It is understandable this issue raise a disturbance because most of the world’s patents are controlled by developed countries. According to National Science Foundation survey (2006), the world’s gross expenditure on research and development is highly concentrated on a few developed countries such as the United States, United Kingdom, France, Japan and Germany. For further analysis, over 50% of global research and development (R&D) expenditure was contributed by the top two countries – United States and Japan.
The R&D performance, as imagined, is mainly controlled by these countries as well. Consequently, the R&D results and patents are mainly possessed by large corporations in these developed countries. Based on the above discussion, it is undoubted that strength of patent rights protection is a matter of concern for international trade regardless of developed or developing countries. Furthermore, in theory, five basic components make up intellectual property, including trade secret, patent, copyright, trademark and mask work (Sherwood, 1990).
In this article, we only focus on the patent protection in importing countries and then attempt to answer the following questions: Do the patent rights matter to international transactions? How deep the relationship between the strength of patent rights and international trade is? This paper attempts to illustrate the relationship between patent rights protection and international trade: evidence from the Untied States. The rest of this study proceeds as follows.
Section 2 will summarize a review of relevant research literatures in the field of the patent-trade relationship. In section 3, the theoretical framework used in this empirical study will be underlined. There are three hypotheses. Section 4 briefly describes the specification of gravity model, collection method and data resources. Section 5 presents a discussion of empirical results. In the final part, a short summary and evaluation concludes this paper. 2.
Literature and Contribution Before review the empirical studies about this issue, it is helpful to understand what are patent rights and the roles of patent rights. According to United States Patent and Trademark Office (USPTO, 2005); patent rights can be defined as “the rights to exclude others from making, using, offering for sale, selling or importing the invention”. Secondly, it is general believes that patent rights play an important role to encourage innovation.
Corporations emphasize to increase spending on research and development (R&D) and on training employees for the capability of innovation in order to pursue permanent business development. Sherwood (1990) and Mgbeoji (n. d. ) point out that there are three leading theories of patent to explain intellectual property protection including patent right protection– the reward theory, the recovery theory and the incentive theory. The obvious difference among three theories is the definition of the benefit from patent protection.
Inventors have an advantage which others cannot exercise those technology or knowledge during the patent duration. Actually, the advantage can be further defined as first mover advantage. In other words, patent rights construct trade barriers to non-inventors and allow the first mover to capture market without competition during the patent duration. The reward theory implies the benefit from patent protection is rewards for inventors. The recovery theory infers that inventors spend much resource during the period of research and development.
Hence, the benefit can compensate inventors for the expenditure and loss on the innovation process. Finally, the incentive theory implies enterprises will pay much attention on innovation in order to earn the first mover advantage. The patent protection system encourages innovation. In short, no matter what theory of patent is adhered to, all of these three theories imply a positive link between patent rights and innovation. A patent system is an instrument for encouraging innovation and invention.
Next, developed countries are forced to pay more attention on patent issue in 1990s because rampant imitation distorted the world’s market and eliminate their competitive advantages and benefits. Some empirical studies infer the relation between patent and international technology transfer and patent rights (Clegg et al. , 2000; Maskus et al. , 2003; Branstetter et al. , 2006). Some infer the relationship between patent and economic development (Sherwood, R. M. , 1990).