Leveraging the International Economy of Intellectual Property

Abstract

Most international intellectual property debates ignore the fundamental question of how to optimize the global environment for innovation, focusing instead on whether a particular policy benefits or harms a particular country. The cost of this misplaced focus is significant as states fight bitterly over how to divide fixed benefits, rather than seeking to grow social welfare through greater innovation. This missed opportunity is not a surprise, however, given the difficulty of trying to identify which intellectual property regimes will support greater innovation, a task that has proven impossible to achieve directly. This Article introduces a new empirical methodology that leverages international trade data in an effort to identify indirectly which intellectual property regimes are more likely to provide greater incentives to innovate globally. A country’s trade balance in high-innovation goods tends to dictate the country’s preferences for intellectual property rights regimes. Countries that export more innovation than they consume tend to favor strong intellectual property rights regimes so as to reap the greatest rents from others, while countries that import more innovation than they produce favor weaker intellectual property laws so as to take advantage of innovation by others. Neither type of country will favor intellectual property regimes that maximize global incentives to innovate. Countries that happen to produce and consume relatively equivalent value from high-innovation goods, on the other hand, will tend to have self-interested incentives for an intellectual property system that supports the greatest innovation possible. The method developed here presents an original system to try to identify such countries, providing new information and insight into the international innovation economy and intellectual property law.