Innovation: Is it in the eye of the beholder?

innovationIn my first short working paper (‘Innovation, competition and IP in developing countries: convergence or customization?) I questioned whether the globalization of competition and IP laws was pushing developing countries in the sense of convergence, and whether this tendency was beneficial for these countries’ quest for innovation. I also posed five guiding questions and invited the reader to think about the trichotomy ‘innovation/IP/competition laws’ in the context of developing countries. This second post addresses the first question and the point of departure of this analysis:

What is innovation?

A mere definition of ‘innovation’ does not provide a satisfactory answer to this question. Therefore, I will also discuss a number of topics and try to provoke further discussion on (i) the concept of innovation, (ii) the context-specificity of the concept; (iii) and some key drivers of innovation in developing countries.

Let’s ‘begin at the beginning’ and ‘go till we come to the end:[1] the ‘innovation’ that should be stimulated or safeguarded by competition or IP laws (or both) in African countries.

(i) Innovation: what’s in a name?

In the legal literature, ‘innovation’ is often imprecisely associated with the development of ‘something significantly new’:[2] what ‘does something new’ mean? New to whom? How new is new enough? ‘Innovation’ should be distinguished from ‘invention’: the conception of a new idea, a discovery or a unique finding.[3] A genius idea or a cutting-edge invention cannot be automatically qualified as ‘innovations’ before they are introduced in the marketplace. In simple terms, innovation is the ‘process of putting ideas into useful form and bringing them to the market’.[4] The innovator is the one that successfully manages to successfully concretize an idea, commercialize it, or in the case of social innovation, externalize it to society. The innovative ideas included in the concept of ‘innovation’ refer to new products, processes, services and public policies, which may have either a commercial goal or simply an altruistic aim to solve social problems. The core element of the concept of ‘innovation’ I would like to point out is therefore (a) thesuccessful externalization and concretization of ideas. However,  an innovation must also be the (b) first concretization of these ideas.

(ii) Innovation: a context-specific concept?

How can we measure the newness element of innovation? Must this be the first externalization ever of a new idea translated into the commercialization of a new product? From an IP rationale, the answer would be yes: the first ever. However, we should ask ourselves whether this makes sense in Africa. Is the concept of ‘innovation’ context-specific? Is it in the ‘eye of the beholder’? Can we really expect poor countries to develop cutting-edge technology while their R&D spending is limited? We surely want to stimulate and safeguard the same type of innovation present in developed countries, but from a policy point of view, is this realistic?

Innovation as a relative concept?  

According to Srinivas/Schutz, innovation is contextual/sector-specific, i.e., innovation depends on the socioeconomic conditions it is embedded in and should therefore ‘meet the needs of the most people, especially in countries where innovation and poverty reside side by side’.[5] If we reflect upon this topic from the perspective of the stimulation and diffusion of the ‘innovation spirit’ and good innovation policies to African countries, we might want to adopt a less strict concept of innovation and content ourselves with a relative concept of innovation for these developing countries.

copyrtInspired in the literature on policy diffusion, we might perhaps want to perceive innovation here as something that ‘it is new to the states adopting it, no matter how old the program may be or how many other states have adopted it’.[6] The facilitation of innovation in a different context might still pose important challenges to a developing country even if it has been implemented elsewhere. According to this perspective, the ‘newness’ of the innovation in question is not assessed in absolute terms but related to the experience and knowledge of the jurisdiction in question. This may mean that African innovators are allowed to stand in the shoulders of other innovators, ‘imitate them’ (?) and concretize their ideas within a circumscribed territory. This is perhaps easily applicable to innovative programs or policies, but should African countries not be stimulated to develop innovative products with their own resources and adapted to their local characteristics, even if they are similar to existing products in developed countries? (Potential IP concerns shall be discussed a few weeks in one of my next posts) While this less ambitious perspective of innovation takes into account the socioeconomic conditions of developing countries, it almost goes against the globalization trend that is fighting for convergences of laws and policies. In addition, a relative concept of innovation opens the door to free-riding and may not give incentives to the development of truly innovative products and processes.

