Kevin DonovanINAF-410Term Paper

There is No Harmony in a Patent Thicket

Towards an Effective IPR Regime in China and India

I. Introduction

China and India, the two most populous countries in the world, continue toestablish themselves as international forces through impressive growth and development.As the two nations pull their populations out of poverty and exit lower income status,their economies are poised to join 21

Century trends and become vibrant, dynamic“knowledge economies,” characterized by how they effectively harness and use new andexisting knowledge to improve productivity and increase overall welfare (Dahlman2005).Many observers, predominately in the developed world, but domestically as well, believe that stronger intellectual property rights (IPR) will be a necessary tool for theimmediate and sustained development of vibrant knowledge economies in both Chinaand India. Governments, donors, academics and private industry often portray stronger IPR as a highly desirable improvement to the business environments in China and India.They propose international IPR “harmonization” – a process through which thedeveloping world upgrades protection and enforcement of IPR to levels seen in thedeveloped world. This paper will argue that a careful and critical review of nationalgoals, potential solutions and likely outcomes will, in fact, make IPR harmonization adisagreeable mechanism for bringing China and India to continued global prestige asknowledge economies.

II. India and the Knowledge Economy

India’s unique characteristics make the knowledge economy an attractive nationalgoal towards which much has already been devoted. To begin, the critical mass of skilled,English-speaking knowledge workers with diaspora linkages to the United States allowedIndia to develop a dynamic, world-class modern sector. Indian firms such as Wipro or Infosys are indicative of an entire sector that benefits from macroeconomic stability, theinstitutions of a free market economy, a well-developed financial sector, and a broad anddiversified science and technology infrastructure (Dahlman 2005).However, these success stories betray the significant challenges facing continuedgrowth of the Indian economy as a whole, and the knowledge economy specifically. Of the many tasks facing India’s knowledge economy, particularly noteworthy is the need tostrengthen the economic and institutional regimes supporting an efficient innovationsystem that capitalizes upon foreign knowledge and domestic creativity. India remains arelatively closed economy where exports only account for 15% of gross domestic product(GDP), compared to greater than 30% in China and Korea (Dahlman 2005). This relativeautarky is also reflected in the lack of foreign direct investment (FDI) that India receives – although inward FDI flows increased by 24% between 2002 and 2003, India still onlyreceived $4.26 billion, compared to $53.5 billion for China (Dahlman 2005). India mustcontinue to develop a broad base of educated and skilled workers to run the knowledgeeconomy. And it must invest efficiently in research and development (R&D) that willcreate, adapt and diffuse appropriate innovations. Currently, of comparator economies,India only devotes 0.78 of GDP to R&D and has the lowest proportion of researchers inR&D (Dahlman 2005). The government carries out 70% of domestic R&D, compared

with 40-50% in OECD economies, crowding out private sector involvement (Dahlman2005).

III. China and the Knowledge Economy

China’s spectacular rise over the past three decades has established it as aneconomic superpower. Its strength, thanks in large part to good infrastructure and low-cost labor, has been manufacturing, but to continue its meteoric climb, China must makea sustained commitment to developing as a knowledge economy. The double-digitgrowth rates that have powered China have come from trade integration and beencoupled with very high savings and investments. China wants to move from the world’sfactory to a leader in global innovation, and to do so will require a multiprongedapproach (Graff 2007). In fact, the service sector, highly indicative of a knowledgeeconomy, is very underdeveloped in China for a country of its per capita income(Dahlman 2001). Although China is now the third largest spender in absolute R&D, productivity is low and regional inequalities are stark. China’s leaders must promoteeconomic competition, upgrade education and learning, exploit global knowledge, diffusenew technologies actively through the economy, support small and medium sizeenterprises (SMEs) and establish a viable social security system (Dahlman 2001).

IV. An Introduction to Intellectual Property Rights

To many, strengthened intellectual property rights are an integral part of thesolution to the daunting challenges facing China and India, but to fully understand whystronger IPR is both unnecessary and objectionable, a discussion of the policies andeconomics surrounding IPR is necessary.