Intellectual Property Policy Reform: Fostering Innovation and Development

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The paper addresses problems related to IP protection at two levels: the first level concerns state-level IP policy, and the second level of discussion addresses actions that Estonian entrepreneurs may be able to take to enhance their IP competencies and foster innovation.

Intellectual property policy reform : fostering innovation and development

The author presumes that the profile of Estonian entrepreneurs should be considered in the design of the state-level IP policy. The author suggests that utility models and trade secret protection are very useful IP tools for Estonian entrepreneurs and therefore it would be appropriate to review critically the existing regulations on utility models and trade secrets. The author recommends that, in addition to state-level IP policy measures, there must be entrepreneurs developing their IP competencies.

Entrepreneurs could start with the adoption of internal IP regulations that address issues such as ownership of IP created during employment, strategies for managing IP, and the like.

1. Introduction

As a rule, policy documents and legal acts do not provide an exhaustive and universal definition of innovation. The definitions referred to seem to exclude knowledge creation by means of innovation. The author argues that knowledge production constitutes an integral part of innovation. It is not reasonable to assume that knowledge comes from somewhere else and innovation means only its implementation. For the purpose of this article, the author defines innovation as a process that includes both creation of knowledge and its subsequent utilisation.

Objectives of innovation can be analysed from different perspectives. The most visible and noticeable outcomes of innovation are new products and services. The purpose of innovation, however, is not limited to the creation of commodities. Innovation is also believed to have an impact on the economy. Supporting innovation is seen as a way to surmount challenges problems related to ageing populations, environmental issues, mounting competition, etc.

In view of the complexity of the objectives of innovation and the fact that innovation policy can be implemented on different levels e. Therefore, in order to enhance innovation, it is necessary to invest in human capital, improve the legal framework, stimulate business research, facilitate knowledge transfer from academia to industry, etc. Depending on the implementation levels and specific objectives, the role and importance of innovation policy measures vary.

However, the author assumes that protection of intellectual property constitutes an essential condition for innovation. Intellectual property is traditionally defined as legal rights resulting from intellectual activity. The role of intellectual property, however, has changed. Knowledge as a subject of IP protection has become a valuable commercial asset to many firms, other organisations, and individuals.

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This development has shifted the emphasis from the legal aspect of IP that is, IP as legal rights to its economic aspect IP as a commercial asset. Consequently, intellectual property is considered rather more as an economic asset than in terms of legal rights. The author argues that the contemporary notion of IP should incorporate both — the economic IP as an asset and legal IP as rights aspects.

At the same time, the legal nature of IP is no less important. The great relevance of the legal aspect of intellectual property is caused by the fact that knowledge by nature is a public good. In the absence of an adequate protection, any investment made in creation of new knowledge is prone to become lost. Since the economic system does not offer sufficient control mechanisms to protect the valuable knowledge generated, it is up to the legal system to fill the gap. The IP system provides legal tools to control the utilisation and commercialisation of the knowledge created.

Analysing the essence of IP, one can state that, despite the fact that the utilisation of knowledge takes place in business settings, the control over it is established by the legal system. The EU innovation strategy is based on the assumption that protection of intellectual property is a sine qua non for innovation.

Therefore, the European Commission assumes the existence of a correlation between the use of IPRs and good innovation performance. In order to analyse correlation between the use of IPRs and innovation performance, one must first highlight some key elements.

The mere existence of a large number of IPRs does not necessarily represent outstanding innovation performance. Still, some policy documents prioritise formal indicators such as the number of patents granted.

What is the role of Intellectual Property in Innovation?

A high number of IPRs neither guarantees wealth generation nor certifies innovation performance as excellent. Furthermore, it is also useful to take into account that the number of IPRs could be influenced by other factors and trends. For instance, K. The underlying cause of the changed behaviour might be that business actors have started to regard knowledge as a valuable asset that has to be protected.

