1.1 Today’s advanced economies live or die by their ability to get smarter. Growth comes not from competing on labour costs, raw materials or access to capital: our competitive edge depends on our capacity to innovate, especially in the high margin, knowledge intensive businesses which now exist across all sectors of the UK economy.1
1.2 The UK’s long term growth depends on these rms. These are also the companies most affected by our Intellectual Property (IP) system.2 That is the context for this review, which the Prime Minister launched in November, with a mandate to examine how to ensure that our IP framework does the best possible job in encouraging innovation and growth.
1.3 Intellectual Property Rights (IPRs) support growth by promoting innovation through the offer of a temporary monopoly to creators and inventors. But such rights can also sti e growth where transaction costs are high or rights are fragmented in a way that makes them hard to access. Poorly designed IP rules can help established players in a market obstruct new players by impeding their access to technology and content. A carefully designed and dynamic IP system can, by contrast, complement the spur which competition gives to innovation by enabling follow on-innovation.
1.4 Policy should start from careful assessment of these costs and bene ts in the light of evidence and accepted economic theory. At the same time, non-economic factors meriting consideration (such as the important moral rights of authors not to have their work misrepresented) can be weighed in the balance.
Why IP Matters to Growth
1.5 It is widely accepted that the most important driver of long term economic growth is improved productivity.3 Over the last decade the majority of productivity growth and job creation has come from innovation,4 primarily by small and young rms. These innovative rms “grow twice as fast, both in employment and sales, as rms that fail to innovate”5 and the more contestable their market is, the faster productivity grows in that market.6 At the same time, innovation creates and grows new markets for things that have not been seen or done before. These factors combined indicate that innovative rms are key to the UK’s future economic growth.
Review of Intellectual Property and Growth 10
1.6 Participants in competitive markets have a strong reason to innovate to create and capture
new value, and competition is the strongest incentive for rms to innovate.7 In the words of Ed
McCabe: “creativity is one of the last remaining legal ways of gaining an unfair advantage over the
competition.”8 However, creativity and innovation involves private cost, such as lost earnings while
writing a book or Research and Development (R&D) investment in drug research. It also involves
the risk that new products will fail. Moreover, once created, innovative output may cost very little to
reproduce: drugs or books may be cheaply copied by others.
1.7 Where innovation is dif cult to copy, or there are large rewards for being rst to market with a product, the competitive spur to innovation is effective. In other circumstances, these risks and costs are a disincentive to innovate. That is why we need intellectual property rights.
1.8 IPRs (the major rights being patents, copyright, design rights, and trade marksii) incentivise innovation through the offer of a time-limited return on innovative investment. This reduces the risk in inventing and creating new products, so stimulating innovation, competition and stronger economic growth. By agreeing to share the full technical workings of any patented invention, the IPR system also encourages follow on innovation as information about technology is disseminated.
1.9 Because IPRs grant a form of monopoly, an overly rigid and in exible IP framework can act as a barrier to innovation. When a rm has acquired exclusive rights over its innovative technology or content, other rms will be able to learn from that technology or see the content, but may be unable to use them for further innovation unless licensing can be agreed. IPRs can constrain third parties wishing to access or innovate on top of this protected knowledge or content, with potentially serious economic and social costs.
1.10 Furthermore, IP systems impose transaction costs on the creator, on innovators and on society. The costs of search, administration and enforcement, which fall on creators and innovators, directly offset the incentives they receive through exclusivity. So the rewards to innovation can sometimes be boosted as effectively by cutting transaction costs as by strengthening rights. The optimal balance between these factors varies by industry and technology – in complex markets requiring multiple rights transaction costs can be especially onerous. And the expertise required to deal with IPRs is largely a xed cost: it falls harder on smaller rms trying to establish rights than on large incumbents.
i The main features of the principal IPRs are as follows.
1.7 Where innovation is dif cult to copy, or there are large rewards for being rst to market with a product, the competitive spur to innovation is effective. In other circumstances, these risks and costs are a disincentive to innovate. That is why we need intellectual property rights.
1.8 IPRs (the major rights being patents, copyright, design rights, and trade marksii) incentivise innovation through the offer of a time-limited return on innovative investment. This reduces the risk in inventing and creating new products, so stimulating innovation, competition and stronger economic growth. By agreeing to share the full technical workings of any patented invention, the IPR system also encourages follow on innovation as information about technology is disseminated.
1.9 Because IPRs grant a form of monopoly, an overly rigid and in exible IP framework can act as a barrier to innovation. When a rm has acquired exclusive rights over its innovative technology or content, other rms will be able to learn from that technology or see the content, but may be unable to use them for further innovation unless licensing can be agreed. IPRs can constrain third parties wishing to access or innovate on top of this protected knowledge or content, with potentially serious economic and social costs.
1.10 Furthermore, IP systems impose transaction costs on the creator, on innovators and on society. The costs of search, administration and enforcement, which fall on creators and innovators, directly offset the incentives they receive through exclusivity. So the rewards to innovation can sometimes be boosted as effectively by cutting transaction costs as by strengthening rights. The optimal balance between these factors varies by industry and technology – in complex markets requiring multiple rights transaction costs can be especially onerous. And the expertise required to deal with IPRs is largely a xed cost: it falls harder on smaller rms trying to establish rights than on large incumbents.
i The main features of the principal IPRs are as follows.
-
Patents protect technical features and processes, ie inventions. They reserve to the patent owner the right to make,
use, import or sell the invention. They last up to 20 years, subject to payment of an annual renewal fee.
-
Copyright gives automatic protection (i.e. registration is not necessary) to original written, dramatic, musical and
artistic works, published editions of works, sound recordings, lms and broadcasts. Creator’s copyright generally
lasts until 70 years after death.
-
Trade Marks protect any sign that distinguishes goods and services from competitors’. They can be maintained
inde nitely subject to renewal every 10 years.
-
Design rights protect the physical appearance and visual appeal of products. Registered designs can be maintained
up to 25 years subject to the payment of a renewal fee every ve years. Unregistered designs are automatic and only
protect three dimensional aspects of a design, excluding surface ornamentation. They last for up to 15 years.
Review of Intellectual Property and Growth 11
1.11 The costs imposed by IP systems on society are wider. They include the “deadweight” costs
which ow from limiting competition and sustaining higher prices. A classic example is the effect of
extending the duration of copyright, which boosts the income of rights holders, but increases costs to
consumers not only by the additional payment but also by its costs of collection.
