Intellectual Property and Its Role in Economic Development WIPO National Roving Workshop on IP Strategy Beira, Nampula and Maputo, Mozambique February 6 to 14, 2006 Our presentation today concerns Intellectual Property Assets. Our premise is that intellectual property based assets promote economic growth, and further that it is possible to promote the development and dynamic use of intellectual property assets by proactive national and enterprise policies. Jared Nyagua IP and New Technologies Division, WIPO

Topics to be Covered I. What is IP? II. Why is IP Important? III. What is IP Strategy? IV. Who will make IP Strategy? V. How to make IP Strategy?

VALUE CREATION ACTIVITY I. What is IP? RESULTS Revenues/ Profits Employment Appreciation Solution of Needs PROPERTY Real Personal Capital Intellectual VALUE CREATION ACTIVITY Product Creation Investment Improvement Sale Rent or Licensing

+ What are “IP Assets”? Patents (inventions) Trademarks Human Capital Industrial designs Geographical indications Copyright (works of authorship) Trade Secrets, etc. Human Capital + Strategically Developed, Targeted to a Market and Used Just a brief review. Patents are inventions. May or may not be technical in nature. The criteria are: " new, useful, and non-obvious" can be anything from complex inventions like recombinant dna- based drugs to simple ones, like the clip that is used to close a food bag. Patents cover the idea or basic concept. Patents have claims which detail the unique characteristics of the invention. Patents have economic value because the owner has a legal monopoly on the use of anything covered by all of its claims. So, the patent owner can use the patent to make money by enhancing the value of his product (my food bag clip keeps food fresher than any other tool) by excluding others (no other product keeps bags closed) and by getting money from others for a license (he licenses another company to distribute his clips in geographical markets he doesn't want to serve, or to make his clips, or to modify them and make new kinds, in exchange for royalties. He can also use patents economically by accumulating them in portfolios and then asserting an increase in valuation based on intangibles--which may not show up on the books, but in reality does often affect valuation in investment and M&A situations. Trademarks are the names of things and the logos used in connection with the distribution of a product or technology. Brands. Must be distinctive or have a special meaning to the consumer. Like patents, they are valuable in context. They must relate to and enhance a viable business strategy. Copyrights are original works of authorship. Music, plays, novels, art, dances, architecture. Also includes software code, schematics, and other types of technical writing. Industrial designs are the shape, design. Why strategic collections? IP is more valuable in practice if strategically related to the owner's business model. Often a single invention or work or trademark is not valuable alone. It is the collection of complementary IP that covers a market or enhances a product line that makes IP most valuable. All of these categories of IP must be considered in the context of human capital which is not necessarily legally protectable , but which are valuable. Human capital? By using this term, we emphasize that IP is part of a larger economic context in which legally protected intangibles, such as patents, works of authorship, and trademarks play a key role but are also seen in the context of human capital. Human capital is an educated, skilled and motivated work force. The combination of these two--IP and Human Capital--is a potent economic force in today's knowledge based economy. Without IP, Human Capital is of limited value because it is non-proprietary and has no legal status. Without human capital, IP does not come into being and cannot evolve and develop.

