1. Innovation, Growth and Patents on CIIs in the EU Federico Etro June 2005

2.  The Common position adopted by the European Council in March 2005, establishes the patentability of CIIs when they provide a technical contribution to a field of technology: excluding pure software, business methods and consulting practices (difference from US)excluding pure software, business methods and consulting practices (difference from US) confirming current EU rulesconfirming current EU rules

3.  Part of the European Parliament has proposed amendments which would exclude many innovations in the ICT from patentability: amendments which establish vague definitions of “technical” contribution or “field of technology” are going to add significant restrictions on what can be patentedamendments which establish vague definitions of “technical” contribution or “field of technology” are going to add significant restrictions on what can be patented others explicitly excluding innovations in data processing are going to exclude most inventions in the digital technologyothers explicitly excluding innovations in data processing are going to exclude most inventions in the digital technology

4.  The economic point of view: what matters is the consequence for investment in innovation!what matters is the consequence for investment in innovation! and patents on CIIs promote investment in innovation with benefits for everybody

5. Traditional economic theory:  Market power and patents promote incentives to innovate and create growth (Schumpeter, 1934)  Patents should exist in any field of technology trading-off (Nordhaus, 1969) social benefits (promote innovation) and costs (temporary market power), but for CII: the social benefits are larger (ICT drives most technological progress nowadays),the social benefits are larger (ICT drives most technological progress nowadays), the social costs are smaller (average life of innovations is short)the social costs are smaller (average life of innovations is short)

6.  Patents and R&D subsidies are essential in high-tech sectors to enhance endogenous growth (Romer, Barro, 1990s)  Recent developments: Market leaders have a beneficial role in general R&D, under free entry (Etro, 2004, Innovation by Leaders, Econ. Journ.)Market leaders have a beneficial role in general R&D, under free entry (Etro, 2004, Innovation by Leaders, Econ. Journ.) small firms make pathbreaking innovationssmall firms make pathbreaking innovations

7. Antitrust Implications for the New Economy: Priorities for industrial policy: Protect IPRsProtect IPRs Promote free entryPromote free entry  not fight against market leaders  this is also for competition policy (Etro, 2005, Aggressive Leaders, Rand Journ. Econ.)

8. Do patents stifle innovation?  Opponents of patents on CII say that patents stifle innovation based on economic research for instance by Bessen and Maskin (2002). But: The theory by Bessen-Maskin does not justify this!The theory by Bessen-Maskin does not justify this! Evidence on the US experience by Bessen-Maskin does not confirm this!Evidence on the US experience by Bessen-Maskin does not confirm this!

9. US R&D/Sells in ICT

10.  Solid line: R&D/Sells for US firms innovating on computer, telecommunications and electronic components (Source: NBER)  Dotted line: top firms  Policy shock: 1981: case Diamond vs Diehr (450 US 175) the Supreme Court ordered the USPTO to grant a patent on a CIIthe Supreme Court ordered the USPTO to grant a patent on a CII Since then CII were patentable in USSince then CII were patentable in US

11.  Bessen-Maskin: use 1986-87 as the reference year. But it should be 1980-81use 1986-87 as the reference year. But it should be 1980-81 do not control for any other factor (business cycle,..)do not control for any other factor (business cycle,..) do not compare R&D for CII with R&D for other inventionsdo not compare R&D for CII with R&D for other inventions

12. What about ICT and CIIs in EU?  There is a gap between US and Japan on one side and EU on the other side in ICT  North European countries have a larger ICT sector compared to Mediterranean countries (more patents, higher fraction of high-tech patents)

13. Value added of ICT sector

14. Export of ICT goods

15. ICT patent application with EPO

17. Europe needs:  Promote high-tech sectors to compete globally  Larger investment in R&D to enhance growth  Larger incentives to invest in R&D in the New Economy >> IPRs protection and R&D subsidies!

18. Conclusions 1.additional restrictions to the patentability of CII would jeopardize investment in innovation and technological progress in the leading high-tech sectors of the European economy with negative consequences on growth and competition in the global economy

19. Conclusions 2.explicit exclusion of entire fields of technology, as data processing, from patentability would shift investments toward US and other countries, where IPRs are better protected, in a large and rapidly increasing number of fields

20. Conclusions 3.additional restrictions to the enforcement of the current patent system would open doors to foreign low cost productions (think of China) which, without patent protection, would be free to imitate European products even in high- tech sectors, with negative consequences on European employment and on innovative (and also non innovative) SMEs

21. Conclusions 4. improvements should promote access to patents especially for SMEs (monitoring and Fund for SMEs) to consolidate the European comparative advantage in high-tech sectors where innovation and human capital play a crucial role and to help achieving the goals of the EU Lisbon strategy

22. Conclusions 5.enhancement of the spillovers created by the patent system on the diffusion of knowledge could be obtained through further requirements on the disclosure of the patented CII: some useful amendments have proposed that the disclosure of the invention must be sufficiently clear and complete to be carried out by a person skilled in the art

24. ICT patent application with EPO

25. High-tech patents in 2001

26. % of ICT Patents