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The influence of intellectual property rights on international business

©2003 Masterarbeit 69 Seiten


In recent years governments, international organisations and companies have all strengthened their activities regarding intellectual property rights (IPR). On the one hand, these activities are a response to developments in technology, politics and international business, i.e. the globalisation processes in general. On the other hand, these activities reinforce the globalisation processes. Similar to many other global trends there is a strong interdependence between cause and effect. However, it is unquestionable that IPR have become increasing important in the last few years, both on the macro and micro-economic level, and there is ample evidence to believe that this trend will accelerate in the future.
Today, and even more in the future, nobody can afford to ignore the implications of IPR, neither governments, nor management boards. Intellectual property is one of the key tools of future international business. Most international companies have already included related topics like intellectual capital or intangible assets into their business strategies. However, also governments have to recognise the growing importance of intellectual property rights. The legal framework for IPR is a considerable factor of the success of their national economies and hence the wealth of their countries.
This thesis analyses the influence of IPR on countries and companies. In addition to the economical aspects of IPR, the historical, philosophical and other factors are given due consideration. Furthermore, this work examines the chances and risks of the new IP related conditions for countries and companies, as well as suitable strategies to cope with the new requirements. Companies have to create intelligent patent strategies in order to protect their assets, to use effectively their R&D resources, and thus to stay competitive. Intellectual property can be used as shield and sword in the battle against competitors.

Inhaltsverzeichnis:Table of Contents:
2.1Intellectual property7
2.2Philosophical bases9
2.4Organisations, treaties and conventions15
3.1General global tendencies24
3.1.1Globalisation: The term that polarises the world24
3.1.2The growing importance of information and knowledge26
3.1.3Global tendencies in IPR29
3.2Chances and threats of IPR31
3.2.1Motivation for IPR - supporter's arguments38
3.2.2Objections to IPR - […]


ID 7957
Reber, Michael: The Influence of intellectual property rights on international business
Hamburg: Diplomica GmbH, 2004
Zugl.: Fachhochschule München, MBA-Thesis / Master of Business Administration, 2003
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Table of Contents
Intellectual property
Philosophical bases
History 12
Organisations, treaties and conventions
Statistics 20
General global tendencies
Globalisation: The term that polarises the world
The growing importance of information and knowledge 26
Global tendencies in IPR
Chances and threats of IPR
Motivation for IPR ­ supporter's arguments
Objections to IPR ­ opponent's arguments
Critical review of arguments
The future of IPR
General tendencies of global competition
IPR as a weapon in international business
Recommendations for international companies

List of Figures
Figure 1: World software piracy rate and lost revenues (source: BSA)
Figure 2: Technology area protected by one broad or several narrow patents
List of Tables
Table 1: Chronological overview of IPR history
Table 2: Patent applications 1999 - 2001
Table 3: Trademarks applications 1999 - 2001
Table 4: Varieties of plants 2001
Table 5: Microorganisms 2001 (Budapest Treaty)
Table 6: Increase of trade in IPR sensitive goods from 1990 to 1996 [%]
Table 7: Estimated rate of software piracy and lost revenues
Table 8: Intellectual capital of the 10 most valued companies 1997
Table 9: Intellectual capital of the 10 most valued companies 2001
Table 10: Advantages and disadvantages of early and late movers
Table 11: The 10 most valuable brands 2001

Association of Southeast Asian Nations
Court of Appeals of the Federal Circuit
Code Division Multiple Access
Chief Executive Officer
European Patent Office
Foreign Direct Investment
General Agreement on Tariffs and Trade
International Monetary Fund
IC Intellectual
IP Intellectual
Intellectual Property Holding Company
Treaty on Intellectual Property in Respect of Integrated Circuits
Intellectual Property Rights
Mergers and Acquisitions
Mercado Comun del Cono Sur
North American Free Trade Area
NGO Non-Governmental
Newly Industrialising Countries
Patent Cooperation Treaty
Research and Development
Standard & Poor's 500 (US stock index)
Trade Related Aspects of Intellectual Property Rights
Union for the Protection of New Varieties of Plants
World Intellectual Property Organization
World Trade Organization

