Article: Intellectual Property Rights

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Intellectual property rights

Intellectual property (IP) refers to certain products of the human intellect that have commercial value to the holder of the intellectual property rights (IPR). The holder has exclusive rights to the product under intellectual property law. Intellectual property can include:

Contents


Definition of Intellectual property rights

Intellectual property (IP) refers to certain products of the human intellect that have commercial value to the holder of the intellectual property rights (IPR). The holder has exclusive rights to the product under intellectual property law [1]. Intellectual property can include:

  • artistic works
  • inventions
  • symbols, names, images and designs used in commerce
  • business methods
  • manufacturing processes
  • other conceptional properties

To be protected by the law, these products have to be somehow unique, novel and not obvious. IP can be protected in the form of patents, copyrights, trademarks and service marks or trade secrets and confidential information. They can be viewed as business assets. IPs are copyrighted by default, though rights to valuable IPs are often enforced by contracts, patents and other legal means. [2]

Digital information goods are viewed as intellectual property though they have special characteristics. They include computer programs and games, documents, and digitalized works of music, film, etc. Abuses of IPR concerning digital goods are difficult to trace, and infringement suits are expensive and uncertain to prosecute. [3]

Intellectual property rights are often characterized as "negative rights" because the owner of intellectual property can prevent others from making use of the property by taking legal action [2]. Intellectual property rights can serve as entry barriers for competition, they can function to exclude other firms (or customers) from gaining access to technologies, they can be used to provide the juridical foundation for sharing knowledge, or for disseminating it as rapidly as possible [3].

Value of IPR

IPR can typically be valued in three ways: cost based, market based and economic based. The cost-based approach considers how much it has cost to get the rights granted (e.g. patents can be expensive), plus how much has been paid in renewal fees. The market-based approach depends on the use of publicly available values of similar IP e.g when it changed hands or was litigated and damages were awarded. In the economic-based method, cash flow associated with the right, such as royalty paid, is identified and used to estimate future revenue. [4]

An intellectual property right has real value only if it creates wealth for its owner. The wealth attained from intellectual property can be in the form of profit derived by a company's own use of an intellectual property right or can be in the form of income derived by transferring all or a portion of an intellectual property right to a different enterprise. [2]

For the property owner, IPRs can be seen as a right of control (licensing) for a number of aspects of the property including [2]:

  • Who will use the intellectual property right
  • Where it will be used
  • How it will be used
  • The period of time the property right can be used by another party

Companies that develop new technologies face difficulties in appropriating the fruits of their labor. Competing manufacturers attempt to imitate successful innovations and to adapt them to their own use. In the developed market economies patent, trademark, and copyright laws prevent the abuse of intellectual property rights. But even in those countries legal protection is imperfect, imitation is widespread, and often important information leaks out already during the development process. [5]

Types of IPR

Copyright

A copyright owner can prevent others from reproducing, distributing, performing and displaying the copyrighted work and, in addition, from preparing works that are based upon the copyrighted work ("derivative works") [2].

The copyright laws protect any work of copyrightable subject matter, such as software, books, music, lyrics, television shows, blue prints, architectural drawings and the structures prepared from those drawings, and the expression of many other artistic and creative endeavors. [1]

Patents

Patents give their holder the sole right to use and license the technology, method, invention or other creation described by the patent. To be patentable, the creation must meet specific requirements that include e.g. novelty among other. Patents are handled somewhat differently in different countries and so the requirements for a patent to be granted may vary. For example, in the US, software can be quite freely patented where as in the EU, software is not patentable (though patent lawyers have found ways to get patents for software or parts of software).

