Intellectual Property Protection and Innovation

Abstract

This paper examines the relationship between intellectual property rights (measured in terms of patent rights) and business sector innovation activity (measured in terms of business sector R&D intensity) using panel data for 20 OECD countries over the period 1980-2000. Specifically, it examines whether "too strong" a level of protection causes a decline in the rate of innovation and what are the policy implications of the findings. The results show that the relationship between intellectual property rights and innovation is an inverted U, suggesting that, after a critical level, "too strong" a level of protection causes a decline in the rate of innovation. They show that a large number of OECD countries such as - Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the U.K., and the U.S. - have either reached or exceeded the critical level of patent strength. The results also suggest that further strengthening of intellectual property rights might not increase, if not retard, innovation in these countries. Furthermore, the paper finds that a science and engineering educated labour force, government funding of business R&D, research and development in the non-business sector, business financing of non-business research, the degree of openness of an economy, and the industry structure of a country are strong determinants of business sector R&D intensity across OECD countries.

Keywords: Intellectual property; innovation