In recent years governments, international organisations and companies have all
strengthened their activities regarding intellectual property rights (IPR). On the one
hand, these activities are a response to developments in technology, politics and
international business, i.e. the globalisation processes in general. On the other hand,
these activities reinforce the globalisation processes. Similar to many other global
trends there is a strong interdependence between cause and effect. However, it is
unquestionable that IPR have become increasing important in the last few years, both
on the macro and micro-economic level, and there is ample evidence to believe that
this trend will accelerate in the future. Governments, as well as companies, just cannot
afford to ignore this development. Certainly, those who both recognise and act upon
this trend will reap the rewards.
This thesis analyses the influence of IPR on countries and companies. In addition to
the economical aspects of IPR, the historical, philosophical and other factors are given
due consideration.

The current concept of intellectual property (IP) as well as multilateral treaties and
national laws have evolved slowly over the last centuries. Developments in the fields of
technology, economy, politics and legislation as well as in culture and philosophy have
shaped today's intellectual property rights (IPR). This chapter presents a survey on the
fundamentals of IPR.
2.1. Intellectual
Mankind always has been very creative in finding solutions for technical and scientific
problems, as well as in expressing images and ideas. These intellectual efforts lead to
the creation of new technologies, products, services and all kinds of art. The
recognised ownership of these mental creations is called intellectual property. Whether
ownership of a mental creation is recognised and protected depends very much on the
type of creation, but also on the intellectual property rights, i.e. the relevant legislation
of every country.
The recognition and protection of intellectual property emerged slowly during the last
centuries (refer to chapter 2.3.). Today's IPR have been created in order to
allow the creators to control profits derived from their own intellectual work and
to protect them from theft of the fruits of their effort and inspiration. This rather
moral view of IPR is also referred to as the 'natural rights' view (refer to chapter
stimulate further intellectual works and innovations by rewarding creators.
Following this argument, societies can increase their economic wealth by
strengthening their IPR.
These two main arguments are challenged by contrary opinions; nonetheless, they are
the basic justifications for those pushing for stronger IPR and global IPR

Different types of intellectual property
Intellectual property can be divided into various categories, whereby patents,
trademarks, copyrights and trade secrets are the most ordinary ones. The TRIPS
agreement (refer to chapter 2.4.) distinguishes the following types of IP:
Patents are the technical and functional inventions of products and processes
Trademarks protect the brands of products or services
Industrial Designs refer to the visual appearance of a product
Geographical Indications protect the origin domination of agricultural products
(e.g. Cognac, Parmesan cheese)
Copyrights include works of art, literature, music, films and computer software
Layout Designs protect topographies of integrated circuits in the electronics
Undisclosed Information refers to trade secrets and know-how, which its
creators intent to keep secret
Of all the different types of intellectual property, patents are the most complex,
significant and controversial. Whereas the more generic chapters of this thesis refer to
all aspects of intellectual property, other more specific ones concentrate on patents.
According to Ove Granstrand (1999, p.71) "... a patent can be seen as a socio-
economic contract between an inventor (or IPR holder) and society". That is a rather
generic definition, whereas the European Patent Office defines patents more formally:
"A patent is a legal title granting its holder the exclusive right to make use of an
invention for a limited area and time by stopping others from, among other
things, making, using or selling it without authorization." (EPO annual report
cited in Granstrand 1999, p.71)
The TRIPS agreement (refer to chapter 2.4.) and most national patent agencies award
a 20-year period of protection from the date on which the application was filed. A patent
can be granted for both products and processes, in almost every technological area. A
patentable invention must fulfil three basic conditions:
novelty (it must be previously unknown)
non-obviousness (it represents a non-obvious inventive step)
industrial applicability (it has a practical use)

