Race to Innovate

Competitiveness, Manufacturing, and Trade Policy Analysis

Global

Innovation Fact of the Week: Foreign Patent Applications in Tech Fields of Strategic Importance to China are 4-7 Percentage Points Less Likely to be Approved than Local Applications, All Else Equal

(Ed Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Despite the fact that the World Trade Organization commits member nations to accord treatment no less favorable to nationals of other member nations as it treats its own with regard to intellectual property, a new study from Rassenfosse and Raiteri finds evidence of an anti-foreign bias in the issuance of patents in sectors that the Chinese government finds of strategic importance (as defined by a sector’s inclusion in China’s National Medium and Long-Term Program for Science and Technology Development 2006-2020).

While much analysis has focused on unequal enforcement of IP rights in China, this is the first study to find systematic evidence of bias in the granting of patents against foreigners in China. As the authors conclude, “Given the importance of industrial policy in China and the country’s strong focus on indigenous innovation and intellectual property, the empirical results provide a case of technology protectionism by means of the patent system.”

Read last week’s Innovation Fact of the Week

Photo Credit: Keoni Cabral

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rob test44

Digital Trade on the Hill: Hearing on Expanding U.S. Digital Trade and Eliminating Digital Trade Barriers

Digital trade issues continue to grow in importance to the U.S. economy as people and businesses find new and innovative ways to use data and technology to deliver more goods and services via the Internet. However, the growth in entrepreneurship and innovation so vastly enabled by digital technologies is increasingly threatened by a growing range of digital trade barriers. On July 13, the U.S. House Committee on Ways and Means Subcommittee on Trade held an important hearing on the growing significance of digital trade to the U.S. economy, the rise of these digital trade barriers, and the ways in which U.S. trade policy, including through the Trans-Pacific Partnership (TPP), can help remove existing—and prevent future—barriers. ITIF Founder and President Robert Atkinson testified, alongside representatives from IBM, the Internet Association, PayPal, and Fenugreen (a tech startup). This post captures a few of the key takeaways.

Digital trade benefits a large segment of the U.S. economy and its workforce. Digital trade and data flows often go unrecognized (as they are often hard to see) for the important role they play in helping U.S. companies and workers, whether from firms big or

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access

The Recommendations the UN High-Level Access to Medicines Panel Should Be Making

In November 2015, United Nations Secretary-General Ban Ki-moon convened a high-level panel tasked with studying the relationship between intellectual property rights (IPRs) and access to medicines. The panel was charged with “review[ing] and assess[ing] proposals and recommend solutions for remedying the policy incoherence between the justifiable [intellectual property] rights of inventors, international human rights law, trade rules, and public health in the context of health technologies.”

Were this a panel pursuing a comprehensive research program considering the complete range of factors impacting access to medicines and incorporating a diverse set of voices representing the patients using and the enterprises producing those medicines; the governments and their health-care systems (public and private) procuring, distributing, and disseminating those medicines; and engaging the viewpoints of a broad range of stakeholders, it could have represented a serious and constructive dialogue toward tackling a significant global health challenge.

But the panel has given the game away from the outset. First, by starting from a position of supposed “policy incoherence” between IP rights, innovation, and affordable access to medicines; and, second, by focusing exclusively on IP as the main determinant of access to medicines. The German

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Roving Government “Bandits” Pillaging and Stealing Intellectual Property Need to Be Confronted by “Gunboat” Nations

A number of countries see cutting-edge intellectual property, especially for life sciences and high-tech goods, much like a predatory bandit saw trade caravans in centuries past—as something there to be raided and plundered. As trade and economic activity becomes more knowledge-based and dependent on intellectual property, the battle between countries that develop and protect the latest technological innovations against those that seek to steal it will only increase. A new paper by Australian academics Sinclair Davidson and Jason Potts—The Stationary Bandit Model of Intellectual Property—presents a new model that captures key traits of this global battle over intellectual property.

Before analyzing how this model reflects the real world, it’s important to consider the contrasting foundations of the new Davidson-Potts model compared to the standard economic model of intellectual property. The standard model sees intellectual property as a government-granted monopoly designed to create public incentives, that the natural domain of this property right is under the government which grants this right, and that intellectual property theft, when it occurs, is largely private—by individuals and firms. Traditional theory paints governments as benevolent actors that create the right conditions—the supply side

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Countries’ Use of Life Sciences Localization Policies Continues to Metastasize

The global economy—across a range of industries from information and communication technologies (ICTs), to advanced manufacturing, to life sciences—has seen a substantial increase in countries’ use of forced localization policies, particularly since the beginning of the Great Recession in 2008. These so-called localization barriers to trade represent policies that seek to explicitly pressure foreign enterprises to localize economic activity in order to compete in a country’s markets.

The life sciences sector confronts a number of different types of localization policies, though they can be generally grouped into three categories: 1) local production as a condition of market participation (including in government procurement); 2) forced intellectual property or technology transfer as a condition of market access; and 3) the use (or threat of use) of compulsory licenses. Unfortunately, the roll call of countries employing these pernicious policies continues to grow.

