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The European Union (EU) is an economic and political union of 27 member states which are located primarily in

Europe.[7]

The EU traces its origins from the European Coal and Steel Community (ECSC) and the European

Economic Community (EEC) formed by six countries in the 1950s. In the intervening years the EU has grown in size

by the accession of new member states, and in power by the addition of policy areas to its remit. The Maastricht

Treaty established the European Union under its current name in 1993.[8]

The last amendment to the constitutional

basis of the EU, the Treaty of Lisbon, came into force in 2009.

The EU operates through a hybrid system of supranational independent institutions and inter-governmentally

made decisions negotiated by the member states.[9][10][11]

Important institutions of the EU include the European

Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union,

and the European Central Bank. The European Parliament is elected every five years by EU citizens.

The EU has developed a single market through a standardised system of laws which apply in all member states

including the abolition of passport controls within the Schengen area.[12]

It ensures the free movement of people,

goods, services, and capital,[13]

enacts legislation in justice and home affairs, and maintains common policies on

trade,[14]

agriculture,[15]

fisheries and regional development.[16]

A monetary union, the eurozone, was established in

1999 and is currently composed of seventeen member states. Through the Common Foreign and Security Policy

the EU has developed a limited role in external relations and defence. Permanent diplomatic missions have been

established around the world and the EU is represented at the United Nations, the WTO, the G8 and the G-20.

With a combined population of 500 million inhabitants,[17]

in 2010 the EU generated an estimated 21% (US$14.793

trillion) in purchasing power parity of the world economy.[18]

In nominal terms and for the same year, EU

generated 28% (US$16.106 trillion)[19]

of the global economy.

The European Union was formally established when the Maastricht Treaty came into force on 1 November 1993,[8]

and in 1995 Austria, Sweden, and Finland joined the newly established EU. In 2002, euro notes and coins replaced

national currencies in 12 of the member states. Since then, the eurozone has increased to encompass seventeen

countries. In 2004, the EU saw its biggest enlargement to date when Malta, Cyprus, Slovenia, Estonia, Latvia,

Lithuania, Poland, the Czech Republic, Slovakia, and Hungary joined the Union.[35]

On 1 January 2007, Romania and Bulgaria became the EU's newest members. In the same year Slovenia adopted

the euro,[35]

followed in 2008 by Cyprus and Malta, by Slovakia in 2009 and by Estonia in 2011. In June 2009, the

2009 Parliament elections were held leading to a renewal of Barroso's Commission Presidency, and in July 2009

Iceland formally applied for EU membership.

On 1 December 2009, the Lisbon Treaty entered into force and reformed many aspects of the EU. In particular it

changed the legal structure of the European Union, merging the EU three pillars system into a single legal entity

provisioned with legal personality, and it created a permanent President of the European Council, the first of which

is Herman Van Rompuy, and a strengthened High Representative, Catherine Ashton.


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Treaties

Signed

In force

Docume

nt

1948

1948

Brusse

lsTreaty

1951

1952

Paris

Treaty

1954

1955

Modifi

edBrussel

s

Treaty

1957

1958

Rome

Treaties

1965

1967

Merg

erTreat

y

1975

N/A

Europea

nCouncil

conclusi

on

1985

1985

Scheng

enTreaty

1986

1987

Single

European Act

1992

1993

Maastric

ht Treaty

1997

1999

Amsterda

m Treaty

2001

2003

Nice Treaty

2007

2009

Lisbon

Treaty

Three pillars of the European U

nion:

European Communities:

European Atomic Energy Community

(EURATOM)

European Coal and Steel Community(ECSC)

Treaty expired in2002

Europe

an

Union

(EU)

European Economic Community (EEC)

Schengen Rules European

Community (EC)

TREVI

Justice

and

Home

Affairs

(JHA)

Police and Judicial Co-

operation in Criminal

Matters (PJCC)

European

Political

Cooperation (E

PC)

Common Foreign and Security

Policy (CFSP)

Unconsolidat

ed bodiesWestern European Union (WEU)

Treaty terminated in 2010

Member states

The European Union is composed of 27 sovereign Member States: Austria, Belgium, Bulgaria, Cyprus, the Czech

Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg,Malta, the Netherlands, Poland, Portugal, Republic of Ireland, Romania, Slovakia, Slovenia, Spain, Sweden, and the

United Kingdom.[45]

The Union's membership has grown from the original six founding statesBelgium, France,

(then-West) Germany, Italy, Luxembourg and the Netherlandsto the present day 27 by successive enlargements

as countries acceded to the treaties and by doing so, pooled their sovereignty in exchange for representation in

the institutions.[46]

To join the EU a country must meet the Copenhagen criteria, defined at the 1993 Copenhagen

European Council. These require a stable democracy that respects human rights and the rule of law; a functioning

market economy capable of competition within the EU; and the acceptance of the obligations of membership,

including EU law. Evaluation of a country's fulfilment of the criteria is the responsibility of the European Council.[47]