The Changing World
1.12 As advanced economies become ever more knowledge intensive, the stakes involved in
IP are rising. Profound and far from complete economic and technological changes mean that an appropriate and enabling IP framework has become one of the prerequisites for prosperity. IP related spending has come to dominate rms’ investment across the developed world while services now dominate these economies.9 UK rms spent £137 billion on intangible investment, or investment in IP, compared to £104 billion on xed assets in 2008 (see Figure 1.1).10 This investment in IP is worth 13 per cent of market gross value added (GVA), with almost half of it covered by IPRs.11 Global trade in patent and creative industry licences alone is now worth more than £600 billion a year, over ve per cent of all world trade - and rising.12
The Innovation Ecosystem
1.13 Small and young innovative rms are playing an increasing role in job creation. They represent only six per cent of UK rms with more than 10 employees but they have created 54 per cent of all new jobs since 2002,13 although churn amongst Small and Medium Enterprises (SMEs) remains high and their contribution to net employment is lower than this.14 At the same time, larger rms continue to play a crucial but changing role in innovation, with less emphasis on in-house R&D
The Changing World
1.12 As advanced economies become ever more knowledge intensive, the stakes involved in
IP are rising. Profound and far from complete economic and technological changes mean that an appropriate and enabling IP framework has become one of the prerequisites for prosperity. IP related spending has come to dominate rms’ investment across the developed world while services now dominate these economies.9 UK rms spent £137 billion on intangible investment, or investment in IP, compared to £104 billion on xed assets in 2008 (see Figure 1.1).10 This investment in IP is worth 13 per cent of market gross value added (GVA), with almost half of it covered by IPRs.11 Global trade in patent and creative industry licences alone is now worth more than £600 billion a year, over ve per cent of all world trade - and rising.12
The Innovation Ecosystem
1.13 Small and young innovative rms are playing an increasing role in job creation. They represent only six per cent of UK rms with more than 10 employees but they have created 54 per cent of all new jobs since 2002,13 although churn amongst Small and Medium Enterprises (SMEs) remains high and their contribution to net employment is lower than this.14 At the same time, larger rms continue to play a crucial but changing role in innovation, with less emphasis on in-house R&D
Figure 1.1 UK Business Investment, £bn
Source: NESTA (2011)
Review of Intellectual Property and Growth 12
and increased partnerships with smaller companies developing new technologies. These trends
are very apparent in, for example, the biotechnology and software sectors. Hence the relationship between SMEs and larger rms can be symbiotic: they provide each other with direct support for innovative thinking and work together on R&D. Larger rms then provide routes to new and emerging markets for smaller rms.
1.14 Another shift in the innovation ecosystem is the increasing internationalisation of research – in 2007 the top 50 European corporate R&D spenders spent $51 billion of their $117 billion total R&D spend overseas.15 This shift in the landscape changes the pattern of how rms have to manage their still largely nation-speci c IPRs and indicate the importance of policy makers taking an international approach to IP systems.
The Increasing Impacts of Transaction Costs
1.15 IP transaction costs have risen as rights users navigate an ever more densely populated landscape of increasingly subdivided rights. This presents a risk analogous to the problem
familiar in the world of planning, where small ownership interests can block value generating large developments. In the patent world, a surfeit of property rights can mean that the transaction cost of acquiring permission to innovate or create new work is prohibitively high. Research shows that in certain technology elds this can cause a kind of gridlock with innovation delayed or even prevented.16 Michael Heller, an American law professor, coined the phrase “tragedy of the anticommons” to describe this situation,17 which he says has resulted in signi cant blockages in areas such as medical research.18
1.16 In the copyright area transaction costs can create similar problems. Digital technologies have brought large reductions in the cost of copying, storage and distribution for words, music, images
and all forms of data. This has the effect of making transaction costs around rights a much more signi cant element in the business equation and so, potentially, a likelier barrier to licensing and follow on innovation.
The Transforming Effects of Digital Technology
1.17 Digital technology is probably the most important and transformative technology of our time. Because digital is fundamentally an information and communication technology (ICT), intellectual property rights lie at its heart. Not only has ICT adoption and use been among the strongest drivers
of growth,19 but it has pushed content and communication technology into new uses, meaning the IP system has become part of people’s daily lives.20 This has transformed us all into regular, if not daily, copyright creators and allows rms to capture information on customers and transactions in ways that help them experiment in real time with business models and marketing approaches.21 Digital also gives rms the opportunity to market themselves locally, nationally and internationally at relatively low cost, reaching previously inaccessible customers. These are already unprecedentedly global markets, even though the internet has yet to be used directly by two thirds of the world’s population.22
are very apparent in, for example, the biotechnology and software sectors. Hence the relationship between SMEs and larger rms can be symbiotic: they provide each other with direct support for innovative thinking and work together on R&D. Larger rms then provide routes to new and emerging markets for smaller rms.
1.14 Another shift in the innovation ecosystem is the increasing internationalisation of research – in 2007 the top 50 European corporate R&D spenders spent $51 billion of their $117 billion total R&D spend overseas.15 This shift in the landscape changes the pattern of how rms have to manage their still largely nation-speci c IPRs and indicate the importance of policy makers taking an international approach to IP systems.
The Increasing Impacts of Transaction Costs
1.15 IP transaction costs have risen as rights users navigate an ever more densely populated landscape of increasingly subdivided rights. This presents a risk analogous to the problem
familiar in the world of planning, where small ownership interests can block value generating large developments. In the patent world, a surfeit of property rights can mean that the transaction cost of acquiring permission to innovate or create new work is prohibitively high. Research shows that in certain technology elds this can cause a kind of gridlock with innovation delayed or even prevented.16 Michael Heller, an American law professor, coined the phrase “tragedy of the anticommons” to describe this situation,17 which he says has resulted in signi cant blockages in areas such as medical research.18
1.16 In the copyright area transaction costs can create similar problems. Digital technologies have brought large reductions in the cost of copying, storage and distribution for words, music, images
and all forms of data. This has the effect of making transaction costs around rights a much more signi cant element in the business equation and so, potentially, a likelier barrier to licensing and follow on innovation.
