Strength Of Intellectual Property Rights Research Articles

Intellectual property and the organization of the global value chain

AbstractThis paper highlights the role of intangible assets in a property rights model of firm organization with sequential production. Empirical evidence based on foreign direct investment and transaction‐level trade data of Slovenian firms reveals that the strength of intellectual property rights (IPR) protection in the supplier's location affects firms' organizational choices whenever supplier investments are sequential complements. In this case, when a firm must transmit know‐how to each supplier, and more knowledge is accrued as production moves downstream, better IPR institutions lead to lower incidence of vertical integration over outsourcing, principally at more downstream stages. On the other hand, the organizational choice is far less responsive to IPR protection for sequential substitutes. Moreover, we show that improving IPR and contracting institutions (e.g. rule of law) may have the opposite effect on firm boundaries. Our findings conform with a property rights model in which the quality of the IPR regime governs knowledge transmission along the supply chain, ultimately driving firm organization through the suppliers' incentive structure.

Multinationals, innovation, and institutional context: IPR protection and distance effects

We characterize the knowledge production process whereby the inventive capabilities of the firm generate innovation output in highly inventive multinational enterprises (MNEs). We explore the sensitivity of this relationship to the strength of intellectual property rights (IPR) protection across the MNEs R&D subsidiaries. We argue that MNE innovative performance will be enhanced when the firm’s R&D activities are based in locations where IPR protection is stronger. Moreover, when considering the internal geography of the MNEs R&D activities, innovation performance depends on the distance between the home- and host-country IPR regime. Thus, innovation performance is worse, as the difference between home and host IPR regimes increases. Finally, we explore asymmetries in this relationship, in particular that the deterioration is more marked when MNEs locate their R&D activities in host economies with IPR protection significantly less strict than in their home country. We test these ideas using a unique new dataset about the most innovative MNEs in the world, an unbalanced panel of around 900 MNEs observed for the period 2004 to 2013 and find strong support for all our hypotheses.

IPR Law Protection and Enforcement and the Effect on Horizontal Productivity Spillovers from Inward FDI to Domestic Firms: A Meta-analysis

We study the role of the strength of Intellectual Property Rights (IPR) law protection and enforcement in influencing horizontal productivity spillovers from inward FDI to domestic firms in host countries. While most WTO countries adopted strong IPR legislation due to exogenous pressure resulting from the signing of the Trade-Related Aspects of IPR (TRIPS) agreement, public IPR enforcement strength continues to vary significantly between countries. We meta-analyse 49 studies and find that public IPR enforcement strength has a direct positive effect on horizontal productivity spillovers from inward FDI to domestic firms and a negative moderating effect on the relationship between IPR law protection strength and horizontal productivity spillovers from inward FDI to domestic firms.

Precursors of intellectual property rights enforcement in East and Southeast Asia

In this study we identify the main determinants of perceived strength of intellectual property rights in four developed (Japan, Singapore, South Korea, and Taiwan) and five emerging (China, Indonesia, Malaysia, the Philippines, and Thailand) Asian countries over the period 2003–2016. We use a panel model with additive unobserved individual-specific heterogeneity in a high-dimensional setting. The setting allows the number of time-varying regressors to exceed the sample size. Based on the Cluster–Lasso approach, we found that (1) bribery and corruption (inverse), equal opportunity, administration of justice, knowledge transfer, personal security and private property rights, and qualified engineers are significant determinants of intellectual property rights for developed countries; (2) adaptability of government policy, bribery and corruption (inverse), bureaucracy (inverse), and science in schools are significant determinants of intellectual property rights for emerging countries. Policy makers may use these results to strengthen IP rights and thus encourage indigenous innovation as well as foreign direct investment.

The Effects of Trade Agreements on Imports of Biologics: Evidence from Chile

AbstractThis paper develops new indicators that measure the strength of intellectual property rights (IPR) provisions in Chile’s free trade agreements (FTAs). We use these new indicators to examine the extent to which FTAs with strong IPR provisions impact the volume, unit value and overall value of imported biologic medicines into Chile. We find that FTAs with more stringent IPR provisions increase both the volume and the unit value of imported biologics, suggesting greater availability of imported biologics at a higher price. Further research, however, is necessary to determine whether the increases in volume and unit prices of imports lead to greater universal access to biologics or greater inequity in access to these medicines.