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No member state has ever left the Union, although Greenland (an autonomous province of Denmark) withdrew in

1985.[48]

The Lisbon Treaty now provides a clause dealing with how a member leaves the EU.[49]

There are five official candidate countries, Croatia, Iceland, Macedonia,[nb 4][50]

Montenegro and Turkey. Albania,

Bosnia and Herzegovina and Serbia are officially recognised as potential candidates.[51]

Kosovo is also listed as a

potential candidate but the European Commission does not list it as an independent country because not all

member states recognise it as an independent country separate from Serbia.[52]

Four Western European countries that are not EU members have partly committed to the EU's economy and

regulations: Iceland (a candidate country for EU membership), Liechtenstein and Norway, which are a part of the

single market through the European Economic Area, and Switzerland, which has similar ties through bilateral

treaties.[53][54]

The relationships of the European microstates, Andorra, Monaco, San Marino and the Vatican

include the use of the euro and other areas of cooperation.[55]

Competences

EU member states retain all powers not explicitly handed to the Union. In some areas the EU enjoys exclusive

competence. These are areas in which member states have renounced any capacity to enact legislation. In other

areas the EU and its member states share the competence to legislate. While both can legislate, member statescan only legislate to the extent to which the EU has not. In other policy areas the EU can only co-ordinate, support

and supplement member state action but cannot enact legislation with the aim of harmonising national laws.[79]

That a particular policy area falls into a certain category of competence is not necessarily indicative of what

legislative procedure is used for enacting legislation within that policy area. Different legislative procedures are

used within the same category of competence, and even with the same policy area. The distribution of

competences in various policy areas between Member States and the Union is divided in the following three

categories:


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Exclusive competence:

"The Union has exclusive

competence to make

directives and conclude

international agreements

when provided for in aUnion legislative act."

y the customsunion

y the establishingof the

competition rules

necessary for the

functioning of the

internal market

y monetary policyfor the Member

States whosecurrency is the

euro

y the conservationof marine

biological

resources under

the common

fisheries policy

y commoncommercial

policy

Shared competence:

"Member States cannot

exercise competence in

areas where the Union has

done so."

"Union exercise of

competence shall not result

in Member States being

prevented from exercising

theirs in:"

y the internalmarket

y social policy, forthe aspects

defined in this

Treaty

y economic, socialand territorial

cohesion

y agriculture andfisheries,

excluding theconservation of

marine biological

resources

y environmenty consumer

protection

y transporty trans-European

networks

y energyy

the area of

freedom, securityand justice

y common safetyconcerns in

public health

matters, for the

aspects defined

in this Treaty

y research,technological

development

and space

y developmentcooperation,

humanitarian aid

"The Union coordinates

Member States policies or

implements supplementalto theirs common policies,

not covered elsewhere"

y coordination ofeconomic,

employment and

social policies

y common foreign,security and

defence policies

Supporting competence:

"The Union can carry out

actions to support,

coordinate or supplement

Member States' actions in:"

y the protection andimprovement of

human health

y industryy culturey tourismy education, youth,

sport and

vocational training

y civil protection(disaster

prevention)

y administrativecooperation

Economy

The EU has established a single market across the territory of all its members. A monetary union, the eurozone,

using a single currency comprises 17 members states.[129]

In 2009 the EU generated an estimated 28% share (US$

16.5 trillion) of the world's nominal GDP,[130]

and an estimated 21% (US$ 14.8 trillion) share of the global GDP

(PPP),[18]

making it the largest economy in the world. It is the largest exporter,[131]

the largest importer[132]

of goods

and services, and the biggest trading partner to several large countries such as the United states, China and

India.[133][134][135]


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Of the top 500 largest corporations measured by revenue (Fortune Global 500 in 2010), 161 have their

headquarters in the EU.[136]

In May 2007 unemployment in the EU stood at 7%[137]

while investment was at 21.4%

of GDP, inflation at 2.2% and public deficit at 0.9% of GDP.

The EU and the next seven largest economies in the

world by nominal GDP (IMF, 2009)

There is a significant variance for annual per capita income within individual EU states, these range from US$7,000

to US$69,000.[139]

The difference between the richest and poorest regions (271 NUTS-2 regions of the

Nomenclature of Territorial Units for Statistics) ranged, in 2007, from 26% of the EU27 average in the region of

Severozapaden in Bulgaria, to 334% of the average in Inner London in the United Kingdom. On the high end, InnerLondon has 83,200 PPP per capita, Luxembourg 68,500, and Bruxelles-Cap 55,000, while the poorest regions,

are Severozapaden with 6,400 PPP per capita, Nord-Est and Severen tsentralen with 6,600 and Yuzhen

tsentralen with 6,800.[140]

Structural Funds and Cohesion Funds are supporting the development of underdeveloped regions of the EU. Such

regions are primarily located in the new member states of East-Central Europe.[141]

Several funds provide

emergency aid, support for candidate members to transform their country to conform to the EU's standard (Phare,

ISPA, and SAPARD), and support to the former USSR Commonwealth of Independent States (TACIS). TACIS has now

become part of the worldwide EuropeAid programme. The EU Seventh Framework Programme (FP7) sponsors

research conducted by consortia from all EU members to work towards a single European Research Area.

