Impact of Piracy on Innovation at Software Firms and Implications for Piracy Policy

A Business software alliance (BSA) commissioned study in 2006, found that $34 billion was lost due to piracy of software in 2005. The BSA and its members invest significant resources in educating users about copyright, its value, and enforcing copyright laws. However, does effort spent in educating users about the harmful aspects of piracy, and taking action against end-users using pirated software always result in higher quality software? In this paper, we look at how innovation in the presence of piracy is affected by the policy choice of alliances such as the BSA. Surprisingly, we find that a stricter piracy policy, that increases the perceived cost to using pirated software for end-users, may in some cases lead to an increase in piracy (demand for pirated products), and a decrease in product quality. Thus an active BSA that tries to educate consumers and takes legal action against consumers, may actually be promoting piracy and hurting innovation in some cases. An intuitive rationale for this is that, in some regions, quality choice by the firm and the policy choice by the BSA are strategic substitutes in the fight against piracy. Thus an increase in the policy variable by the BSA, makes the firm choose a lower quality. Depending on the likelihood that the pirated product is functional, the BSA would choose a piracy policy ranging from an inactive to a very active policy

On the Impact of Piracy on Innovation in the Presence of Technological and Market Uncertainty

This paper analyses the effect of piracy on innovation in the presence of R&D competition with technological and market uncertainty. With a single innovating firm facing technological uncertainty, piracy unambiguously retards innovation. However, with R&D competition where firms face market and technological uncertainties, we show that piracy may enhance overall innovation. We also show that if the difference between the probabilities of success of the innovating firms is relatively large then piracy enhances the R&D investment and profit of the less efficient firm.Innovation, market uncertainty, R&D race, technological uncertainty

Perceptions of Intellectual Property:A Review

In “The right to good ideas: patents and the poor”, The Economist depicts two driving forces in the contemporary discourse on IP and globalization. The one is interested in advancing the knowledge economy, an approach based on the belief that knowledge is the driving factor behind economic growth. The other resides on a belief that IP is a major means to advance the process of globalization. While the former is strongly motivated by new economic growth theory, as for example advanced by Stanford professor Paul Romer, the latter is based on typical anti-globalization arguments, such as for example the position that the IP system helps multinational companies to build up monopolies to the detriment of the poor, drives small and medium-sized enterprises (SMEs) and local business in developing countries out of business and increases prices for consumer products, be they pharmaceuticals or software. The purpose of this review is to help understand the current discourse on intellectual property, to grasp underlying themes, assumptions and connotations associated with the term “IP”, so as to identify paths leading to a more comprehensive understanding of IP and the opportunities and pitfalls it may provide

The impact of the patent system on the social welfare: A critical view

Purpose: This article offers a critical view of the impact of patents on economic activity. The article questions whether a strengthening of the patent system is optimal in economic terms, from a business and social perspective. Design/methodology/approach: We develop two analytic innovation models. They help us to understand how the strength of the patent system affects 1) the industry profits 2) the social welfare. Findings: The strengthening of patent systems could cause a decline in the activities of imitation and, therefore, a decrease in competition, a reduction in the production and assimilation of new technologies and could create barriers to entry into technology-intensive sectors, increasing the costs of production. We will show that a lower strength patent system and an increase in the activities of imitation can i) increase the benefits to industry as a whole ii) lead to greater social surplus. R e s e a r c h l i m i t a t i o n s / i m p l i c a t i o n s : The final set of sustainability-related issues (and drivers) presented aren’t exhaustive and are delimited by the particular scenario generated around Aqualogy’s business scope; therefore, it cannot be considered as a standard application mode. Originality/value: Much of the literature on innovation has traditionally seen imitation processes as harmful to the development of new technologies, and detrimental to the welfare of consumers, producers and society at large. That is why policies aimed at strengthening the patent system and discouraging imitation processes are associated with improvements in social welfare, -fostering innovation, trade, foreign investment and technology transfer-. However, our findings should lead us to rethink how optimal innovation policy should be designed. The problems associated with restrictions on the free market involve costs that outweigh the social benefits that patents can provide. Market mechanisms can effectively reward innovators for being the first to bring a product into the market, without the need to grant a monopoly.Peer Reviewe

Networks, Standards and Intellectual Property Rights

This paper reviews issues that lie at the intersection between intellectual property rights (IPR) and network effects, especially in the context of the global economy. Some of the relevant questions are: (1) How do IPR influence the provision of goods exhibiting network effects? (2) How do network effects in turn influence the creation of intellectual property? And (3) how do aspects of the global economy interact with both IPR and network effects? We synthesize what is known from the existing literature to answer these questions.Intellectual Property Rights, Network Effects, Globalization, Standards, Social Networks, Software Piracy

Towards an Intellectual Property Rights Strategy for Innovation in Europe

On October 13, 2009 the Science and Technology Options Assessment Panel (STOA) together with Knowledge4Innovation/The Lisbon Forum, supported by Technopolis Consulting Group and TNO, organised a half-day workshop entitled ‘Towards an Intellectual Property Rights Strategy for Innovation in Europe’. This workshop was part of the 1st European Innovation Summit at the European Parliament which took place on 13 October and 14 October 2009. It addressed the topics of the evolution and current issues concerning the European Patent System as well as International Protection and Enforcement of IPR (with special consideration of issues pertaining to IP enforcement in the Digital Environment). Conclusions drawn point to the benefits of a comprehensive European IPR strategy, covering a broad range of IP instruments and topics

Intellectual Property Rights in China: The Changing Politcal Economy of Chinese-American Interests

We review the evolution of modern Chinese intellectual property right (IPR) laws and enforcement and explore economic and political forces involved in international conflicts over Chinese IPR protection. Our analysis considers why the U.S. and China moved from conflict to cooperation over intellectual property rights. Structural and institutional aspects of the political economy of IPRs within each country are considered, and data on Chinese-U.S. trade in intellectual property-intensive goods are examined. We conclude that although enforcement of IPRs within China continues to be relatively weak, Chinese IPR institutions are converging on those in the OECD nations.

Market Piracy in the Design-Based Industry : Economics and Policy regulation

Market piracy in the design-based industry is an expanding worldwide phenomenon (Grossman and Shapiro, 1988a,b; Chaudhry and Walsh, 1996; Schultz II and Saprito, 1996). It deserves a great deal of attention both because of its impressive international dimension (Verma, 1996) and its intrinsic illegality, ambiguity and powerfull potential links with criminal organizations (Andreano and Sigfried, 1980; Fiorentini and Peltzman, 1995). The aim of this paper is to develop theoretical arguments about economic agents' behavior and to shed some light on the main regulatory issues of illegal markets. At a first sight the room for rational incentives to commercial piracy is self-evident. On one hand, an original backpack by the Italian stylist Prada costs, for instance, $510 in Manhattan, New York, and a bootleg copy costs$ 70 in Rome, just in front of Castel Sant'Angelo. On the other hand, the number of units sold can be impressive: as an example Louis Vuitton sells 3.5 millions units per year. Market piracy is usually noticed in sectors such as luxury goods or fashion, but piracy can also be observed in more traditional sectors such as car manufacturers, "bureautic" industry, cooking utensils, aircraft-parts and so on.