The Transforming Effects of Digital Technology
1.17 Digital technology is probably the most important and transformative technology of our time. Because digital is fundamentally an information and communication technology (ICT), intellectual property rights lie at its heart. Not only has ICT adoption and use been among the strongest drivers
of growth,19 but it has pushed content and communication technology into new uses, meaning the IP system has become part of people’s daily lives.20 This has transformed us all into regular, if not daily, copyright creators and allows rms to capture information on customers and transactions in ways that help them experiment in real time with business models and marketing approaches.21 Digital also gives rms the opportunity to market themselves locally, nationally and internationally at relatively low cost, reaching previously inaccessible customers. These are already unprecedentedly global markets, even though the internet has yet to be used directly by two thirds of the world’s population.22
Review of Intellectual Property and Growth 13
1.18 Because copyright governs the right to own and use data and information, as well as the
output of authors, musicians, photographers and lm makers, copyright law is now of primary interest
to players across the whole of the knowledge economy, not just those involved in the creative
industries. Digital technologies are based on copying, so copyright becomes their regulator: a role it
was never designed to perform.
Services and the New Innovation Process
1.19 The services which provide most jobs in advanced economies are being changed in other ways by digital technology. Innovations in the insurance industry, for example, rely upon improved data from medicine, demographics and pro ling of individual customer lifestyles. Risk calculations applied to premiums for farmers and event organisers rely upon improved data analysis of weather patterns. Sophisticated assessment of safer cars and better roads can be factored into motor insurance judgments. Understanding these connections and computing the related business risks requires knowledge of what happens at boundaries between systems and the ability to analyse large quantities of data from what, until recently, were separate industries and sectors.
1.20 Collaborative and more “open” distributed innovation processes are especially important because services are not produced in the laboratories and factories of the industrial R&D arena where they can be tested and optimised. Services are usually produced at the point at which they are consumed: the act of consumption rather than invention is the focal point for innovation.
1.21 New services are therefore developed using a “market facing” approach, often connected
to information databases generated by people and organisations that articulate and express their requirements and demands as they experience the innovation. This is sometimes described as a more democratic approach to innovation, where companies trial different approaches – such as beta versions of web pages – and respond to user feedback. It also, however, frequently relies upon the ability to analyse large and complex volumes of data copied between machines, potentially raising multiple copyright issues.
1.22 The nature of services innovation implies that answers to technical problems will not lie exclusively within research institutions or companies with proprietary R&D cultures and the means to manage and protect IP. Instead, they will emerge through integration of ideas from a wide range of organisations, some of whom may consider managing IPR to be an unacceptable obstacle in a high value business, raising further challenges to traditional concepts of ownership of IP.
The Next Wave – Cloud Computing and the Internet of Things
1.23 The next wave of digital technologies and services is likely to create opportunities and disruptions in a very broad range of industries. The internet of things – billions of devices and components with an internet address, enabling them to communicate in massive sensing systems – coupled with cloud computing, will underpin more sophisticated applications, and thereby a host of new services: digital wallets will replace cheques and credit cards; personalised electronic adverts will compete with static hoardings; transport, electricity, power and water systems will provide a continuous
Services and the New Innovation Process
1.19 The services which provide most jobs in advanced economies are being changed in other ways by digital technology. Innovations in the insurance industry, for example, rely upon improved data from medicine, demographics and pro ling of individual customer lifestyles. Risk calculations applied to premiums for farmers and event organisers rely upon improved data analysis of weather patterns. Sophisticated assessment of safer cars and better roads can be factored into motor insurance judgments. Understanding these connections and computing the related business risks requires knowledge of what happens at boundaries between systems and the ability to analyse large quantities of data from what, until recently, were separate industries and sectors.
1.20 Collaborative and more “open” distributed innovation processes are especially important because services are not produced in the laboratories and factories of the industrial R&D arena where they can be tested and optimised. Services are usually produced at the point at which they are consumed: the act of consumption rather than invention is the focal point for innovation.
1.21 New services are therefore developed using a “market facing” approach, often connected
to information databases generated by people and organisations that articulate and express their requirements and demands as they experience the innovation. This is sometimes described as a more democratic approach to innovation, where companies trial different approaches – such as beta versions of web pages – and respond to user feedback. It also, however, frequently relies upon the ability to analyse large and complex volumes of data copied between machines, potentially raising multiple copyright issues.
1.22 The nature of services innovation implies that answers to technical problems will not lie exclusively within research institutions or companies with proprietary R&D cultures and the means to manage and protect IP. Instead, they will emerge through integration of ideas from a wide range of organisations, some of whom may consider managing IPR to be an unacceptable obstacle in a high value business, raising further challenges to traditional concepts of ownership of IP.
The Next Wave – Cloud Computing and the Internet of Things
1.23 The next wave of digital technologies and services is likely to create opportunities and disruptions in a very broad range of industries. The internet of things – billions of devices and components with an internet address, enabling them to communicate in massive sensing systems – coupled with cloud computing, will underpin more sophisticated applications, and thereby a host of new services: digital wallets will replace cheques and credit cards; personalised electronic adverts will compete with static hoardings; transport, electricity, power and water systems will provide a continuous
Review of Intellectual Property and Growth 14
real time update of their performance and user status. Firms will offer us advice and services built on
analysis of this kind of data – assuming IP law allows them to copy and manipulate it.
1.24 The convergence of technologies is likely to increase the range of context aware, location based services available to and about citizens. In some cases digital content may be transferred
from one system to another automatically as people or businesses interact using digital devices. Improvements in machine to machine learning, for example, may create the possibility for further automation in transfer of content. Interactions may therefore become implicitly as well as explicitly monitored and measured. This data will form new and valuable content to be traded within and between systems in the delivery of new services. Data on context and activities transferred to adjacent systems may be repurposed and traded, giving rise to a range of issues relating to copyright.
1.25 These issues are already visible – as the Review goes to press, concerns are being raised by the discovery that the Apple iPhone tracks and stores its location continuously, giving a complete picture of its user’s movements for later retrieval, with legal justi cation in a short paragraph in a long “terms of use” agreement.23 Questions of IP, privacy, and security are converging in ways that will, over time, present sharp challenges to the current legal framework.
The Work of the Review
1.26 The full shape and impact of this coming revolution in innovation models is, by de nition, unknowable.
1.27 The point is that the UK’s system of IP will be tested by some version of these scenarios and it will need to be ready to adapt. The challenge is to make sure that the IP framework is exible enough to facilitate, rather than obstruct, the capacity for digital technology to deliver growth. This needs to
be accomplished in a way that simultaneously protects, as far as possible, the position of existing communities of rights holders, notably the extraordinary diversity of individuals and rms which make up the UK’s highly successful creative industries.
1.28 Digital technology has already generated enormous turbulence among creative businesses. That is certain to continue, until digital business models establish themselves around a new settlement for the terms and conditions on which digital goods and services are priced in global digital markets. As digital’s full impact extends across the rest of the economy, it is impossible to imagine that the line between IP protection which merits public support and that which does not will remain static.
