Five Reasons Why Ideas Matter

The Benefits of Intellectual Property for Innovation, The Economy and Society

1. Intellectual property promotes economic growth and development

Companies and industries that rely on patents, copyrights, trademarks and other intellectual property (IP) are an important part of most economies. These contribute substantial levels of jobs, tax revenues, GDP growth and competitiveness in most economies, and provide developing countries a particularly important source of foreign investment.

A. IP-based sectors are a substantial and important part of the economy.

  • Creative industries that rely on copyright account for 4-11% of Gross Domestic Product (GDP) and 3-8% of all employment in the G8 countries.(World Intellectual Property Organisation (WIPO))

  • The situation is similar in developing countries, where the creative industries have been found to contribute 2-6% of the GDP and 3-11% of employment in 14 countries studied by WIPO.

  • Patent-based sectors are substantial and dynamic contributors to national economies.The top 10 patent-intensive industries have been found to represent 7.8% of GDP, and 36.7% of all industrial output in the UK, for example.(Raymond)

  • Industries reliant on trademarks also represent a substantial portion of a healthy economy. Industry estimates show that brand manufacturing accounts for 14% of all manufacturing and over £50 billion of gross output in the UK.An estimated 1 million people are employed in the UK in creating and building brands delivering an estimated £15 billion in investment in the UK economy.(ACT 2009)

2. Intellectual property encourages innovation and creativity

As the 'intellectual currency' for valuing and trading inventions, brands and works created by clever and talented people, IP provides the market-based incentives and rewards for a investing in R&D, new works and other great ideas.

  • R&D often attracts significant investment only where the investment can be recouped through the IP system's market-based incentives and rewards. Numerous studies have shown the link between IP and R&D. One seminal study found that patents had a positive impact on R&D spend in most industries, and that without patents, US companies' R&D would decrease by 25%-35%. (Arora et al. (2003))

  • Inventions that are protected by patents are worth more than those that are not (averaging about 200%). This ‘patent premium' helps not only private firms but also governments to fund and encourage the commercialisation of R&D. (Arora)

  • Venture capital (VC) firms find start-up firms more appealing when they have turned their R&D into a patented asset. A survey of 190 VC-seeking biotechnology companies has demonstrated that having at least one filed patent application reduced the time to the first VC investment by 76%. (Haeussler 2009)

  • Increases in IPR protection and enforcement have been demonstrated to correlate with investment in new products in the protected fields. Music firms surveyed in Indonesia, fewer in number and size than those in other similarly sized countries, reported that they would make more investment in new songwriters and singers if the IPR system were improved. (Luthria & Maskus, 2003). A 1% in the strength of domestic patent protection has been demonstrated to correlate to a 1% increase in research and development. (OECD, 2010)

3. Intellectual property benefits companies large and small

Companies typically grow faster, hire more people and succeed better when they use IP. Small companies in particular use IP to attract investment capital, and often are more reliant than larger firms on IP.

  • Companies that use IPR succeed better than those that do not. Research in the UK and elsewhere has shown that firms that protect their innovations by patents and trademarks realise higher market valuation, increased intangible asset value and other advantages. (Greenhalgh & Rogers, 2006)

  • Small firms benefit from IPR, often more than large firms. In many countries small and medium enterprises (SMEs) file more patents and trademarks relative to their assets than large firms. One study in the UK has found that small companies file ten times more patent and trademark applications relative to their assets than large companies. (Rogers 2007)

  • In comparison to their respective number of employees, IP applications by small companies exceed those of large companies by 19% in the case of patents, 49% in the case of trademarks, and 109% in the case of design rights, according to a survey of Australian firm activity over the twelve year period 1989-2001. (Jensen & Webster 2006)

  • In the EU, information and communication technology sector SMEs that use IPR report turnover, market share and employment growth of at least 10% higher than their counterparts that do not. (IDC report for European Commission)

4. Intellectual property is good for consumers

A wide spectrum of the products and services that we all want and need depends on IP. IP supports a virtuous circle of innovation and creativity that underpins a constantly improving stream of these innovations, technologies, brands and creative works.

  • Computers, software, mobile telephones, and virtually every other technology device used by consumers are protected by some form of intellectual property rights, whether patent, copyright, design right, trademark or others. Much of our entertainment and cultural fare—film, music, newspapers, drama, television, art, photography—pays its creative participants on the basis of copyright. Fields as diverse as medicines, aeronautics, household products, chemicals, automobiles—virtually any kinds of cleverly innovated manufactured goods and many services used by consumers are incentivised by IP.

  • Patents in particular encourage the development of new innovations that will benefit consumers. because patent rules require that new inventions be published as a condition of getting protection. "Such an ever-increasing body of public knowledge promotes further creativity and innovation in others. In this way, patents provide not only protection for the owner but valuable information and inspiration for future generations of researchers and inventors." (WIPO)

  • IP improves foreign investment and technology transfers that benefit business and consumers in developing countries. The strength of a country's patent rights is positively correlated to foreign investment (FDI) in both developed and developing countries. A 1% increase in IPR protection correlates to increased FDI of 2.8% in the case of patents, 3.8% in the case of trademarks, and 6.8% in the case of copyrights. (OECD)

  • Technology transfers, imports of high-end goods and services, and employment opportunities resulting from effective IP protection also benefit consumers in developing countries: "IPR reform in the South leads to increased FDI in the North, as Northern firms shift production to Southern affiliates. This FDI accelerates Southern industrial development. The South's share of global manufacturing and the pace at which production of recently invented goods shifts to the South both increase." (Branstetter et al., 2007)

5. Intellectual property provides long-term benefits for society

Many vital needs of the future depend on IP. Reducing carbon emissions and energy consumption, making healthcare more effective, improving computers and communication, and other technology needs of the future will continue to be funded in substantial part by the private sector relying on the IP system.

  • 'Digital economy' technologies, healthcare systems and medicines, and clean energy are examples of technologies that require substantial funding to develop new innovations, and that will continue to be funded in substantial part by the private sector relying on the IP system.

  • In the energy field, for example, where more than $3.6 trillion in R&D will need to be invested over the next 25-30 years, SMEs, large firms and academic and government organisations are all among the broad group of those innovating new technologies and securing IP protection for these innovations. SMEs in fact are leading the way, receiving more patents in this area (nearly 60% of the total) than large firms or academic and government organisations. (Cullen 2009)

  • Likewise, innovations in medicine and healthcare depend heavily on IP. The average cost per new medicine or biotech development can be as high as $500 million; extended testing and capitalisation requirements can increase this to a real cost of $800 million to $1.3 billion. (Maskus 2000; DiMasi & Grabowski 2007) The IP system provides the basis for most of the funding of these costs in the private sector.

  • "The creative effort which provides a basis for investment in new [music, film and other on-line content] services are only worthwhile and will only be made if works and other matter are adequately protected by copyright and related rights in the digital environment." (European Commission)

This part of the Ideas Matter site collects and presents the facts, figures, case studies and other information about the importance of IP for innovation, the economy and society.

Ideas are vital for innovation, creativity and competitiveness. Governments and a wide variety of industries and small and large companies all over the world have long recognised the importance of intellectual property (IP) in encouraging creative ideas and innovation.

IP—as the 'intellectual currency' for valuing and trading inventions, brands and works created by clever and talented people—provides the market-based incentives and rewards for a virtuous circle of innovation and creativity that underpins a constantly improving stream of innovations and creative products. The companies and industries that develop and thrive on the basis of IP represent an important part of the jobs, tax revenues, GDP growth and competitiveness of most economies.