Economic rationale for intellectual property protection

Rationale for modern intellectual property protection is closely related to the economic benefit associated to such IP rights. An intellectual property right remains the crucial policy tool for the promotion of innovation and economic growth.

As an instrument of economic policy, intellectual property rights are aimed at compensating right holder in creating an incentive for innovation and contributing to investment for additional research and development.

The increasing importance of knowledge as a driving force of innovation and economic growth worldwide, intellectual property rights are becoming the central to modern economy. As a result, an intellectual property protection policy stimulates economic growth on a macro-economic level.

Technological advancement and enhanced human capital are principal engines of economic growth in most of the industrialized nations. Strengthening of intellectual property protection in developing countries has led to a dramatic increase in foreign direct investment which is believed to have contributed to economic growth.

The impact of intellectual property protection on a macro-level is aptly illustrated by the difference intellectual property can make to the economic prosperity of different regions within one country. There is a direct correlation between the national patent filing profile of a country and its economic prosperity.

In a micro-economic level, an intellectual property right allow for the conversion of knowledge and information into an income. Thus, the companies which invest in latest products and technologies during the time of economic recession will be those that will be best positioned to take advantage of the recovery.

Such investment in research and development creates new technical know-how, which has got the potential to be converted into cash-flow. This know-how will create an economic benefit as compared to that of the competitor’s technical know-how.

Thus, we can say that, the creation of value in line with the business strategy of the organisation or an enterprise shall be the driving force of an effective IP Management. Economic benefits of intellectual property protection can be identified as;

  • It provides incentives that ensure sufficient supply of new inventions and creations.
  • It stimulates innovation and spurs sustainable and widespread economic growth.
  • It promotes the disclosure of inventions and pioneering information which stimulates innovation across and within industries.
  • It creates new markets because an intellectual property right is tradable and transferable.
  • It promotes risky, uncertain and costly investments.
  • Digital economy is increasingly depending on intellectual property rights as the legal and economic backbone of these industries are IPR’s.
  • It plays a vital role at the intersection between science and innovation.