According to TRIPS every country has the right to define exceptions, for example
patents can be refused for inventions which conflict with public order, morality, national
security and public health. Patents are generally not awarded for diagnostic,
therapeutic and surgical methods. Plants and animals can be excluded from patentable
inventions, but biotechnological inventions in general (i.e. microorganisms or
microbiological processes) are subject to patents.
Plant varieties form a special case,
being protected under the UPOV convention and will be discussed at more length in
chapter 2.4.
In almost every country applies the first-to-file principle: patents are granted to the
inventor, who first submits the appropriate documents. A major exception to this rule is
the USA, where the first-to-invent principle applies: patents are awarded to the
inventor, who can prove that he was the first one to invent a particular process or
2.2. Philosophical
Promoters and opponents of stronger IP protection have disputed the aims, necessities
and justifications of IPR since antiquity. The fundamentals for many arguments are
based on (or at least influenced by) the central concepts of 'property' in philosophy.
Despite the dearth of explicit references to intellectual property it is almost certain that
ancient Greek philosophers have influenced contemporary views on IPR. One can only
assume that Plato would have denied the right of private ownership of ideas
, because
he thought they were universal, only subject to discovery and therefore somehow
belonging to all mankind. Yet, the platonic concept of 'ideas' is more related to
discoveries of existing things (e.g. the universal 'idea' of justice and the 'idea' of a tree
as universal representative of all trees) than to inventions or creations of new things.
Indeed, there was a concern in ancient Greece over the legitimate origin of ideas
expressed in writings. For example, Aeschines was accused of having appropriated
work from Socrates
. There is evidence that today's distinction between science and
technology and between discovery and invention regarding IP roots in ancient Greek
Granstrand 1999, p.20
Granstrand 1999, p.20

Although Jean Jacques Rousseau's allegation `la propriété c'est le vol'
seems to deny
any property rights in general, he considerably influenced the 'natural rights' view on
IP. This view claims that IPR are limited to an individual's natural right to his own
intellectual work (Granstrand 1999, p.19), they are not primarily a means for society to
stimulate further intellectual work. However, also the opposite point of view, the so-
called 'public rights' view on IP can also trace its intellectual heritage back to
Rousseau. It does not see private property rights in intellectual creations, because
according to this point of view all information belongs to the public and free access to
information is a fundamental right.
Also influencing the 'natural rights' view, John Locke saw private property as labour's
'just desert'
, i.e. intellectual property is a suitable reward for intellectual labour:
"Though the earth and all inferior creatures be common to all men, yet every
man has a `property' in his own `person'. This nobody has any right to but
himself. The `labour' of his body and the `work' of his hands, we may say, are
properly his." (Locke 1823, p.117)
"Thus labour, in the beginning, gave a right of property, wherever any one was
pleased to employ it, upon what was common." (Locke 1823, p.123)
However, these property rights have natural limits:
"As much as any one can make use of to any advantage of life before it spoils,
so much he may by his labour fix a property in. Whatever is beyond this is more
than his share, and belongs to others." (Locke 1823, p.123)
The effort spent to create any knowledge should be rewarded by intellectual property
that can be converted into a monetary reward through the market. This offers a clear
benefit and thus encourages further intellectual endeavour.
May 2000, p.x
May 2000, p.7

Georg Hegel represented a less pragmatic, but a more spiritual standpoint. He argued
that individuals define themselves through their control of possessions
, "... since the
respect others show to his property by not trespassing on it reflects their acceptance of
him as a person" (Avineri 1992, p.136 on property rights according to Hegel). Ideas are
an expression of identity and should be protected, as they are products of selfhood.
Intellectual property therefore can be seen as recognition of the individual's sovereignty
over his thoughts.
A more 'utilitarian' view on IP emphasises patent rights as creations of society for the
purpose of serving its economic interests
. Thomas Jefferson, who played a key role in
the early days of the US patent system, represents this opinion:
"If nature has made any one thing less susceptible than all others of exclusive
property, it is the action of the thinking power called an idea, which an individual
may exclusively possess as long as he keeps it to himself; but the moment it is
divulged, it forces itself into the possession of every one, and the receiver
cannot dispossess himself of it. Its peculiar character, too, is that no one
possesses the less, because every other possesses the whole of it (...). That
ideas should freely spread from one to another over the globe, for the moral and
mutual instruction of man, and improvement of his condition, seems to have
been peculiarly and benevolently designed by nature (...). Inventions then
cannot, in nature, be a subject of property. Society may give an exclusive right
to the profits arising from them, as an encouragement to men to pursue ideas
which may produce utility, but this may or may not be done, according to the will
and convenience of the society, without claim or complaint from anybody."
in Granstrand 1999, p.34)
Whether `property' in general, or even `intellectual property' in particular is perceived as
legally or morally right or wrong is contingent upon historical and cultural, and thereby
philosophical influences.
Hegel 1820/1995
Granstrand 1999, p.24

