventures in at least one of these countries is as large as this percentage in the electrical equipment and machinery industries; so differences in this regard are not responsible for the lack of correlation.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

XI. COMPARISONS WITH OTHER RANKINGS OF COUNTRIES

Ours is by no means the first index of the strength or weakness of intellectual property rights protection. It is interesting to compare our results with the Pharmaceutical Manufacturers Association's (PMA) list of countries with particularly weak intellectual property protection.8 In general, there are both a reasonable degree of correlation and significant differences. Whereas Nigeria and Taiwan tend to have relatively weak protection based on our measures, they are not on the PMA list; and although Argentina, Chile, Mexico, the Philippines, and Venezuela are on the PMA list, they are not among the weakest based on our measures. In considerable part, this is because our measures extend well beyond the pharmaceutical industry. If we look at our measures based only on the replies of the chemical industry (which includes pharmaceutical firms), our measures agree almost exactly with the PMA list, the only exception being Nigeria.9

It is also interesting to compare our measures with that of Rapp and Rozek (1990), who formulate an index of patent protection based upon conformity of a country's patent laws to the minimum standards proposed in the Guidelines for Standards for the Protection and Enforcement of Patents of the U.S. Chamber of Commerce Intellectual Property Task Force. Their procedure was based on Gadbaw and Richards (1988). Their index ranks the level of patent protection on a scale from 0 to 5, where 0 is assigned to a country with no patent protection at all and 5 is assigned to a nation whose laws are fully consistent with these minimum standards. As would be expected, there is considerable correlation between their index and ours. Some of the discrepancies may reflect the fact that their index is based solely on the laws on the books, not on the ways these laws are enforced. Also, their index is not broken down by industry. Since interindustry differences are so important, as we have seen, it is necessary for many purposes to construct a separate index for each industry, as we have done here.

XII. COMPARISONS WITH FINDINGS OF THE INTERNATIONAL TRADE COMMISSION

It is also interesting to compare our measures with estimates made by the U.S. International Trade Commission (1988:4-15), which ranked

8  

See Mogee (1989) and Rozek (1990) for this list.

9  

Frame (1987) has constructed an index based on the PMA list and the International Trade Commission data discussed in the following section.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

countries in the approximate order of negative marketplace impact . . . that resulted from inadequate intellectual property protection. In assessing negative marketplace impact, the following factors were considered—market size, share of market lost, export market losses in third countries, reduction in margins through price competition and price controls set by reference to the price of infringing material, goods, or services; use of confidential test data by others, without the respondent's authorization, in securing government approvals; lost manufacturing efficiency because of reduced volume; loss of reputation and diminished value for the company name because of counterfeiting or other infringing activity; and increased product liability costs; the added costs of intellectual property enforcement attempts; the difficulty of doing business in a straightforward, efficient manner; and opportunity losses where inadequate intellectual property protection acted as a deterrent to business activity.

The commission's rankings are based on data for 1986 obtained from 161 American firms in a variety of manufacturing and nonmanufacturing industries. When considering only the 16 countries listed in our study, the rankings (from largest to smallest losses to U.S. respondents) are (1) Taiwan, (2) Mexico, (3) South Korea, (4) Brazil, (5) India, (6) Japan, (7) Nigeria, (8) Hong Kong, (9) Indonesia, (10) Spain, (11) Singapore, (12) the Philippines, (13) Thailand, (14) Venezuela, (15) Argentina, and (16) Chile. The rank-order correlation between these rankings and our own is relatively low (about .33). In particular, Mexico, South Korea, Japan, and Spain seem to be higher on the commission's list of countries (based on negative marketplace impact) than on our list, whereas India, Nigeria, Indonesia, and Thailand seem to be lower on the commission's list than on ours. In part, this may be because the two rankings are measuring different things. The commission is measuring the reduction in profits imposed by a country's firms on U.S. firms, whereas we are looking at the willingness of U.S. firms to engage in joint ventures or to license or utilize advanced technology in a country. To see that these are two different things, note, for example, that U.S. firms may be unwilling to engage in these activities in a particular country even if the profit reductions imposed on them by that country's firms are small (perhaps because the country's firms are not very adept). On the other hand, U.S. firms may be willing to engage in these activities in another country even if the profit reductions are large, because they nonetheless find these activities profitable there. Also, the commission's rankings are influenced heavily by the entertainment industry, which is not included in this study, and by counterfeiting, an activity not taken up here.

In Appendix G of its report, the commission shows the number of times that the firms in its sample reported inadequacies in a country's patent protection regime and inadequacies in remedies and enforcement in 1986. If this number is compared with our measures, one finds that the correlation between them is very low. This may be because the commission's ques-

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

to you, which you would most like to see adopt fully adequate and effective intellectual property protection'' (U.S. International Trade Commission, 1988:D22). Thus, the countries that are cited most often are not necessarily those in which U.S. firms would be least likely to license or utilize advanced technology. Instead, they are those where U.S. firms felt that their reductions in profit due to weak intellectual property rights protection were greatest. As noted above, these may not be the same thing. Also, countries such as South Korea have acted to strengthen their system of intellectual property rights protection after 1986. This too may help to explain the low correlation.

