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Industry Commission staff information paper

This paper by Nicholas Gruen, Ian Bruce and Gerard Prior was released on 3 June 1996.

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According to a staff working paper released today, extending patent terms from sixteen years to twenty years may cost Australia between $376 million and $3.8 billion over the next thirty years.

Australia agreed to the changes required by the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement which formed part of the recent Uruguay Round of multilateral trade negotiations.

Australian producers of patents and patentable products will gain from the changes whilst consumers of those items will pay more. However, because the Australian economy uses more patentable intellectual property (IP) than it produces, strengthening IP has substantially higher costs than it has benefits for the Australian economy as a whole.

'Patents provide important incentives to innovate,' said Nicholas Gruen, who directed and co-wrote the paper. 'But for normal commercial reasons, investors in R&D will heavily discount the value of any additional revenue generated after sixteen years. Thus the extension looks like providing a very small additional incentive to innovate, while imposing additional costs to consumers.'

The paper, 'Extending Patent Life: Is it in Australia's Economic Interests?' includes other findings.

Over half the cost to Australia will come from extending patents already in force. There is no economic case for doing so. It only provides 'windfall' gains to producers on IP already produced.Thus it imposes additional costs on IP users, without increasing incentives to innovate.

Australian users of patents and patented products will pay between $1.5 billion and $7.4 billion more, although this cost will be offset by gains of between $1.1 billion and $3.6 billion to Australian producers of patents and patented products.

Extending patent ter ms is not of itself in Australia's economic interests. But Australia has gained much more from other measures in the Uruguay Round than it has lost from extending patent terms. Thus, agreeing to the extension of patent terms may have been in Australia's interest if it was necessary to secure other gains from the Uruguay Round. The paper does not judge the extent to which it may have been necessary.

Because it is a strong net importer of IP, unless it has good reasons in specific circumstances, Australia should not protect IP more than international agreements require.

The political economy of IP protection currently appears to favour IP producers over IP users and the small number of countries which are net exporters of IP over the large majority of countries which are net IP importers.

Australia's interests in multilateral negotiations on IP are likely to be aligned with other economies which are IP importers. This includes all countries in the Asia Pacific region except the United States which has a massive IP trade surplus.

The IP information base of Australia and other countries is poorly developed and can be improved.

Cover, Copyright, Contents, Acknowledgments and Executive Summary

Chapter 1 Introduction

Chapter 2 The economics and political economy of intellectual property
Retrospective and prospective changes to patent terms
International issues
Producers' and consumers' interests and the political economy of intellectual property

Chapter 3 Methodology

Chapter 4 The volume of patents
Patent applications and grants
The stock of patents in Australia

Chapter 5 The value of patents
The decline in patent values over the patent term
Aggregating to the national level
Applying the model to Australia

Chapter 6 Results

Chapter 7 Conclusions
Multilateral extension of patent terms is not in Australia's economic interests
Agreeing to extend patent terms may have been in Australia's broader interests
The political economy of IP seems weighted in favour of net producers/exporters of IP
Improving information
Opportunities for further research

Appendix A Quantity Data

Appendix B Unit Value Estimations

Appendix C Sectoral Distributions

Appendix D Annual Costs of Extending Patent Terms


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