Can Intellectual Property Rights Affect Multinational Enterprises’ Entry Modes? The Chilean Case

Multinational Enterprises (MNEs) can choose between exporting, introducing foreign direct investment (FDI), and licensing to a domestic firm among other modes of entry to a new market. Yet, this decision may be affected by the strength of intellectual property rights (IPR). Thus, this paper analyzes the effect of stronger IPR on the entry modes chosen by MNEs. We propose a theoretical model that predicts that in the presence of stronger IPR, MNEs would choose licensing instead of FDI as an entry mode. We test the predictions of the model using plant-level data for Chile for the period 2001–2007. We exploit the exogenous reform of IPR in 2005, controlling for the activities of industries where high levels of technology transfer and imitation are important factors. The main results show that stronger IPR change the mode of entry chosen by MNEs. In this case, FDI is replaced by licensing. This is explained by Chile’s high absorptive capacity during this period. We test whether this effect differs across high- and low-tech industries and conclude that the displacement of FDI is less severe in high-tech industries.

Migration and Imitation

This paper develops a North-South trade model with heterogeneous labour and horizontally differentiated products and compares the implications of two policies: Southern intellectual property rights (IPRs) and Northern immigration policy that aims to attract Southern talent as means of preempting imitation. Individuals self-select into becoming entrepreneurs and innovate (imitate) in the North (South). The likelihood of imitation depends on product quality, imitator’s ability, and strength of IPRs. Several interrelated channels of competition are identified. Allowing high-ability migration when IPRs protection in the South is weak shifts imitation to low-quality and innovation to high-quality products. The outcome is in stark contrast to the policy of strengthening IPRs, which limits low-quality imitation and encourages low-quality innovation. High-ability migration also increases the income of lowability entrepreneurs, as well as the average quality of products in the high-ability imitation sector in the South.

WHAT DO WE KNOW ABOUT THE IMPACT OF INTELLECTUAL PROPERTY RIGHTS ON THE FOREIGN DIRECT INVESTMENT LOCATION (COUNTRY) CHOICE? A REVIEW AND RESEARCH AGENDA

AbstractDespite a longstanding debate, at both a theoretical and empirical level, research on the relationship between foreign direct investment (FDI) and intellectual property rights (IPRs) remains scant and ambiguous. As a result, the link between IPR strength and multinational enterprises’ (MNEs) propensity to invest is unproven and seemingly dependent on a number of factors. We critically review the theory and evidence of the influence of IPRs on FDI and MNEs’ investment location (country) decisions both to ‘take stock’ of existing knowledge of this relationship and, by identifying gaps in, and shortcomings of prior work, develop a fruitful research agenda. We find that existing empirical work on the IPR–FDI nexus, though skewed in favour of a positive relationship between IPR protection and FDI, is fragmented, inconclusive and unable to square the conflicting theoretical predictions on how the strength of IPRs can affect MNEs’ FDI location decisions. Several issues and challenges are highlighted to explain the difficulties of the collective body of past empirical work to provide a definite answer to the question of the impact of IPRs on FDI, from which valuable recommendations are proposed to guide future applied research.

Technology spillovers, intellectual property rights, and export-platform FDI

How do trade liberalization and changes in market size affect the strength of intellectual property rights (IPR) protection in Southern countries? We explore this question in an international oligopoly model in which a Northern firm has the option of export-platform FDI (EPF): that is, to set up an export platform in the South to serve not only the Southern market but also other export markets. EPF allows the Northern firm to take advantage of low tariffs that often exist between the South and other export markets. However, with imperfect protection of IPR in the South, the Northern firm’s technological advantage is reduced under EPF as technology spills over, at least partially, to Southern firms. We show that when trade between the South and the export market becomes more liberalized, South government weakens its optimal IPR policy to improve welfare. The opposite is true when trade is liberalized between the North and the South, or between the North and the export market. The effect of an increase in the size of the Southern market critically depends on whether the Northern firm chooses EPF over home production to increase its profit in the Southern market or in the export market. The robustness of our findings is explored in a variety of extensions including multiple export platforms, multilateral trade liberalization, and EPF by multiple Northern firms. Explicitly incorporating export markets and the possibility of EPF, this paper sheds new light on our understanding of the North–South conflict regarding IPR protection, a highly debated issue among member countries of the WTO.

The Influence of Intellectual Property Rights on Poaching in Manufacturing Outsourcing

Manufacturers are often placing their intellectual property (IP) at risk by outsourcing to suppliers in countries with weak IP rights. Thus, understanding how to safeguard their IP from poaching, which is a supplier's unauthorized use of a buyer's proprietary information, is of critical practical importance for manufacturers that outsource to suppliers in countries with weak IP rights. To investigate this phenomenon, we use dyadic data from globally dispersed manufacturer–supplier relationships to examine how the IP rights of a supplier's location affects poaching and how IP rights influence the effectiveness of two transactional characteristics—supplier idiosyncratic investments and media‐rich communication—on poaching. We examine these two transaction characteristics because they are representative of two forms of safeguards which create self‐enforcing agreements that do not require legal enforcement—economic and relational. We find that the strength of IP rights not only has a direct effect on poaching, but it also influences the relationships for both transaction characteristics. Intriguingly, when IP rights are weak, we find that not only are supplier idiosyncratic investments less effective in reducing poaching, but increases in these investments are associated with an increase in poaching. This finding illustrates that the strength of IP rights is a determinant of the degree to which supplier idiosyncratic investments are transaction specific. For suppliers in countries with weak IP rights, media‐rich communication is found to be more effective in reducing poaching. This finding illustrates the importance of manufacturers’ boundary spanners in building relationships with suppliers in countries with weak IP rights.