II. Why is IP Important? Economies based on land, physical assets Trade in goods Cheap labor Nationally based trade Pre-Internet economy Knowledge Based Economies Value-added goods /IP Licensing Productive Human Capital Regional/Global Markets Internet In sharp contrast to the economic situation only 30 years ago, real property, equipment and capital are no longer the most valuable assets of businesses. Rather, intangibles like trademarks and brands, good will, business relations, IP licenses, patent portfolios musical works, domain names, etc. are now often the most valuable assets of a business that are prized by venture capitalists, investors and business partners. * During the 8 years period 1988 to 1996, trade in goods grew by 6.9%, whereas trade in patents grew 12.5%, nearly twice as fast (IMF--from Arai) *Decline in value of physical assets as % of US corporate assets from 62%-30% (1986-00). *Rise in patent filings and grants: 23%, 97-98; 10% 98-99; 23%, 99-20). * IP licensing in 2000 had an estimated value of $100 billion worldwide; a 700 per cent increase during the 7 year period from 1991-1998! * In 1996, Hitachi realized US$364 million net profits from patent royalties * IBM realized a profit of US$1.7 billion in royalties from its IP portfolio in 2000. * Stanford University-$37 m. in 1999 * M&A-$10 billion AOL/Netscape * "Fully 76% of the Fortune 100's total market capitalization is represented by intangible assets, such as patents, copyrights, and trademarks." [Peter J. King, Managing Partner, Arthur Andersen's IP Practice, quoted in Rivette & Klein] * Growth in cultural industries, such as printed matter, literature, music, cinema, where value is largely based on IP, has skyrocketed--estimated worldwide growth of from US $95,000K in 1980 to US $388,000,000 million in 1998. [UNESCO , 2000, Study on International Flows of Cultural Goods between 1980-98". These are stunning figures, but what is their practical consequence? Intellectual assets are the new assets used in valuation and trade. They are bartered for other intellectual assets or exchanged for royalties, lump sum payments, price reductions or other elements of value. If a nation or an enterprise wishes to achieve economic growth, intellectual assets cannot be ignored; indeed IA are the cornerstone of economic growth. This new reality has been capitalized upon the economics and popular press and references to "intellectual capital", "knowledge based assets", intellectual property, human capital and so forth are common today. One important work published in 2000 by the Harvard Business School Press, "Rembrandts in the Attic: Unlocking the Hidden Value of Patents" describes patent strategy for businesses. This book and others maintain that optimizing the practical value of IP is a matter of strategy, will and awareness in the business sector. In other words, intellectual property policy --to be effective--must be proactive. As the examples of a number of member states show us, intellectual asset development as a practical and proactive methodology, applies equally in the public sector. It is this challenge, the intellectual asset development, that is before WIPO's Member States today. Old Economy New Economy

There is an IP Divide... 91% of patents are from OECD countries. Why IP is Important? There is an IP Divide... 91% of patents are from OECD countries. PCT filings and national patent filings in developing countries are by non-residents primarily. At the same time that we acknowledge that IP is vitally important economically, we can see that there is today an IP Divide. We at WIPO have been speaking of the Digital Divide. This is the gap between rich and poor nations in terms of technology and in particular the technology of binary systems. There is a broader and more profound divide between developing and developed nations: the Intellectual Property Divide. This is the gap between nations that have IPA and exploit it for economic growth, and those that do not. This divide is broader than the Digital Divide because it covers all types of IP, not merely digital technology. The IP divide is more profound than the Digital Divide because closing the digital divide may be achieved by purchasing and using technologies that are owned by others. When we provide a computer from IBM to a developing country, we may be addressing the digital divide, but we are not affecting the IP divide--the LDC is not an owner of the real economic value in the system it is using. It owns the machine and has a license to the software, but this does not give it any economic interest in the underlying technology. The user of a proprietary IT system is only a consumer, not an owner. Is the IP Divide capable of being closed? Can it be bridged? What is the meaning of bridging the IP Divide? If it is possible to bridge the gap between developing and developed countries, will that bridge be a two way street bringing benefits to both sides? First, we need to look more carefully at this IP Divide. How do we measure it? There are a number of ways, but the clearest way is to look at patents because they are documented in applications, and also because patents are generally the strongest form of IP protection. Today, at least 91 % of patents are from OECD countries. Examining both PCT data and National filing data compiled by WIPO reveals a striking picture.