Leaving IP and other legal concerns aside for now, I would like to introduce briefly some of the relevant incentives or favorable conditions to the emergence of innovation.

(iii) The drivers of innovation

Ashford/Hall argue that innovation is determined by three decisive factors that should be present at the firm and governmental levels: (a) willingness to innovate; (b) opportunity/motivation to do so; and (c) capacity to innovate.[7] I would like to mention an additional external driver: competition.

(a) Willingness to innovate refers to how firms and individuals perceive changes in production, understand technological or social problems, develop and assess alternative solutions for it. While this ambition may easily be found in developed countries, underdevelopment, limited capacity of higher education, and profound scarcity may affect this willingness to innovate.

(b) Opportunity and (c) capacity to innovation are influenced by external factors, including the regulatory conditions faced by firms. Ashford has claimed that regulation, by taking these elements into account, can create ‘an atmosphere conducive to innovation’.[8] Innovators in African countries face however here significant hurdles. Although governments are aware of the need to enhance their R&D spending, they still have not been able to find the adequate mix of regulatory instruments that can create a sound regulatory environment for innovation.[9]

(d) Competition: in simplistic terms, it is often argued that competition drives innovators because companies feel, on the one hand, theCompetition pressure to be more cost-efficient notably through the development of innovative production processes; on the other, to stand out of the crowd of competitors, differentiating their products from the existing ones and offering consumers innovative and better products. Innovative companies are those that leave their comfort zone and strive for better products and processes. However, leaving your comfort zone implies taking risks that developing countries might not be willing to embrace. Although ‘necessity is the mother of invention’, innovators in African countries might need a helping hand from their governments to solve the ‘innovation chasm’ that often characterizes them.[10] This ‘innovation chasm’ is currently affecting these last three drivers of innovation. Can law—particularly Antitrust & Competition laws—play a role here? Can laws provide wings to African innovators to fly in the direction of innovation? Or will innovators feel imprisoned and palsied by these giant wings?[11]

Read the first part here.

An article by Sofia Ranchordas (Tilburg University, School of Law) initially published on our partner's website ATT.

 


[1] Adapted quote from Lewis Carroll, Alice’s Adventures in Wonderland (1865)

 

 

 

[2] Stefan Müller, ‘Innovationsrecht—Konturen einer Rechtsmaterie’ (2013) 2 Innovations- und Technikrecht 58, 60.

 

 

 

[3] Joseph Schumpeter, Capitalism, Socialism and Democracy (first published in 1939, Harper, 1942) Luke A. Stewart, ‘The Impact of Regulation on Innovation in the United States: A Cross-Industry Literature Review’, Information Technology & Innovation Foundation, 2010, paper commissioned by the Institute of Medicine Committee on Patient Safety and Health IT, available at www.iom.edu, 1.

 

 

 

[4] Eugene Fitzgerald; Andreas Wankerl; Carl J. Schramm, Inside Real Innovation: How the Right Approach Can Move Ideas from R&D to Market and Get The Economy Moving(Kauffman Foundation, World Scientific Publishing 2011) 2.

 

 

 

[5] Smita Srinivas, Judith Schutz, ‘Developing Countries and Innovation: Searching for a New Analytical Approach’ (2008) 30 Technology in Society 129.

 

 

 

[6] Jack L. Walker, ‘The Diffusion of Innovations among the American States’ (1969) 63(3)The American Political Science Review 880, 881.

 

 

 

[7] Nicholas A. Ashford; Ralph P. Hall, ‘The Importance of Regulation-Induced Innovation for Sustainable Development’ (2011) 3 Sustainability 270, 279.

 

 

 

[8] Nicholas A. Ashford; Christine Ayers; Robert F. Stone, ‘Using Regulation to Change the Market For Innovation’ (1985) 9 Harvard Environmental Law Review419, 422.

