Intellectual Property Rights

and Service Industries

Keith E. Maskus
Prepared for Globalization of the
Production Services, Stockholm
20 November 2006

Introduction
Why discuss IPR in services?
High-technology service sectors;
Importance of innovation in services;
Does globalization of IPR matter for
services?
A new area for research; limited data and
few studies.

Globalization of IPR
Pressures for stronger protection;
Evolving regime:
WTO-TRIPS
WIPO Copyright and Performances Treaties
Substantive Patent Law Treaty
Bilateral FTAs and Trips plus
EU internal harmonization

Why pressures will continue.

The Stake for Services

Types of IP produced, both directly and
underlying products;
Research component of services;
Some services complement products
protected by IPR;
Services are extensive users of IPR.

Corresponding Services
Globalization
Swedens exports of commercial services
rose from $22 billion in 2001 to $43 billion in
2005.
Imports rose from $23 billion to $35 billion.
Liberalization of services trade and FDI
itself pushes innovation.

Innovation in Services
Services are highly heterogeneous.
Traditional view that services are less
innovative than manufacturing.
Only recently have services been included
in innovation surveys.
Difficult to measure innovation inputs and
outputs.

Innovation Characteristics
Huge variety of innovation types;
Service firms tend not to have R&D
departments;
Innovation outcomes are generally intangible
and generate tacit knowledge;
Simultaneous interaction between service
providers and clients;
Both tendencies to agglomeration and
outsourcing (or offshoring) exist;

Innovation Characteristics
Joint packages of goods and services: what is the
contribution of services innovation?
Much innovation involves implementation and
improvement of ICT.
Majority of service providers are SMEs, which may
face particular impediments in innovation.
SMEs produce more innovation but at lower rates
than large service companies and are less
frequent adopters.

Measurement
Few studies/surveys exist of cross-industry or
cross-country comparisons of services innovation.
Available evidence suggests:

Large variation across service sectors in R&D intensity

(high performers are research services, software,
systems design, architectural and engineering services).
Similar inference from patent applications data at EPO
by service firms (research, business services and
telecommunications apply for most patents).
Compared to manufacturing, innovation in services is
based more on investments in human capital (skills,
knowledge) and organizational changes than on tangible
innovation and commercialized IPR.

Potential Impacts
Productivity gains in client firms, including from outsourcing
service activities;
Complementarities raise the value of goods sold;
Increased efficiencies in trade and FDI;
Potential for job displacement from outsourcing routine
service activities;
Canadian survey of business, technical, financial and
communications services found innovation expanded
within-firm employment and productivity on average.
Is the net effect agglomeration or outsourcing? Depends
on the service activity and nature of skills and clients.

IPR and Services

Objectives of IPR:

Protect investments in innovation and creation against

free riding (can be crucial for financing and achieving
initial economies of scale);
Encourage publication and use of information;
Provide incentives for commercialization;
Reduce transactions costs in reaching contracts over
value and use of information;
Allocate rights to share economic returns across
multiple creative actors;
Guarantee origin of goods and services to support
development of quality and reputation.

Do Services Use IPR?

Patents: novelty, non-obviousness, reduction to replicable commercial
form;
Services may be client-specific, not replicable;
Intangible nature of services innovation;
Traditional patent standards would not make services innovation eligible.

Few service firms in EU even apply for patents, rely instead on lead
times, trade secrecy, expertise.
But growing tendency toward patents:
Patents for software that give functionality to an embodied good;
Business methods in US;
Controversial in EU but pressures will get stronger.

Service firms often implement patented technologies, so transactions

costs matter.

Do Services Use IPR?

Copyright protection is essential for:

Software;
Publishing and entertainment goods;
Digital products and internet content;
Broadcasts and cable.

Raises complex issues regarding balance

between producer protection and user access
rights.
Database protection in EU.

Do Services Use IPR?

Trademark protection is heavily used by
service firms to
Establish reputation;
Extend trust across borders;
Protect value of local marketing investments.

Trademarks create and protect considerable

value in client-based service companies.

How Do Service Firms Protect

Proprietary Information?
Solution-specific investments in innovation;
Market lead times and brand loyalty;
Selling services that are complementary to
goods;
Knowledge that is embodied in human
capital and skills;
Confidential trade secrets and nondisclosure contracts.

Policy Challenges
Raising awareness among service companies
about scope for patent protection and balance of
benefits and costs;
Progress on European Community Patent with
clear standards of eligibility throughout EU;
European Patent Court?
Cautious expansion of software patents.
Global progress on enforcement of trademarks
and copyrights for digital goods and internet
content.

New Ideas?
Institute a system of utility models/petty
patents of short duration and narrow scope
for software.
Combine the benefits of open source with
compensated rights: consider a liability
regime with licensed use of minor software
innovations and business methods.
Extend relevant concepts of national
innovation support to services.