XIII. REASONS INTELLECTUAL PROPERTY RIGHTS PROTECTION IN SOME COUNTRIES IS REGARDED AS INADEQUATE

As we have seen, a substantial percentage of U.S. firms in some industries regard the protection of intellectual property rights in many of the 16 listed countries as being too weak to enable them to make certain kinds of investments in those countries or to transfer particular types of technology there. Based on interviews with officials of many of these companies, it appears that in deciding whether a particular country's system of protection is too weak, they are especially interested in the answers to three broad questions. First, are the country's laws of sufficient scope to protect their technology? For example, some countries do not permit chemical or pharmaceutical inventions to be patented. Second, does an adequate legal infrastructure exist in the country? In some countries, there are few patent attorneys or other specialists dealing in this area of expertise. Third, are the relevant government agencies in the country able and willing to enforce the laws and to provide prompt and equitable treatment to foreign firms? In some countries, there are reports of corruption and of local firms winning in court with uncanny regularity.

It is not very difficult to see why many U.S. firms would feel that some of the 16 countries have inadequate systems of intellectual property rights protection. In India, no product patents are granted for drugs, chemicals, alloys, optical glass, semiconductors, and intermetallic compounds. In Thailand, firms have complained about the lack of patent protection for chemicals, pharmaceuticals, food and beverages, and agricultural equipment, as well as the weak protection of trademarks and copyrights.10 In Brazil, no patent

10  

See Sen (1990) on India and Schumann (1990) on Thailand. In the May 25, 1989, report of the U.S. Trade Representative on "Special 301," Thailand and India were leading on its "priority watch list," followed by South Korea, Taiwan, and the People's Republic of China.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

protection for chemicals, pharmaceuticals, and foodstuffs exists, and the protection of trade secrets is weak.11

In Taiwan, foreign firms have claimed that patent protection for chemicals and pharmaceuticals has been inadequate and that there has been no unfair competition law dealing with false advertising, imitative product packaging, and inaccurate marks of origin. In 1986, a revised patent law was passed that extends full patent protection to chemical and pharmaceutical products. Also, firms unregistered in Taiwan can pursue trademark infringement cases in local courts, and copyright protection has been extended to computer software. Nonetheless, many problems remain; for example, violators can file "invalidation claims" to delay court cases, making plaintiffs defend the legality of their patents or trademarks.12

Even where patent protection exists, the term of the patent may be relatively short. In India, the patent term is seven years for food, medicines, and drugs. In some countries, the patent holder must work the invention within one to three years after the patent is granted; otherwise, the patent is subject to compulsory licensing or may lapse. Firms object that they cannot manufacture their products in every nation where they expect patent protection. When compulsory licenses are granted, the royalty rate is often set at 0.5 percent or less of sales, which producers regard as very low. In India and the Philippines, pharmaceutical patents are subject to compulsory license on demand, even if the patent holder does work the invention there.13

XIV. FACTORS RESPONSIBLE FOR INTERINDUSTRY VARIATION IN THE EVALUATION OF PROTECTION IN PARTICULAR COUNTRIES

As emphasized above, industries differ considerably in their evaluation of intellectual property rights protection in particular countries. Based on

11  

See Frischtak (1990) and Sherwood (1988). Also, metallic admixtures and alloys are not patentable unless they have "specific intrinsic qualities precisely characterized by the nature and proportions of their ingredients or by special treatment." Nonetheless, as shown in Tables 5-3 to 5-5, this seems to have had little or no effect in discouraging U.S. metals firms, illustrating once again the importance of an industry-by-industry analysis. According to some U.S. metals firms, they often can incorporate sensitive technologies in "black boxes" that can be protected.

In April 1991, a new industrial code was forwarded to Brazil's Congress for consideration. This new code would cover pharmaceuticals and other products and processes not currently protected. See Suzigan (1991).

12  

See Schumann (1990) and references in note 13.

13  

See Goans (1986), Hill (1985), Matthews (1988), and the President's Commission on International Competitiveness (1985).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

interviews with firms, it is clear that intellectual property rights protection plays a different role for each industry. In some industries such as metals and transportation equipment, it is relatively difficult for competitors to make effective use of a firm's technology without many expensive and complex complementary inputs. In other industries such as chemicals, it is relatively easy for local firms to imitate an innovator's new products. Differences of this sort help to explain why there is little or no correlation between the chemical industry's evaluations of particular countries and the metals or transportation equipment industry's evaluations of these same countries. Because these industries face different problems, they tend to see a particular country in a different light.

Further, a particular country's laws often affect different industries in quite different ways. As pointed out in the previous section, some countries that have adopted a patent system do not extend patent protection to pharmaceuticals and chemicals (or sometimes to food). Clearly, such countries are likely to receive very low marks from the chemical industry, even though other industries—often ones in which patent protection is of less importance in any event—do not regard these countries very negatively. (For example, many food firms do not seem to respond so negatively to countries with weak or nonexistent patents on foods.)

Two cases in point are Argentina and Venezuela. Both of these countries receive blistering evaluations from the chemical industry, due in part to Argentina's laws denying patent protection to pharmaceutical products and Venezuela's lack of patent protection for pharmaceutical products or chemical preparations, reactions, or compounds. (Almost two-thirds of U.S. chemical firms said protection in both of these countries was too weak to permit them to license their newest or most effective technology there.) Yet outside the chemical industry, U.S. firms give both of these countries relatively good marks. (Only about 15 percent of U.S. nonchemical firms said protection in these countries was too weak to permit such licensing.)

