IP/C/W/648  
 
19 October 2018  
(18-6559) Page: 1/3 
Council for Trade -Related Aspects of  
Intellectual Property Rights  Original: English  
 
 
IP AND INNOVATION : 
THE SOCIETAL VALUE O F IP IN THE NEW ECON OMY - IP AND NEW BUSINESS  
COMMUNICATION FROM A USTRALIA; THE EUROPE AN UNION; JAPAN; KOREA, REPUBLIC OF ; 
SWITZERLAND; THE SEPARATE CUSTOMS TER RITORY OF TAIWAN, PE NGHU, KINMEN AND 
MATSU; AND THE UNITED STATES OF AME RICA  
 
The following communication, dated 16 October 2018, is circulated at the request of Australia; the 
European Union;  Japan;  Korea,  Republic of;  Switzerland;  the Separate Customs Territory of Taiwan, 
Penghu, Kinmen and Matsu ; and th e United States of America.  
 
 
_______________  
 
 
1.  To what extent does intellectual property (IP) foster new business? When responding to this 
question, it will be valuable for the TRIPS Council to first consider the topic of IPR and new business  
from an econ omically wider and more comprehensive perspective than it does currently. Economic 
literature has used up an enormous amount of paper and ink in analysing the main drivers of 
attractive conditions, regulatory environments and cross -country cooperation when  starting a new 
business. To give just one such example, the World Bank 's Doing Business Report 20181 (World 
Bank Report ), in its analysis of 190 economies, examines the effectiveness and quality of business 
regulations, and provides measures for the whole  process of starting a new business. In fact, the 
World Bank  Report concludes that out of these economies measured in 2016 -17, 119 introduced at 
least one business regulation reform to improve business conditions. These reforms addressed 
starting a busines s, accessing finance, and operating in a secure business environment. 
Furthermore, the World Bank Report  underlines the importance of the private sector – responsible 
for an estimated 90% of employment – and its substantial economic, social and development al 
impact in low and middle -income countries. The economists Cravo and Piza found evidence in their 
thorough meta -analysis2 that suggests overall business -support interventions (such as 
governmental training, tax simplification, and innovation policies) in  low- and middle -income 
countries help improve the performance of businesses overall and create jobs. Generally speaking, 
it can be crucial for governments to implement effective policy and business regulation reforms in 
both lower and higher income countr ies to boost the private sector 's performance3.  
2.  In today 's world, however, it must be emphasised that the private sector is moving more and 
more towards having knowledge and technology as its main product and service.  This is not only 
the case in develope d countries, however. Data and statistics show that, in recent decades, 
developing countries and economies in transition have also been moving quickly towards a 
knowledge -based economy. Several reports, such as the OECD`s report, indicate that knowledge is  
                                                
1 World Bank (2017), "Doing Business 2018 ", Available at: http://www.doingbusiness.org/reports/global -
reports/doing -business -2018, retrieved September 2018.  
2 Cravo, T. A., and C. Piza (2016), The Impact of Business Support Services for Small and Medium 
Enterprises on Firm Performance in Low and Middle -Income Countries, Policy Research Working Paper 7664, 
World Bank Group.  
3 Cf. World Bank (20 17), "Doing Business 2018 ", Available at 
http://www.doingbusiness.org/reports/global -reports/doing -business -2018, retrieved September 2018.  IP/C/W/648  
 
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  the main driver of economic growth and, in fact, intangible assets – or knowledge -based capital – 
play an important role in the current economy4. 
3.  What is the role of intellectual property  in all of this? In the process of creating a new and 
innovative bus iness, protecting intellectual property is of strategic importance. Take patents, for 
example: do they help start -ups to grow and succeed in markets? Empirical research presented by 
the USPTO in 2015 shows that patent approvals help start -ups create jobs, grow their sales, 
innovate, and reward their investors5. As will be further discussed below, the World Intellectual 
Property Organization (WIPO)6 also concludes that all forms of IP ownership may prove essential for 
technology -based start -ups to secure the ir innovative assets.  
4.  It is therefore important to look at policy measures that are successful, and to consider how 
intellectual property rights (IPR) can support new businesses in coming to life. The following are just 
three aspects highlighting how IPR c an help new businesses drive their success through innovative 
business cycles.  
1. Intellectual property as a catalyst for growth in infant businesses  
5.  IPR can play a central role from the onset of a young enterprise. Favorable  and adequate policy 
and legal frameworks facilitate new ideas coming to life and turning them into a commercial success. 
As an incentive mechanism for innovation, the IPR system has proved to be essential in supporting 
the entry of entrepreneurial compani es in markets. For instance, the referenced WIPO Survey7 notes 
that technology -based start -ups generally have limited assets and largely depend on their innovative 
capacity and human capital to start performing in the market. IP rights emerge as a useful t ool for 
entering  and surviving in the marketplace as well as for obtaining a competitive edge8. Similarly, it 
is notable that patents may not only be the source of a favorable welfare contribution, but may also 
be helpful with the creation  of new industrie s or the emergence  of specialisation in value chains9. 
Thus, it is worth mentioning that IPRs can act as a catalyst that sets startups on a growth path10, 
and thus may provide a stimulus and encourage them to enter national and international markets.  
2. Overc oming  Financing Constraints  
6.  IP can play a key role in overcoming financing constraints well known to young entrepreneurs. 
Recent economic literature11 demonstrates that patents function as a mechanism for credibly 
publicising information for external invest ors. In fact, this patent signaling mechanism  motivated a 
body of economic research examining start -ups' use of patents to signal quality such as R&D success 
and innovative capabilities, which outside investors would otherwise have difficulty in screening or 
differentiating. Hence, a start -up's patenting activities can positively shape an investor 's estimates 
of the firm 's future value. Bridging this information gap helps start -ups to secure the required 
financial resources at an early stage of development.  
                                                
