The definition of INNOVATION in the Oxford English Dictionary is as follows:
–The action of innovating; the introduction of novelties; the alteration of what is established by the introduction of new elements or forms; or, in terms of commerce
–The action of introducing a new product into the market; a product newly brought onto the market.
SO! We see that both definitions contain elements of originality and creation which, as a consequence, also imply an author. Why do I mention that? In order to accentuate that innovation is not a spontaneous process but rather a procedure requiring an EXTREMELY active input of innovators – it’s their work that creates an innovative product or service.
And how do the advantages of innovative processes, products, and services shine through in a business transaction?
In our previous blogs, we mentioned several times that the influence of innovation process on the success of a certain company is quite important. In short, we can say that innovative companies are more successful on the market in every aspect of their functioning. Nathan Rosenberg, Stanford Economics professor, wrote an article called “Innovation and Economic Growth”, stating that there are only two ways of increasing the output of a company:
1. We increase the input
2. (if we’re “clever”), or we find other ways of increasing output of the same input.
And how does intellectual property factor into all of this?
We could say that its role is twofold, which depends on the perspective.
On the one hand, intellectual property ensures that people investing into innovations are rewarded for their investment. Like Abraham Lincoln said: “The patent system […] added the fuel of interest to the fire of genius […]. Intellectual property protection enables companies and individuals to discuss about potential subjects of intellectual property protection while simultaneously protecting their research and development investments. A good example is the pharmaceuticals industry where a lot of time and money are invested into research and development. Without patent protection, pharmaceutical companies would be investing significantly less money into research and development, since it would be really easy for the competition to create a generic form of a medicine, thus significantly decreasing the price of the medicine that took a lot of effort and money to create. Investing into research and development would decrease; as a consequence, less and less innovations would be created, thus slowing the economic growth.
Opponents of intellectual property criticise the claim that intellectual property rights are intended to support innovations. The innovator that the patent had been granted to becomes the monopolist. He can control all further use of the innovation; at the same time, a financial incentive leads into stagnation and decrease in further innovation. The critics do admit that the development of an innovation represents a significant financial investment, while reproducing the already-existing product usually costs significantly less money. Since the price of a product on a free market is determined by incremental costs, i.e. the price of the last copy of the developed product, it would be hard to cover the investment into the development of a product on the free market. Critics claim that a free market would provoke a situation where certain ideas would not have been developed; however, there would still be many more developed ideas than there are under the monopoly of intellectual property protection. Critics further claim that there is an excessive number of newly granted patents that are neither new nor innovative. A decrease in the quality of patents is negatively influencing innovations, which is, in turn, also a negative influence on economic growth, since more and more individuals and companies are looking for the so-called blocking patents, preventing subjects on the market from manufacturing certain products by protecting them in time. It most often happens in order to protect the already-existing products or technologies. Often, the patents that are granted are already a part of the public domain. Such patents hinder development, since they prevent companies from using technologies which should have been available to them.
Innovation is therefore one of the key driving forces of economic growth. The most important question is: how do we further encourage investments? We can conclude that investments would have suffered without intellectual property rights. Intellectual property rights provide impetus for the innovators and make it possible for them to enjoy the fruits of their labour. Rare are those who would spend several years of their lives to develop an idea to its full potential, just to have someone simply steal it. Without protection, there would be less research and development investments which would, in turn, translate as less innovations and progress on all levels of life.
Let’s start innovating! 😊