To be patentable, the invention must also be useful. [1] Abstract ideas and concepts are not patentable. [1]

Patents on Internet-based business methods have not been well tested in court, and may ultimately be found invalid. The rapid growth of the Internet has been based, specifically, on its open access system. If these method patents are found valid and enforceable in the future, such patents would arguably have the ability to limit Internet access. Not limited to Internet technologies, it can be argued that these kind of effects of technology patents would have bad implications both for firm incentives to invest in developing new methods, and the societal effects of intellectual property rights. [3]

Trademarks

The owner of a trademark or service mark is entitled to stop others from using a trademark or service mark that is likely to cause confusion, mistake, or deception as to the source of the associated goods or services, including likelihood of confusion, mistake or deception as to an affiliation between the trademark or service mark owner and another, or sponsorship by the trademark or service mark owner of the other party's goods or services [2].

Trademarks protect any symbol, name or other indicia used to identify a producer or seller as the source of a product or service. This would include names of products, logos, package designs and shapes, and any other indicia that the offeror of a product or service uses to distinguish their goods from those of someone else [1].

Trade secrets

Where a certain process or material can be maintained in secret, such as a chemical formula or the program embedded in software, trade secrets may be the best vehicle for maintaining exclusivity over that particular work [1].

Relevance to software business

Infringement and the digital nature

Digital technologies are characterized by several unusual features. The costs of reproduction are insignificant, as compared with the costs of copying physical products. Electronic copies of IP are perfect in quality. While these characteristics are a great benefit for software industry, they benefit the infringing parties as well. [3] [6] [7] The copies can be delivered anywhere around the world in seconds without leaving any traces or fingerprints, making it especially hard to fight piracy. [8] Software technicians are additionally often able to crack the codes of new programs quickly, gaining access to the program behind the product and the knowledge embodied in the code. [3]

For these reasons, digital technologies make it difficult to protect innovations through IPRs. It is hard to trace infringements, and to enforce legal rights because of the nature of digital goods. It is suggested that the costs of tracking down infringements and uncovering digital pirates should be weighed against the costs of not using those resources in other, more productive ways. It is also said that in some cases, software firms may well gain from extensive copying, due to the sales of complementary products. To the extent that producers can themselves create value from these network externalities, they will benefit, even if many of their innovations have been pirated. [3]

Even though digital information goods are often cheap and easy to imitate or copy, this has not diminished the rate of innovation in the industry. Competitive advantage derives, in many cases, from disseminating new products as widely as possible, and even encouraging imitation, to take advantage of network economies of scale. Rents may be earned by accompanying strategies such as cross-subsidization and price differentiation. [3]

If a competitor gains access to secret proprietary know-how, or infringes the patent, the innovator can continue to exploit the information commercially. The innovator’s investment in R&D is not lost, it is simply reduced. This gives the innovating firm the incentive to build up and maintain leading-edge R&D programs even if the information leaks out to competitors. It justifies the use of first-mover strategies to appropriate the rents from investments in R&D, where competitive advantage derives not from legally excluding other firms from the new technology, but earning temporary monopoly rents by being first on the market with the new good. [3]

A fundamental shift in the economics of information is under way, based on the domination of the use of universal mass communication. This will induce change in the structure of entire industries and in the ways companies compete. It can make economic sense to give digital information goods away for free, earning rents from associated strategies such as "locking in" customers once they have become dependent on the goods, or because they have become the industry standard. [3]

Motivation for IP protection

Intellectual property rights are highly important in software business. Software is almost purely intellectual property as it isn't a physical good. Copying, imitating or reverse engineering software products is easy in most cases and that creates a unique situation from the competitive perspective.

Competition in software business is often feature-orientated. The different parties try to create the most appealing product for their customers and that often leads to imitating the competitors' products in some way. Having IPR can protect against imitations but it doesn't necessarily stop the competition from creating similar products.

IPR can be used to slow down the imitating process by creating patents that act as financial threats or barriers for market entry [3]. Infringement of IPR can be costly for the infringing party although there are many cases of patents being annulled after taking IPR infringements to court. The threat and the risk can be too great for many firms especially if they face a legal battle against a significantly bigger company.

