• Dr. Walter G. Park, PhD

Going Forward with IP Indexes

By Dr. Walter G. Park, Ph.D., Professor & Associate Dean of Graduate Studies at American University

If Jane Austen were around today, being an eminent creator herself, she might easily say that it is a truth universally acknowledged that laws on intellectual property in possession of global influence must be in want of an index. And so it is that today we find a bounty of indexes on different types of intellectual property rights having international significance – from copyrights, patent, and trademark rights to trade secrecy rights, plant breeders’ rights, fair use rights, and so forth – each trying to summarize the level of protection afforded by a state or jurisdiction.

It is not an easy task to assess the overall strength of an IP system. While the Acts or Statutes in some nations are sparse (running a few pages), they are very detailed and complex in many others. Typically, the laws and regulations provide key definitions, describe what protections are available or are not permissible, delineate what are the rights and privileges but also the limitations and exceptions on rights, and describe the enforcement options and remedies against infringement. All of that is a lot to absorb. The main purpose of an index is to map those legal provisions and features on to a quantitative rating system, for example a unidimensional scale from 0 (weakest) to 5 (strongest). Users of the index can then express more concretely which national system is stronger than that of another, or whether a nation’s laws have strengthened over time or not [1]. The rating method minimizes the use of subjective assessments, opinions, or testimonials.

However, because all the laws and details are reduced to a single number, the index is necessarily simplistic, overlooking the nuances and qualifications of laws and rulings. Like the use of gross domestic product (GDP) to measure a nation’s income or level of development, a single dollar amount of a country’s per-capita GDP cannot fully capture the quality of life, the non-marketable but valuable activities, or the true happiness of its citizens or denizens.

The chief utility of an index is that it helps facilitate empirical research and inform policy. Scholars can use it to study the impacts of intellectual property reforms on various outcomes of interest, such as research and development (R&D), innovation, diffusion of innovations, international technology transfers via trade, foreign direct investment, licensing, and joint ventures, and other indicators, such as wages and prices, inequality, and market structure. The research project can be turned around so that the index is the outcome of interest; that is, scholars can try to understand what motivates policymakers to adopt or reform their IP systems. Does it depend on the national level of development, cultural attitudes and social norms, or pressure from trading partners?

Thus, with empirical applications in mind, I helped develop an index of patent strength, covering more than one hundred twenty countries from 1990 to 2015 quinquennially [2]. The index is granular; that is, it is a continuous variable rather than a discrete one (such as 1 = low, 2 = medium, and 3 = high), and was made that way by examining multiple legal provisions in the statutes. Of course, not all the provisions were incorporated. A key criterion in choosing them was not to replicate reality; that is, to measure all facets of a patent system. Priority was given to those legal features that should concern IP owners the most (such as compulsory licensing). Adding as many features to the index as possible, in order to achieve realism, would only dilute the value and role of the most relevant features. Instead, a key criterion for choosing the provisions was variability (i.e., do they vary sufficiently across time and countries). If a provision is a constant, it doesn’t add much information about trends and differences across regimes.

As it stands, the structure of the patent index is over 30 years old and could use revisions, at least to consider new technologies, new industries, new trading regimes and institutions. Going forward, I would prioritize three main areas for improvement. These suggestions should also apply to other kinds of IP indexes.

The first would be to incorporate various aspects of practice into the index, such as deterrence and enforcement, beyond statutory measures already identified. The goal is to capture information about the extent to which IP holders are able to enforce their claims, prevent unauthorized use, and prevail if their claims are valid (and infringers’ invalid). Good progress has been made so far in the literature [3]. Enforcement in practice could include information from court cases and actions at the IP offices that reveal the speed of resolution or settlement, the damages or remedies that deter infringement, and the costs of enforcement, such as detection and litigation [4]. However integral it is to capture enforcement in practice, the importance of “laws on the books” must be acknowledged. Like written contracts, they spell out explicitly the obligations of nations or the international order to confer and enforce rights. Not only is it difficult to make a claim if there is no proof (in writing), but the laws also set the tone – the environment in which parties engage. For the court system, the laws are the starting point; judges, for example, apply the law to the facts. To gauge how important laws on the books are, one need only observe the extent to which stakeholders in the U.S. battle over issues like abortion and gun rights. Different sides fight vigorously to change, or preserve, legislation and rulings, focusing particularly on the language used.

