Legal Incentives to Promote Innovation at Work: A Critical Analysis

By Dent, Chris; Fenwick, Colin et al. | The Economic and Labour Relations Review : ELRR, December 2010 | Go to article overview

Legal Incentives to Promote Innovation at Work: A Critical Analysis


Dent, Chris, Fenwick, Colin, Newitt, Kirsten, The Economic and Labour Relations Review : ELRR


1. Introduction

This article discusses the law that regulates innovation at work, in particular those laws that regulate the way in which the benefits and outcomes of innovation at work are allocated between employers, and those who work for them. Our focus is therefore predominantly on those aspects of employment law, intellectual property (IP) law and equity which establish the default rules as to how the outcomes of innovation are to be allocated. We use the term 'the outcomes of innovation' to indicate, in a preliminary way, that the concept 'innovation' is not one that fits completely or easily into the available legal categories. Most importantly, it must be remembered that not all outcomes of innovation that are valuable give rise to intellectual property rights. Rather, many fall into a broad category that is often referred to as 'know-how. The legal means by which to protect valuable know-how, and indeed the very content of what is capable of being legally protected, are subject to significant uncertainty.

The primary purpose of this article is not, however, to explore these uncertainties, or even those that may attend the ostensibly more concrete field of IP rights. Rather, our aim is to re-consider what is known about the goals and effects of the default legal rules in Australia concerning the allocation of the outcomes of innovation. As a starting point for our work, there is a considerable body of Australian and international legal scholarship on employment law principles that are relevant to innovation, although not all commentary directly contemplates how these principles might affect incentives for innovation. Generally, the principles are considered from two main perspectives (Wotherspoon 1993), although these are not mutually exclusive and contain overlapping elements. The first is an economic perspective. It considers whether the current system of allocating benefits provides optimal economic incentives for innovation. The second places a premium on the importance of fairness and cooperation in employment relationships. It questions how the law's treatment of worker interests may affect incentives for innovation in the workplace, suggesting that innovation is best encouraged by giving workers a 'fair deal' (see, for example, Riley 2005a; Stone 2004; Orkin and Burger 2005).

Our central argument is that these two perspectives reflect different conceptions of workers and employers. We argue the need to acknowledge this difference in order to think more clearly about whether the existing legal regime effectively promotes innovation in the workplace and, if not, what might be done to change that. In an attempt to get closer to a workable framework for the effective allocation of benefits, we offer a third approach; one that is based on the practices that are central to the employer-worker relationship. Before we develop our analysis of the three approaches, we set out a preliminary discussion of what is meant by 'innovation, and of the key features of the law in the area.

2. Background

The value of the research in this area is founded on the ever-increasing economic importance of successful innovation--demonstrated not least by the growth in government policy designed to promote innovation (see, for example, Productivity Commission 2007; Cutler 2008). Innovation has become increasingly important to many businesses, providing a competitive edge that can lead to a stronger market position and higher profits. Indeed, according to Sullivan (2000: 3ff), 'Intellectual capital exploded onto the business scene in the 1990s' with strategies for encouraging and managing innovation then becoming core to business practice.

In the global 'knowledge economy', enterprises rely increasingly on innovation in processes and products to sustain their growth and profitability (see, for example, OECD 1996; van Caenegem 2002: 11-12). What this means in practical terms, is that these enterprises rely increasingly on the ability of their workers to generate innovative products and processes. …

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