About the Author
Leonardo Burlamaqui is Program Officer at the Ford Foundation (New York and Rio de Janeiro) and Associate Professor of Political Economy at the State University of Rio de Janeiro, Brazil.
Ana Célia Castro is Professor at the Institute of Economics, Federal University of Rio de Janeiro, Brazil.
Rainer Kattel is Professor of Innovation Policy and Technology Governance and head of the Department of Public Administration at the Tallinn University of Technology, Estonia.
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Reasserting the Public Interest
By Leonardo Burlamaqui, Ana Célia Castro, Rainer Kattel
Wimbledon Publishing CompanyCopyright © 2012 Leonardo Burlamaqui, Ana Célia Castro and Rainer Kattel editorial matter and selection; individual contributors
All rights reserved.
KNOWLEDGE GOVERNANCE: AN ANALYTICAL APPROACH AND ITS POLICY IMPLICATIONS
Ford Foundation and State University of Rio de Janeiro
The field of knowledge is the common property of mankind
— Thomas Jefferson
Why did Schumpeter neglect intellectual property rights? For contemporary Schumpeterians, this question, posed by Mark Blaug in 2005, could be seen as an embarrassing one. How could the "father" of competition by means of innovations manage to miss completely the analysis and discussion of what in today's scholarship is one of the most – if not the most – influential incentive for corporations to innovate continuously? Blaug's own answer to that question is very direct, sharp and does not embarrass at all. It also calls attention to the central issue discussed in this chapter:
It never occurred to anyone before, say the 1980s, that such disparate phenomena as patents for mechanical inventions, industrial products and processes (now extended to biotechnology, algorithms and even business methods), copyrights for the expression of literacy and artistic expressions in fixed form and trademarks and trade names for distinctive services, could be generalized under the heading of property rights, all conferred by the legal system in relation to discrete items of information resulting from some sort of appropriate intellectual activity. (Blaug 2005, 71–2; italics added)
For the purposes of the argument I will develop in this chapter, there are two crucial elements implicit in Blaug's answer. First, that at the time Schumpeter was writing Capitalism, Socialism and Democracy, the balance between private interests and the public domain was completely different from what it has become today. Second, that what became codified, and largely accepted, as intellectual property rights was then seen as a set of rules and regulations issued by the state, granting temporary monopolies to corporations in very specific cases.
To this, I will add a conjecture on Schumpeter and property rights: it seems that the kind of "monopolistic practices" he praised in his 1942 book were the ones that resulted from innovations and were short-lived (not those that resulted from legal contracts issued by governments), were built to assure their longevity and were largely written on behalf of oligopolistic corporate interests which were already dominant market players. Summing up, the core argument suggested by the reference to Schumpeter and Blaug is my conviction that in the last three decades, the boundaries of the private (or corporate) interests has been hyperexpanded while the public domain has significantly contracted (cf. Brown-Keyder 2007; Boyle 2008; Rodrik 2011 for similar lines of reasoning).
Recent history seems to back both Blaug's response and my conjuncture. Until the 1970s, United States patents were seen as monopolies (a term with distinctly negative connotations at that time), not rights. In fact, in some areas of economic activity, it would have been possible to say that upholding the validity of IP was the exception rather than the rule (Brown-Keyder 2007, 159). This was reflected in IP law as well as in competition or antitrust law. In copyrights, the term under United States law was 28 years.
The early 1970s witnessed several dramatic changes. In 1974, a trade act allowed the Federal Trade Commission to bring sanctions directly against countries whose products were seen to hurt United States interests. In 1975, copyrights were expanded to over 70 years from the death of the author, and for corporate owners, to 95 and sometimes even 120 years (Brown-Keyder 2007, 158; Boyle 2008, ch. 1). In 1979, Section 301 of the United States trade law was amended to "allow private parties to take significant and public steps to enforce international trade agreements" (Brown-Keyder 2007, 160). In 1988, the Justice Department rescinded guidelines for antitrust prohibitions on certain kinds of licensing clauses. This removed IP licensing from antitrust scrutiny. Finally, with the enactment of the WTO in 1995, the TRIPs agreement quickly became the linchpin of United States trade strategy. By then, private corporations had vastly expanded their enforcement power and global outreach, while the public domain had significantly contracted.
The aim of this chapter is to propose a framework within which, in the field of knowledge, the dividing line between private interests and the public domain can be redrawn. Its goal is to help establish an approach that should, analytically, produce a better way to understand the interaction among knowledge production, appropriation and diffusion and, from a public policy/public interest point of view, to open up the space for a set of rules, regulatory redesign and institutional coordination which would favor the commitment to distribute (disseminate) over the right to exclude. We will label it a "knowledge governance" approach.
As referenced in the introduction to this volume, contemporary research on open- source innovation and the shifting boundaries between intellectual property and the public domain by Harvard, Stanford and Duke legal scholars Yochai Benkler, Lawrence Lessig and James Boyle, and on consumer-based innovation by MIT economist Eric von Hippel and his research team, is throwing new light on matters like growth dynamics, innovation patterns, the interaction of competition and regulation and on new ways in which firms and consumers interact. Their new findings and insights point to the necessity of rethinking patent law as well as government incentives for research and open sourcing and, therefore, the way innovation policies are designed.