Still another factor that may account for interindustry variation in the evaluation of protection in any particular country is the fact that local firms in one industry in this country may be more aggressive in exploiting weak laws and enforcement than local firms in another industry. Thus, even though the intellectual property rights protection really does not vary between these two industries, U.S. firms perceive it to be weaker in the former industry than in the latter. Some observers believe that this helps to explain our findings regarding Argentina; in their view, Argentina's drug firms are much more aggressive in this regard than are other segments of Argentinean industry.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

XV. A SIMPLE STATISTICAL ANALYSIS BASED ON COUNTRY DATA

Clearly, the strength of intellectual property rights protection is only one of many factors influencing foreign direct investment. Studies by Dunning (1980), Root and Ahmed (1979), and others have identified a number of variables that may affect the amount of direct investment in a country. For example, Root and Ahmed conclude that six variables are particularly important: (1) per capita gross domestic product (GDP); (2) level of corporate taxation; (3) ratio of exports to imports; (4) extent of urbanization; (5) percentage of GDP attributable to wholesale and retail trade, transport, and communication; and (6) frequency of change of the national executive. Also, they indicate that differences among countries in population should be taken into account (Root and Ahmed, 1979).

To see whether the weakness or strength of a country's intellectual property rights protection seems to be related to the amount of U.S. foreign direct investment in that country when the above variables are held constant, we assume that

Ij= B0+ B1X1j + B2X2j + B3X3j + B4X4j + B5X5j+ B6X6j+ B7X7j+ B8X8j+ ej,

where Ij is the extent of U.S. foreign direct investment in the jth country in a given year, X1j is the population of the jth country (in 1986); X2j is per capita GDP in the jth country (in 1986); X3j is the level of corporate taxation in the jth country (as estimated for a wholly owned subsidiary with specified and comparable characteristics in each country); X4j is the ratio of the jth country's exports to its imports (during 1983-1986); X5j is the extent of urbanization in the jth country (as measured by the percentage of people in cities of 100,000 or more); X6j is the percentage of the jth country's GDP attributable to wholesale and retail trade, transport, and communications (in 1983-1986); X7j is the frequency of change of the national executive of the jth country (during 1963-1977); X8j is the average over our six industries of the mean of the three measures of the weakness of the jth country's intellectual property rights protection in Tables 5-3 through 5-5; and ej is a random error term.

By using least squares and omitting Japan because it is a highly developed country, estimates of the B's were obtained. Two kinds of dependent variables were used: the change in the U.S. direct investment position in the jth country, and the U.S. capital outflow to the jth country.14 For each kind

14  

According to the U.S. Department of Commerce, the direct investment position is the book value of U.S. investors' equity in, and net outstanding loans to, their foreign affiliates. (A foreign affiliate is a foreign business enterprise in which a single U.S. investor owns at least 10 percent of the voting securities or the equivalent.) The change in direct investment position equals capital outflows plus the valuation adjustment. Capital outflows equal reinvested earnings plus intercompany debt outflows plus equity outflows. See Scholl (1990).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

of dependent variable, data were used for four periods: 1988, 1989, 1990, and the mean of the three years. Thus, eight regressions were run, each pertaining to a different kind of dependent variable and period. Regardless of which of these dependent variables is used, the relationship between the strength or weakness of a country's intellectual property rights protection and the amount of U.S. direct investment in the country is never close to being statistically significant.15 That is, the estimated value of B8 is always far from statistically significant. Moreover, when other nonsignificant independent variables are dropped from the regressions, the estimated value of B8 remains statistically nonsignificant. Further, if Spain (as well as Japan) is omitted because, unlike other countries in the sample, it is outside Africa, Asia, or Latin America, the results remain the same. Moreover, if independent variables (e.g., measures of human capital formation) suggested by other studies are included in the analysis, the results are unaffected. Whether the estimated value of B8 is negative or positive depends on which of these many regressions one picks, but in no case is it close to being statistically significant.

XVI. A MORE DISAGGREGATED STATISTICAL ANALYSIS

The simple analysis in the previous section is based on only 15 observations, since it lumps together all industries. A richer analysis can be conducted by recognizing that there are differences among industries as well as countries in the strength or weakness of intellectual property rights protection and by seeing how these differences, as well as those among countries, seem to be related to U.S. foreign direct investment in particular countries in specific industries. Given that our data in Tables 5-3 through 5-5 are broken down by both industry and country, a more disaggregated analysis of this sort is feasible. In this section, it is carried out.

Let Ijj be the change in U.S. direct investment position in the ith industry (i = 1, 2,...,6) in the jth country (j = 1,2,...,16), and let Pij be the mean of the three measures (in Tables 5-3 through 5-5) of the weakness of intellectual property rights protection in the ith industry in the jth country. That is, Pij is the mean of the percentage of firms in the ith industry that feel it would not be advisable to invest in joint ventures, transfer new technology to a subsidiary, or license new technology to firms in the jth country. We assume that

15  

This remains true if Japan is included. These regressions were run by Jeong Lee, as part of the work on his doctoral dissertation.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

where ¬i is an industry effect reflecting relevant differences in industrial characteristics, ¬j is a country effect reflecting relevant differences in national characteristics (such as the total effect of the seven factors in the previous section), and zij is a random error term.16

Using least squares, I estimated A, , and the 's and 's. The dependent variable takes three forms: the change in U.S. investment position in the ith industry in the jth country in 1990, the change in 1989, and the sum of the changes in both years. Regardless of whether Japan—or both Japan and Spain—are excluded or included and regardless of which period is used, the results provide no evidence that U.S. direct investment tends to be higher in industries and countries where intellectual property rights are relatively strong. What evidence there is seems to be in the opposite direction, but this evidence is never statistically significant. That is, the estimated value of never differs significantly from zero.