Internal market

Two of the original core objectives of the European Economic Community were the development of a common

market, subsequently renamed the single market, and a customs union between its member states. The single

market involves the free circulation of goods, capital, people and services within the EU,[129]

and the customs union

involves the application of a common external tariff on all goods entering the market. Once goods have been

admitted into the market they cannot be subjected to customs duties, discriminatory taxes or import quotas, as

they travel internally. The non-EU member states of Iceland, Norway, Liechtenstein and Switzerland participate in

the single market but not in the customs union.[53]

Half the trade in the EU is covered by legislation harmonised by

the EU.[143]

Free movement of capital is intended to permit movement of investments such as property purchases and buying

of shares between countries.[144]

Until the drive towards Economic and Monetary Union the development of the

capital provisions had been slow. Post-Maastricht there has been a rapidly developing corpus of ECJ judgements

regarding this initially neglected freedom. The free movement of capital is unique insofar as it is granted equally to

non-member states.

The free movement of persons means that EU citizens can move freely between member states to live, work, study

or retire in another country. This required the lowering of administrative formalities and recognition of

professional qualifications of other states.[145]


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The free movement of services and of establishment allows self-employed persons to move between member

states in order to provide services on a temporary or permanent basis. While services account for 6070% of GDP,

legislation in the area is not as developed as in other areas. This lacuna has been addressed by the recently passed

Directive on services in the internal market which aims to liberalise the cross border provision of services.[146]

According to the Treaty the provision of services is a residual freedom that only applies if no other freedom is

being exercised.

Monetary union

The creation of a European single currency became an official objective of the European Economic Community in

1969. However, it was only with the advent of the Maastricht Treaty in 1993 that member states were legally

bound to start the monetary union no later than 1 January 1999. On this date the euro was duly launched by

eleven of the then fifteen member states of the EU. It remained an accounting currency until 1 January 2002, when

euro notes and coins were issued and national currencies began to phase out in the eurozone, which by then

consisted of twelve member states. The eurozone has since grown to seventeen countries, the most recent being

Estonia which joined on 1 January 2011.

All other EU member states, except Denmark and the United Kingdom, are legally bound to join the euro[147]

when

the convergence criteria are met, however only a few countries have set target dates for accession. Sweden hascircumvented the requirement to join the euro by not meeting the membership criteria.

[nb 16]

The euro is designed to help build a single market by, for example: easing travel of citizens and goods, eliminating

exchange rate problems, providing price transparency, creating a single financial market, price stability and low

interest rates, and providing a currency used internationally and protected against shocks by the large amount of

internal trade within the eurozone. It is also intended as a political symbol of integration and stimulus for more.[148]

Since its launch the euro has become the second reserve currency in the world with a quarter of foreign exchanges

reserves being in euro.[149]

The euro, and the monetary policies of those who have adopted it in agreement with

the EU, are under the control of the European Central Bank (ECB).[150]

The European Central Bank (ECB) is the central bank for the eurozone (consisting of the EU member states which

have adopted the euro), and thus controls monetary policy in that area with an agenda to maintain price stability.

It is at the centre of the European System of Central Banks, which comprehends all EU national banks, and is

guided by a board comprising of the President of the European Central Bank, who is appointed by the European

Council, and national bank governors.

Competition

The EU operates a competition policy intended to ensure undistorted competition within the single market.[nb 17]

The Commission as the competition regulator for the single market is responsible for antitrust issues, approving

mergers, breaking up cartels, working for economic liberalisation and preventing state aid.[152]

The Competition Commissioner, currently Joaqun Almunia, is one of the most powerful positions in the

Commission, notable for the ability to affect the commercial interests of trans-national corporations.[153]

For

example, in 2001 the Commission for the first time prevented a merger between two companies based in the

United States (GE and Honeywell) which had already been approved by their national authority.[154]

Another high

profile case against Microsoft, resulted in the Commission fining Microsoft over 777 million following nine years

of legal action.

Agriculture


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The Common Agricultural Policy (CAP) is one of the oldest policies of the European Community, and was one of its

core aims.[156]

The policy has the objectives of increasing agricultural production, providing certainty in food

supplies, ensuring a high quality of life for farmers, stabilising markets, and ensuring reasonable prices for

consumers.[nb 18]

It was, until recently, operated by a system of subsidies and market intervention. Until the 1990s,

the policy accounted for over 60% of the then European Community's annual budget, and still accounts for around

35%.[156]

The policy's price controls and market interventions led to considerable overproduction, resulting in so-called

butter mountains and wine lakes. These were intervention stores of produce bought up by the Community to

maintain minimum price levels. In order to dispose of surplus stores, they were often sold on the world market at

prices considerably below Community guaranteed prices, or farmers were offered subsidies (amounting to the

difference between the Community and world prices) to export their produce outside the Community. This system

has been criticised for under-cutting farmers outside of Europe, especially those in the developing world.[157]