A driving concern about capturing actual practice in IP laws is the belief that there are deviations between IP protection levels de jure (in principle or perception) and levels de facto (in practice). This is a legitimate concern. However, the criticisms are often asymmetric (and downward biased) – that the ‘true’ IP levels are averred to be weaker than what the index reports. Rarely is it said that low index values underestimate the real IP strength. Nonetheless, it should not be too surprising to find some degree of discrepancy between measured and actual levels of protection. It should be rare that none of the laws on the books are actually followed, as that would be quite anarchic, nor should the discrepancies be widespread, systematic, and persistent. Codified laws are like written contracts. Private parties would have a case against the State for failing to honor its obligations. Internationally, such discrepancies could be brought before the World Trade Organization and other dispute settlement fora. That said, it would be beneficial to find creative ways to adjust indexes to account for deviations from stated protection [5].

A second area for improving indexes is to disaggregate them by industry – that is, construct indexes for separate industries or technological fields. Most indexes measure the levels of protection at the national level since IP laws tend to be at the national or federal level. However, within each country, different sectors vary as to their dependence on IP protection for creative and innovative activity and for commercialization. And where sectors do depend on some degree of IP protection, they may be affected differently by different features or provisions in IP law. Allowing for these heterogeneities should improve the precision of IP indexes and allow researchers to estimate the impacts of IP protection on various outcomes more accurately.

Third on my wish list would be to increase the temporal frequency of an IP index. Economists would call the index data one of low frequency. The data change gradually over time largely because the components of the index change slowly (or because governments change key IP laws slowly) and thus indexes are calculated at long time intervals. Low frequency data are fine for studying long term economic growth questions, as was the case when early versions of the patent index were used to analyze the forces of economic development. But they are not fine for analyzing short term phenomena, like business cycles or crises. In other words, for any matters of more urgent need, policymakers require policy tools that can make an impact in the short run. For example, consider health crises like a global pandemic. For this, we need fast-acting policies to spur vaccine development and cures. Or consider the problems that underserved communities have with educational outcomes. What policies can spur more knowledge diffusion and learning in the immediate run? Policies that work over the long run may not overcome inequities for young children who are currently in their formative years.

Going forward it would be useful to identify those IP and innovation and technology adoption policies that have effects in the short run. Developing high frequency indexes could better help studies design intervention strategies for responding to crises or gaps in short term technological needs. For addressing short term problems, the existing indexes, sampled as they are at quinquennial or even annual intervals, are not practical for yielding evidence-based recommendations. An analogy might be with fiscal versus monetary policies. Fiscal policies tend to change over many months as the executive and legislative branches deliberate over expenditures and budgeting, whereas Central Banks have the ability to process changes in interest rates and money supply much more quickly. Just as an optimal mix of fiscal and monetary policy is conducive to long run economic growth and the stabilization of short run fluctuations, intellectual property and related policies should also be responsive to structural and emergent needs.


About the Author

Dr. Walter G. Park, PhD is a Professor & Associate Dean of Graduate Studies for the College of Arts and Sciences (CAS) Department of Economics at American University. Dr. Park is a leading authority on intellectual property rights, international trade and foreign direct investment, as well as innovation and economic development. Among Dr. Park's many achievements, one of his notable contributions has been the development of the "Index of Patent Rights," also referred to as the "Ginarte-Park Index" [2, 6, 7]. Of note, in 2021, under the auspices of the The Property Rights Alliance (PRA), Dr. Park provided an update to the International Trademark Index (ITI) and the International Patent Index (IPI), which he also created and developed.


Footnotes and References

[1] To clarify, being stronger does not necessarily imply better from a social welfare or economic efficiency point of view. [2] See Ginarte, J. and Park, W. (1997), “Determinants of Patent Rights: A Cross-National Study,” Research Policy, Vol. 26(3) and Park, W. (2008), “International Patent Protection: 1960 – 2005,” Research Policy, Vol. 37(4), and updates on http://fs2.american.edu/wgp/www/ (last updated 2018). [3] See Papageorgiadis, N. and Sofka, W. (2020), “Patent Enforcement Across 51 Countries – Patent enforcement index 1998 – 2017,” Journal of World Business, Vol. 55. [4] While the State may provide enforcement support via customs and border patrol to block the importation of infringed goods, typically the onus of monitoring and enforcing rights is on the IP holders themselves to, say, file complaints if they deem there to be a violation of their rights. [5] Among which is to interact the index with survey measures of IP institutional quality.

[6] Papageorgiadis, N. & Sharma, A. (2016). Intellectual property rights and innovation: A panel analysis. Economics Letters, Elsevier. 141(C). 70-72.

[7] G.Z. Hu, A. & Png, I.P.L. (2013). Patent rights and economic growth: evidence from cross-country panels of manufacturing industries. Oxford Economic Papers. 65(3). 1 - 24. https://web2-bschool.nus.edu.sg/wp-content/uploads/media_rp/publications/CFfR41422799935.pdf

252 views0 comments

Recent Posts

See All