The Impact of Patent Protection on Outsourcing Decisions by U.S. Manufacturing Firms

Many countries have strengthened their patent laws over the past 20 years as they have implemented their WTO intellectual property obligations. This benefits American firms, many of which lobbied for the establishment of enforceable intellectual property rights within the WTO framework. It is often assumed to be unambiguously beneficial for American workers at these firms. However, it may be that American workers who produce goods embodying patented technology were better protected when the level of patent protection offered in the U.S. was higher than that offered in countries with lower production costs. The rationale is straightforward – firms that rely on patent protection may have been more inclined to produce domestically when producing overseas was more likely to result in intellectual property theft and competition from infringing goods. As intellectual property protection strengthened in countries with lower production costs, outsourcing may have become more feasible.This paper tests the hypothesis that U.S. firms have been more likely to outsource production of patent-intensive intermediate goods from countries with stronger patent laws. A series of regressions demonstrate that this was indeed the case for three broad patent-intensive industries between 1997 and 2010, a time when both the strength of intellectual property rights and outsourcing were on the rise. Controlling for variables related to factor costs, gravity model determinants, and institutional quality, as well as time, industry, and country fixed effects, an increase in a country’s score on the Ginarte-Park Patent Index was associated with a significant increase in U.S. imports of intermediate goods from that country. The degree to which patent protection affected these trade flows differed by industry. As individual countries adjusted the level of patent protection they provided during this time, firms in those countries found themselves shipping more intermediate goods from these industries to the U.S.

Using Linguistic Networks to Explain Strength of Intellectual Property Rights

Summary What explains the strength of intellectual property rights (IPR)? While extant research would suggest democratic governments are better constrained to protect property rights, we are agnostic about this mechanism with respect to IPR. We argue IPR—distinct from physical property by their lack of geographical boundaries—are stronger in states not because property owners have a democratic voice, but because they can exit the state as an alternative. We test this argument using a newly constructed network variable that measures the degree of linguistic compatibility between states based on languages of education. We contend that the cost of exit is lower when the language of the intellectual property owner is widely used globally; and vice versa. This linguistic network variable improves on traditional common-language measures in that it considers the same language can be spoken in more than just a pair of dyads and that the education sector is an important arena for disseminating languages that need not be official. We find that (1) democracy has a weak and usually non-significant effect but (2) high linguistic compatibility has a strong and robust effect. The results call attention to the conceptual heterogeneity of property rights and the limited theoretical linkage between regime type and these bundles of rights.

Where do spinouts come from? The role of technology relatedness and institutional context

This paper conceptualizes and empirically examines organizational and institutional antecedents of spinouts (i.e., new businesses created by employees). We deploy multi-level logistic regression modeling methods on a sub-sample of the Global Entrepreneurship Monitor's 2011 survey covering 29 countries. The results reveal that employees who have experience with activities unrelated to the core technology of their organizations are more likely to spin out entrepreneurial ventures, whereas those with experiences related to the core technology are less likely to do so. In support of recent theory, we find that the strength of intellectual property rights and the availability of venture capital have negative and positive effects, respectively, on the likelihood that employees become entrepreneurs. These institutional factors also moderate the effect of technology relatedness such that spinouts by employees with experiences related to core technology are curbed more severely by stronger intellectual property rights protection regimes and lacking of venture capital.

Politico-Historical Contingencies, Intellectual Property Rights, and Economic Performance Across Countries: A Simultaneous Equation System Perspective

Despite attempts to harmonize intellectual property rights (IPR) across countries, significant inter-country diversity exists in their “strength.” Our paper situates the literature on IPR in the broader literature on institutions to gain insights into the way economic performance, and historical political contingencies shape IPR, and put these hypotheses to empirical scrutiny using cross-country regression analysis. Such analyses are often criticized for treating institutions as exogenous variables. We develop a simultaneous equation model to address these concerns. We find that political treatise, institutional complementarities, and historical processes all shape strength of IPR in a country. However, strengthening IPR, while augmenting income, does not seem to favour the cause of human development.