1.29 The Review has set itself the challenge of identifying 10 recommendations to ensure that
UK policy on IP moves in a direction which will enable the necessary adaptation to take place. The explicit goal of all the recommendations in this review is to support dynamic UK businesses, within and beyond the creative sector, which will deliver innovation, growth and jobs in the years to come.
1.24 The convergence of technologies is likely to increase the range of context aware, location based services available to and about citizens. In some cases digital content may be transferred
from one system to another automatically as people or businesses interact using digital devices. Improvements in machine to machine learning, for example, may create the possibility for further automation in transfer of content. Interactions may therefore become implicitly as well as explicitly monitored and measured. This data will form new and valuable content to be traded within and between systems in the delivery of new services. Data on context and activities transferred to adjacent systems may be repurposed and traded, giving rise to a range of issues relating to copyright.
1.25 These issues are already visible – as the Review goes to press, concerns are being raised by the discovery that the Apple iPhone tracks and stores its location continuously, giving a complete picture of its user’s movements for later retrieval, with legal justi cation in a short paragraph in a long “terms of use” agreement.23 Questions of IP, privacy, and security are converging in ways that will, over time, present sharp challenges to the current legal framework.
The Work of the Review
1.26 The full shape and impact of this coming revolution in innovation models is, by de nition, unknowable.
1.27 The point is that the UK’s system of IP will be tested by some version of these scenarios and it will need to be ready to adapt. The challenge is to make sure that the IP framework is exible enough to facilitate, rather than obstruct, the capacity for digital technology to deliver growth. This needs to
be accomplished in a way that simultaneously protects, as far as possible, the position of existing communities of rights holders, notably the extraordinary diversity of individuals and rms which make up the UK’s highly successful creative industries.
1.28 Digital technology has already generated enormous turbulence among creative businesses. That is certain to continue, until digital business models establish themselves around a new settlement for the terms and conditions on which digital goods and services are priced in global digital markets. As digital’s full impact extends across the rest of the economy, it is impossible to imagine that the line between IP protection which merits public support and that which does not will remain static.
1.29 The Review has set itself the challenge of identifying 10 recommendations to ensure that
UK policy on IP moves in a direction which will enable the necessary adaptation to take place. The explicit goal of all the recommendations in this review is to support dynamic UK businesses, within and beyond the creative sector, which will deliver innovation, growth and jobs in the years to come.
Review of Intellectual Property and Growth 15
The Evidence Base
2.1 The Review has committed itself to an evidence-based approach and we start by considering the evidence base currently available to inform policy. We have sought to base our recommendations on our best understanding of where the IP framework currently provides effective incentives to innovate and where the exclusive rights that IPRs confer might result in diminished competition or disincentives to innovate. The evidence available for this task is not complete, but it is improving rapidly.
2.2 We seek to understand how IPRs can ful l the economic incentive role described in the Statute of Anne, Britain’s rst copyright legislation, enacted in 1709 and de nitively summarised in the US Constitution in 1776: – “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.
Existing Evidence
2.3 The last 15 years have seen an explosion in work on the economics of IPRs, arising from the growing recognition of the importance of innovation in driving productivity and growth in advanced economies. Most of this work has focused upon incentives to patent1 or the returns to patents2 and trade marks3 at the level of rms and industries. This work is facilitated by the ability to link large sets of micro data on various aspects of rm performance with IP of ce data on patents and trade marks.4 Work has also been commissioned by the EU on the value of patents.5 The USA is a rich source of empirical evidence on patent values and litigation, partly driven by the information needs of a venture capital system which looks to defensible IPRs as an important point of valuation.
2.4 Overall, there is substantial evidence on patents as mechanisms to incentivise and reward the exploitation of invention. One caveat is that much innovation – the commercialisation of new products, services and processes – happens without the use of formal IPRs. As shown in Figure 2.1 patents
are less frequently used by innovating rms, large as well as small, than speed to market, secrecy or con dentiality agreements.6
Review of Intellectual Property and Growth 16
Figure 2.1 Protecting innovation: techniques preferred by UK Firms
Source: Hughes and Mina (2010), from UK Innovation Survey
2.5 Unfortunately, in much economic analysis work, patents are treated as an innovation output
measure. This implies that more patents indicates more innovation, which is not necessarily true.
2.6 There is a modest but increasing body of evidence on trade marks, as a means to protect reputation and enable and sustain (though not initiate) innovation. There is signi cantly less empirical evidence on the economic effects of design rights and next to no evidence on copyright policy.7 The lack of economic evidence on copyright may re ect a public debate shaped by a desire to provide creators with a “just reward” rather than by hard economics. This is no longer satisfactory in the light of the growing importance of the creative industries in the UK economy and the spread of copyright’s impact across business sectors outside the creative industries.
2.7 Much of the UK evidence on the impact of patents and trade marks has come from Mark Rogers and Christine Greenhalgh,8 whose work con rms that IPRs create incentives by improving returns to innovation, but with differences across industries. They also show that rms, especially SMEs, using patents and trade marks are more likely to survive and grow than those that do not, although the causation is not necessarily established.
IP and Contestable Markets
2.8 Other research on UK and EU markets9 shows that technology spreads faster, and has bigger positive effects on productivity, in industries where there is more open competition and so more contestable markets – i.e. markets to which new entrants can gain ready access. This is supported by recent OECD work, showing that in countries where there is more dynamism and contestability in
2.6 There is a modest but increasing body of evidence on trade marks, as a means to protect reputation and enable and sustain (though not initiate) innovation. There is signi cantly less empirical evidence on the economic effects of design rights and next to no evidence on copyright policy.7 The lack of economic evidence on copyright may re ect a public debate shaped by a desire to provide creators with a “just reward” rather than by hard economics. This is no longer satisfactory in the light of the growing importance of the creative industries in the UK economy and the spread of copyright’s impact across business sectors outside the creative industries.
2.7 Much of the UK evidence on the impact of patents and trade marks has come from Mark Rogers and Christine Greenhalgh,8 whose work con rms that IPRs create incentives by improving returns to innovation, but with differences across industries. They also show that rms, especially SMEs, using patents and trade marks are more likely to survive and grow than those that do not, although the causation is not necessarily established.