World Trade of Cultural Goods Why IP is Important? World Trade of Cultural Goods (in millions of dollars, 1980-98) Source: Study on International Flows of Cultural Goods Between 1980-98, UNESCO 2000. UNESCO Framework for Cultural Statistics includes the following categories: Printed matter and literature (books, newspapers and periodicals, other printed matters), music (phonographic equipment, records and tapes, music instruments), visual arts (paintings, drawings and pastels, engravings, prints and lithographs, sculpture and statuary) cinema and photography (photographic and cinematography cameras and supplies), radio and television (television and radio receivers), games and sporting goods. The IP Divide is more difficult to assess in copyright. Since copyrights need not be registered ( under the Berne Convention), it is not possible to get accurate data on copyright ownership per se. However, cultural industries i.e. those based on copyright, have shown tremendous growth in the last 20 years especially in music and in software publishing. Some notable success stories have been in Thailand, whose national music now captures an 80% market share in a vigorous market and Ireland who since the mid-1990s has become the world's second largest exporter of sound recordings and prepared media for sound recording. In 1980, sound recordings and prepared media for sound recording represented less than 6% of total cultural exports. By 1998, their share had grown to more than 15% ($26.6 billion). The value of exports of games has almost quadrupled in just 20 years. It more than doubled (up 132 per cent) between 1980 and 1990, then almost doubled again (up 91%) between 1990 and 1998. China's contribution to world cultural exports has risen from 0.2% in 1985 to 8.9% in 1998. By 1998, it alone accounted for more than one-third of world exports in games ($7 billion in 1998, as against $1.8 billion in 1990). Trademark figures higher, showing high utilization of both national and international registrations. Interbrand has determined that brand accounts for an average 37% of a company's market capitalization. For some brands, Apple, Coca-Cola and Nike, to name a few, this percentage is much higher, upwards of 70 percent, meaning that almost all of their intangible assets are tied up in brand. "We own the registered trademarks Metro-Goldwyn-Mayer, MGM, United Artists, the MGM Lion Logo, UA, Orion, Cannon and variations thereof, as well as trademarks, logos and other representations of characters, such as The Pink Panther, from motion pictures and television series we produced or distributed. In 2000, we received $11.2 million in revenue from the licensing of these trademarks, logos and other representations.” Cultural industries Trade in cultural goods has grown exponentially over the last two decades. Between 1980 and 1998, annual world trade of cultural goods surged from US$95.3 billion to US$387.9 billion. On a global scale, trade remains concentrated in a few countries: in 1998, thirteen countries were responsible for more than four-fifths of imports, and twelve countries for the same proportion of exports.

Because of technology access... Why IP is Important? Because of technology access... Lack of IP assets is a disadvantage Royalty drain instead of royalty stream Owning IP assets is an advantage

Because of IP Licensing... Worldwide licensing revenues In 2001, $US 100 billion estimated Pharmaceutical licensing In 1996 US$3.5bn In 2000 US$10.5bn IT licensing University and research center licensing In 2000 $US 1.3 billion by non-profits in North America New entrants--Singapore, Brazil, Korea

Because IP Owners Use IP Assets to Make Money... Why IP is Important? Build valuable portfolios of IP as base for licensing revenues; Offensive: Monopoly power for price and products; Defensive: Avoid and defend against litigation; Enhance products, upgrades, higher revenues and margins; Promote brand value for advertising; Attracts Investments, Strategic alliances, joint ventures; Enhance corporate valuation. In enterprise, proactive IP policies can make the difference between success and failure whether related to branding and advertising, works or inventions. The classic example of Hitachi's systematic and aggressive IP campaigns in the 1970s and 1985, as detailed in the Hisamitsu Arai book on Japanese wealth creation, paid off dramatically in terms of licensing revenue, protection from litigation, and profitability. IBM's vigorous patent and IP policies during the 1970s and 1980's, led to the creation of a powerful patent portfolio resulting in profitable licensing revenues even during the 1987 recession when product sales were bleak. Today we can see proactive enterprise strategies leading to successes, for example Brazil's,Biobrás which started as a small, independent laboratory within the Federal University of Minas Gerais, Brazil and using IP strategies becoming a major producer of recombinant DNA insulin . Silicon Valley in California has many IP success stories. See also fabless semiconductor industry where businesses have flourished on the basis of IP alone, without manufacturing or product sale of any kind. For an excellent discussion--See Value Driven Intellectual Capital by Patrick H. Sullivan.

Because IP is in Every Sector...

Can IP Assets be Developed? III. What is IP Strategy? Can IP Assets be Developed? Human Capital and IP together form Intellectual Assets, which in turn fuel economic growth. This entire process is not automatic, but is sparked and fueled by proactive government and enterprise policies.

Can IP Assets be Developed? Public IP Strategy Can IP Assets be Developed? What is happening here? The task is to identify what governmental and enterprise policies support such results, and to provide tools to Member States to implement such policies in a proactive way. However, patents still matter. Why? Because IP strategy is product and technology based--all applicable forms of IP should be used. Also, patents the most powerful form of IP protection. Awareness and use of patents are increasing. Korea is a success story. China, Singapore are also increasing their patent filings dramatically. Korea went from less than 30% domestic filing in 1986 to 75% domestic filing in 1999. Was it merely a by-product of Korea's economic growth? Or was it the result of pro-active governmental and enterprise policies? Korea's development of a strong IP office, combined with a budgetary commitment and increased staffing in the late 1980s contributed, as did their emphasis on government support for IP. We can also look at the experience of Japan, which is chronicled in Hisamitsu Arai's book the"Japanese Experience in Wealth Creation" (WIPO Pub), and understand the proactive IP policies that made Japan an IP powerhouse today. Private Sector IP Strategy US/Japanese semi-conductor wars Hitachi and IBM 1980s strategies Intellectual Asset Management (IAM) Patent maps and competitive analysis Blocking patents Licensing and platform strategy “Stand out/Fit in” Standards/consortia Trademark licensing/franchising

