Intellectual property rights and the growth of the Information highway: A cross-national perspective

By David Arulanantham

In January of 1994, Vice President Al Gore and a number of executives and technologists laid out their vision for the future growth of the information super-highway. Ever since then, numerous efforts have been made to increase public access to this "global network" and allow for further technological advancements to improve existing standards in this industry. While accessibility is linked to a number of issues, including cost and familiarity with technology, actual improvements in quality appears to be more cut and dry. No discussion of technological innovation however, can be complete without a full understanding of the role intellectual property (IP) plays in this whole equation. For obvious reasons, weak protection for intellectual property rights can limit invention and innovation and ultimately advancement of the Internet. The less likely inventors are to receive compensation and recognition for their work, the less likely they are to invent and innovate, therefore inhibiting the overall advancement of the Internet goes the old argument. Furthermore, the growth and globalization of the Internet makes the transfer of information much easier and the necessity of protection for IP all the greater. Some have argued otherwise, claiming that an exchange of ideas between inventors coupled with a fair but not overly inhibiting protection for intellectual property will do more to advance the information super highway. In this regard, cross national comparisons can be quite useful. Looking at the treatment of patents in the United States versus Japan will can give us a frame of reference upon which to base our decision on this argument. This is not to say that IP is the sole determinant of technological growth, rather we must look at it as one of the key factors in this matter. The question to be then asked is, how have IP laws in Japan affected that nation’s growth of the information highway relative to the United States?

A number of issues must be addressed before undertaking such an inquiry. First of all, how do we measure growth? Does the mere proliferation of web pages represent growth? For our purposes, it is useful to define technological growth not as an expansion of the information highway, but rather as a qualitative improvement. High speed Internet connections, improved web browsing or networking software, increased bandwidth, these are all representations of technological growth. Increase in the actual size of the Internet is not necessarily an indication of technological growth, but it can be. Improvements in hardware and software are. Another question we must answer is what should we focus on? For simplicity’s sake, we let us look exclusively at patents. Furthermore, the defense mechanism for patents is better recognized internationally. The last question we must ask is, why have we chosen the United States and Japan for comparison? This one is more easily dealt with, as the US is by far the largest and most powerful country on earth responsible for most of the traffic on the Internet. Likewise, Japan is also a large economic power rivaling the US, and is an area of high technological growth. Also Japan, along with Europe compromise the two most common regions in which foreign patent protection is sought.

Despite recent trends towards globalization and patent harmonization, patent law still remains largely a national issue. Patents themselves are thought to be broadest form of intellectual property protection, encompassing not only the precise machine or process invented, but also variant machines or processes that may employ the underlying concept of the invention. In the US a patent must fulfill certain criteria before it can be approved. They are as follows:

Statutory subject matter and statutory utility: An invention must be capable of being described as a process, machine, manufacture or composition of matter. Furthermore, it must be deemed new and useful.
Novelty: Patentability is not allowed if the invention "was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent." The invention is also prevented from being patented if it "was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States."
Non-obviousness: A "showing of conduct" (i.e., a publication, sale, use, etc.) that embraces and includes each and every element of the invention being claimed is required. If the prior art fails to describe even one aspect of an invention being claimed, the assertion of non-novelty is refuted. Even if an invention is novel, it may nevertheless be unpatentable if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious (at the time the invention was made) to a person having ordinary skill in the art to which the invention pertains.
Enablement: In exchange for the property right there must be a full disclosure of the invention to the public.
Written description: There must be a written description of the invention, reducing the invention to a permanent form and allowing for easy dissemination to the public.
Best mode: The application must disclose not only how the invention might be practiced but also the best mode known to the inventors for practicing the invention.

Along with all the ethical considerations that follow the above procedures, there is a process that must be followed before a patent can be granted. First there must be an initial disclosure of the patent and if necessary the conception and initial work of the invention must be documented. Then the application must be drafted, this itself is a careful process because the application must be sufficiently technical to describe the invention fully but at the same time must be able to be understood by laymen. After this the application is sent to the Patent Trademark Office (PTO) where it is usually several months before the item is brought to consideration by the Patent Examiner who reviews its relative merits and decides to accept or reject it. If a patent is rejected, there is an appeals process, and if it is accepted there is still room (in limited cases) for "post allowance prosecution" where parties objecting to the decision can question the decision in a final process.

There a number of significant ways in which patents differ in Japan from the United States:

First of all, a patent is awarded to the first to apply rather than the first to invent. Another crucial difference between the two systems is that in contrast to the one-year grace period provided under U.S. law, a patent in Japan will be barred if the invention was disclosed even one day prior to the application's filing date. A third important difference is that in Japan, the applications are published before being granted, approximately 18 months before their priority date. Thus, filing for patent protection in Europe and Japan irrevocably destroys any potential trade secrets in the application; under the U.S. system, an applicant denied a patent retains a trade secret interest in the technology of the application. It is also important to mention that patents are a "one shot deal" in that there are no re-filing options, one has only one chance to secure a patent on an invention. Among the other significant differences between issuance of patents in the two nations is that they: take longer to get (typically 6-7 years as opposed to 19 months in the US), are more costly, are narrower in scope. Lastly there is a much greater amount of patent applications in Japan relative to the number of examiners.

Now that we have an understanding of the differences in patent system between the US and Japan let us look at how that can affect development of software and hardware. Since a good indicator of the development of a particular industry in a nation is its competitiveness on the international scale, let us look at competitiveness defined as the global market position and relative strength of the software and hardware companies in the two countries. According to a June 1995 study by the US International Trade Commission the international market for computer software and services totaled nearly $277 billion in 1994 and the US is the primary supplier as well as consumer of these products. By 1998 the global software market itself is supposed to reach $140 billion (while services will reach $280 billion). Furthermore, Europe and Asia "account for a combined 46 percent of the global market but only an estimated 20 percent of total production." The following figures the same report illustrate the dominance of the US software industry, in terms of sheer market share (link to the report).

While the figures are not as strong for the US hardware industry as they are for software, they still point to one thing: the dominance of American companies in the world hardware market. In a 1993 report of the US International Trade Commission, in 1992 the global market for hardware was over $114 billion and global revenue for US computer manufacturers equaled 61 percent of the total, equaling $69 billion. However, while the annual revenue of US software manufacturers is projected to grow at 14 percent, that of US hardware manufacturers is about 3 percent which is approximately equivalent to that of European and Japanese companies.

The above trends, while the estimates of a few years ago have shown no sign of abating. Fortune Magazine’s 1997 Fortune 500 survey, gives a reasonable estimate of the dominance of the US computer industry. Looking at the Global 500 section in the industry list of companies that manufacture computers and office equipment, six of the nine firms are American based, with IBM leading the pack.

The effects of Intellectual property rights on the development of the computer industry can not be understated. A survey done in the early 1990s by the US software industry estimates that it incurs annual losses of approximately $12.8 billion due to inadequate protection of software worldwide. This can seriously have an effect on the development of information highway, as it essentially provides a disincentive for invention and discovery. There are other factors that affect development which we must account for however: the relationship between government and industry in these two nations, the head-start of American industry after World War II as the world rebuilt from the devastation of the war, the origins of the Internet and the cultural differences which give rise to a different to a different conception of IP rights in Japan (the perhaps counterproductive idea that the focus of patents is to promote industrial development by disseminating technology. Nevertheless, protection for intellectual property rights should be seen as a significant contributor to this gap in development but also taken into account with the number of other factors which give rise to such an environment.

Related References:

Japanese business practices

World Intellectual Property Organization

World Trade Organization