IP and Contestable Markets
2.8 Other research on UK and EU markets9 shows that technology spreads faster, and has bigger positive effects on productivity, in industries where there is more open competition and so more contestable markets – i.e. markets to which new entrants can gain ready access. This is supported by recent OECD work, showing that in countries where there is more dynamism and contestability in
Review of Intellectual Property and Growth 17
markets, measured by the presence of more fast growing and shrinking rms, productivity growth is
signi cantly higher. In countries where there are more static rms – neither growing nor shrinking –
rates of productivity growth are lower.10
2.9 A study commissioned for the Review on patenting and the contestability of markets suggests that for the majority of UK industry sectors, and large rms in particular, the incidence of patenting does not appear to impede the contestability of markets.11 So more patenting in these areas of the economy is neither good nor bad for competition.
2.10 The study found that in general for rms less than ve years old (micro rms and SMEs – many of which have the potential to be high growth rms) patenting and competition are positively related. This might be a result of improved access to venture capital and other forms of nancing.
By contrast, for sectors that are information intensive (science based industries and the machinery
or instruments sectors), patenting can have a negative effect on contestability. Particularly in high technology sectors we see a big volume of patents but relatively less challenge by small and younger rms.
2.11 This nding may be due to the existence of patent thickets – meaning “an overlapping set
of patent rights” which require innovators to reach licensing deals for multiple patents from multiple sources.12 These thickets appear to enable patent holders to exclude new and innovative rms from entering the market, thereby inhibiting growth. In these high technology and information intensive sectors we need to ensure that the IP system acts as a net incentive to innovation and growth.
2.12 The evidence supports a presumption that policy makers should favour competition and contestability in markets as a necessary condition for innovation, enterprise and growth. The economic evidence on IPRs needs to be considered against this background, viewing these rights as necessary departures from the reliance upon competition, to be judiciously designed to enhance innovation incentives.
Evidence Driven Policy
2.13 There are three main practical obstacles to using evidence on the economic impacts of IP:
2.9 A study commissioned for the Review on patenting and the contestability of markets suggests that for the majority of UK industry sectors, and large rms in particular, the incidence of patenting does not appear to impede the contestability of markets.11 So more patenting in these areas of the economy is neither good nor bad for competition.
2.10 The study found that in general for rms less than ve years old (micro rms and SMEs – many of which have the potential to be high growth rms) patenting and competition are positively related. This might be a result of improved access to venture capital and other forms of nancing.
By contrast, for sectors that are information intensive (science based industries and the machinery
or instruments sectors), patenting can have a negative effect on contestability. Particularly in high technology sectors we see a big volume of patents but relatively less challenge by small and younger rms.
2.11 This nding may be due to the existence of patent thickets – meaning “an overlapping set
of patent rights” which require innovators to reach licensing deals for multiple patents from multiple sources.12 These thickets appear to enable patent holders to exclude new and innovative rms from entering the market, thereby inhibiting growth. In these high technology and information intensive sectors we need to ensure that the IP system acts as a net incentive to innovation and growth.
2.12 The evidence supports a presumption that policy makers should favour competition and contestability in markets as a necessary condition for innovation, enterprise and growth. The economic evidence on IPRs needs to be considered against this background, viewing these rights as necessary departures from the reliance upon competition, to be judiciously designed to enhance innovation incentives.
Evidence Driven Policy
2.13 There are three main practical obstacles to using evidence on the economic impacts of IP:
-
There are areas of IPRs on which data is simply dif cult to assemble. While patents are well
documented, and traceable to their owners, unregistered design rights and copyright use are
not.
-
The most controversial policy questions usually arise in areas (such as computer programs,
digital communication and biosciences) which are new and inherently uncertain because they
involve new technologies or new markets whose characteristics are not well understood or
measured.
-
Much of the data needed to develop empirical evidence on copyright and designs is privately
held. It enters the public domain chie y in the form of “evidence” supporting the arguments of
lobbyists (“lobbynomics”) rather than as independently veri ed research conclusions.
Review of Intellectual Property and Growth 18
2.14 Dealing with these obstacles requires an approach to evidence which:
2.16 The Review has found that IP policy has not always been developed in a way consistent with the economic evidence. We give two examples below.
-
makes the most of the available research where data can be developed;
-
applies the lessons learned in those areas where we do have data to areas where we don’t, in
ways which make credible use of economic theory;
-
demands standards of transparency and openness in both methodology and data.
2.16 The Review has found that IP policy has not always been developed in a way consistent with the economic evidence. We give two examples below.
The EU Database Directive
An EU Directive to harmonise and increase protection for databases was adopted in 1996. Its aims
were to a) harmonise laws between Member States to aid the functioning of the single market and b)
increase protection for databases in those Member States where they were “not suf ciently protected”.
The hope was that by introducing such protection throughout the EU, database producers would be incentivised to invest in databases and information processing systems, and thereby reduce the “very great imbalance” in the level of investment in the database sector between the EU and third countries – notably the US, which has no such right. The aim was to ensure the EU got a foothold in this growing sector at an early stage. The European Commission carried out an evaluation of the Directive in 2006.13 This found that EU database creation had declined since introduction of the Directive, whilst it had continued to rise in the US, undermining the rationale for the right in the rst place. The EU Database Directive remains unchanged.
An EU Directive to harmonise and increase protection for databases was adopted in 1996. Its aims
were to a) harmonise laws between Member States to aid the functioning of the single market and b)
increase protection for databases in those Member States where they were “not suf ciently protected”.
The hope was that by introducing such protection throughout the EU, database producers would be incentivised to invest in databases and information processing systems, and thereby reduce the “very great imbalance” in the level of investment in the database sector between the EU and third countries – notably the US, which has no such right. The aim was to ensure the EU got a foothold in this growing sector at an early stage. The European Commission carried out an evaluation of the Directive in 2006.13 This found that EU database creation had declined since introduction of the Directive, whilst it had continued to rise in the US, undermining the rationale for the right in the rst place. The EU Database Directive remains unchanged.
Copyright Term Extension
Economic evidence is clear that the likely deadweight loss to the economy exceeds any additional incentivising effect which might result from the extension of copyright term beyond its present levels.14 This is doubly clear for retrospective extension to copyright term, given the impossibility of incentivising the creation of already existing works, or work from artists already dead.
Despite this, there are frequent proposals to increase term, such as the current proposal to extend
protection for sound recordings in Europe from 50 to 70 or even 95 years. The UK Government assessment found it to be economically detrimental.15 An international study found term extension to have no impact on output.16
Economic evidence is clear that the likely deadweight loss to the economy exceeds any additional incentivising effect which might result from the extension of copyright term beyond its present levels.14 This is doubly clear for retrospective extension to copyright term, given the impossibility of incentivising the creation of already existing works, or work from artists already dead.