The overproduction has also been criticised for encouraging environmentally unfriendly intensive farming

methods.[157]

Supporters of CAP say that the economic support which it gives to farmers provides them with a

reasonable standard of living, in what would otherwise be an economically unviable way of life. However, the EU's

small farmers receive only 8% of CAP's available subsidies.[157]

Since the beginning of the 1990s, the CAP has been subject to a series of reforms. Initially these reforms included

the introduction of set-aside in 1988, where a proportion of farm land was deliberately withdrawn from

production, milk quotas (by the McSharry reforms in 1992) and, more recently, the 'de-coupling' (or disassociation)

of the money farmers receive from the EU and the amount they produce (by the Fischler reforms in 2004).

Agriculture expenditure will move away from subsidy payments linked to specific produce, toward direct payments

based on farm size. This is intended to allow the market to dictate production levels, while maintaining agricultural

income levels.[156]

One of these reforms entailed the abolition of the EU's sugar regime, which previously divided

the sugar market between member states and certain African-Caribbean nations with a privileged relationship with

the EU.

European Free Trade Association

The European Free Trade Association (EFTA) is a free trade organisation between four European countries that

operates parallel to, and is linked to, the European Union (EU).

EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or

chose not to, join the then-European Economic Community (EEC) which has now become the European Union

(EU). The Stockholm Convention, establishing EFTA, was signed on 4 January 1960 in Stockholm by seven countries.

Today, only Iceland, Norway, Switzerland, and Liechtenstein remain members of EFTA (of which Norway and

Switzerland are the only remaining founding members). The initial Stockholm Convention was subsequently

replaced by the Vaduz Convention. This Convention provides for the liberalisation of trade among the member

states. Three of the EFTA countries are part of the European Union Internal Market through the Agreement on a

European Economic Area (EEA), which took effect in 1994; the fourth, Switzerland, opted to conclude bilateral

agreements with the EU. In addition, the EFTA states have jointly concluded free trade agreements with a number

of other countries.

In 1999 Switzerland concluded a set of bilateral agreements with the European Union covering a wide range of

areas, including movement of persons, transport and technical barriers to trade. This development prompted the

EFTA States to modernise their Convention to ensure that it will continue to provide a successful framework for

the expansion and liberalization of trade among them and with the rest of the world.


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Innovation

Generally put, an innovation is developing a new idea andputting it into practice. As this article is focused on the

competitive strategy of a private enterprise in a market-driven business environment, the term innovation is used

here to refer to the process of bringing valuable new products (goods and services) to market i.e., from the

idea/concept formulation stage to the successful launching of a new or improved product in the marketplace2, or

the result of that process, so as to meet the explicit or implied needs of current or potential customers. In otherwords, through innovation an enterprise seeks to deliver unique new value to its customers. In this context,

marketing is the understanding of that unique new value and communicating it to the current and potential

customers of a business so that the product sells itself.

Technological innovation may be classified in several ways: product vs. process, radical (basic or fundamental) vs.

incremental (improvement), and disruptive vs. sustaining (sequential and/or complementary). Other important

types of (non-technological) innovations that do not result from scientific and/or technological R&D, but are often

crucial for profitably marketing the products and services resulting from the investment made in R&D are:

marketing innovation, institutional innovation, and complementary innovation.

In this article, however, the focus is on technological innovations. Nowadays, it is generally accepted that in a

knowledge-driven, competitive business environment, technological innovation (hereafter, for the sake ofsimplicity, simply called innovation) is a principal determinant of successful firm performance. But differences of

opinion persist amongst economists and policymakers about the exact role of intellectual property (IP) in relation

to innovation. On the one hand, in theory, the IP system is considered to be absolutely necessary to encourage

creative intellectual endeavor in the public interest,3

and on the other, some observers believe that, in practice,

the IP system hinders competition to the extent that it is often seen to be playing a negative role in innovation.4

Hence the need for a systematic and periodic study and review of the actual use by businesses of the tools of the

IP system so that economists are able to provide empirical, evidence-based guidance to policymakers to adapt the

IP system so that it continues to serve the conflicting private and public interest in spurring further innovation and

its wide diffusion in the shortest possible time. This article, however, does not deal with these otherwise important

aspects.

Managing innovation better than its competitors is one of the main objectives of a business that wishes to survive

and thrive in todays economy. By relying on practical examples, this article highlights the important contributions

made by the effective use of the different tools in the IP system to the process of taking innovative technologies to

market, through launching of superior products and/or services. For explaining the role of the tools of the IP

system, it goes beyond merely looking at technological innovation as either radical or incremental technological

breakthroughs. Instead, it looks upon technological innovation as an interactive process made up of a number of

distinct stages. It begins with the formulation of a novel idea/concept and, through a series of stages, ends in the

successful launching and marketing of a new or improved product in the marketplace. In other words, it looks at

practical IP issues of relevance to different stages in the whole new product development process in which

technological innovations may be introduced at different stages of the value chain from the producer to the end

user.5

For the sake of simplicity, it focuses on the idea stage and the research and development stage.

