In our hyper-competitive global economy, intellectual property (IP), often referred to as creations of the mind that can be incorporated into tangible objects, has become the primary source of competitive advantage for both companies and countries.
When employed to drive innovation, IP boosts corporate profits, job creation, national economic growth, wages, and standards of living. In turn, the only sustainable competitive advantage for many companies is their ability to effectively apply knowledge to develop higher value-added, innovation-based goods and services.
According to the U.S. International Trade Commission (ITC), IP and innovation play a central role in driving productivity and overall growth in the U.S. economy. In fact, the ITC reports, technological innovation has been associated with approximately three-quarters of the United States’ average annual economic growth since the mid-1940s.
As such, much of today’s IP is incorporated in products and services that make them considerably more attractive internationally. And this is attributable to efforts often associated with great expense. Additionally, improvements in a manufacturing process or know-how that deliver greater efficiencies also can carry a large price tag. As a result, it’s important that IP be employed as effectively as possible and protected from piracy.
IP Defined
According to the World Intellectual Property Organization, a United Nations agency, “intellectual property shall include the rights relating to:
- Literary, artistic and scientific works,
- Performances of performing artists, phonograms, and broadcasts,
- Inventions in all fields of human endeavor,
- Scientific discoveries,
- Industrial designs,
- Trademarks, service marks, and commercial names and designations,
- Protection against unfair competition, and
- All other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.”
According to Vincent LoTempio, an IP lawyer and author, three types of IP are commonly protected through registrations. These are:
- Copyrights, which include literary and artistic works, such as movies, novels, poems, plays, music, paintings, software, and architectural designs,
- Trademarks, which include brands, logos and company names, and
- Patents, which can cover new, useful and non-obvious improvements of machines, articles of manufacture, methods of doing business, and compositions of matter.
Other forms of IP that can be protected by lawsuit if copied without permission or surreptitiously obtained include industrial designs, trade secrets (ex. Coca Cola’s formula), and geographical indications of source (ex. Burgundy Wine), LoTempio says.
The Status of the United States
The United States is a leading source of IP. In fact, the tremendous number of utility patents granted to American firms in 2011, at 108,626, reflects this strength. The United States also spends considerably more than any other country on research and development (R&D). Thus, according to the National Science Foundation, an independent federal agency, total U.S. R&D expenditures in 2009 were $400.5 billion. Of this, 70.5 percent was funded by business, 11.5 percent by the federal government, 13.6 percent by universities and colleges, and 4.4 percent by nonprofit organizations. In total, the $400.5 billion represents 31.4 percent of the world’s R&D expenditures.
The Global Competitiveness Report published by the World Economic Forum, a Geneva-based non-profit foundation best known for its annual meeting in Davos, Switzerland, says “U.S. companies are highly sophisticated and innovative, supported by an excellent university system that collaborates admirably with business sectors in R&D. Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the largest in the world by far—these qualities continue to make the United States very competitive.” The report also identifies weaknesses, noting macroeconomic stability of primary concern.
Other organizations, including the Organisation for Co-operation and Development (OECD), indicate the United States may be losing its innovative edge. And The Information Technology & Innovation Foundation (ITIF), a Washington, D.C.-based think tank, estimates that the United States’ rank, in terms of R&D tax incentives, an important motivating factor, has dropped several points, to 27th out of 42 countries.
To improve innovation and boost American competitiveness, ITIF encourages the federal government to increase R&D tax incentives, while the OECD recommends increasing the number of U.S. graduates in STEM (science, technology, engineering and math) subjects. And of course, U.S. companies are continually encouraged to promote R&D and delve deeper into their core competencies to create and/or apply more advanced technologies to make their products and services more globally attractive.
The Cost of Piracy and What To Do
Theft of IP continues to be a major problem and the costs are staggering. In its 2012 report, the Business Software Alliance pegged the global piracy rate for PC software at approximately 42 percent, with costs rising from $58.8 billion in 2010 to $63.4 billion in 2011. While recently providing testimony to a Congressional Committee, Michael Miller, international vice president of the International Alliance of Theatrical Stage Employees, said the cost of piracy to the entertainment industry was $6 billion in 2008, a fraction of the $250 billion that copyright piracy costs the American economy each year.
In 2009, the ITC estimated U.S. economic losses due to Chinese piracy at $48 billion. This includes infringement of copyrights, $23.7 billion; trademarks, $6.1 billion; and patents, $1.3 billion; plus the misappropriation of trade secrets and other piracy at $17.1 billion.
Part of the solution may involve greater emphasis on IP policies and better enforcement by the World Trade Organization, the U.S. government and foreign governments.
Currently, the United States Trade Representative provides a “Special 301” review process that examines IP protection and enforcement in 77 trading partners. Each year a Special 301 report places countries on a watch list where piracy is believed to be a problem. Keeping abreast of this list and the types of intellectual property at issue is important.
The bottom line: stronger enforcement by governments and international organizations is extremely important to preserve the integrity of the global trading system. Plus, companies can implement various strategies to protect their IP.
Registering patents, trademarks and other IP with appropriate agencies in countries where companies sell or produce products is a first step in protecting a company’s IP, says LoTempio. But first, companies are wise to establish a strategy to properly identify their IP.
LoTempio says this could be as simple as:
- Educating employees so they understand and can document what is patentable subject matter,
- Creating a patent review committee to evaluate potential inventions,
- Establishing a decision-making process to assess the anticipated cost and financial benefits of filing for a patent, and
- Assigning action steps to qualified individuals to implement the strategy.
The burden of demonstrating IP theft can be a costly endeavor. And companies that bring formal charges in countries where IP infringements occur sometimes fear retaliation or being locked out of lucrative markets. Nevertheless, the cost of doing nothing often far exceeds the cost of protecting IP. And very importantly, since IP represents much of today’s competitive advantage, protecting or not protecting your IP could mean the difference between success and failure.
This article appeared in a Fifth Third Bank publication, December 2012
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