Innovation needs financing, not more legal rights

What innovators and their investors need today from governments are not more legal rights in the form of higher standards of intellectual property (IP) protection and enforcement. What they most need are timely financial incentives and freer transnational mobility of labour with the desired technical skills.

For almost 20 years, since comprehensive IP legal standards and enforcement procedures were laid down at the World Trade Organization (WTO) in 1994, developed countries, led by the US, have sought stronger IP rights and tougher punishments for IP wrongdoing. The truth of the matter is that this has yielded limited success. World trade in counterfeits and pirated goods has continued to climb unabated, from under US$ 10 billion in the 1990s to over US$ 250 billion by 2010. Even landmark IP dispute settlement cases at WTO have had little questionable impact.

Instead of obsessing about beating back free-loaders, global IP owners and their governments ought to worry more about advancing investment in research, development and commercialization. The Organisation for Economic Co-operation and Development (OECD) has reported a relative decline in annual R&D expenditure in some major developed countries. This does not augur well for their traditional position as innovation leaders, since some advanced developing economies are scaling up their R&D activities. Those latter countries, led by China, include Brazil, India, Singapore, South Korea and Taiwan.

This has not been lost on some policy-makers in advanced small developed economies such as Australia, Denmark, Finland, Israel and Sweden. Lately, they have quietly been focusing efforts on providing innovators with timely injections of requisite human and financial resources. They are not alone, however, as some of their Asian counterparts are doing the same and, in some cases, more.

Among the measures which are beginning to make a difference by providing the countries concerned with an innovative edge, are:

• Strategically-timed injections of  much needed money into the prototyping and commercialization, up to the pre-IPO stages in the form of government subsidies, seed money, outright grants, loans and even equity participation. Leading the way are various schemes available in Finland, Israel and Singapore.
• Indirect incentives, no less effective, are generous tax rebates and holidays offered in Australia, China and Singapore. The fiscal bundle also includes accelerated depreciation for equipment used in R&D, waivers of sales tax and even lower employment.
• Additional smart measures liberalizing the labour market and ramping up of financial market platforms. The new knowledge economy places human resources centre stage; smart governments know the value of opening their doors to skills in short supply, such as scientists, engineers, IT professionals, as well as essential services provided by angel investors, venture capitalists, IP valuers, and licensing  and portfolio managers. New financial platforms include technology exchanges where IP can be openly traded as commodities.

Earlier this month, the Singapore government upped the ante by announcing a scheme whereby the government would provide a partial guarantee on bank loans using IP as tradable collateral. This is an activist approach underscoring Singapore’s view that IP is still underexploited today. For the same reason, unlike in the US and Europe, it welcomes the much-maligned patent trolls to set up operations within its jurisdiction. There is no reason why some 90% of patents granted around the world remains unexploited. Part of the reason is that small-scale businesses owning patents cannot get loans using their IP. Something ought to be done about this and the Singapore government is doing exactly that.

Alert governments and IP owners would do well to focus on where the IP money is instead of just worrying about competitors and infringers. Generating IP, unlocking its value and monetizing legal rights is what future prosperity is about. Developed countries should take notice.

Author: Geoffrey Yu is Senior Adviser and Chairman of the Chinese Studies Programme and Adjunct Professor at the Lee Kuan Yew School of Public Policy, Singapore. He is also a Member of the World Economic Forum’s Global Agenda Council on Intellectual Property.

Image: A folder containing an intellectual property rights case is shown in Northern Virginia REUTERS/Jason Reed