Effectiveness of Intellectual Property Protection: Survey Evidence from China

Article excerpt

This paper examines Chinese pesticide firms' use and perceptions of various means of intel- lectual property (IP) protection in protecting their innovations, using a unique dataset from 97 pesticide firms surveyed in 2008. These firms rate Chinese patents as quite effective in pro- tecting their IP from infringement, although 70 percent of them state that improved enforce- ment is needed. Those firms that have been granted patents and those that claim their patents have been infringed upon both give lower ratings to the perceived effectiveness of patents. Trademarks are rated as less effective than patents, but firms that have had experience with patenting and infringement of patents tend to rate trademarks as more effective than those firms that do not have direct experience with the patent system. General government policies to encourage increased privatization, more private R&D, and higher education are associated with more faith in IP, but policies to strengthen IP by promoting mandatory IP training and the development of specialized IP divisions in the firms do not influence perceptions of IP effec- tiveness. We conclude that if the Chinese government wants to encourage innovation using IP protection, it must focus on improving the enforcement of patents.

Key Words: intellectual property rights, innovation policy, pesticide, China

Technology innovation is a driving force of to- day's economy, and, indeed, fostering capacity for innovation is a major policy goal for both developed and developing countries. For exam- ple, President Obama stated explicitly that "Inno- vation has been essential to our prosperity in the past, and it will be essential to our prosperity in the future" (USA Today 2009), while China's Presi- dent Hu announced in 2006 that one of China's development goals is to become an "innovative country" by 2020 (People's Daily 2006).

Many policy tools have been proposed to in- crease innovation, such as reduced taxes and sub- sidies on research and development (R&D), public investment on R&D and education, and strength- ened intellectual property rights (IPRs). Over the last three decades many governments and busi- nesses worldwide have recognized that strength- ening the laws and enforcement of IPRs is one of the most important tools for increasing innovation (e.g., Johnson and Evenson 1997, Qian 2007). Researchers have examined various types of IPRs and their effectiveness in generating innovation. However, most studies focus on innovation sys- tems in the developed world (e.g., Mansfield, Schwartz, and Wagner 1981, Levin et al. 1987, Harabi 1997, Cohen, Nelson, and Walsh 2000). Little information is available on innovators, in- cluding firms, in developing countries, especially from direct surveys of their perceptions and use of IPRs.

Various appropriation mechanisms for returns to innovation exist, including IPRs, first mover advantage, and complementary assets and ser- vices. Researchers have found that different in- dustries prefer and use different mechanisms (e.g., Mansfield 1986, Levin et al. 1987, Cohen, Nel- son, and Walsh 2000). In general, they find that chemical industries, including the pesticide indus- try, rely heavily on IPRs as a means of appro- priation (e.g., Cohen, Nelson, and Walsh 2000, Bessen and Meurer 2008).

Our study contributes to the literature by focus- ing on an industry (the pesticide industry) that uses patents extensively in developed countries to test whether similar patterns exist in an important developing country (China). It uses a unique, new dataset of 97 pesticide firms that are operating in China to obtain an industry perspective on the effectiveness of the IP system.1 Most of these firms (80 percent) are private firms. The rest are state-owned firms or firms transitioning from state-owned to private, with a few firms that are joint ventures with foreign firms. About half of these firms report that they have introduced new products into the Chinese market in the last five years (2003-2007). …


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