For example, Indonesia’s Decree 1010 requires foreign pharmaceutical companies to manufacture locally or entrust manufacturing to a company already registered as a manufacturer in Indonesia (a company that could be a potential competitor) in order to obtain drug approvals. Further, Decree 1010 requires local manufacturing in Indonesia of all pharmaceutical products

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wafer chip

A Welcome Expansion of the Information Technology Agreement Has Arrived

On July 1, the global production, trade, and usage of information and communications technology (ICT) products received a long-awaited boost when the expanded Information Technology Agreement (ITA)—a trade agreement that eliminates tariffs on hundreds of ICT products—came into force. The World Trade Organization (WTO) considers the initial ITA, concluded in 1996, as one of the most successful trade agreements ever. The expanded ITA is the biggest tariff-cutting deal in WTO history. It’s hoped that the deal will have similar success in driving ICT-based trade, productivity, and innovation as its successor.

The expanded ITA will build on the significant impact that the initial ITA exerted on growing global ICT trade. From 1996 to 2008, total global two-way trade in ICT products covered by the agreement increased by more than 10 percent annually, from $1.2 trillion to $4.0 trillion. The expanded ITA promotes affordability and accessibility to a new generation of ICT products by eliminating tariffs to trade on an updated list of 201 ICT products. The initial ITA cut tariffs on eight categories of ICT products, such as semiconductors, computers, and telecommunication products. The latest list includes scores of products

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What Steph Curry and LeBron James Can Teach Us About Innovation

“You have to see this kid from Davidson,” said my friends who had brought me to a small college gym in Spartanburg, South Carolina, in 2008, as I watched a midseason college basketball game of little importance. And sure enough, just a few minutes in, this painfully skinny sophomore comes flying off a screen several feet behind the three-point line, still dogged by a defender, and then somehow sets his feet and still moving laterally lets an improbable shot fly. Only it wasn’t improbable. Swish. My jaw dropped. A huge basketball fan, I had never seen anything like it. I had just seen Stephen Curry for the first time.

A few months later, as Curry led his underdog Davidson team deep into the NCAA tournament, newly-minted NBA MVP LeBron James watched Curry play. “I saw a kid who didn’t care how big someone was, how fast someone else was, how strong someone else was,” said James afterwards.

James is a dominant player in the NBA precisely because he is, indeed, bigger, faster, and stronger than people he is playing against. However, LeBron James and Steph Curry today sit atop the

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greatwall

How Do We Know NNMI is Working? Because China is Copying It

China’s new manufacturing policy road map, unveiled in 2015 and called Made in China 2025, includes numerous policy initiatives designed to create an advantage for China in 10 key advanced-technology industries. Several parts of the program imitate the German Industrie 4.0 model, aggressively integrating Internet of Things technology into manufacturing and targeting specific advanced industries in which they hope to succeed. In addition, Made in China 2025 contains provisions for creating 40 Manufacturing Innovation Centers by 2025.

The proposed centers look a lot like a similar program in the United States. America’s National Network for Manufacturing Innovation (NNMI) program seeks to create 45 institutes spread across the country serving both as regional hubs and nodes of a network of institutes designed to support innovation, investment, and cooperation in manufacturing in advanced industries. Created with government funds and industry matches, the NNMI program coordinates workforce initiatives and research efforts, helps vertical supply chains adopt technology standards, and strengthens networks of collaboration and innovation.

Though both systems have roots in the German Fraunhofer innovation network, the Chinese Manufacturing Innovation Centers certainly seem like a direct response to the U.S. manufacturing innovation

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Why Exploiting Bayh-Dole “March-In” Provisions Would Harm Medical Discovery

By most accounts, patients in the United States and across the globe are in the midst of a new era of medical discovery, one in which new treatments and cures for costly diseases will become increasingly commonplace.

As ITIF noted in a recent report, our nation has benefited from public policies that support innovation and discovery, including strong intellectual property (IP) protections, limits on price controls for innovative medicines, data protections for biologic drugs, and strong government research and development expenditures on health care.

Unfortunately, these core fundamentals are being set aside by proponents of expanding “march-in” rights to address concerns about the price of drugs.

“March-in” rights were included as a privilege for the government under the Bayh-Dole Act, which was enacted with bipartisan support in 1980 to address intellectual property created (at least in part) from government-funded research. The law has played a significant role in driving impactful medical discovery and life-sciences innovation by allowing academic and other research institutions to patent inventions created by federally funded research and exclusively license them to industry for further development and commercialization. As The Economist has written about Bayh-Dole, it

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What Can Contact Lens Prices Teach About Telehealth Regulation?

Rising health-care costs present a large burden to future Americans. Telehealth and e-commerce can keep rising health-care costs in check and increase the quality of care and the patient experience.

Transitioning towards telehealth and more health-related e-commerce presents a regulatory challenge. There are health services that should, of course, be provided in person, while others can be provided remotely with limited risk to the patient. One clear area is in the contact lens market. Once an optometrist issues a prescription, consumers can easily judge for themselves where to buy contact lenses. There are no obvious health concerns or risks for individuals from purchasing contacts from a licensed seller rather than from an optometrist. Brands are relatively static, and consumers have constant but predictable demand for the number of contacts they buy. Furthermore, contacts are easy to ship. In fact, it’s hard to think of a health-related industry more primed to turn e-commerce into cost savings for consumers than the contact industry.

However, online sales of contact lenses in the United States lag behind those of several other countries. Online sales represent 18 percent of U.S. sales, but 25 percent

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