INNOVATION, PATENTS AND ECONOMIC GROWTH - Innovation in the Biopharmaceutical Industry - page 67

trade secrets (World Intellectual Property Institute, 2006). Patents and IP rights have
been created as a society recognises the need to foster innovation and to reward the
innovator.
A patent for an invention is granted by government to the inventor. When a patent
is granted, that right becomes the property of the inventor, which — like any other
form of property or business asset — can be bought, sold, rented or hired. A patent
is a national right but one that must meet global criteria in order to be granted. The
patent is not a monopoly, but gives the inventor the right — normally for 20 years
from the date when the patent application was first filed — to stop others from
making, using or selling the invention without the permission of the inventor.
The ability to protect rights to IP is a key criterion for investment decisions in
many industrial sectors, such as the life sciences, where costs of R&D and com-
mercialisation are very high and risk of failure substantial. But as the marginal cost
of production is low, data protection is of critical importance.
Innovation, IP and Competitiveness: The Evidence and Arguments
Solow (1957) has demonstrated that technical progress — not just factor inputs
of capital and labour — account for economic growth. Total factor productivity,
also known as the growth residual and which includes innovation and technology
application, represents output growth not accounted for by the increases in factor
inputs. In the period 1970-1990, total factor productivity was the major driver of
economic growth in the world: accounting for 41% of the total growth, as compared
with 38% for capital and 21% for labour (OECD, 1998).
Many studies have explored the relationship between economic growth, com-
petitiveness, innovation and IP. These studies have generally used R&D investment
or the number of patents filed as proxies for innovation (Griliches, 1980; Mansfield,
1980; Scherer, 1982) and some of them are discussed below.
Country level studies
In their study for the UK Department for Trade and Industry, Porter and
Ketels (Department of Trade and Industry and Economic and Social Research
Council, 2003) argue that true competitiveness is measured by economic
productivity — determined by capital intensity, labour force skills and total factor
productivity — and productivity growth is influenced by trade, investment and inno-
vative activity. They suggest that countries' economies, in terms of their characteris-
tic competitive advantage and modes of competing, evolve through three consecutive
stages. In the first “Factor-driven stage”, characterised by a low wage environment,
competitive advantage is based on the availability of labour and natural resources. In