It may also be of interest to present the results when other dependent variables are used. If investment position abroad and capital outflows are the dependent variables17 and if Japan and Spain are included in the analysis, the estimates of y are almost always negative, but far from being statistically significant. If Japan is excluded, the estimates of are always positive, but never significant, when investment position abroad is the dependent variable; and they are always negative, but never significant, when capital outflow is the dependent variable. If both Japan and Spain are excluded, the estimates of are always positive, but never significant, when investment position abroad is the dependent variable; and they are generally negative, but never significant, when capital outflow is the dependent variable.

To sum up, the analysis of this section (like that in the previous section) provides no statistically significant evidence that the strength or weakness of intellectual property rights protection is related in a major or consistent way to the extent of U.S. foreign direct investment in a given country. However, the crudeness of this analysis should be recognized. In particular, the nature of intellectual property rights protection has been changing in many of these countries, and investment decisions in 1990 (and earlier years) may have been influenced by previous, as well as more recent, levels of intellectual property rights protection. (When the 1991 investment data become available, this problem can be avoided to a greater extent than at

16  

Of course, this model is crude in many respects. For one thing, the value of y, assumed constant in the equation, may vary from industry to industry and from country to country. Given the limited amount of data and of previous quantitative analysis in this area, this model seems to be a reasonable beginning, but its crudeness should be stressed.

17  

Of course, investment position abroad is a stock, not a flow. Consequently, it is heavily dependent on earlier decisions.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

present.) Moreover, other limitations cited in previous sections should be recalled. (We are continuing to extend this analysis.)

Even if these results are taken at face value, they do not mean that the strength or weakness of intellectual property rights protection has no effect in this regard. What they do suggest is that intellectual property rights protection is only one of a large number of factors influencing whether U.S. firms increase or reduce their direct investments in a particular country. Thus, the effect of this factor is often swamped by the effects of other factors such as the size and growth of the country's domestic market, the extent of factor supply and rate of increase of factor prices, and the degree of stability of the macroeconomic environment.

This is entirely in accord with the results of our survey and interviews discussed earlier in this chapter. As shown in Table 5-1, the bulk of the firms in our sample felt that for many types of investments, such as sales and distribution outlets, and rudimentary production and assembly facilities, the strength or weakness of intellectual property rights protection is not important. Given that these types of investments are quantitatively large, the results of this section are entirely consistent with our earlier findings in Table 5-1. Moreover, even for those types of investments in which intellectual property rights are important, our interviews indicated that many other factors are important too. This seems to be quite consistent with previous case studies.18

XVII. INTELLECTUAL PROPERTY RIGHTS PROTECTION AND COMPOSITION OF DIRECT FOREIGN INVESTMENT

Developing countries are interested in the composition of direct foreign investment, as well as its total volume. Governments realize that the amount of technology transfer to their citizens and firms depends on the kinds of investments made by foreign firms, not just on the dollar volume of such investments. In particular, investments in facilities to manufacture components or complete products are likely to raise the country's technological level to a greater extent than investments in sales and distribution outlets or in rudimentary production and assembly facilities.

According to section II of this chapter, firms tend to be much more likely to regard intellectual property rights protection as important for the former than for the latter types of investment. Thus, a country's system of intellectual property rights protection may influence the composition of direct foreign investment. Whereas U.S. firms may be quite willing to invest

18  

See Frischtak (1990). This finding seems to be in accord with case studies of Nigeria and Turkey; see Adikibi (1988) and Kirim (1985).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

considerable amounts in sales and distribution outlets and in rudimentary production and assembly facilities in countries with weak protection, they may be much less inclined to invest in R&D facilities or in facilities to manufacture components or complete products. Such facilities may be more likely to go to countries with stronger protection systems.19

However, preliminary analyses based on detailed data collected from 11 major U.S. chemical firms suggest that there is little or no relationship between the strength or weakness of intellectual property protection in a country and the composition of a firm's investment there. For each firm, Jeong Lee determined the percent of its total investment in each of these 16 countries (where it had substantial investments) devoted to sales outlets and rudimentary facilities. For none of these firms was there a significant correlation between this percentage and my index of protection. Although a country's system of intellectual property protection may influence the composition of U.S. firms' investments there, its effects (except in wholly owned subsidiaries) seem to be overwhelmed by those of other factors.