2.3. History
The earliest known trademarks and granted monopolies were in ancient cultures, such
as Egypt, Greece and the Roman Empire. These trademarks and monopolies were
regional and dependent directly on the decrees of the respective ruler. In the Middle
Ages, when trade and technology developed, the need to protect technological
advantages by means other than secrecy became increasingly apparent (e.g. to
prevent that skilful artisans take their professional secrets with them to the grave).
Therefore, the idea of rewarding the disclosure of secrets by granting some kind of
privilege gained in importance. Particularly attractive for the privilege granter was that
such privileges carried no financial costs rather they just required him to assert his
rights as a ruler. The first formal patent code was promulgated in 1474 in Venice. The
preamble stated:
"We have among us men of great genius, apt to invent and discover ingenious
devices (...). Now, if provisions were made for the works and devices
discovered by such persons, so that others who may see them could not build
them and take the inventor's honour away, more men would then apply their
genius, would discover, and would build devices of great utility to our
commonwealth." (Granstrand 1999, p.32)
Thus Venetian patent law was based on the same premises as modern patent laws.
The most important milestones of IPR history can be seen in table 1:

Table 1: Chronological overview of IPR history
major event in IPR history
3200 BC
Potter marks as precursor to trademark protection are used in
700 BC
Chefs in a Greek colony in southern Italy were granted 1-year
monopolies on the preparation of an unusual or outstanding dish.
100 BC
Trademarks used in Rome to mark products such as clothes, lamps,
glass vessels, cheese and medicine.
Roman emperor Zeno decrees that no monopoly can be granted to
clothing or food.
Johannes Teuthonicus is granted a patent-like privilege by the
Venetian government for a grain mill.
Edward II (England) grants letters of protection to skilled German
miners to induce them to come to England.
John Kempe of Flanders receives a royal grant for the purpose of
building clothing industry in England.
Venice enacts the first codified patent ordinance. Inventors were
permitted 20-year monopolies.
England adopts patent ordinance (Statute of Monopolies). The
patent term is set at 14 years, twice the length of time required for
an ordinary apprenticeship.
Legal protection in England granted for authors for 14 years, similar
to the Statute of Monopolies.
US Constitution drafted, providing a constitutional instrument
recognising an individual's property right in the product of his
invention, with both patents and copyrights.
France adopts patent legislation.
Paris Convention for the protection of industrial property.
Berne Convention for the protection of literary and artistic works.
Hague agreement on the establishment of the International Patent
World Intellectual Property Organization (WIPO) established in
Patent Cooperation Treaty (PCT) signed in Washington.
European Patent Office (EPO) established in Munich.
World's industrialised nations agree to harmonise aspects of their IP
protection under the auspices of General Agreement on Tariffs and
Trade (GATT), known as Trade Related Aspects of Intellectual
Property Rights (TRIPS).
(source: adapted from Granstrand 1999, p.28)
The protection of IP matured substantially from the first Venetian patent law to the first
multilateral agreements on patent protection (Paris Convention, 1883) and on
copyrights (Berne Convention, 1886). The 19th century's enormous technological in
many fields, together with the industrial revolution and increasing international trade led
to a need for the two conventions. The then most industrialised countries like Great
Britain, the USA, France and Germany learnt that inventions played a decisive role in

