Clarifying Intellectual Property Rights for the

New EconomyGregory Rosenthal

Project #2 summary From Ideas to Assets

Pg. 83-108

Preface◦ Case-study commissioned by the Brookings

Institution of Washington, D.C. 2 year study in October 2000 Considered the implications of the growing

importance of intangible assets for the U.S. economy Conclusion

Despite a rapidly increasing reliance on intangible assets, United States companies have a decidedly poor handle on what they are and how to deploy them.

This is especially true of patents and other intellectual property rights

Perspectives

Point 1: authors Blair, Hoffman, and Tamburo, “new wealth and competitive advantage largely come from nonphysical assets, or ‘intangibles,’ including ideas, human capital, corporate competencies, and, importantly for this chapter, intellectual property rights.”

Point 2: “The increased reliance by businesses, in general, upon the value generated by intellectual property highlights the need for better defined [property rights] rules . . . [that apply when] such assets are acquired, owned, and transferred . . . These reforms would help adjust the institutional and legal environment in the United States and internationally so that they will continue to support the kinds of investments needed in the economy of the third millennium.”

Main points from Study

intangibles are rapidly eclipsing tangible assets in their importance in the U.S. economy and in other developed countries.◦ especially on intellectual property

growth in market value of financial claims cannot be explained by corporate investment in physical property, plant and equipment◦ Explanation: own substantial amounts of

intangible capital not recorded in the sector’s books or anywhere in government statistics.

New economy and “Unseen” wealth

Growth in market value of corporate sector vs. growth of tangible goods

Notice tangible very small change

Patents, copyrights, brands, and trade names are examples of assets for which property rights are, to some extent, defined and protected by existing legal systems. There may not be perfect clarity about property rights over these intangibles, but at least they are considered “property” under current law.

Measurement of Problem: Level 1 Assets Can be owned and Sold

A more difficult set of problems arises in the attempt to identify, measure, and account for intangibles that are proprietary to a specific firm but would be very difficult to separate out and sell to another firm◦ For example, R&D in process, business secrets,

reputational capital, proprietary management systems, and business processes

Level 2. Assets Can Be Controlled But Not Separated Out and Sold

At this level are intangibles that have gone by such names as human capital, core competencies, organizational capital, and relationship capital.

There are at least two parties involved in the accumulation and utilization of human capital, for example: the employee and the firm.

Level 3: Intangibles May Not Be Wholly Controlled by the Firm

Intellectual Property suits in US

Two categories of business method patents◦ The first involves cases in which a specific

method for achieving some business-related goal is implemented via software running on a computer system for example, a specialized inventory-tracking

system.◦ The second category involves strictly

conceptual or strategic business plans that have no reliance on any specialized computer- or software-based operation

Patenting Business Methods

In the United States, state common law rules regarding territorial trademark rights were incorporated into federal trademark law under the Lanham Act.

Trademarks

is a concept developed at common law in order to provide a remedy to those who have been economically injured due to the improper disclosure to competitors of secrets or other specialized information used in conducting business

“Federal Trade Secret Act” (FTSA)◦ See page 102 for review of this case

Trade Secrets

enjoy the greatest degree of certainty and predictability of all the forms of intellectual property considered here

The principal reason for the stability of copyright laws in the United States today is undoubtedly the fact that

Copyrights

1. The significance of intangible assets in the new economy continues to grow because of the undeniable benefits they bring to the businesses which acquire them and foster their development

2. Each of these forms of intellectual property, at least to some degree, is recognized as property that has economic value, contributes to the overall value of a business, and can be owned and sold.

3. As with any asset which tends to contribute to the value of a business, intellectual property rights, and legal mechanisms for protecting such rights, will undoubtedly become more important to the economy

LESSONS AND CONCLUSIONS