Public IP Strategies Today Australia Canada Philippines Japan ASEAN Romania European Union Mexico

Two Complementary Ways Can IP Assets be Developed? Two Complementary Ways IP local creation Importation= TOT This brings us to the specifics of how IA can be accumulated. IA can be imported and it can be locally created.

Can IP Assets be Developed? LOCAL CREATION OF IP ASSETS Universities, public research centers; SME promotion and incentives; Targeting and protecting new technology; Recognizing local inventions in joint ventures, FDI, technical assistance projects; Modification, enhancement of traditional knowledge/folklore. Local creation of IPA is essential if the task is to use IP to promote economic growth. It is easier to import IPA if you have valuable IPA to offer in trade. Importation alone will not work to address the IP Divide. It is difficult to license in technologies if all one has to offer is payment--much better to negotiate based on some combination of royalties, a cross license, skilled human capital, and a good market. Local creation of IPA occurs in many places and to a great extent the task of IP policy is to discover and harvest IA where they are already being created: in university and research centers, in manufacturing, in art and popular culture, and in traditional technologies and arts. Local creation of IPA also occurs when a local business enters into a joint venture with a foreign enterprise. Look at economic development projects on recycling water in India or processing fish or treating waste water in Sri Lanka, or bio-gas technology in Jamaica. Water power development in Laos or desalinization projects in the Gulf. IP can be found in all of these places though it may not be recognized. It is important to pay attention to this IP. In many cases, the greatest wealth is not in the tangible project deliverable (e.g. a dam) but in the learning that takes place during the project. Is this learning (human capital development) being harvested? Are new approaches, new technologies being developed? Or perhaps modifications to existing technologies to fit local needs or local conditions? Is this IP that can be "reused" and can generate new technologies? Can local personnel be trained as regional resources? Local creation of IA occurs where there are enterprise and governmental policies that support finding, formalizing and using the value of IP in all of these contexts.

IV. Who Will Make IP Strategy? Academia [Universities, Research Centers] Government Private Sector [large enterprises, SMEs, individual inventors, NGOs] Who are the players who can make Proactive IP strategies work? There are three sectors whose complementary efforts are needed. Government policy makers in ministries of education, justice, technology, economics and trade, as well as IP offices are key. Academia plays an important role, as research centers and universities, generally publicly funded, are the incubators where technologies and cultural industries are born and nurtured. The private sector benefits from government and academia contributions to IA development. Enterprises, in order to be successful in developing, accumulating and using IP, implement proactive IP policies. NGO's are important players as they often support IP protection, promote IP awareness, and train IP professionals.

V. How to Make IP Strategy? I like the heading and this entire slide. It is clear and makes a point well. i guess I don't understand the weakest link bullet though.

The IP / Innovation Strategy House Economic Growth Technological Development and Solutions IP Ownership TOT/Licensing IP Skills Marketing Policy Commitment Networks Clusters • Laws and Policies Incentives Funding/Valuation IP Audit and Plan Education

Expenditure in R&D as % of GDP (2001) Total Expenditures (1989-2000 average) in R&D as a % of World GDP: 2.12% Sources: 2002 World Development Indicators (World Bank) and UNESCO Institute for Statistics (March 2005). ¤ Data for 2000 # Data for 2001

Expenditure on R&D as % of GDP has been increasing in Uganda… Source: UNESCO Institute for Statistics, March 2005

Source: UNESCO Statistics Institute, March 2005 ...But the source of funds (%) for expenditure on R&D comes mainly from abroad Source: UNESCO Statistics Institute, March 2005

Source: UNESCO Statistics Institute, March 2005 Uganda has 14 Universities and at the National Agricultural Research Organization (NARO) there are 9 Research Centers. Still, the average of researchers per million people (2001) is still low Source: UNESCO Statistics Institute, March 2005

The Program Theme One: Introduction Theme Two: Professional Training Theme Three: Policies and Incentives Theme Four: Funding Theme Five: IP Strategy Game (small groups) Theme Six: IP Audit Tool (small groups)