Intellectual Property, Inventions and Innovations

So, what exactly is IP? Broadly speaking, the term IP refers to unique, value-adding creations of the human

intellect that results from human ingenuity, creativity and inventiveness. An IP right is thus a legal right, which is

based on the relevant national law encompassing that particular type of intellectual property right. Such a legal

right comes into existence only when the requirements of the relevant IP law are met and, if required, it is granted

or registered after following the prescribed procedure under that law. In practically all countries the world over, a

national legal system of intellectual property rights have evolved; this has been created over varying periods of

time during the last 150 years or so. It has enabled the grant of property-like rights over such new knowledge and


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creative expression of mankind, which has made it possible to harness the commercial value of the outputs of

human inventiveness and creativity. This is usually done by its orderly use, exchange or sharing it amongst various

types of business partners in a complex network of strategic relationships that generally work harmoniously during

the new product development process for creating and marketing new and improved goods and services in

domestic and export markets.

The grant of a property right by the government, albeit generally for a limited period of time, over useful intangibleintellectual output provides the owner of such legal property rights the right to exclude all others from

commercially benefiting from it. In other words, the legal rights prohibit all others from using the underlying IP

asset for commercial purposes without the prior consent of the IP right holder. The different types of IP rights

include trade secrets, utility models, patents, trademarks, geographical indications, industrial designs, layout

designs of integrated circuits, copyright and related rights, and new varieties of plants.

While innovations are concerned with the commercialization of new ideas; in contrast, an invention may not be

directly associated with commercialization.6

As such, innovation may be seen as a process of interaction and

feedback during the various stages of the new product development process. An invention is considered as the

generation of a new idea or knowledge, which aims to solve a specific technical problem. Inventions could relate to

products or processes and are characteristically protected by trade secrets, utility models/petty patents or

patents. Utility models/petty patents or patents are granted/registered under the relevant national/regional lawby the relevant national or regional patent office. As not all inventions are commercialized, so it is clear that not all

inventions result in innovations. A lot of new ideas are created or born but, quoting Brandt (2002), Most die a

lonely death, never seeing the light of commercial success.7

Technological basic or fundamental innovations produce new markets and new industrial branches for a new

product. Such an innovation is also described as a radical or disruptive innovation. An improvement innovation

(also called an incremental, sustaining, sequential or complementary innovation) would lead to an improved

product over its ancestor in terms of quality, reliability, ease of use, environmental protection, raw material use,

labor cost, and so on. It may also include the application of new and better production processes or techniques

that allow old or new products to be made more reliably, of better quality, or simply in larger quantities, or at a

lower price. Trade secrets, utility models/petty patents and patents are relevant for protecting, managing,

exploiting and leveraging both basic and improvement innovations.

An innovative new or improved product that meets customer expectations offers an existing or new business, new

market territory without competition for so long as it retains its innovative advantage. The IP system plays a

significant role in helping a business to gain and retain its innovation-based advantage. As a consequence, the

competitive edge that an entrepreneurial business may gain with a basic or disruptive innovation is likely to be

longer lasting than that obtained merely from an improvement innovation, assuming that the technological

barriers to competitors taking advantage of similar innovations are approximately equivalent, since a basic

innovation establishes a new class of product or service, entry of competition requires that the opportunity

provided by that class is recognized by a potential competitor before it attempts to enter the market. In the case of

an improvement innovation, not only are competitors for the class of product already in place, but since the

improvement innovation typically amounts to a better, faster, or cheaper way to build the product, its advantages

are far more quickly understood and replicated.8

Hence the need to use the tools of the IP system for both types of

innovations, except that generally there is a need for devising an offensive IP strategy for a basic innovation versusa defensive IP strategy for an improvement innovation.

A survey of economic studies reveals that patents are the most preferred IP rights in relation to technological

innovations. This seems to be due to the use of the terms innovation and invention as synonyms. This may

explain why studies on innovation have, in many cases, treated patents as proxy input for innovation.9

To be

specific, the number of patents owned by an enterprise has often been used as one of the main indicators for

determining innovation intensityof that enterprise. In addition, patents are also used as a measure of output of

innovation. However, while such an approach is useful, it does not look at the big picture about the important


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role of the whole IP system, including the subsystem of enforcing IP rights (comprised essentially of the police,

customs authorities and the judiciary), in facilitating the success of innovation in the marketplace. In this article,

however, the focus is limited to all IP related actions that must be taken within an enterprise at different stages of

the new product development process or cycle for using the different tools in the IP system for market success.

Innovation as a process, therefore, requires effective participation of individuals from different sections/divisions

of an enterprise, such as technical experts in R & D, marketing, management, finance, legal, etc., apart fromoutside consultants, suppliers, outsourced component manufacturers/service providers, business partners and

lead users.