 

 

 

[9] See, for example, the Report by the SA Department of Science and Technology, ‘A knowledge-based economy. A ten-year plan for South Africa (2008-2018)’ available at http://www.esastap.org.za/download/sa_ten_year_innovation_plan.pdf

 

 

 

[10] Department of Science and Technology, ‘A knowledge-based economy. A ten-year plan for South Africa (2008-2018)’ available athttp://www.esastap.org.za/download/sa_ten_year_innovation_plan.pdf

 

 

 

[11] Inspired in the English translation of ‘L’ albatros’ by Charles Baudelaire (Les Fleurs du Mal), by Jacques Le Jacques LeClercq, Flowers of Evil  (Mt Vernon, NY: Peter Pauper Press, 1958). The original verse is ‘Le Poète est semblable au prince de nuées (…) ses ailes de géant l´empêchent de marcher’.

 

 

 

Innovation, competition and IP in developing countries: convergence or customization?

innovationInnovation: a path to long-term economic growth,[1]hope for economic recovery,[2] and a vital opportunity for economies in developing countries.[3] Innovation is the Holy Grail we would all like drink from. Individuals dedicate their lives to its pursuit, governments invest significant amounts of money in R&D, but despite decades of research on ‘the wealth of nations’, we remain with a poor perception of innovation as a ‘complex and mysterious phenomenon’[4] that should be stimulated, although no one knows very well how.[5]

Government intervention in itself is insufficient and it might rather have costly results, if incorrectly targeted.[6] This is particularly true when it comes to the inevitable relationship between legal conditions and innovation since the lack of an effective legal framework is in the poorest countries the main obstacle to innovation and consequently to economic growth.[7] In this context, during many years, law was simply told to stay away and admire it from a distance to avoid impeding innovation. However, beyond laboratories, laborious inventions and serendipitous discoveries, law can play a greater role than a mere walk-on in the ‘innovation film’. In fact, law can act as a ‘brakeman’ or ‘a driver’ of innovation.[8] Competition and IP law have been competing for the supporting role of ‘drivers of innovation’. Here this ‘innovation film’ does not take place in the EU or in the US, but in developing countries trying to promote domestic innovation while adopting competition laws and being forced to respect IP rights that incentivize innovation in the Western world. In such context, and before the audition starts, five questions must be posed: (i) What is innovation and what type of innovation do governments aim to promote? (ii) Should and can law in general interfere in the regulation of innovation? (iii) How can competition law play a role in the promotion of innovation? (iv) Should competition law not remain in the shadow of Intellectual Property (IP’) laws that are already designed to provide innovators with incentives or should it be the other way around? (v) Last but not the least, in the context of the problematic trichotomy antitrust/IP/innovation, should a customized approach be conceived for developing countries characterized by different socioeconomic conditions or should one plea for convergence?

In this article (and subsequently, expanded paper), I reflect upon the role of law, and particularly competition laws, in the promotion of innovation in developing countries and the problematic relationship between IP, competition laws and innovation. Up until now, (competition) law’s potential to drive innovation has been either closely associated with patent law[9] or analyzed on a mere casuistic basis in the setting of specific antitrust or mergers cases.[10] However, the enforcement of competition laws against unlawful monopolizing conduct plays in general an undeniable role in the promotion of innovation.[11] Competition law promotes innovation by removing barriers to freedom of choice, trade and market access and prevents the formation of monopolies or conditions in the marketplace susceptible of stifling the development of new products. This implies however analyzing the connection between the market structure and the ability to influence undertakings to innovate:[12] while in some cases, a large number of companies on the market may slow down innovation, in others, the lack of competitive pressure may reduce the incentives to innovate (e.g. international market of derived financial products).[13]

CompetitionAlthough the debate on the promotion of innovation has been restricted to developed countries, the promotion of innovation is equally vital for developing countries, notably in Africa.[14] These countries are looking up to the EU and US and trying to adopt similar competition laws and policies.[15] What’s more, a number of developing countries have been deriving their antitrust legal frameworks from Western countries, as a result of trade agreements. Globalization appears to push developing countries in the sense of convergence, but is this tendency beneficial for these countries quest for innovation? Absolute convergence of antitrust enforcement might not suit the current economic stage of most developing countries, particularly in Africa. A ‘Western’ design of antitrust laws and policies might not fit the socioeconomic conditions of these countries. This might be particularly problematic when governments are struggling to promote local innovation but face inevitable IP constraints.

