Improvement of the Intellectual Property System as a Measure to Enhance Innovation

Author:Aleksei Kelli
Position:Magister iuris, Lecturer of Intellectual Property Law, University of Tartu
1. Introduction

The Estonian economy requires a transformation to tackle economic crisis and to achieve sustainable growth. The recent report on the competitiveness of the Estonian economy emphasises that Estonia has to concentrate on increasing exports and innovation. 3 It is obvious that orientation to the domestic market and low labour costs cannot serve as competitive advantages for Estonia any longer. As a result, Estonian companies should start creating value within different value chains by contributing to knowledge-incentive products and services. In other words, more Estonian companies have to become innovative 4 and internationally oriented. As a matter of fact, these two objectives are closely interrelated. The cost of knowledge creation does not depend on whether the knowledge is utilised in domestic, regional, or global markets. Because of the possibility of such parallel exploitation of knowledge, entrepreneurs are interested in commercialising it in regional and global markets. Since intellectual property (IP) encourages innovation by protecting investments in knowledge creation and enhancing utilisation of knowledge, the author analyses the possibilities of improving the legal framework for IP to enhance innovation in the example case of Estonia.

The author's approach is based on the following assumptions. Firstly, without any doubt highly qualified and skilled human capital combines with entrepreneurial spirit to constitute a key driving force behind innovation.

Secondly, fostering innovation requires several measures. Improvement of IP regulations is one of these. The regulatory framework that supports innovation is, however, much wider than that covering just IP matters. For instance, the legal framework for biotechnological research is just as crucial for innovation as IP law is. These regulations are especially relevant since Estonia has defined biotechnologies as the strategic key technologies in supporting innovation. 5 In addition, different incentive systems (tax incentives to stimulate business research, export subsidies, etc.) could play an important role. 6 Still the impact of IP should not be underestimated. The pivotal role of IP for innovation has been given particular emphasis by the European Commission. 7

Thirdly, the author presumes that every country has its unique cultural, economic, demographic, natural, historical, and other conditions that have to be considered in the structuring of legal frameworks for enhancing innovation. As a result, the legal framework of IP cannot be 'imported' even from highly innovative and successful countries. 8 However, this definitely does not mean that experience of other countries should be disregarded.

The first section of the paper addresses problems pertaining to the legal validity and scope of IP protection. The author argues that possibilities to challenge legal validity of IP rights applying to specific knowledge and the existence or absence of a clearly defined scope of protection influence the utilisation of the IP system. Some practical aspects of this are highlighted in the article.

In the second section, the author analyses how to increase the comprehensibility and consistency of IP legislation. According to the OECD, good regulations have to "(i) serve clearly identified policy goals, and be effective in achieving those goals; (ii) have a sound legal and empirical basis; (iii) produce benefits that justify costs, considering the distribution of effects across society and taking economic, environmental and social effects into account; (iv) minimise costs and market distortions; (v) promote innovation through market incentives and goal-based approaches; (vi) be clear, simple, and practical for users; (vii) be consistent with other regulations and policies; and (viii) be compatible as far as possible with competition, trade and investment-facilitating principles at domestic and international levels". 9 Acknowledging the importance of all requirements put forward by the OECD, the analysis in the paper is, for reasons of space, confined to addressing clarity, simplicity, practicality for users, and consistency of IP regulations.

In the last section of this article, the author focuses on enhancement of the flexibility and appropriateness of IP limitations. The author's argument is that strong IP regimes that would include a broad scope of protection, extensive rights, few limitations, harsh sanctions, etc. do not necessarily facilitate innovation. The design of an IP system (including limitations) should be based on the socio-economic conditions of the relevant country. In addition, a constantly changing IP system requires limitations that are flexible enough to balance the differing interests of the stakeholders of the IP system.

2. The legal validity and scope of IP protection

IP is traditionally defined as legal rights resulting from intellectual activity. 10 It has been explained that information constitutes the subject matter of IP protection. 11 The immaterial nature of protectable subject matter entails advantages and challenges at the same time. One of the advantages is the possibility of parallel exploitation of information. Given the intangible nature of knowledge, it is also a challenge to exclude others from using it. The protection of information in some form of IP establishes control over it.

Utilisation of IP is facilitated when the legal validity of protection is not easily challenged and the subject matter of IP protection is clearly defined. For instance, the parties to a copyright or patent licence agreement usually assume that a work or invention is legally protected and invalidation or narrowing the scope of protection is not very likely. The same holds true in cases of collateralisation of, for example, a patent. In this section, the author considers how well the subject matter of IP protection is defined and how well the validity of the acquired rights is guaranteed under Estonian law. The following analysis is mostly limited to copyright 12 and patent issues.

The Copyright Act 13 provides that copyright protection does not require registration or fulfilment of any formalities (following the principle of the absence of formalities) 14 and that the creation of a work gives rise to copyright. 15 Works that enjoy copyright protection have to be "original results in the literary, artistic or scientific domain which are expressed in an objective form and can be perceived and reproduced in this form". 16 At the same time, "[t]he purpose, value, specific form of expression or manner of fixation of a work shall not be the grounds for the non-recognition of copyright". 17

There are provisions in the Copyright Act that make it virtually impossible to challenge the legal validity of the protection of a work by copyright. For instance, § 4 (6) of the Copyright Act sets out that "[t]he protection of a work by copyright is presumed except if, based on this Act or other copyright legislation, there are apparent circumstances which preclude this. The burden of proof lies on the person who contests the protection of a work by copyright". Already early decisions of the Estonian Supreme Court have supported the argument that it is very complicated to challenge the legal validity of copyright protection of a work. 18

On the basis of the above, it can be said that the absence of registration requirements has not caused significant disputes as to the existence and legal validity of copyright protection. One of the main reasons is that copyright protects not ideas but expression of ideas. Furthermore, the expression itself does not have to be new in the sense of patent law but has to be original. Originality is defined as "the author's own intellectual creation". 19 This means that there are no legal obstacles to using an independently created work even though it is very similar to a pre-existing work created by somebody else. It has also been noted that "[i]f the level of originality of a work is very low, then it is difficult to distinguish the work from its idea". 20 The author agrees that works with a high level of originality enjoy stronger protection than do works with a low level of originality. The likelihood of independent creation of a similar work decreases if the work is highly original.

To sum up, the utilisation of copyright-protected works is not substantially hindered by the possibility of a successful challenge to the protection by copyright. Firstly, it is almost impossible to prove that a work does not enjoy copyright protection. Secondly, on account of the concept of originality, different embodiments of the same idea are protectable. 21 Still the exact scope of copyright protection can cause disputes. 22 The present author is of the opinion that there is no need to amend the legal framework under analysis to make it more innovation-friendly. Some measures, however, could be taken at the company level. Since the principle of presumption of authorship 23 does not always preclude authorship disputes 24 , companies whose business models depend on copyright protection should develop procedures to guarantee the existence of proof of their title.

There are also other problems of copyright regimes, such as issues related to ownership of a work created in the fulfilment of contractual obligations 25 , exercise of moral and economic rights, limitations, and procedural issues (e.g., estimating damages and proving infringement on the Internet 26 ), which should not be ignored by entrepreneurs. Proper IP management (with conclusion of detailed contracts, development of enforcement strategy, etc.) could be of great help.

Although copyright and patent systems form a...

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