However, for the sake of simplicity, it is assumed in this article that all actions concerning innovation in relation to

new product development happen within an enterprise.

An enterprise would be well positioned to benefit from innovation if it takes into consideration from the initial

stage of the new product development process the full range of IP issues. This is true whether the decision to

innovate is taken as part and parcel of the overall business strategy, one-off development of a new idea, or as a

reaction to developments in the marketplace.

Role of IP in Innovation

As there are many players involved in facilitating the market success of an innovation, the effective use of the

tools of IP will play an important role in reducing risk for the players involved, who may then be able to reap

acceptable returns for their participation in the process. IP plays an important role in facilitating the process of

taking innovative technology to the market place. At the same time, IP plays a major role in enhancing

competitiveness of technology-based enterprises, whether such enterprises are commercializing new or improved

products or providing service on the basis of a new or improved technology.

For most technology-based enterprises, a successful invention results in a more efficient way of doing things or in a

new commercially viable product. The improved profitability of the enterprise is the outcome of added value that

underpins a bigger stream of revenue or higher productivity.

Perception of Innovative Ideas

Whether an enterprises decision to innovate has been influenced by the overall business strategy (e.g. growth

through innovation) or a reaction to developments in the market-place, it is imperative that an innovative idea

must be treated as a secret if an enterprise wishes to appropriate potential commercial benefits from the idea (i.e.

the information surrounding the creation of the idea must be protected carefully as a trade secret). It should be

noted that not all commercially viable ideas can be or will be patented10

, hence the importance of treating ideas as

trade secret, in particular at the inception stage.

Empirical evidence indicates that generally small and medium-sized enterprises (SMEs) are more inclined to use

trade secrets rather than patents as a form of protecting their inventions to stay competitive.11

The main reasons

given by SMEs for shying away from patenting their inventions include high costs and complexity of the patentsystem. A study on patenting activity in Australia indicates that 44% of the firms used patents while 74% used

trade secrets as a way of protecting their ideas. It also showed that size was an important factor in determining the

propensity to patent, i.e. 35% of small firms with less than 20 employees used patents, while 75% of firms with

more than 500 employees patented their knowledge.12

In some cases, while patenting-related costs and complexity of the patenting process (especially relating to prior

art search and to the drafting of patent claims) may be seen to hamper innovation, (particularly, in cash strapped

SMEs) it is equally true that if used strategically, (i.e. in a patent-friendly business environment for SMEs or in


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partnership with others) patents can become a dependable source of new, additional or higher revenue for SMEs.

For an idea that may result in a patentable invention, the ultimate choice between the use of either the trade

secret route or the patent route for protecting it should be seen as a strategic business decision that should be

taken only at a later stage of its development when all the requirements of patentability are met, namely,

statutory subject matter, novelty, inventive step/non-obviousness, capable of industrial application, and adequate

disclosure. At that stage, the choice would depend on the nature of the invention, its business potential, the

nature of competition, the possibility of its independent creation by competitors and the ability of competitors toreverse engineer it easily from the product developed by using it. It should, however, be pointed out that whatever

the ultimate decision, initially it must be protected as a trade secret so that, later on a part of it may be patented

and the rest of it may still remain as the associated trade secret and know-how, or tacit knowledge owned by

individuals that are associated with the patent.

Technical drawings, which are in most cases part and parcel of technological innovations, are protected as trade

secrets and/or by copyright. It is important for the drawings to be dated so as to establish the date of creation.

Technical drawings could also, at a later stage, form an important part of the relevant patent application.

The Information contained in existing patent documents (patent information) plays an important role in the

conception, screening and development of an idea. Such information can provide useful insight into whether an

idea is new or not (state-of-the art) and whether to proceed further in developing an idea. Furthermore, properanalysis of patent information may provide an insight into the strategy of potential competitors and about

technology trends.

Research and Development Stage

Several indicators have been used to measure the efforts of an enterprise in undertaking research on and

developing innovative ideas. These include, expenditure on research and development (R&D), information on

innovation, total sales, firm size, innovation strategies, etc.13

These indicators are directly or sometimes indirectly

influenced by IP. The IP tools used during the conception of an innovative idea stage continues to be relevant

also during this stage. Thus, trade secret continues to be relevant, especially if the enterprise is yet to decide on

whether to file a patent application.14

Keeping trade secrets continues to be relevant during the entire R&D phase,

as one would not want the competitors to ever have access to vital information. If used by such competitors it

would result in the erosion of a competitive advantage, derived from the final product.

During this period, researchers should periodically consult several sources of information that would provide input

for the success of their project. Patent documents continue to be a relevant source of information that is often

grossly underutilized. The European Patent Office (EPO) estimates that 70% of the information in patent

documents is not available elsewhere,15

and with more than 800,000 patents granted annually around the globe it

does not take a rocket scientist to realize the wealth of information available in patent documents.16

Patent documents provide useful information on the state-of the art, which would enable an enterprise to avoid

unnecessary wastage of resources, in terms of money and time, during the R & D process, thereby hopefully

reducing the normally high R & D costs. Patent information can also provide useful information, which can lead to

product improvement or to design-around inventions, which may help to short-circuit the lengthy time frame

often required to take a new product to the market.

