Economic Analysis of Intellectual Property Rights

Introduction

‘Intellectual Property’ basically consist of different legal doctrines that regulate different kinds of information like the copyright law protects the different forms of expression by protecting novels, movies, musical compositions etc. Law of Patents protects the inventions of people. Trademark law protects the symbols and signs attributed to particular brands. Geographical Indication (GI) law protects the products bearing particular geographical origin and qualities attributed to that particular region. In essence, Intellectual Property Rights basically protects the human mind and its intellect, therefore, its role in economic growth is immense as discussed in the chapters ahead. 

Theories of Economic Analysis of Intellectual Property Rights

In order to understand IPR role in economic development, we first need to understand some of the theories surrounding the economic analysis of Intellectual Property Rights. These theories are based on the utilitarian theory given by Jeremy Bentham which states that a legal framework should always strive towards providing greatest good to maximum people. In essence, this theory wants lawmakers to choose a system that prioritises maximum welfare of the consumers measured by incorporating consumers’ ability and willingness to pay for goods and services.

The first major theory on the economic analysis of Intellectual Property Rights is the Incentive Theory propounded by Richard Posner who believes that innovative products if replicated by others would pose dangers to the creators of such inventions as it would stop them from recovering the ‘costs of expression’ (i.e., time and effort spent on creating the product) because the copyists will take their share with just low costs of production and offer the consumers with the same product at a very low price. This will disincentivise the innovators in creating new socially valuable products. Therefore, the Intellectual Property Rights provides a safeguard to those innovators and incentivise them in creating new products by allowing them to charge monopoly prices from the consumers which will help them in recovering their ‘costs of expression’.

Apart from the creators, Intellectual Property Rights like Trademark law also incentivise the consumers in doling out more money on buying products by reducing their ‘search costs’ (i.e., time and effort spent on choosing a particular product) because people directly choose the brand on which they have trust upon.

The second theory on the economic analysis of Intellectual Property Rights is the Optimizing Patterns of Productivity propounded by Paul Goldstein which states that Intellectual Property Rights like Copyright and Patent laws are important for channelling productive efforts in those directions where it will improve consumer welfare because these laws help the producers in knowing what the consumers want and need.

Importance of Intellectual Property Rights in Economic Development

After understanding the theories of economic analysis of Intellectual Property Rights, we get to see that implementation of IPR can have a really positive impact on the economic development. This is especially applicable to the countries like India which is one of the most developing economies in the world. Every developing nation requires investment to flourish for which innovations are important making protection of Intellectual Property Rights a responsibility of the state authorities.

There are various case studies which shows that absence of IPR laws detrimentally impact the society and the economy of the nation. For example, in 1980s, China’s economy was adversely affected by the trademark infringement done by small manufacturers who exploited the name of well-established companies for selling their fake products. Similarly, absence of copyright laws can also prompt pirate firms to start exploiting the intellect and hard work of other people by producing fake copies or low-quality replicas of their work and selling them at a low price in the market

Such conditions would hamper the technological development of a society as well as endanger the health of the people as fake products of medicines, beverages and food can be unsafe for the customers. Poor health of the people leads to poor productivity which restricts the economic growth of a society. Another thing to consider is that there are documented proofs which show that investment in countries like Japan and USA increased by 5 times after they implemented IPR laws in their countries.

However, IPR also has negative side as the misuse of IPR laws can hamper the economy by allowing a producer to create monopoly in the market. This would hamper competitive spirit of the free market and would lead to exorbitant prices of the products. In order to control such situations, a state not only need to protect IPR but also regulate it and check its misuse with the help of robust competition laws. Therefore, Intellectual Property Rights play an important role in the economy of a country.

Conclusion

In this research paper, the researcher focused on analysing Intellectual Property Rights through an economic lens and in conclusion, we can say that generally the relationship between the IPR and economy is positive provided that the state has provisions for protecting and regulating these rights because a law is made for the welfare of the society and not for its detriment. Thus, a state should make robust IPR laws to ensure protection of the rights and interests of both producers and consumers.