Software firms have made extensive use of traditional intellectual property rights like patents, copyrights, and trademarks along other approaches to appropriability such as cooperation with academic researchers, first-mover advantages, technical methods to restrict access, cross-subsidization, price differentiation, and exploiting network externalities. [3]

For a number of software and technology-driven firms, the patent serve as a signal to other market participants, an indication of stock market value to potential investors, and a means initially to exclude others from developing the technology. It clearly also carries the possible future benefit that the patent might be granted, and might have value, if the technology proves more long-lived than the norm. [3]

Software patenting has been under debate and it is argued that they create an unfair situation in the market. Big companies have the resources for acquiring a vast portfolio of patents. Smaller companies like start-ups have often limited resources and therefore cannot compete with the bigger companies. In most extreme cases this can lead to monopolies. references? case: EU


Example of the phenomena

Some developing countries have not signed international treaties concerning protection of intellectual property rights, others have poorly enforced domestic laws and regulations designed for this purpose. A number of these countries have today initiated legislation designed to improve their record on this score. Still, less developed countries often have a cost advantage in manufacturing, particularly due to low wages. For this reason their access to technologies enables them to compete effectively in product markets. [5]

If a country has weak IPR protection, it can lead to reduced direct investment and joint ventures, especially in research and development facilities [9]. Foreign technology-producing firms often refuse to license or lease their latest innovations to firms in these countries in fear that the licensing contract will ultimately be unenforceable [10]. If innovation is a principal engine of growth and agents innovate to capture or hold a share of the market they would not retain otherwise, then perhaps protection of intellectual property might boost long-run growth [11].

A major argument in favor of tighter IPRs has been that they encourage innovation from which all the regions of the world benefit. A number of countries do not find this argument convincing, however. The counter argument has been that tighter intellectual property rights only strengthen the monopoly power of large companies that are based in industrial countries, to the detriment of the less developed countries. [5]

Some evidence suggests that stronger intellectual property rights protection may not provide a stimulus to innovation in countries that are highly protected from international trade. This might be due to inadequate stimulation from competition. Open trade regimes may exhibit a stronger linkage between intellectual property protection and innovation. [11]



Links to related articles


References

  1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 H. Rockman, An Internet Delivered Course: Intellectual Property Law For Engineers And Scientists, 34th ASEE/IEEE Frontiers in Education Conference, 2004
  2. ↑ 2.0 2.1 2.2 2.3 2.4 2.5 J.W Anable, How to make intellectual property work for you, Northcon/96, 1996
  3. ↑ 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11 L. Davis, Profiting from innovations in digital information goods: the role of intellectual property rights, Portland International Conference on Management of Engineering and Technology, 2001
  4. ↑ V. Irish, Are you protecting your intellectual property?, IEE Review, September 2001
  5. ↑ 5.0 5.1 5.2 E. Helpman, Innovation, Imitation and Intellectual Property Rights, Econometrics (Vol. 61, No. 6, 1247-1280), November 1993
  6. ↑ M. Lesk, Digital Rights Management and Individualized Pricing, IEEE Security & Privacy, 2008
  7. ↑ M. Dulong de Rosnay, Digital Right Management Systems Toward European Law: between Copyright Protection and Access Control, Proceedings of the Second International Conference on WEB Delivering of Music, 2002
  8. ↑ Z. Lifshitz, Digital Rights Management - a zero-sum game?, EUROCON, 2003
  9. ↑ E. Mansfield, J. Rapopon, A. Romeo, S. Wagner, G. Beardsley, Social and private rates of return from industrial innovations, The Quarterly Journal of Economics, 1977
  10. ↑ R. Sherwood, Intellectual property and economic development, Boulder : Westview Press, 1990
  11. ↑ 11.0 11.1 D. Gould & W. Gruben, The role of intellectual property rights in economic growth, Journal of Development Economics (Vol. 48, No. 2, 323-350), March 1996
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