Unfortunately, for their business needs, many SMEs do not use patent documents as a source of competitive

intelligence. SMEs, particular in developing and least developed countries, should be made aware of and be

equipped to use business, legal, and technical information contained in patent documents, which is in the public

domain to come up with innovative product, which have been adapted to local conditions.


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Once an enterprise decides to rely on a utility model or a patent to protect its output of research and

development, it must initiate the required process, e.g., file a utility model/patent application. Such a move would

facilitate the establishment of filing date for determining the priority date and for claiming exclusive rights over the

output even before a patent is granted (unless on absolute or relative grounds the patent office refuses to grant a

patent). Most R & D results in both functional and aesthetic improvements. For protecting and leveraging new or

original designs, which are solely judged by the eye, one should proceed with the industrial design registration

process at the national/regional design office set up under the relevant national/regional design law.

IP as Life-line While Passing Through the Valley of Death of Innovation

In most cases, innovative technological ideas require further technical development so as to make them successful

in the marketplace. SMEs and other small technology-based innovative enterprises may not have the technical

resources and facilities to undertake such development, for example, for the development and testing of

prototypes. The protection of such ideas by IP rights ensures that these are not lost while taking advantage of

external technical resources and facilities owned by innovation centers, technology parks, universities, research

institutes, and other (big) companies. Furthermore, in the future development of an invention/design and taking it

to the market through partnerships (such as, joint ventures, strategic alliances, licensing agreements, merger or

acquisition) the ownership of IP provides a strong negotiating position in the process of getting into such a

partnership. Both parties would also avoid potential future conflicts if ownership of IP issues were resolved initiallywith clarity.

Inventors, be they independent or employed, are not necessarily skillful marketers or manufacturers; furthermore,

even the best products need the best marketing skills to succeed in the marketplace.17

In most cases, taking a

product to market has proven to be a big challenge to inventors, entrepreneurs, and enterprises, especially SMEs;

hence the existence of the concept of valley of death in innovation (the valley of death normally starts from

the period an invention has been made to the launching of a new product/process). This is the period where most

inventions collapse due to the absence of external support or are found to be not commercially viable.

IP, particularly patents, often play a crucial role in facilitating access to business angels, providers of early stage

capital, including seed capital, venture capitalists, financial institutions, and the like who/which may provide a

lifeline for an invention to reach the marketplace. As an example, take a look at the invention of Xerography. In

1937, Chester Carlson invented Xerography, which he patented in 1939. It took almost eight years for Carlson to

find an investor who was willing to invest in the invention. Finally, the Haloid company (which later became the

Xerox Corporation) successfully made the invention commercially available in 1950.18

It would be fair to suggest

that the existence of a patent held by Carlson significantly contributed to Haloid Companys decision to support

the invention. Most potentially innovative ideas end up in the valley of death. Those ideas, which are protected by

IP, stand a greater chance of surviving through the valley of death. In most cases, for successfully crossing the

valley of death, an invention often needs external help in terms of funding, technical knowledge, marketing, etc.

IP ownership plays an important role in influencing the decisions of external partners as to whether to assist in

navigating through the valley of death.

IP rights provide the holder with several opportunities, which can facilitate the successful completion of an

innovation. Such opportunities include sale, licensing, and various types of strategic business partnerships or

alliances in commercializing it.

IP rights can also facilitate the establishment of joint ventures. SMEs facing serious financial constraints but rich

with IP assets may find this form of partnership strategically useful. Ownership of patent and trade secrets may

play a crucial role in attracting potential partners. Sometimes, an enterprise with patented product and/or

valuable trade secrets may find it strategically beneficial to enter into a joint venture arrangement with an

enterprise with a strong trademark so as to secure more sales.


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Paying close attention to what competitors are doing while seeking to take advantage of its own IP assets may

prove a worthwhile strategy for an enterprise seeking ways of crossing the "valley of death." Owners of innovative

ideas protected by IP rights may find it relatively easier to enter into strategic alliances with favorable terms and

conditions. Such enterprises may benefit by getting access to R&D facilities owned by its partner or to distribution

channels and sales networks. An enterprise may also benefit from further development of its IP protected

product(s), as part of the strategic arrangement.

Venture capital investors play an important role in providing the much-needed funds, which enable enterprises to

cross the valley of death safely. A well managed IP portfolio may significantly contribute in influencing the decision

of a venture capital investor if the business plan and strategy of an enterprise indicates actual or potentially

effective use of IP rights that would enhance its potential for generating future revenue, market control or

developing a strong market position and its competitiveness.

Marketing of Innovations

Since successful innovation includes taking a new product to market, other IP tools become very relevant. Above

all, trademarks and industrial designs play an important role in the marketing process. These enable consumers to

identify a product/service of a particular company and enable them to distinguish the product from other similar

product.