Despite this, there are frequent proposals to increase term, such as the current proposal to extend
protection for sound recordings in Europe from 50 to 70 or even 95 years. The UK Government assessment found it to be economically detrimental.15 An international study found term extension to have no impact on output.16
2.17 Economic evidence is not, of course, the sole driver of IP policy. Legitimate questions of
culture, fairness and “just reward” for creators also arise, and have tended to dominate the debate
on copyright issues. Indeed, they were explicitly cited by the previous Government as justi cation for
Review of Intellectual Property and Growth 19
extension of copyright term, despite the economic evidence. These questions are clearly signi cant,
and it is not part of the Review’s task to determine how they should be resolved. We simply invite Government to consider that as copyright becomes increasingly economically important, it is vital that economic considerations are fully weighed in the balance. This is especially so given the role, noted in the previous chapter, that copyright is acquiring of regulating the permissibility of technologies, such as consumer recording devices and web search engines. If the current imbalance in the debate on copyright is allowed to continue, the economic price will be high.
2.18 Patents have not as yet faced the same form of transformational challenge as copyright.
Nonetheless, we have still found a tendency for preconception rather than evidence to drive some
aspects of patent policy. In Chapter 6, we consider the question of patenting non-technical computer
programs and business methods, and nd that some IP institutions (although not, to its credit, those
for which the UK Government is responsible) have sought to extend the reach of patents without rm
economic evidence.
2.19 In the years ahead technological and societal changes will present further challenges to the IPR system, as the relative and absolute share of economic activity based on creating and using IP continues to rise. Technology will continue to develop in ways that destroy the boundaries of existing markets. This in itself will create new uncertainties, and new interfaces between IP and competition policy. At the same time, the boundaries between legal spheres, such as IP and privacy law, are starting to dissolve. It is reasonable to suppose that in this atmosphere, with governments around the world eager to promote economic growth and the creation of quality jobs, there will be forceful demands for new IP interventions, in terms of both scope and intensity of enforcement. In such an environment it is vital that policy is rmly rooted in evidence.
2.20 A theme from the responses to the Review’s Call for Evidence is a need for stability in the system. Economic actors need to be able to have con dence in the predictability of the regulatory environment. For example, Microsoft argues that “the IP system as it stands is a basis for legal certainty and trust, under which the market can and does act ef ciently because the rules are stable and well-understood.”
2.21 This is a valid observation. But at the same time, the IP framework should not seek to insulate creators or users of IPRs from market or technology outcomes which are bene cial to contestability, enterprise, innovation and growth. “Stability” should not mean maintaining the income streams of incumbent rms at the expense of new entrants or disruptive technologies, where these provide better outcomes for consumers and more prosperity for the nation as a whole.
and it is not part of the Review’s task to determine how they should be resolved. We simply invite Government to consider that as copyright becomes increasingly economically important, it is vital that economic considerations are fully weighed in the balance. This is especially so given the role, noted in the previous chapter, that copyright is acquiring of regulating the permissibility of technologies, such as consumer recording devices and web search engines. If the current imbalance in the debate on copyright is allowed to continue, the economic price will be high.
1.12 As advanced economies become ever more knowledge intensive, the stakes involved in
IP are rising. Profound and far from complete economic and technological changes mean that an appropriate and enabling IP framework has become one of the prerequisites for prosperity. IP related spending has come to dominate rms’ investment across the developed world while services now dominate these economies.9 UK rms spent £137 billion on intangible investment, or investment in IP, compared to £104 billion on xed assets in 2008 (see Figure 1.1).10 This investment in IP is worth 13 per cent of market gross value added (GVA), with almost half of it covered by IPRs.11 Global trade in patent and creative industry licences alone is now worth more than £600 billion a year, over ve per cent of all world trade - and rising.12
The Innovation Ecosystem
1.13 Small and young innovative rms are playing an increasing role in job creation. They represent only six per cent of UK rms with more than 10 employees but they have created 54 per cent of all new jobs since 2002,13 although churn amongst Small and Medium Enterprises (SMEs) remains high and their contribution to net employment is lower than this.14 At the same time, larger rms continue to play a crucial but changing role in innovation, with less emphasis on in-house R&D
IP are rising. Profound and far from complete economic and technological changes mean that an appropriate and enabling IP framework has become one of the prerequisites for prosperity. IP related spending has come to dominate rms’ investment across the developed world while services now dominate these economies.9 UK rms spent £137 billion on intangible investment, or investment in IP, compared to £104 billion on xed assets in 2008 (see Figure 1.1).10 This investment in IP is worth 13 per cent of market gross value added (GVA), with almost half of it covered by IPRs.11 Global trade in patent and creative industry licences alone is now worth more than £600 billion a year, over ve per cent of all world trade - and rising.12
The Innovation Ecosystem
1.13 Small and young innovative rms are playing an increasing role in job creation. They represent only six per cent of UK rms with more than 10 employees but they have created 54 per cent of all new jobs since 2002,13 although churn amongst Small and Medium Enterprises (SMEs) remains high and their contribution to net employment is lower than this.14 At the same time, larger rms continue to play a crucial but changing role in innovation, with less emphasis on in-house R&D
Figure 1.1 UK Business Investment, £bn
Source: NESTA (2011)
Review of Intellectual Property and Growth 12
and increased partnerships with smaller companies developing new technologies. These trends
are very apparent in, for example, the biotechnology and software sectors. Hence the relationship between SMEs and larger rms can be symbiotic: they provide each other with direct support for innovative thinking and work together on R&D. Larger rms then provide routes to new and emerging markets for smaller rms.
1.14 Another shift in the innovation ecosystem is the increasing internationalisation of research – in 2007 the top 50 European corporate R&D spenders spent $51 billion of their $117 billion total R&D spend overseas.15 This shift in the landscape changes the pattern of how rms have to manage their still largely nation-speci c IPRs and indicate the importance of policy makers taking an international approach to IP systems.
The Increasing Impacts of Transaction Costs
1.15 IP transaction costs have risen as rights users navigate an ever more densely populated landscape of increasingly subdivided rights. This presents a risk analogous to the problem
familiar in the world of planning, where small ownership interests can block value generating large developments. In the patent world, a surfeit of property rights can mean that the transaction cost of acquiring permission to innovate or create new work is prohibitively high. Research shows that in certain technology elds this can cause a kind of gridlock with innovation delayed or even prevented.16 Michael Heller, an American law professor, coined the phrase “tragedy of the anticommons” to describe this situation,17 which he says has resulted in signi cant blockages in areas such as medical research.18
1.16 In the copyright area transaction costs can create similar problems. Digital technologies have brought large reductions in the cost of copying, storage and distribution for words, music, images
and all forms of data. This has the effect of making transaction costs around rights a much more signi cant element in the business equation and so, potentially, a likelier barrier to licensing and follow on innovation.