But when it comes to the way in which this "rethinking" should be done, as well as the subtleties of the interaction among law, economics and the governance of technological development, the available perspectives at hand still fail to give us a comprehensive approach to either the big picture (the "vision and theory," as Schumpeter would have put it) or how to craft inclusive policymaking and institution building for the way knowledge is governed.
On the dominating neoclassical front, the newest developments on "knowledge and innovation management" still depart from the premise that more protection is the best incentive for the achievement of more innovations and suggest a whole wave of claims about extending monopoly positions and market power (the right to patent generic knowledge, genetic sequences, business models, etc.) to corporations, in order to sharpen up their competitive advantages (cf. Merger, Menell and Lemley 2003; Landes and Posner 2003; Spinello and Bottis 2009).
From a knowledge governance perspective, the critical question that should be asked here is: When does extended protection cease to work for generating Schumpeterian profits and become a base for rent seeking and rent extraction? There is no good theoretical answer to this, but recent data on declining R&D expenditures correlating with the maintenance of handsome profits in Big Pharma seems to emphasize its relevance (cf. "Supply Running Low," Financial Times, February 10, 2011).
As an alternative to the mainstream approach, new insights and evidence are beginning to appear. Besides the already cited studies, a few papers and books are laying the ground for a very different way to understand the complex interactions among knowledge production, appropriation and diffusion. Examples include Jerome Reichmann's recent papers, the comparative and interdisciplinary research led by Richard Nelson, Akira Goto and Hiro Odagiri on intellectual property and catching-up and the collection of essays by Fred Block and Mathew Keller on the role of the US government in technology development.
Reichmann does so by suggesting new forms of institutional collaboration and underlining that we are in "a time for experimentation, and not a time to copy or codify obsolete approaches that are likely to boomerang against the long-term interests of the very developed countries that are most avidly pushing the harmonization buttons at the international level." Nelson, Goto and Odagiri do so by pointing to the fact that "The channels of knowledge flow and technology transfer used for the purpose of catch-up are diverse. Accordingly, many policies (in addition to the IPR policy ...) affect the process of catch-up." Block and Keller do so by showing that governments – not corporations – were always at center stage in major technological endeavors in the United States.
However, notwithstanding the valuable contributions by this emerging body of research, the main analytical question remains largely untouched: How should government-issued intellectual property rules and regulations interact with competition policies, publicly funded R&D and other forms of technology policy in order to help craft and govern socially inclusive development strategies? It appears there is no coherent analytical framework to address that interaction. But those links are central to any meaningful discussion of dynamic competition, knowledge accumulation and sustainable development in a global context today.
This chapter aims to contribute to answering that question and is structured as follows: Section II lays the ground rules by linking knowledge production and dynamic competition with intellectual property issues from the perspective of the dynamic efficiencies and inefficiencies that are bound to appear. It will become clear that the existence of dynamic inefficiencies opens up a considerable space for knowledge governance. Section III broadens the discussion by interrogating the market-failures approach to guide policy and by introducing a "market features approach" within which markets are conceived first and foremost as legal entities where specificities such as contracts and regulatory rules – "features" – constitute the basis for their functioning, and where asymmetric information and uncertainty – "failures" in the neoclassical perspective – are the norm, not the exception. I will argue that "market features" is a more adequate analytical lens for structuring knowledge governance policies from an evolutionary perspective. Section IV further develops the previous framework by linking market features, competition and technology policies with intellectual property. Special attention is given to how competition policies should address intellectual property issues under a market features approach, as well as to the institutional design of public agencies dealing with knowledge production, appropriation and diffusion issues. Section V concludes the chapter by suggesting some broader theoretical and policy implications of that "knowledge governance" approach.
II. Knowledge Production, Dynamic Inefficiencies and the Role of Knowledge Governance
In the context of Schumpeterian competition, intellectual property rules and regulations (IPRs) – patents, trade secrets, confidentiality contracts, copyrights, trademarks and registered brand names – became powerful, strategic weapons for generating sustained competitive advantages and, especially, Ricardian rents (cf. Plant 1934).
From an entrepreneurial perspective, patents and other IPRs are extremely effective means to reduce uncertainties and therefore, can contribute to igniting the animal spirits and long-term expectations through building temporary monopolies around products, processes, market niches and, eventually, whole markets (Nelson 1996; Burlamaqui and Proença 2003). However, the word temporary is crucial here because of creative destruction; as Schumpeter (1942, 102) stated long ago, "a monopoly position is in general no cushion to sleep on."
The Chicago Law and Economics framework claims that in the absence of robust legal protection for an invention, the inventor either will have less incentive to innovate or will try to keep his invention secret, thus reducing, in both cases, the stock of knowledge to society as a whole (Landes and Posner 2003, 294).
