Editing IPCC:AR6/WGIII/Chapter-16 (section)

=== 16.4.6 Intellectual Property Rights, Legal Framework and the Impact on Innovation ===

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Virtually all countries around the world have instituted systems for the protection of creations and inventions, known as intellectual property rights (IPR) systems ( [[#WIPO--2021|WIPO 2021]] ). While several types of intellectual property exist – patents, copyright, design rights, trademarks, and more – this section will focus on patents, as the most relevant property right for technological innovations ( [[#WIPO--2008|WIPO 2008]] ), and hence the most relevant for policy instruments in this context.

Patent systems aim to promote innovation and economic growth, by stimulating both the creation of new knowledge and diffusion of that knowledge ( ''high evidence'' , ''high agreement'' ). National patent systems, as institutions, play a central role in theories on national innovation systems ( ''high evidence'' , ''strong agreement'' ) ''.'' Patent systems are usually instituted to promote innovation and economic growth ( [[#Machlup--1950|Machlup and Penrose 1950]] ; [[#Nelson--1996|Nelson and Mazzoleni 1996]] ; [[#Encaoua--2006|Encaoua et al. 2006]] ). Some countries explicitly refer to this purpose in their law or legislation – for instance, the US Constitution states the purpose of the US IP rights system to ‘promote the progress of science and useful arts’. Patent systems aim to reach their goals by trying to strike a balance between the creation of new knowledge and diffusion of that knowledge ( [[#Scotchmer--1990|Scotchmer and Green 1990]] ; [[#Devlin--2010|Devlin 2010]] ; [[#Anadon--2016b|Anadon et al. 2016b]] ). They promote the creation of new knowledge (e.g., technological inventions) by providing a temporary, exclusive right to the holder of the patent, thus providing incentives to develop such new knowledge and helping parties to justify investments in R&amp;D. They promote the diffusion of this new knowledge via the detailed disclosure of the invention in the patent publication, and by enabling a ‘market for knowledge’ via trading patents and issuing licences ( [[#Arora--2004|Arora et al. 2004]] ). Although IP protections provide incentives to invest in innovation, they can also restrict the use of new knowledge by raising prices or blocking follow-on innovation ( [[#Wallerstein--1993|Wallerstein et al. 1993]] ; [[#Stiglitz--2008|Stiglitz 2008]] ). As institutions, national patent systems feature prominently in models and theories of national innovation systems ( [[#Edquist--1997|Edquist 1997]] ; [[#Klein%20Woolthuis--2005|Klein Woolthuis et al. 2005]] ).

The degree to which patent systems actually promote innovation is subject to debate. Patent protection has been found to have a positive impact on R&amp;D activities in patent-intensive industries, but this effect was found to be conditional on access to finance ( [[#Maskus--2019|Maskus et al. 2019]] ). Patents are believed to be especially important to facilitate innovation in selected areas such as pharmaceuticals, where investments in developments and clinical trials are high, imitation costs are low, and there is often a one-to-one relationship between a patent and a product, referred to as a ‘discrete’ product industry ( [[#Cohen--2000|Cohen et al. 2000]] ). At the same time, an increasing body of theoretical and empirical literature suggests that the proliferation of patents also discourages innovation ( ''medium evidence'' , ''low agreement'' ). Theoretical contributions note that a appropriability regime that is too stringent may greatly limit the diffusion of advanced technological knowledge and eventually block the development of differentiated technological capabilities within an industry, in what is called an ‘appropriability trap’ ( [[#Edquist--1997|Edquist 1997]] ; [[#Klein%20Woolthuis--2005|Klein Woolthuis et al. 2005]] ). There has been a long-standing debate on the impact of patents and other IP rights on innovation and economic development ( [[#Machlup--1958|Machlup 1958]] ; [[#Hall--2019|Hall and Helmers 2019]] ). [[#Jaffe--2004|Jaffe and Lerner (2004)]] and [[#Bessen--2009|Bessen and Meurer (2009)]] highlight how IP rights also hamper innovation in a variety of ways. Other contributions in the literature focus on more specific factors. For example, [[#Shapiro--2001|Shapiro (2001)]] discusses ‘patent thickets’, where overlapping sets of patent rights mean that those seeking to commercialise new technology need to obtain licences from multiple patentees. [[#Heller--1998|Heller and Eisenberg (1998)]] argue that a ‘tragedy of the anticommons’ is likely to emerge when too many parties obtain the right to exclude others from using fragmented and overlapping pieces of knowledge – ultimately leading to no one having the privilege of using the results of biomedical research. [[#Reitzig--2007|Reitzig et al. (2007)]] describe the damaging effects of extreme business strategies employing patents, such as ‘patent trolling’.

