Intellectual Property (IP) laws allow inventors, artists, and innovators to protect their work and prevent others from profiting from it. In order to be granted a patent, the applicant must reveal the details of the invention.
This appears ironic and somewhat counter-intuitive, but this allows the patent monopoly rights over the invention over a set period of years.
Without the permission of the patent holder, a third party can’t use said patent. However, as the details are already out there, they have the knowledge resource to improve the current methods used to fit their needs thus spurring innovation.
Globally, IP protection has been responsible for driving economic growth. In this article, we’ll summarise some of the contributions of IP protection in the global marketplace.
Generally, IP rights (IPRs) don’t cross international borders. This means that if you have a patent in Canada, you’ll need to apply for a patent in the US if you want to protect your invention in that territory. According to Heer Law, citizenship of that country isn’t required.
Once granted, the IP stands to benefit both parties. In a nutshell, the inventor is recognized and rewarded for his effort, and the society in that region benefits by being directly or indirectly employed within that industry thus contributing to the country’s economic growth.
This creates a positive feedback cycle whereby a company’s strong trust in the legal system pertaining to IPRs in another country will motivate them further into expanding its business and research there.
Local entrepreneurs and businesses that are exposed to new foreign technology take advantage of this knowledge base by improving on what’s patented. This spillover of knowledge allows local innovators to flourish in industries where there was a lack of participation prior to the injection of foreign direct investment (FDI).
Knowledge Transfer in Globalization
As highlighted by ITIF, flows of knowledge and technology (that rely on IP protection) form the epicenter of the two networks that drive innovation and growth. These are the global value chains (GVCs) and global innovation networks (GINs).
GVCs: How material goods and services are moved across borders, from production to post-sales activities.
GINs: The transfer of knowledge between different organizations across international borders.
The rise of GVCs and GINs firmly indicate the importance of technology and knowledge sharing in business development.
GINs, in particular, have experienced significant growth as American and European companies have been pouring money into establishing research bases and production facilities in Asia. As stated by Huawei, this is partly contributed by ICT hardware and software development and lower costs of communication.
Without strong IPRs, there will be no incentive for businesses to collaborate with organizations overseas to spur innovation as there is a risk of free-riders exploiting the inventions fo their own benefits.
Overall, a developing nation with strong patent laws attracts FDI. This was demonstrated in China where several IPR reforms created a positive effect on incoming FDI (Awokuse and Hong Yin, 2008).