Reconciling the difficult relationship between antitrust and patent law can be particularly complex in African countries since patent policy has a significant impact on development. Although one might at first think that developing countries should emphasize patent policy, as they are considerably behind the global technological frontier and are craving domestic innovation, they cannot afford the short-term consumer welfare loss that must be incurred to generate patentee reward.[16] Some African countries like South Africa have been developing a solid IP regulatory framework so as to incentivize innovation,[17] but many lack the technological and financial capacity to invest in R&D. In such cases, access to protected technologies on reasonable terms may be the key to more domestic innovation. What does this mean for the trichotomy innovation-IP-competition? Although developing countries urgently require innovation,[18] should their competition authorities look less up to Western models and rather question whether they should sacrifice consumer welfare by upholding patent exploitation practices?

copyrtInstead of pushing developing countries toward convergence of global competition policy, the specific socioeconomic conditions of these countries should be taken into consideration. Thomas Cheng argues, rightly so one might say, that ‘antitrust principles and doctrines need to be tailored to domestic economic circumstances. Markets and economies function differently in developing countries and antitrust laws should reflect these differences.[19] This is a particularly important lesson for African countries as they are prone to imitate the approaches of developed countries without the required customization. Different suggestions have been advanced in the literature, such as the reduction of patent protection in developing countries, allowing even the imitation of foreign technology so that domestic innovators possess a technological basis they can further develop,[20] or the expansion of compulsory licensing beyond certain drugs for developing countries.[21]

This contribution aimed to draw attention to the challenging role of law as the driver (or at least guardian) of innovation in developing countries. Competition and IP laws both wish to share a supporting role in this ‘innovation film’ taking place in developing countries. Should they be granted this part in a context of convergence of laws and policies or should IP remain in the shadow in order to ensure that the innovation film can successfully be produced and released in the theaters? You decide who gets the part at this audition; however, recalling Eleanor Fox’ words ‘antitrust should not be used to protect David from Goliath, but it may be used to empower David against Goliath’.[22]

Read the second part of this article here.

An article by Sofia Ranchordas (Tilburg University Law School) initially posted on our partner's website ATT.

 


[1] Richard S. Whitt, ‘Adaptive Policymaking: Evolving and Applying Emergent Solutions for U.S. Communications Policy’ (2009) 61(3) Federal Communications Law Journal 485.

 

 

[2] BERR, ‘Regulation and Innovation: evidence and policy implications’, BERR Economics Paper No.4, 2008, iv.

 

 

[3] Jean-Eric Aubert, ‘Promoting Innovation in Developing Countries: A Conceptual Framework’ (2004) World Bank Institute, available athttp://siteresources.worldbank.org/KFDLP/Resources/0-3097AubertPaper[1].pdf

 

 

[4] D. Augey, ‘Les mystères de l’innovation: le regard contemporain de l’économie et de la gestion’ (2013) In J. Mestre, & L. Merland, Droit et Innovation (Aix-en-Provence: Presses Universitaires d’Aix-Marseille) 89, 91.

 

 

[5] Joshua D. Sarnoff, ‘Government choices in Innovation Funding (with Reference to Climate Change)’ (2013) 62 Emory Law Journal, 1087.

 

 

[6] B. Frischmann, ‘Innovation and Institutions: Rethinking the Economics of U.S. Science and Technology Policy’ (2000) 24 Vermont Law Review, 347.

 

 

[7] Robert Cooter, ‘Innovation, Information, and the Poverty of Nations’ (2005) 33 Florida State University Law Review 373.

