1. The Economic Value of Intellectual Property Rights Professor Derek Bosworth Intellectual Property Research Institute of Australia Melbourne University

2. Coverage of the presentation Components of value Counterfeiting and infringement Borrowing against assets Distribution of values/risk in investment Conclusions

3. Components of value

4. Components of value: private Value of the underlying IP an invention may have value without IPRs e.g. protection by being first to market Value of the IPR to the company value of the IPR is the difference in value of the IP with and without IPR protection the value of IP would be severely eroded in the absence of IPRs incentive to invent or maintain quality would be severely undermined

5. Components of value: public Positive impact of IPRs on dynamic welfare, i.e. creativity (i.e. incentive to invent, incentive to maintain or increase product quality, etc.) accessing high technology of others ability to licence/cross licence Negative impact of IPRs on static welfare, i.e. higher prices for goods

6. Effects of IPRs on value: inventions Inventions expensive to produce cheap to reproduce? Investments in R&D not recouped in absence of IPRs As expenditure on R&D cannot be recouped, there is no incentive to invest Countries such as China introduced IPRs in order to access foreign technology

7. Effects of IPRs on value: trade marks Trade names and brand value expensive to build cheap to reproduce (counterfeit/pirate) Investments in advertising, R&D, etc. not recouped Perceived product quality is undermined by counterfeit goods Incentives to maintain or improve quality are affected by counterfeit goods

8. Counterfeiting and infringement Counterfeiting and piracy relate to the actions of one company in attempting to pass-off their goods (or services) as those of another company.

9. Software Information Industry Piracy Study, 1999 Piracy (%)Revenue loss Western Europe343,629,371 Eastern Europe70505,213 North America263,631,212 Latin America591,127,639 Asia Pacific472,791,531 Middle East63284,445 Africa56193,747 Total - worldwide3612,163,159

10. Drivers of (Cross-border) Counterfeiting Market size population brand popularity income and income distribution Distance physical cultural language technological distance (ability to produce accurate replicas, including marks) Unit costs labour costs capital costs IPR and costs of protection (risks to originator/counterfeiter) IPR regime (weak, moderate, strong) extent and efficiency of policing

11. Origin of Counterfeits in EU (% cases) ThaiCzechUSAChinaTurkeyPolandHKOther Food …0100 20 040 Perfume..0080132077 Clothes…282907114022 Electrical..40516002550 Computer.50818002743 CD, DVD.5600002340 Watches148375091017 Toys & games… 1401924001925 Other…403019810623 Total261510865425

12. Patent Infringement Damages Patent owner$ (m)InfringerYear Litton (US, large) 1200.0Honeywell (US, large) 1995 Polaroid (US, large) 873.2Eastman Kodak (US, large) 1991 Alpex Computer (US, small) 253.0Nintendo (Japan, large) 1994 Smith International (US, medium) 204.0Hughes Tool (US, large) 1986 Honeywell (US, large) 166.0Minolta (Japan, large) 1994

13. Borrowing against assets

14. Intangible assets as collateral In some firms/sectors intangibles significantly exceed the value of tangibles Borrowing against tangible assets disadvantages firms with higher proportions of intangibles Knowledge-based firms need to borrow against intangible assets Such firms must account for their intangibles protect their intangibles using IPRs police their intangibles and punish IPR infringers

15. Borrowing against IP BorrowerIP$ (m)Date BordenTrade marks4801991 DisneyCopyrights4001992 LiggittTrade marks1501992 Chemical CompanyPatents1001994 Calvin KleinTrade marks 581993 GE CapitalTrade marks n/a1995 Fashion CompanyTrade marks1001996 News CorporationCopyright2601996 NestleTrade marks n/a1996 David BoweCopyrights 551997

16. Distribution of values

17. All the empirical literature points to a highly-skewed distribution of values of IP/IPRs Most IP is worth little if anything But a small proportion of IP is extremely valuable This result is consistent with (though not proof of) the risks of investments in IP Basic R&D is a highly risky activity New product launches are highly risky

18. Identifying value distribution of patents Main methods: patent renewal information patent citation information surveys of commercial value Consistent findings: most patent lives are short/relatively few very long lived most patents receive very few citations/very small proportion receive a large number of citations surveys show only a very tiny proportion of patents are worth large amounts/most are worth little if anything

19. Example of a highly cited patent Bristol-Myers Squibb patent 4105776 Invented by Ondetti and Cuslunan granted in 1978 cited 165 times from the date of its issue in 1978 through September 1995 single most highly cited patent issued in 1978, out of 70,590 patents issued in that year –101 times by later Bristol-Myers Squibb patents –16 times by American Home Products patents –48 times by patents assigned to 20 other companies or inventors