From a more generally legalistic perspective, patent law itself supposedly internalizes the goal of promoting the diffusion of innovation. It requires, as a condition of granting a patent, that the patent application disclose the steps constituting the invention in sufficient detail to enable readers of the application, if knowledgeable about the relevant technology, to manufacture the patented product themselves. Of course, anyone who wishes to replicate a patented product or process legally will have to negotiate a license with the patentee (Jolly and Philpott 2004, pt. 1; Landes and Posner 2003, 294–5).
Significantly, moreover, any reader of the patent application will be free to "invent around" it, to achieve the technological benefits of the patent by other means without infringing on the patent. Translated to evolutionary economics jargon, the requirement of public disclosure creates a situation of "incomplete appropriability" for the patent holder which relates to Schumpeter's insight on the temporary nature of monopolies: incomplete appropriability allows for the possibility of technological inventiveness and borrowing from publicized information, both of which foster creative-destruction processes which are the main challengers of established monopolistic positions.
Thus, if carefully used, intellectual property rules can be sources of dynamic efficiencies that can help to ignite the Schumpeterian positive-sum game represented by falling costs, falling prices, positive margins (achieved through market power) and increased consumer welfare.
Those are the basics, but the picture gets much more complicated as we examine the details. When we dive into them, considerable space opens up for dynamic inefficiencies to emerge and, therefore, for the introduction of governance considerations and for the emergence of a knowledge governance approach. Consider the following six points.
First, as Sir Arnold Plant, an almost forgotten analyst in the field, observed in the early 1930s,
In the case of physical property, the institution of private property makes for the preservation of scarce goods ... In contrast, property rights in patents and copyrights make possible the creation of scarcity of the products appropriated ... the beneficiary is made the owner of the entire supply of a product for which there may be no easily obtainable substitute. (Plant 1934 , 65–7; emphasis added)
In sum, intellectual property regulations can easily give rise to dynamic inefficiencies such as cumulative monopoly power to extract rents from a given consumer base, notwithstanding the fact that they can at the same time create the conditions for the expansion of productivity and wealth and the generation of Schumpeterian profits. That in itself leaves ground for knowledge governance-oriented initiatives to enter the scene, as we will see shortly.
Second, the broader – and stronger – the IPRs, generally, the less the patentee's competitors will be able to benefit from the patent by "inventing around," or innovating on the shoulders of, the patent (or copyright) holder. Broad IPRs are thus bound to exacerbate the dynamic inefficiencies that Plant and others have observed. Accordingly, especially given the complexity and diversity of patents and other IPRs, a one-size-fits-all prescription seems ill advised. From an analytical point of view, the articulation between competition policies and IPRs is a much needed development, especially if the former's goal is innovation diffusion and delivering the Schumpeterian package, not innovators' protection per se.
Excerpted from Knowledge Governance by Leonardo Burlamaqui, Ana Célia Castro, Rainer Kattel. Copyright © 2012 Leonardo Burlamaqui, Ana Célia Castro and Rainer Kattel editorial matter and selection; individual contributors. Excerpted by permission of Wimbledon Publishing Company.
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Table of Contents
List of Abbreviations; List of Tables and Figures; Foreword – Richard Nelson; Introduction – Leonardo Burlamaqui, Ana Célia Castro and Rainer Kattel; PART I. KNOWLEDGE GOVERNANCE: BUILDING A FRAMEWORK; 1. Knowledge Governance: An Analytical Approach and its Policy Implications – Leonardo Burlamaqui; 2. From Intellectual Property to Knowledge Governance: A Micro-founded Evolutionary Explanation – Annalisa Primi; 3. Catching Up and Knowledge Governance – Rainer Kattel; PART II. INNOVATION, COMPETITION POLICIES AND INTELLECTUAL PROPERTY: INSTITUTIONAL FRAGMENTATION AND THE CASE FOR BETTER COORDINATION; 4. Where Do Innovations Come From? Transformations in the US Economy, 1970–2006 – Fred Block and Matthew R. Keller; 5. Antitrust and Intellectual Property: Conflicts and Convergences – Mario Luiz Possas and Maria Tereza Leopardi Mello; 6. The Politics of Pharmaceutical Patent Examination in Brazil – Kenneth C. Shadlen; PART III. GOING FORWARD: TOWARDS A KNOWLEDGE GOVERNANCE RESEARCH AGENDA; 7. Varieties of Latin American Patent Offices: Comparative Study of Practices and Procedures – Ana Célia Castro, Ana María Pacón and Mônica Desidério; 8. An Interoperability Principle for Knowledge Creation and Governance: The Role of Emerging Institutions – John Wilbanks and Carolina Rossini; 9. The Search for Alternatives to Patents in the Twenty-First Century – Luigi Palombi
What People are Saying About This
“‘Knowledge Governance’ brings together fresh theoretical insights and new empirical evidence on an important challenge: how to design public policies and institutions to promote knowledge creation and diffusion to promote economic development. This collection of essays will be an important source of ideas for researchers and policymakers alike.” —Bhaven N. Sampat, Columbia University