 

 

[8] W. Hoffmann-Riem, ‘Zur Notwendigkeit rechtswissenschaftlicher Innovationsforschung’, in D. Sauer, Christa Lang (Eds.), Paradoxien der Innovation: Perspektiven sozialwissenschaftlicher Innovationsforschung (Campus Verlag 1999). Wolfgang Hoffmann-Riem, ‘Rechtswissenschaftliche Innovationsforschung als Reaktion auf gesellschaftlichen Innovationsbedarf’, überarbeite Fassung eines Vortrages aus Anlass der Überreichung der Universitätsmedaille am 19.12.2000 in Hamburg, available at <http://www2.jura.uni-hamburg.de/ceri/publ/download01.PDF>.

 

 

[9] Atari Games Corp. v. Nintendo of Am., Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990). See Christine A. Varney, ‘Promoting Innovation Through Patent and Antitrust Law and Policy’ (2010), Department of Justice, Remarks as Prepared for the Joint Workshop of the U.S. Patent and Trademark Office, the Federal Trade Commission, and the Department of Justice on the Intersection of Patent Policy and Competition Policy: Implications for Promoting Innovation, available at http://www.justice.gov/atr/public/speeches/260101.pdf.

 

 

[10] David Bosco, Marie Cartapanis, ‘Droit de la concurrence et innovation’ (2013) in Jacques Mestre, Laure Merland (Eds.), Droit et Innovation (Presses Universitaires d’Aix-Marseille), 69. Pierre Larouche, ‘The European Microsoft Case at the Crossroads of Competition Policy and Innovation’ (2009) 75 (3) Antitrust Law Journal 933. François Lévêque, ‘Innovation, Leveraging and Essential Facilitaties: Interoperability Licensing in the EU Microsoft Case’ (2005) 28 World Competition 71.

 

 

[11] Douglas Rosenthal, ‘Do Intellectual Property Laws Promote Competition & Innovation?’ (2006) 7 Sedona Conference Journal 143.

 

 

[12] David Bosco, Marie Cartapanis, ‘Droit de la concurrence et innovation’ (2013) in Jacques Mestre, Laure Merland (Eds.), Droit et Innovation (Presses Universitaires d’Aix-Marseille), 69.

 

 

[13] COMP/M.6166, NYSE Euronext / Deutsche Börse.

 

 

[14] Smita Srinivas, Judith Sutz, ‘Developing countries and innovation: Searching for a new analytical approach’(2008) 30 Technology in Society 129.

 

 

[15] Thomas K. Cheng, ‘A Developmental Approach to the Patent-Antitrust Interface’ (2012) 33 Northwestern Journal of International Law and Business 1.

 

 

[16] Thomas K. Cheng, ‘A Developmental Approach to the Patent-Antitrust Interface’ (2012) 33 Northwestern Journal of International Law and Business 1, 3.

 

 

[17] Alexis Apostolidis, ‘IP Law in South Africa: Key Cases and Issues’ (2009) ASPATORE WL 2029096.

 

 

[18] There is a significant body of literature arguing that IP does not necessarily promote innovation. For an overview, see, e.g., B. Frischmann, ‘Innovation and Institutions: Rethinking the Economics of U.S. Science and Technology Policy’ (2000) 24 Vermont Law Review, 347. Julie E. Cohen, ‘Copyright, Creativity, Catalogs: Creativity and Culture in Copyright Theory’ (2007) 40 U.C. Davis L. Review 1151.

 

 

[19] Thomas K. Cheng, ‘A Developmental Approach to the Patent-Antitrust Interface’ (2012) 33 Northwestern Journal of International Law and Business 1’, 79.

 

 

[20] Thomas K. Cheng, ‘A Developmental Approach to the Patent-Antitrust Interface’ (2012) 33 Northwestern Journal of International Law and Business 1’, 4.

 

 

[21] Colleen Chien, ‘ Cheap Drugs at What Price to Innovation: Does the Compulsory Licensing of Pharmaceuticals Hurt Innovation?’ (2003) 18 Berkeley Technology Law Journal 853.

 

 

[22] Eleanor M. Fox, ‘ Economic development, Poverty and Antitrust: the Other Path’ (2007) 13 Southwestern Journal of Law and Trade in the Americas 211.