In general, IP protection and enforcement may have different impacts on economic growth in different types of countries ( ''limited evidence'' , ''high agreement'' ). There has been a significant degree of harmonisation and cooperation between national IP systems over time. The most recent milestone is the World Trade Organization (WTO) 1994 Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, entered into by all WTO members, which sets down minimum standards for the regulation by national governments of many forms of IP as applied to nationals of other WTO member nations ( [[#WTO--1994|WTO 1994]] ). Developing countries successfully managed to include some flexibilities into TRIPS, both in terms of timing of legislative reform, and the content of the reforms. In an attempt to understand the effects of the introduction of TRIPS, [[#Falvey--2006|Falvey et al. (2006)]] find that the effect of IP protection on growth is positively and significantly related to growth for low- and high-income countries, but not for middle-income countries. They argue that low-income countries benefit from increased technology flows, but middle-income countries may have offsetting losses from the reduced scope for imitation. Note that [[#Falvey--2006|Falvey et al. (2006)]] do not break down their results in different technological areas, and they do not focus on innovation, but instead on growth. It has been argued that the increasingly globalised IP regime through initiatives such as the TRIPS agreement will diminish prospects for technology transfer and competition in developing countries, particularly for several important technology areas related to meeting sustainable development needs ( [[#Maskus--2017|Maskus and Reichman 2017]] ).

In principle, patent holders are not required to take their protected invention into use, and neither have the obligation to allow (i.e., license) others to use the inventions in question ( ''high evidence'' , ''high agreement'' ). Studies have shown that the way patent holders use their patent differs considerably across industrial sectors: in pharmaceutics, patents are typically used to enable exclusive production of a certain good (and obtain monopoly rents), while in industries such as computers, semiconductors, and communications, patents are often used to strengthen positions in cross-licensing negotiations and to generate licensing income ( [[#Cohen--2000|Cohen et al. 2000]] ; [[#Foray--2004|Foray 2004]] ). There are also companies that predominantly obtain patents for defensive reasons: they seek freedom to design and manufacture, and by owning a patent portfolio themselves, they hope to prevent becoming the target of litigation by other patent holders ( [[#Hall--2001|Hall and Ziedonis 2001]] ). Patents are often used strategically to impede the development and diffusion of competing, alternative products, processes or services, by employing strategies known as ‘blanketing’ and ‘fencing’ ( [[#Grandstrand--2000|Grandstrand 2000]] ), although the research is not specific to the climate space.

There are notable but specific exceptions to the general principle that patent holders are not obliged to license their patent to others. These exceptions include the compulsory licence, fair, reasonable and non-discriminatory (FRAND) policies, and statement on licences of right ( ''high evidence'' , ''high agreement'' ) ''.'' While patent holders are, in principle, free to choose not to license their innovation, there are three important exceptions to this. First, most national patent laws have provisions for compulsory licensing, meaning that a government allows someone else to produce a patented product or process without the consent of the patent holder, or plans to use the patent-protected invention itself ( [[#WTO--2020|WTO 2020]] ). Compulsory licences may be issued in cases of public interest or events of abuse of the patent ( [[#WIPO--2008|WIPO 2008]] ; [[#Biadgleng--2009|Biadgleng 2009]] ). Compulsory licensing is explicitly allowed in the WTO TRIPS agreement, and its use in context of medicine (for instance, to control diseases of public health importance, including HIV, tuberculosis and malaria) is further clarified in the ‘DOHA Declaration’ from 2001 ( [[#Reichman--2009|Reichman 2009]] ; WHO 2020). Second, standard-setting organisations have policies to include patented inventions in their standards only if the patent holder is willing to commit FRAND licensing conditions for those patents ( [[#Contreras--2015|Contreras 2015]] ). While a patent holder can choose not to make such a commitment, by doing so, its patent is no longer a candidate for inclusion in the standard. In the (many) fields where standards are of key importance, it is very unusual for patent holders not to be willing to enter into FRAND commitments ( [[#Bekkers--2017|Bekkers 2017]] ). Third, when a patent holder files at the patent office and opts for the ‘licence of right’ regime, in return for reduced patent fees, they enter into a contractual agreement that obliges them to license the patent to those who request it. While not all national patent systems feature this regime, it is a feature present in the new European Community patent ( [[#EPO--2017|EPO 2017]] ), and may therefore increase in importance.

For a discussion on the impact of intellectual property rights (IPR) on international technology diffusion, see Box 16.9 in [[#16.5|Section 16.5]] .

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