For a few chemical firms, it has been possible to estimate the age of a small sample of technologies transferred via foreign investment to these countries. For present purposes, the age of a technology is defined as the difference between the year the technology was transferred and the year the technology was first used by this firm. The results suggest that U.S. firms tend to transfer somewhat newer technology to countries with relatively strong intellectual property rights protection than to countries with weak protection. However, the sample size is so small that the results should be regarded only as suggestive. Fragmentary data in the machinery industry suggest the same thing, but they, like the chemical data, are too limited to be more than suggestive.20

XVIII. EFFECTS OF UNAUTHORIZED USE OF INTELLECTUAL PROPERTY ON SALES AND PROFITS OF U.S. FIRMS

We turn now from the effects of unauthorized use of intellectual property on technology transfer and direct investment in developing countries to its effects on the sales and profits of U.S. firms. This, of course, is a topic that has attracted a great deal of attention from policymakers here and abroad. In 1988, the International Trade Commission (ITC) published a study focusing on the economic effects of weak intellectual property rights

19  

Of course, when the firm can defend the new technology through incorporation in "black boxes" or other means, such technology may be sent to countries with weak protection, but such defensive mechanisms are often unavailable or ineffective.

20  

These data are old and pertain to only a few firms. Unfortunately, data of this sort are extremely scarce, which explains why these fragments seem to be worth presenting at all.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

TABLE 5-6 U.S. Industry Estimates of Worldwide Sales Losses Due to Weak Intellectual Property Protection, 1986

Industry

Aggregate Estimated Loss by Responding Firms

Number of Firms Reporting

 

($ millions)

No Loss

Loss

Total

Aerospace

120

2

5

7

Building materials

739

0

6

6

Chemicals

1,334

2

18

21

Computers and software

4,130

6

25

31

Electronics

2,288

6

11

17

Entertainment

2,060

0

12

12

Food and beverages

86

2

8

10

Forest products

665

0

7

7

Industrial and farm

equipment

622

1

9

10

Metals and metal products

29

1

6

7

Motor vehicles and parts

2,194

0

4

4

Petroleum refining

1,295

3

6

9

Pharmaceuticals

1,909

0

10

10

Publishing and printing

128

0

11

11

Rubber products

511

1

4

5

Scientific and photographic instruments

5,090

1

6

7

Textiles and apparel

251

0

11

11

Other

151

0

8

8

Total

23,845

26

167

193

 

SOURCE: International Trade Commission (1988).

protection. A questionnaire was sent to a nonrandom sample of about 700 firms, most of whom were members of the Fortune 500. Of the 431 firms responding to the questionnaire, 269 reported that intellectual property (patents, copyrights, trademarks, trade secrets, mask works, proprietary technical data) was of more than nominal importance to their business in 1986, and 167 firms reported that their aggregate losses in sales in 1986 were in excess of $23 billion. Non-R&D-based industries such as entertainment were included in the study. The biggest sales losses were reported by the scientific and photographic instruments, computer, and electronics industries (Table 5-6).

According to the respondents, about $2 billion of sales were lost in the United States because of U.S. imports of infringing goods, about $6 billion of U.S. exports were lost because of inadequate intellectual property protection, and about $3 billion in royalties and fees were lost. Because these figures pertain to only part of the sample, they would obviously seem to be underestimates of the total impact on the sales of U.S. firms in 1986. For

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

45 firms, the ITC staff made crude estimates of the loss in profits on this account. The estimated aggregate loss was about $750 million, which was approximately 0.7 percent of sales. According to the ITC staff, this may have amounted to about a 10 percent profit reduction for these firms.

A number of industry trade associations and related groups also have estimated the sales and profit losses in their own industries. The U.S. National Agricultural Chemicals Association issued a 1985 report estimating that the U.S. agricultural chemical industry lost about $200 million in 1983. The U.S. Pharmaceutical Manufacturers Association has estimated that U.S. firms lost sales of about $200 million in five countries (Argentina, Brazil, South Korea, Mexico, and Taiwan) in 1984.21

The sources of these estimates generally issue warnings that their results may be in considerable error. For example, the International Trade Commission (1988:4-1), says the following:

The Commission could identify no better means of developing estimates than asking a broad range of firms in the industries most probably affected for the core evidence on U.S. losses from inadequate intellectual property protection—estimates that could admittedly be biased and self-serving. The study, however, built in some cross-checks: data, while estimates, are submitted under oath; data requested on costs of identification and enforcement provided an opportunity for follow-up inquiries on any discrepancies between losses and enforcement efforts; and estimates were obtained by industry and by country from trade associations and American Chambers of Commerce abroad as a cross-check of the cumulative results of responses by firms .... Whereas none of these cross-checks assures high definition or conclusiveness of results, the study found the results of the submissions of firms to be logically consistent internally.

Without detailed information as to the ways in which the firms made the estimates on which these figures are based, it is impossible to evaluate the accuracy of the findings of these studies. This is not to say that data such as those in Table 5-6 are not of interest, but it is very difficult to estimate the sampling errors or biases they contain.

XIX. EFFECTS OF INTELLECTUAL PROPERTY RIGHTS PROTECTION ON THE RATE OF TECHNOLOGICAL INNOVATION

In trying to determine whether it is in a particular country's interest to afford strong protection of intellectual property rights, one of the central questions is: How much effect does such strong protection have on the rate

21  

For a summary, see Mogee (1989).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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of technological innovation? Little empirical research was carried out to help answer this question until a decade or so ago, when several studies—by Taylor and Silberston (1973), Mansfield et al. (1981), Mansfield (1986), and Levin et al. (1987)—were carried out. Although these studies focus only on the patent system (rather than other forms of intellectual property) in industrialized (rather than all) countries, and although they do not distinguish between domestic and foreign inventions, their findings are relevant.