4 OECD (2013); Supporting I nvestment in Knowledge Capital, Growth and Innovation; OECD Publishing; 
Available at: https://read.oecd -ilibrary.org/industry -and-services/supporting -investment -in-knowledge -capital -
growth -and-innovation_9789264193307 -en#page1  
5 Farre-Mensa, J., D. Hegde, and A. Ljungqvist (2015), The Bright Side of Patents. USPTO Working Paper 
No. 2015 -5. 
6 WIPO (2003), "WIPO Survey of Intellectual Property Services of European Technology Incubators ", 
Available at:  http://www.wipo.int/edocs/pubdocs/en/wipo_survey_ip_technologyincubators.pdf , retrieved 
September 2018.  
7 Ibid., p. 2, 4, and 10.  
8 Ibid., p. 2 and 3.  
9 Hall, B.H. ( 2007): Patents and innovation. OECD (eds.) Competition, patents (and innovation). 
Directorate for financial end enterprise affairs, Competition committee. 243 -251: 
10 Farre-Mensa, J., D. Hegde, and A. Ljungqvist (2015): The Bright Side of Patents. USPTO Wor king Paper 
No. 2015 -5. 
11 E.g. Hsu, H.D., and R. H. Ziedonis (2006), Patents as quality signals for entrepreneurial ventures. 
Academy of Management Proceedings, Academy of Management.Conti, A. J. Thursby, and M. C. Thursby (2013): 
Patents as signals for sta rtup financing. Working Paper 19191, National Bureau of Economic Research.  
Hottenrott, H., B. H. Hall, and D. Czarnitzki (2016): Patents as quality signals? The implications for 
financing constraints of R&D. Economics of Innovation and New Technology, 25(3 ): 197 -217. IP/C/W/648  
 
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  3. A reliable IP protection framework as part of a secure business environment  
7.  Another important issue is tackled in the third part of the World Bank Report : Operating in a 
secure business environment. The ICC and WIPO12 note that in today 's world, the abunda nt supply 
of goods and services in the markets has made economic activities challenging for any kind of 
business. The two organisations also mention that in the current knowledge -driven, private sector -
oriented economies, a venture 's range of intangible as sets are frequently more important than its 
tangible ones. Appropriately protecting those intangible assets may therefore be a fundamental 
prerequisite for markets being able to function today. To create a secure national and international 
business environ ment, therefore, special focus should be put on making IPR available and providing 
adequate remedies for when they are infringed.  
 
8.  Members are invited to share examples of their best practices regarding the above outlined topics 
at the November 2018 meeti ng of the WTO TRIPS Council. Guiding questions for the discussion could 
be: 
a. What country -specific information could Members share on IP and knowledge -based 
businesses, e.g. the number of new enterprises they have each year, an overview of the start -
up landscape in their country or figures relating to their venture capital and vent ure debt 
markets, and the particular role IP plays in it?  
b. What IPR -specific regulatory measures, policies and practices do Members consider to be 
conducive to, or even necessary for, creating new businesses, e.g. how easy is it to create a 
new business for  young entrepreneurs and, in light of that, what is the role of IP in that 
process? Furthermore, what impact does international cooperation have in promoting a 
positive new business IP environment?  
c. Do Members have any specific examples of new businesses, t heir IP -protected innovations 
and other IP -related assets, or successful governmental IP -related policies that help new 
businesses integrate into the global economy?  
__________  
                                                
12 International Chamber of Commerce (ICC), and World Intellectual Property Organization (WIPO) 
(2012): "Making Intellectual Property work for Business – A Handbook for Chambers of Commerce and Business 
Associations Setting Up Intellectual Prope rty Services ". WIPO, Geneva. "