The Transforming Effects of Digital Technology
1.17 Digital technology is probably the most important and transformative technology of our time. Because digital is fundamentally an information and communication technology (ICT), intellectual property rights lie at its heart. Not only has ICT adoption and use been among the strongest drivers
of growth,19 but it has pushed content and communication technology into new uses, meaning the IP system has become part of people’s daily lives.20 This has transformed us all into regular, if not daily, copyright creators and allows rms to capture information on customers and transactions in ways that help them experiment in real time with business models and marketing approaches.21 Digital also gives rms the opportunity to market themselves locally, nationally and internationally at relatively low cost, reaching previously inaccessible customers. These are already unprecedentedly global markets, even though the internet has yet to be used directly by two thirds of the world’s population.22
are very apparent in, for example, the biotechnology and software sectors. Hence the relationship between SMEs and larger rms can be symbiotic: they provide each other with direct support for innovative thinking and work together on R&D. Larger rms then provide routes to new and emerging markets for smaller rms.
1.14 Another shift in the innovation ecosystem is the increasing internationalisation of research – in 2007 the top 50 European corporate R&D spenders spent $51 billion of their $117 billion total R&D spend overseas.15 This shift in the landscape changes the pattern of how rms have to manage their still largely nation-speci c IPRs and indicate the importance of policy makers taking an international approach to IP systems.
The Increasing Impacts of Transaction Costs
1.15 IP transaction costs have risen as rights users navigate an ever more densely populated landscape of increasingly subdivided rights. This presents a risk analogous to the problem
familiar in the world of planning, where small ownership interests can block value generating large developments. In the patent world, a surfeit of property rights can mean that the transaction cost of acquiring permission to innovate or create new work is prohibitively high. Research shows that in certain technology elds this can cause a kind of gridlock with innovation delayed or even prevented.16 Michael Heller, an American law professor, coined the phrase “tragedy of the anticommons” to describe this situation,17 which he says has resulted in signi cant blockages in areas such as medical research.18
1.16 In the copyright area transaction costs can create similar problems. Digital technologies have brought large reductions in the cost of copying, storage and distribution for words, music, images
and all forms of data. This has the effect of making transaction costs around rights a much more signi cant element in the business equation and so, potentially, a likelier barrier to licensing and follow on innovation.
The Transforming Effects of Digital Technology
1.17 Digital technology is probably the most important and transformative technology of our time. Because digital is fundamentally an information and communication technology (ICT), intellectual property rights lie at its heart. Not only has ICT adoption and use been among the strongest drivers
of growth,19 but it has pushed content and communication technology into new uses, meaning the IP system has become part of people’s daily lives.20 This has transformed us all into regular, if not daily, copyright creators and allows rms to capture information on customers and transactions in ways that help them experiment in real time with business models and marketing approaches.21 Digital also gives rms the opportunity to market themselves locally, nationally and internationally at relatively low cost, reaching previously inaccessible customers. These are already unprecedentedly global markets, even though the internet has yet to be used directly by two thirds of the world’s population.22
Review of Intellectual Property and Growth 13
1.18 Because copyright governs the right to own and use data and information, as well as the output of authors, musicians, photographers and lm makers, copyright law is now of primary interest to players across the whole of the knowledge economy, not just those involved in the creative industries. Digital technologies are based on copying, so copyright becomes their regulator: a role it was never designed to perform.
Services and the New Innovation Process
1.19 The services which provide most jobs in advanced economies are being changed in other ways by digital technology. Innovations in the insurance industry, for example, rely upon improved data from medicine, demographics and pro ling of individual customer lifestyles. Risk calculations applied to premiums for farmers and event organisers rely upon improved data analysis of weather patterns. Sophisticated assessment of safer cars and better roads can be factored into motor insurance judgments. Understanding these connections and computing the related business risks requires knowledge of what happens at boundaries between systems and the ability to analyse large quantities of data from what, until recently, were separate industries and sectors.
1.20 Collaborative and more “open” distributed innovation processes are especially important because services are not produced in the laboratories and factories of the industrial R&D arena where they can be tested and optimised. Services are usually produced at the point at which they are consumed: the act of consumption rather than invention is the focal point for innovation.
1.21 New services are therefore developed using a “market facing” approach, often connected
to information databases generated by people and organisations that articulate and express their requirements and demands as they experience the innovation. This is sometimes described as a more democratic approach to innovation, where companies trial different approaches – such as beta versions of web pages – and respond to user feedback. It also, however, frequently relies upon the ability to analyse large and complex volumes of data copied between machines, potentially raising multiple copyright issues.
1.22 The nature of services innovation implies that answers to technical problems will not lie exclusively within research institutions or companies with proprietary R&D cultures and the means to manage and protect IP. Instead, they will emerge through integration of ideas from a wide range of organisations, some of whom may consider managing IPR to be an unacceptable obstacle in a high value business, raising further challenges to traditional concepts of ownership of IP.
The Next Wave – Cloud Computing and the Internet of Things
1.23 The next wave of digital technologies and services is likely to create opportunities and disruptions in a very broad range of industries. The internet of things – billions of devices and components with an internet address, enabling them to communicate in massive sensing systems – coupled with cloud computing, will underpin more sophisticated applications, and thereby a host of new services: digital wallets will replace cheques and credit cards; personalised electronic adverts will compete with static hoardings; transport, electricity, power and water systems will provide a continuous
Services and the New Innovation Process
1.19 The services which provide most jobs in advanced economies are being changed in other ways by digital technology. Innovations in the insurance industry, for example, rely upon improved data from medicine, demographics and pro ling of individual customer lifestyles. Risk calculations applied to premiums for farmers and event organisers rely upon improved data analysis of weather patterns. Sophisticated assessment of safer cars and better roads can be factored into motor insurance judgments. Understanding these connections and computing the related business risks requires knowledge of what happens at boundaries between systems and the ability to analyse large quantities of data from what, until recently, were separate industries and sectors.
1.20 Collaborative and more “open” distributed innovation processes are especially important because services are not produced in the laboratories and factories of the industrial R&D arena where they can be tested and optimised. Services are usually produced at the point at which they are consumed: the act of consumption rather than invention is the focal point for innovation.
1.21 New services are therefore developed using a “market facing” approach, often connected
to information databases generated by people and organisations that articulate and express their requirements and demands as they experience the innovation. This is sometimes described as a more democratic approach to innovation, where companies trial different approaches – such as beta versions of web pages – and respond to user feedback. It also, however, frequently relies upon the ability to analyse large and complex volumes of data copied between machines, potentially raising multiple copyright issues.