All of these studies found that patents are much more important in some industries than in others. Among a random sample of 100 firms from 12 industries (excluding very small firms) in the United States, patent protection was judged to be essential for the development or introduction of 30 percent or more of the inventions in only two industries—pharmaceuticals and chemicals. In another three industries (petroleum, machinery, and fabricated metal products), patent protection was estimated to be essential for the development and introduction of about 10-20 percent of their inventions. In the remaining seven industries (electrical equipment, office equipment, motor vehicles, instruments, primary metals, rubber, and textiles), patent protection was estimated to be of much more limited importance in this regard (Mansfield, 1986). According to another study, product patents were regarded as much more important by the drug and organic chemical industries than by most others (and process patents were regarded as most important by the drug and chemical industries; Levin et al., 1987).

Without question, the patent system enables innovators to appropriate a larger portion of the social benefits from their innovations than would be the case without it, but this does not mean that patents are very effective in this regard. Contrary to popular opinion, patent protection does not make entry impossible, or even unlikely. Within four years of their introduction, 60 percent of the patented successful innovations included in one study had been imitated. Nonetheless, patent protection generally increases the cost (to the imitator) of imitation. According to Mansfield et al. (1981), the median estimated increase in imitation cost was 11 percent. In the ethical drug industry, patents had a bigger impact on imitation costs than in other industries, which helps to account for the fact that patents are regarded as more important in ethical drugs than elsewhere. (The median increase in imitation cost was about 30 percent in ethical drugs in contrast to about 10 percent in chemicals and about 7 percent in electronics and machinery.)

According to some observers, the unauthorized use of intellectual property may grow as more and more players in various parts of the world enter high-technology industries. If intellectual property rights were weakened considerably, it could have unfortunate consequences. The incentives for industrial innovation, already relatively weak in industries where patents are ineffective and entry is easy, might wither to the point where the investment in new and improved products and processes would be far below the

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

socially optimal level. Given the central importance of industrial innovation for economic growth, such an eventuality would do considerable harm, both to the United States and to other countries.22

Obviously, changes in the protection of intellectual property rights are likely to have different effects in some countries than in others, and there is no simple way to determine what is in some sense best for the world as a whole. Even in the United States, we lack reliable estimates of how much the volume of inventive and innovative activity would change in response to a weakening or strengthening of intellectual property rights protection. Various kinds of research are needed, some of which are discussed in the following two sections.

XX. NEEDED RESEARCH ON THE EFFECTS OF STRONGER INTELLECTUAL PROPERTY PROTECTION ON TECHNOLOGICAL CHANGE IN DEVELOPING COUNTRIES

It is frequently argued that stronger protection of intellectual property rights would help to promote indigenous technological and innovative activities in the developing countries.23 This may be true, particularly in those countries that already have reached a minimal level of industrialization and have a reasonable amount of scientific and technological resources. However, there is very little information on which one can base an estimate of how large this effect may be. In this section, I sketch out three types of studies that might be helpful in this regard.

First, a study might be conducted to determine the effects of stronger patent protection on the size and composition of the R&D expenditures of firms located or headquartered in selected developing countries (and the rate of commercialization of new products and processes). Although surveys of business firms have well-known limitations, it would be interesting and useful to find out what the leading executives of a sample of firms in these countries believe would be the effects of stronger patent protection on the size and composition of their firm's R&D expenditures. Findings of this sort would be rough, but nonetheless of use.

22  

Of course, although a minimum degree of protection of intellectual property rights seems to be required to foster innovation in particular areas, this does not mean that increases in protection are always socially desirable. For example, see Levin et al. (1987). According to a simple model constructed by Chin and Grossman (1990), developing countries gain by protecting intellectual property if their share of the relevant market is large or if prospects for productivity gains through R&D are sufficiently bright in the industry. For substantial innovations, they find that global welfare is likely to increase with intellectual property rights protection.

23  

For example, see Clemente (1988) and Haagsma (1988).

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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According to interviews carried out by Robert Sherwood, many companies in Brazil are reluctant to undertake R&D because they know that their rivals can acquire the new technology simply by hiring away their key personnel (Sherwood, 1990). Besides having relatively weak patent protection, firms in Brazil seem to have little recourse to stop loss of trade secrets to competitors in this way. His results suggest that in addition to influencing the amount spent on R&D, the relatively weak protection of intellectual property rights has reduced the productivity of the research and development that is carried out. For example, there is less cooperation among firms in research parks in Brazil and Mexico than in countries such as the United States, and foreigners are less likely to send world-class technology to Brazil (also see Tocker, 1988). The quantitative importance and frequency of occurrence of effects of this sort might be probed in a systematic survey of firms in selected developing countries.

To complement, extend, and check on the results of such a survey, an econometric study might also be made of the effects of strengthened patent protection on firms' R&D expenditures. In a number of countries, patent protection has been strengthened in recent years. For example, in Japan, new chemical (and drug) products could be patented in 1975 and later years, but not before. Using standard econometric techniques, one may be able to estimate the effects of such changes on industrial R&D expenditures. Indeed, Kawaura (1988) has already taken some steps in this direction. In developing countries such as South Korea and Taiwan, it would be interesting to estimate the effects to date on industrial R&D expenditures of the recent strengthening of patent protection regarding drugs and chemicals. Although subject to obvious limitations, the results would be useful.