international competitiveness and thus the creation of wealth of their societies. The two
conventions aimed to define some international rules regarding IP. It was however not
until almost a century later in 1967 that the WIPO was founded. These developments
created a common perspective for IPR, which was with the TRIPS agreement in 1994
finally realised.
The same circumstances which had created the need for the two conventions of Paris
and Berne played an important role in the TRIPS agreement. However, the situation at
the end of the 20th century brought some additional arguments:
"(...) while the focus of competition shifts increasingly toward invention and
innovation, the costs of many creative activities rise even as it is becoming
much easier to copy them." (Maskus 2000, p.2)
"In recent years, this system of highly variable national rights has become
increasingly incompatible with the globalisation of markets, where firms must
exploit their technical and product advantages on an international scale."
(Maskus 2000, p.4)
By the 1980s the USA in particular was pushing for an international harmonisation of
IPR. The existing World Intellectual Property Organization (WIPO) advanced only
slowly in its aim to foster international IPR. This changed when negotiations for IPR
were shifted from the WIPO to GATT.

2.4. Organisations, treaties and conventions
Probably the most important milestones of IPR in modern history have been the two
conventions of Paris and Berne (1883 and 1886) as well as the more recent TRIPS
agreement (1994). In the meantime however scores of multilateral agreements relating
to intellectual property have been made. Most of which are administered by the WIPO.
The Paris Convention for the Protection of Industrial Property
In the 19th century it was difficult to obtain protection for industrial property rights in
various countries because of the great diversity in the respective laws. In order to avoid
a publication in one country destroying the novelty of the invention in other countries,
patent applications had to be made synchronously in all countries. Through this
situation industrial property were first harmonised. The Congress of Vienna for Patent
Reform elaborated in 1873 a number of principles on which an effective and useful
patent system should be based. Then, in 1878 followed the International Congress on
Industrial Property in Paris and in 1880 the International Conference, also in Paris. All
these diplomatic efforts ended finally in the signature of the Paris Convention for the
Protection of Industrial Property in 1883. It came into effect one year later with 14
member countries (Belgium, Brazil, Ecuador, El Salvador, France, Great Britain,
Guatemala, Italy, Netherlands, Portugal, Serbia, Spain, Switzerland and Tunisia). It
was only during the first quarter of the 20th century and then particularly after the
Second World War that the Paris Convention significantly increased its membership to
reach today's 164 members.
The main provisions of the Paris Convention are:
a basic right to national treatment (each country must grant the same protection
to nationals of the other member states as it grants for its own nationals)
a basic right of priority (the inventor has a 12-month period from the date of the
first application to file applications in other member countries)

The convention also defines a certain number of common rules in the field of
substantive law, e.g. the `independence of patents' (new patent applications are treated
as independent of existing patents for the same invention obtained in other countries)
and the right of the inventor to be mentioned in the patent.
The Berne Convention for the Protection of Literary and Artistic Works
In the middle of the 19th century copyright protection only existed on the basis of a
number of bilateral treaties. The need for copyright protection on an international level
led to the Berne Convention in 1886. Its objective is to protect the rights of authors in
their literary and artistic works. It is based on three principles:
national treatment (works originating in one of the member states get the same
protection in each of the member states as these grant to works of their own
automatic protection (protection is granted automatically and is not subject to
any formality, such as registration or deposit)
independence of protection (protection granted is independent of the existence
of protection in the country of origin of the work)
The Berne Convention lays down a minimum term of protection, which is the life of the
author plus 50 years after his death, since it is considered fair to cover also the lifetime
of the author's children. This should constitute a fair balance between the interests of
the authors and the needs of society. However, there are exception rules for
cinematographic works, photographic works et cetera.
Article 10 of the TRIPS agreement reinforces the importance of the Berne Convention,
stating that computer programmes, whether in source or object code, shall be
protected as literary works under the Berne Convention
(May 2000, p.75). As of today
151 member states have signed the Berne Convention.


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patents trips intellectual capital geistiges eigentum

Titel: The influence of intellectual property rights on international business