Software Piracy and Scientific Publications: Knowledge Economy Evidence from Africa

This paper is an extension of the debate on the nexus between the strength of intellectual property rights (IPRs) and prospects for knowledge economy. It assesses the relationships between software piracy and scientific publications in African countries for which data is available. The findings, which reveal a positive nexus, are broadly consistent with the school of thought postulating that the East Asian miracle has been largely due to weaker IPRs regimes at the early stages of development. As a policy implication, less stringent IPRs regimes on scientific-related software (at least in the short run) will substantially boost contributions to and dissemination of knowledge through scientific and technical publications in Africa. IPRs laws (treaties) on scientific-oriented software should be strengthened in tandem with progress in: (a) scientific and technical publications; and (b) knowledge spillovers essential for economic growth and development. More policy implications are discussed.

Compulsory licensing and access to drugs

Compulsory licensing allows the use of a patented invention without the owner's consent, with the aim of improving access to essential drugs. The pharmaceutical sector argues that, if broadly used, it can be detrimental to innovation. We model the interaction between a company in the North that holds the patent for a certain drug and a government in the South that needs to purchase it. We show that both access to drugs and pharmaceutical innovation depend largely on the Southern country's ability to manufacture a generic version. If the manufacturing cost is too high, compulsory licensing is not exercised. As the cost decreases, it becomes a credible threat forcing prices down, but reducing both access and innovation. When the cost is low enough, the South produces its own generic version and access reaches its highest value, despite a reduction in innovation. The global welfare analysis shows that the overall impact of compulsory licensing can be positive, even when accounting for its impact on innovation. We also consider the interaction between compulsory licensing and the strength of intellectual property rights, which can have global repercussions in other markets beyond the South.

Intellectual Property Rights, Distance to the Frontier and R&D

Intellectual Property Rights (IPRs) are a key driver of economic growth as they provide agents with incentives to invest in Research and Development (R&D). The importance of IPRs should however vary when one moves along the technological frontier as firms can rely upon other mechanisms (i.e. imitation, equipment) to bring new products to the market place. An emerging strand of literature indeed has stressed how the incentives to growth vary according to the position of economic agents along the technological frontier. In this paper we explore variations at the intersection of these two factors - strength of IPRs and distance from the technological frontier - and show how IPRs relate to incentives for innovation at various stages of the latter. Using firm-level survey data for a sample of firms from a group of transition economies over the period 2002 to 2009, we provide evidence of heterogeneity in firms’ decision to invest in R&D to increasing strength in IPRs as we depart from the technological frontier. Specifically, we show that laggard firms in countries with stronger IPRs are more likely to invest in R&D than similar firms in countries with weaker IPRs. The effect is mainly driven by firms in sectors which make intensive use of legal mechanisms to appropriate R&D. Finally, the effect matters the most for firms introducing incremental innovations such as upgraded products, young and small firms. The results suggest that IPRs lead laggard players to invest in own R&D, possibly by limiting the ability of firms to absorb external knowledge.

Intellectual property rights, southern innovation and foreign direct investment

The strength of intellectual property rights (IPR) in host countries is often considered to be an important determinant of inward foreign direct investment (FDI). Considering FDI to a developing or a newly industrialized country, we show that the host-country firm's innovative activity, which is empirically relevant yet has been ignored mostly in the literature, plays an important role in the relation between IPR and FDI. If imitation occurs under both export and FDI by the developed-country firm, stronger IPR in the host country may reduce inward FDI.

Determinants of quadic patenting: Market access, imitative threat, competition and strength of intellectual property rights

This paper analyzes firms' decisions to seek intellectual property rights in global markets, particularly in China. We introduce the notion of a ‘quadic patent,’ defined as a patent family that consists of patent applications filed at the European Patent Office, the Japanese Patent Office, the United States Patent and Trademark Office, and the national patent office of a fourth country. We examine the determinants of quadic patenting at the industry level for China, and at the country level for a sample of 38 countries. Our results indicate that quadic patenting is driven by the need to access markets, respond to imitative threats, and compete in product markets.

State capacity and intellectual property regimes: Lessons from South American soybean agriculture

In the 1980's, the U.S. government started a global upward ratchet of intellectual property (IP) protection, demanding countries reform their IP regimes increasing the scope and strength of IP rights. There has been substantial variation across countries and industries in the degree of reproduction of this trend. Based on a comparative-historical analysis of IP regimes in South American soybean agriculture (Argentina, Brazil, and Paraguay) from the 1970s to the present, this study shows that: (1) when state capacity in IP and state capacity in agricultural R&D are weak, a restrictive IP regime is likely to emerge; (2) when state capacity in IP is strong but capacity in agricultural R&D is weak, a permissive IP regime is likely to emerge; (3) when state capacity in IP and in agricultural R&D are strong, a restrictive IP regime is likely to emerge.