1.22 The nature of services innovation implies that answers to technical problems will not lie exclusively within research institutions or companies with proprietary R&D cultures and the means to manage and protect IP. Instead, they will emerge through integration of ideas from a wide range of organisations, some of whom may consider managing IPR to be an unacceptable obstacle in a high value business, raising further challenges to traditional concepts of ownership of IP.
The Next Wave – Cloud Computing and the Internet of Things
1.23 The next wave of digital technologies and services is likely to create opportunities and disruptions in a very broad range of industries. The internet of things – billions of devices and components with an internet address, enabling them to communicate in massive sensing systems – coupled with cloud computing, will underpin more sophisticated applications, and thereby a host of new services: digital wallets will replace cheques and credit cards; personalised electronic adverts will compete with static hoardings; transport, electricity, power and water systems will provide a continuous
Review of Intellectual Property and Growth 14
real time update of their performance and user status. Firms will offer us advice and services built on analysis of this kind of data – assuming IP law allows them to copy and manipulate it.
1.24 The convergence of technologies is likely to increase the range of context aware, location based services available to and about citizens. In some cases digital content may be transferred
from one system to another automatically as people or businesses interact using digital devices. Improvements in machine to machine learning, for example, may create the possibility for further automation in transfer of content. Interactions may therefore become implicitly as well as explicitly monitored and measured. This data will form new and valuable content to be traded within and between systems in the delivery of new services. Data on context and activities transferred to adjacent systems may be repurposed and traded, giving rise to a range of issues relating to copyright.
1.25 These issues are already visible – as the Review goes to press, concerns are being raised by the discovery that the Apple iPhone tracks and stores its location continuously, giving a complete picture of its user’s movements for later retrieval, with legal justi cation in a short paragraph in a long “terms of use” agreement.23 Questions of IP, privacy, and security are converging in ways that will, over time, present sharp challenges to the current legal framework.
The Work of the Review
1.26 The full shape and impact of this coming revolution in innovation models is, by de nition, unknowable.
1.27 The point is that the UK’s system of IP will be tested by some version of these scenarios and it will need to be ready to adapt. The challenge is to make sure that the IP framework is exible enough to facilitate, rather than obstruct, the capacity for digital technology to deliver growth. This needs to
be accomplished in a way that simultaneously protects, as far as possible, the position of existing communities of rights holders, notably the extraordinary diversity of individuals and rms which make up the UK’s highly successful creative industries.
1.28 Digital technology has already generated enormous turbulence among creative businesses. That is certain to continue, until digital business models establish themselves around a new settlement for the terms and conditions on which digital goods and services are priced in global digital markets. As digital’s full impact extends across the rest of the economy, it is impossible to imagine that the line between IP protection which merits public support and that which does not will remain static.
1.29 The Review has set itself the challenge of identifying 10 recommendations to ensure that
UK policy on IP moves in a direction which will enable the necessary adaptation to take place. The explicit goal of all the recommendations in this review is to support dynamic UK businesses, within and beyond the creative sector, which will deliver innovation, growth and jobs in the years to come.
1.24 The convergence of technologies is likely to increase the range of context aware, location based services available to and about citizens. In some cases digital content may be transferred
from one system to another automatically as people or businesses interact using digital devices. Improvements in machine to machine learning, for example, may create the possibility for further automation in transfer of content. Interactions may therefore become implicitly as well as explicitly monitored and measured. This data will form new and valuable content to be traded within and between systems in the delivery of new services. Data on context and activities transferred to adjacent systems may be repurposed and traded, giving rise to a range of issues relating to copyright.
1.25 These issues are already visible – as the Review goes to press, concerns are being raised by the discovery that the Apple iPhone tracks and stores its location continuously, giving a complete picture of its user’s movements for later retrieval, with legal justi cation in a short paragraph in a long “terms of use” agreement.23 Questions of IP, privacy, and security are converging in ways that will, over time, present sharp challenges to the current legal framework.
The Work of the Review
1.26 The full shape and impact of this coming revolution in innovation models is, by de nition, unknowable.
1.27 The point is that the UK’s system of IP will be tested by some version of these scenarios and it will need to be ready to adapt. The challenge is to make sure that the IP framework is exible enough to facilitate, rather than obstruct, the capacity for digital technology to deliver growth. This needs to
be accomplished in a way that simultaneously protects, as far as possible, the position of existing communities of rights holders, notably the extraordinary diversity of individuals and rms which make up the UK’s highly successful creative industries.
1.28 Digital technology has already generated enormous turbulence among creative businesses. That is certain to continue, until digital business models establish themselves around a new settlement for the terms and conditions on which digital goods and services are priced in global digital markets. As digital’s full impact extends across the rest of the economy, it is impossible to imagine that the line between IP protection which merits public support and that which does not will remain static.
1.29 The Review has set itself the challenge of identifying 10 recommendations to ensure that
UK policy on IP moves in a direction which will enable the necessary adaptation to take place. The explicit goal of all the recommendations in this review is to support dynamic UK businesses, within and beyond the creative sector, which will deliver innovation, growth and jobs in the years to come.
2.19 In the years ahead technological and societal changes will present further challenges to the IPR system, as the relative and absolute share of economic activity based on creating and using IP continues to rise. Technology will continue to develop in ways that destroy the boundaries of existing markets. This in itself will create new uncertainties, and new interfaces between IP and competition policy. At the same time, the boundaries between legal spheres, such as IP and privacy law, are starting to dissolve. It is reasonable to suppose that in this atmosphere, with governments around the world eager to promote economic growth and the creation of quality jobs, there will be forceful demands for new IP interventions, in terms of both scope and intensity of enforcement. In such an environment it is vital that policy is rmly rooted in evidence.
2.20 A theme from the responses to the Review’s Call for Evidence is a need for stability in the system. Economic actors need to be able to have con dence in the predictability of the regulatory environment. For example, Microsoft argues that “the IP system as it stands is a basis for legal certainty and trust, under which the market can and does act ef ciently because the rules are stable and well-understood.”
2.21 This is a valid observation. But at the same time, the IP framework should not seek to insulate creators or users of IPRs from market or technology outcomes which are bene cial to contestability, enterprise, innovation and growth. “Stability” should not mean maintaining the income streams of incumbent rms at the expense of new entrants or disruptive technologies, where these provide better outcomes for consumers and more prosperity for the nation as a whole.
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