Despite the fact that innovation and intellectual property are intertwined with each other in a rather complex way, the use of IP instruments — patents, in particular — could shed some light on the intensity, extent, and direction of innovation. Since knowledge production is costly, there is a need for protection. Consequently, knowledge is packaged in the form of IPRs e. On account of the design of IP instruments e.

Therefore, patent information is a primary source providing valuable insights into emerging technologies as well as trends of innovation. The high costs associated with patents registration, maintenance, possible infringement suits, etc. Still, patent databases provide a good overview of innovation. Information concerning the utilisation of IPRs supports the development of models to investigate correlation patterns of IP and innovation. General objectives and basic principles of innovation are usually similar in all regions and countries.

As a rule, innovation is expected to advance physical, social, economic, and environmental welfare. However, the policy measures to achieve the objectives and implement underlying principles of innovation may differ substantially from one national or regional context to the next. Therefore, it has been argued that the transfer of successful regional models for innovation to a different national context fails on account of the lack of their institutional embedding. In this section of the paper and those that follow, the author addresses some selected issues that need to be considered in the design of innovation and IP policy measures on country and company level.

Toomas Luman, the president of the Estonian Chamber of Commerce and Industry, has pointed out that in order to design appropriate innovation policy it is crucial to consider the profile of Estonian entrepreneurs. Note: Economically active sole proprietors registered in the Commercial Register, excl.

Intellectual Property Policy Reform Fostering Innovation And Development

The author is convinced that it does. For reasons of space, the subsequent analysis is confined to consideration of the implications of firm size for IP policy. The author suggests that the size of an enterprise could influence its capabilities to create, acquire, manage, and utilise proprietary knowledge. The suggestion is based on the assumption that the resources invested in the creation or acquisition of new knowledge innovative solutions are independent of firm size. Bigger firms could even reap the benefits of economies of scale and gain advantage from their absorptive capacity.

Furthermore, the cost of innovation is not influenced by the subsequent utilisation of the knowledge created. This means that the expenses of developing a product are virtually the same whether for local, regional, or global markets. However, because of the intangible nature of knowledge, entrepreneurs are motivated to exploit it to the maximum extent.

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When the use of tangible property has limits e. Consequently, enterprises are striving to commercialise their proprietary knowledge in as many markets as possible. To facilitate the process of commercialisation, knowledge is usually packaged in the form of IP e. Successful commercial exploitation of knowledge is heavily dependent on efficient IP management.

It is obvious that large firms are better equipped to manage their IP than small ones are. Of course, there are some exceptions.

Fostering Innovation and Development

Still, the superior management capabilities of bigger enterprises result in higher returns, which can be reinvested in knowledge creation or access e. The decisive issue here is the ability of the company to protect and enforce its rights. The protection of rights usually takes place in court, which is rather costly, especially when enforcement is required in different jurisdictions. It is obvious that the measurable costs of prosecuting or defending an action for patent infringement are far beyond the resources of all but the largest firms, apart from the fact that the burden of the costs that cannot be measured such as distraction from more immediately paying tasks falls most heavily on smaller ones.

The aim of the above discussion is not to say that SMEs cannot be innovative, or that innovation and IP policy should disregard them. The author feels quite the opposite.

The main concern is whether an innovation and IP policy designed mainly for big companies and IP tools used by large corporations meet the needs of small enterprises. Understandably, concrete IP policy cannot be based only on formal characteristics such as the size of the firm involved. Most of the differences between the innovation behaviours and performances of large and small firms are, therefore, due to compositional effects, that is, to the fact that large corporations tend to concentrate in highly innovative industries and countries , whereas small firms concentrate in more traditional sectors.

Analysis of patenting trends could provide a basis for identification of emerging innovative sectors and development of measures to support these sectors. In addition to state-level policy measures, there are certain steps that Estonian entrepreneurs can take themselves for improved competitiveness. The key issue here is the adoption of an appropriate innovation model. It is possible to distinguish between different approaches to innovation on company level.