Second, a study might be carried out to explore the costs and benefits to developing countries of modifying their patent systems. Thus, Robert Evenson (1984) has pointed out:

In developing countries a relatively high proportion of time is devoted to adaptive invention, much of which is not patentable. Many of these countries have vented frustration over the terms on which technology is purchased in international forums. Few have shown imagination in designing legal systems suited to their competitive position in international invention. Most invention from these countries is adaptive. Yet they have generally not modified their patent systems to encourage adaptive invention. They have instead opted to weaken the scope of patent coverage in an attempt to discourage foreign patenting. In this the slow-growth industrialized economies and the developing economies have been successful. Unfortunately, they have also discouraged national invention in the process.

A study could be carried out to determine the sorts of modifications that developing countries might consider, the potential costs and benefits of

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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each such modification, experiences in other countries with such modifications, and the practical problems in getting these modifications enacted.

Third, a study might be carried out to estimate the effects of stronger intellectual property rights protection on the size and composition of R&D expenditures by multinational firms in developing countries. During the early 1980s, approximately 8 percent of the company-financed R&D of American firms was performed outside the United States. About 60 percent of this R&D was done in Germany, Britain, and Canada, but some was carried out in developing countries. Among the reasons for carrying out R&D outside the United States was the presence of environmental conditions abroad that cannot easily be matched at home, the desirability of doing R&D aimed at the special design needs of overseas markets, the availability and lower cost of skills and talents that are less readily available or more expensive at home, and the greater opportunity to monitor what is going on in relevant scientific and technical fields abroad (Mansfield et al., 1982).

Some observers have suggested that if the protection of intellectual property rights were strengthened, a large amount of the overseas R&D carried out by multinational firms might be performed in developing countries. Because of external economies, this might promote technological change in these countries. Due to the limited scientific and technological resources in most developing countries, as well as other factors, it seems unlikely that a sizable increase in such R&D will occur in many parts of the Third World. Nonetheless, it would be useful to obtain information from various multinational firms as to the conditions under which they would seriously consider establishing or expanding R&D facilities in developing countries and the importance of strong intellectual property rights protection relative to other factors in making the R&D location decision. A considerable amount of research has been carried out concerning the factors influencing the location of R&D facilities. By building on that work, it may be feasible to obtain information of this sort.24

XXI. NEEDED RESEARCH ON EFFECTS OF STRONGER INTELLECTUAL PROPERTY PROTECTION IN DEVELOPING COUNTRIES ON INNOVATION IN DEVELOPED COUNTRIES

Besides affecting the rate of technological change inside their own borders, the developing countries, by providing weak intellectual property rights

24  

Richards (1988) has suggested that U.S. firms and government agencies might be willing to increase R&D expenditures in those developing countries that strengthened the protection of intellectual property rights. Bale (1988) has stated that Hewlett Packard's investment in R&D in Singapore and Taiwan would ''probably" increase, given the general strengthening of intellectual property rights in these countries.

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

protection, influence the rate of innovation in developed countries. Firms in the drug, chemical, and other industries in Europe, Japan, and the United States can expect to receive less profit from a particular new product or process than would otherwise be the case. Thus, it seems reasonable to believe that some R&D projects that might otherwise be profitable are not carried out, and some innovations that might otherwise be commercialized are judged not to be worthwhile. Given the fact that the private returns from industrial innovation tend to be considerably less than the social returns (Mansfield et al., 1977), this depresses innovative activity in the developed countries, which in any event may be below the socially optimal level, the result being that the world economy grows less rapidly than otherwise would have occurred.

Research is badly needed to shed light on how large or small these effects are. It may be possible to estimate for a sample of firms the extent of the loss in profit from selected innovations that has been experienced due to weak intellectual property rights protection in developing countries. Using these estimates, one may be able to determine the percentage decrease in discounted profit that would be expected on this account for innovations of various kinds, and the proportion of various kinds of innovations that no longer would be profitable on this account. Rough estimates might also be made of the social losses (to developed and developing countries) resulting from the fact that these innovations are not carried out.

By using data obtained from market research firms specializing in the drug, chemical, and other industries, as well as data published by various Third World countries and information from members of these industries, losses in sales due to weak patent protection might be approximated. By applying the results of various studies of cash flows from innovations in these industries, the effects on the net present value criterion of various proposed innovations could be estimated. Based on the firms' internal records, estimates might be made of the number of proposed innovations that were turned down but would have been accepted if patent protection had been stronger. Also, rough estimates might be made of how frequently new products that would be profitable with patent protection are not proposed in the first place because of the lack of patent protection in developing countries. If the relationship between estimated and actual net present value would have been the same for innovations turned down or not proposed for this reason as for those actually carried out, one might be able to estimate the private returns that were forgone. If the relationship between private and social returns would have been the same for these innovations as for those actually carried out, the social returns that were forgone might also be estimated. Of course, this analysis would be very rough, but at least it would be a beginning.

To illustrate the factors involved, consider drugs to treat tropical dis-

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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eases. According to drug companies, weak patent protection in developing countries has discouraged research on such diseases. For example, Richard Furland (1988), chairman of the Squibb Corporation, has stated that "most developing nations in South America, Africa, parts of Asia, do not accept patents .... And there's very little research being done on tropical diseases because people know that if they develop a drug, the market will be immediately taken over by other people." It may be possible, based on intensive interviews with leading scientists, technologists, market researchers, and others inside and outside the relevant industries, along with statistical analysis of the available data, to shed light on the extent to which weak patent protection has discouraged R&D of various kinds, including that directed at drugs for tropical diseases. Obviously, the results would be rough, but rough results (if based on careful study and interpreted with proper caution) are better than none at all.

To extend these results, it may also be possible to obtain econometric estimates of the effect of stronger patent protection in recent years in countries such as Japan, Korea, and Taiwan on R&D expenditures by U.S. firms, particularly in the pharmaceutical and chemical industries. Using standard econometric techniques, one may be able to estimate the sensitivity of industrial R&D expenditures in the United States to changes in patent protection in selected foreign countries, including some from the Third World. The available data would probably permit the disaggregation of R&D expenditures in some industries such as pharmaceuticals, which would be highly desirable. The findings might be an important check on the results of the studies suggested earlier in this section and would complement them.

XXII. CONCLUSIONS

At least five conclusions seem to follow from the foregoing analysis and discussion. First, the great majority of the U.S. firms in our sample report that the strength or weakness of intellectual property rights protection has an important effect on some, but not all, types of foreign direct investment decisions. Whereas about 80 percent of the firms in our sample maintained that this factor was important with regard to investments in R&D facilities, only about 20 percent said that it was important with regard to sales and distribution outlets. Also, some industries—notably, the chemical (including drugs) industry—regard intellectual property rights as much more important than others, such as the food and transportation equipment industries. In most industries, large and relatively R&D-intensive firms are more likely than other firms to regard intellectual property rights protection as important.

Second, based on the views of these firms concerning whether or not intellectual property rights protection in 16 major countries allows them to

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
×

invest in joint ventures, transfer new technology to a subsidiary, or license new technology to each of these countries, it is possible to construct a crude index of the perceived strength or weakness of intellectual property rights in each country. In general, the countries in this sample perceived to have the weakest protection are India, Thailand, Brazil, and Nigeria; those perceived to have the strongest protection are Spain, Japan, Hong Kong, and Singapore. However, there is often little correlation between one industry's evaluation of the strength or weakness of intellectual property rights protection in a particular country and another industry's evaluation of the same country. For example, there is little agreement between the chemical industry and the transportation equipment industry.

Third, there seems to be no statistically significant relationship between the perceived strength or weakness of a country's intellectual property rights protection, as measured by the above index, and the extent of U.S. direct investment in that country in the late 1980s and early 1990s. Based on our interviews with company executives, this is not surprising since they stressed the fact that intellectual property rights protection was only one of a great many relevant variables—and frequently not the most important one. Based on their responses, one might expect that the composition of U.S. direct investment would be affected by a country's perceived strength or weakness of protection, but data for 11 chemical firms show little such correlation. Preliminary results suggest that U.S. firms tend to transfer somewhat newer technology to countries with relatively strong intellectual property rights protection than to countries with weak protection.

Fourth, according to estimates collected by the International Trade Commission from 167 U.S. firms, their aggregate losses in sales in 1986 due to weak intellectual property rights protection were more than $23 billion. For 45 firms, the ITC staff made crude estimates of the loss in profits on this account. The estimated aggregate loss was about $750 million, which was about 0.7 percent of sales. According to the ITC staff, this may have amounted to about a 10 percent profit reduction for these firms. Estimates of sales losses have also been made by industry trade associations, such as the National Agricultural Chemicals Association and the Pharmaceutical Manufacturers Association.

Fifth, based on recent studies, it seems to be generally agreed that patents are regarded as much more important in some industries (pharmaceuticals and chemicals, in particular) than in others. Although it is frequently argued that stronger protection of intellectual property rights would help to promote indigenous technological and innovative activities in the developing countries, there is little or no information on which one can base an estimate of how large or small this effect may be. Also, whereas weak intellectual property rights protection in developing countries seems likely to depress the incentives for technological innovation in the developed countries,

Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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no estimates have been made of the magnitude of this effect. Some directions in which research might be carried out to shed light on these very difficult—and centrally important—questions have been suggested.

ACKNOWLEDGMENTS

This chapter draws freely on preliminary findings of research I have carried out for the World Bank. Thanks go to Jacques Gorlin, Zvi Griliches, Robert Miller, Ashoka Mody, Mary Ellen Mogee, and Robert Sherwood for helpful comments on an earlier draft.

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Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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Suggested Citation:"5 Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." National Research Council. 1993. Global Dimensions of Intellectual Property Rights in Science and Technology. Washington, DC: The National Academies Press. doi: 10.17226/2054.
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As technological developments multiply around the globe--even as the patenting of human genes comes under serious discussion--nations, companies, and researchers find themselves in conflict over intellectual property rights (IPRs). Now, an international group of experts presents the first multidisciplinary look at IPRs in an age of explosive growth in science and technology.

This thought-provoking volume offers an update on current international IPR negotiations and includes case studies on software, computer chips, optoelectronics, and biotechnology--areas characterized by high development cost and easy reproducibility. The volume covers these and other issues:

  • Modern economic theory as a basis for approaching international IPRs.
  • U.S. intellectual property practices versus those in Japan, India, the European Community, and the developing and newly industrializing countries.
  • Trends in science and technology and how they affect IPRs.
  • Pros and cons of a uniform international IPRs regime versus a system reflecting national differences.
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