A trademark is a useful tool in launching new product segments or entirely new products, technologically based or

non-technologically based, i.e., through brand extension. In addition, trademarks can be very effective in

penetrating new markets. Honda, for example, took advantage of its reputation in motorcycle engineering to

penetrate the US car market.19

Trademarks are also useful in extending commercial benefits beyond the life of a patent. The case of Aspirin

provides a good example. Developed in 1897 by Felix Hoffman, a research chemist working with Bayer Company in

Germany, the drug was patented in 1899 by the Bayer Company. Knowing that patents have a limited duration, the

Bayer Company embarked upon promoting a trademark for its new product. When the Aspirin

patent expired, the

company continued to benefit from the sale of aspirin through its established trademark Aspirin.

The Bayer

Company has also used the two-track IP strategy, i.e., using a trademark to protect market share after the expiry ofa patent, for its Cipro

product (ciprofloxacin for treatment of infections, including anthrax).

20

Technological innovation can also be supported well by a combination of patent, industrial design and trademark.

A look at the invention and development of the vacuum cleaner provides a good example of strategic use of a

combination of different types of IP tools, namely, patents, industrial designs and trademark.21

In this case, one

can see how the innovation is enhanced by the use of the three tools of IP protection.

Trade secrets, patents, trademarks, industrial designs, and copyright may separately or jointly facilitate the

acquisition of technology and its commercial use. Strategic use of a combination of IP tools in the innovation

process can significantly contribute to facilitating the appropriation of higher profits, maintenance of a premium

market position, thus enabling technology-based, innovative SMEs to have a high return on investment.

Conclusion

Innovation is not the same as invention. Innovation is a process, which begins from the conception of an idea to

the launching of a new product/process in the market place.

Intellectual property rights can be used effectively to facilitate successful innovation. Innovative technologies

stand a better chance of successfully reaching the marketplace if IP is used strategically. Gauging the importance of

IP in innovation by merely focusing on patents as input and/or output of innovation, does not do justice to the


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significant role that can be played by the other tools of IP. A broader approach to the contribution of IP in

innovation is therefore needed.

IP also plays an important role in safely navigating the "valley of death." It provides access to financing and

technical facilities. In addition, IP provides a strong negotiation position when it comes to entering into and

maintaining business partnerships.


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15

Outsourcing American Regime

"Outsourcing" became a popular political issue in the United States during the 2004 U.S. presidential election. The

political debate centered on outsourcing's consequences for the domestic U.S. workforce. Democratic U.S.

presidential candidate John Kerry criticized U.S. firms that outsource jobs abroad or that incorporate overseas in

tax havens to avoid paying their "fair share" of U.S. taxes during his 2004 campaign, calling such firms "Benedict

Arnold corporations".[citation needed]

Criticism of outsourcing, from the perspective ofU.S. citizens, generally revolves around the costs associated with

transferring control of the labor process to an external entity in another country. A Zogby International poll

conducted in August 2004 found that 71% of American voters believed that outsourcing jobs overseas hurt the

economy while another 62% believed that the U.S. government should impose some legislative action against

companies that transfer domestic jobs overseas, possibly in the form of increased taxes on companies that

outsource.[34]

Union busting is one cause of outsourcing. As unions are disadvantage by union busting legislation, workers lose

bargaining power and it becomes easier for corporations to fire them and ship their job overseas.[35]

Another given rationale is the high corporate income tax rate in the U.S. relative to other OECD nations, [36][37][38]and the practice of taxing revenues earned outside of U.S. jurisdiction, a very uncommon practice. However,

outsourcing is not solely a U.S. phenomenon as corporations in various nations with low tax rates outsource as

well, which means that high taxation can only partially, if at all, explain US outsourcing. For example, the amount

of corporate outsourcing in 1950 would be considerably lower than today, yet the tax rate was actually higher in

1950.[39]

It is argued that lowering the corporate income tax and ending the double-taxation of foreign-derived revenue

(taxed once in the nation where the revenue was raised, and once from the U.S.) will alleviate corporate

outsourcing and make the U.S. more attractive to foreign companies. However, while the US has a high official tax

rate, the actual taxes paid by US corporations may be considerably lower due to the use of tax loopholes, tax

havens, and attempts to "game the system".[40]

Rather than avoiding taxes, outsourcing may be mostly driven by

the desire to lower labor costs (see standpoint of labor above). Sarbanes-Oxley has also been cited as a factor forcorporate flight from U.S. jurisdiction.

Cotton output in India, the worlds second-biggest grower and exporter, may miss an earlier estimate because of

unseasonal rainfall in the main producing regions, a textile mills group said.

Output in the year started Oct. 1 may be 29.5 million to 30 million bales of 170 kilograms each, compared with

32.5 million bales estimated by the Cotton Advisory Board, D.K. Nair, secretary general of the Confederation of

Indian Textiles Industry, said in a phone interview from New Delhi today.

A lower crop may prompt India to retain restrictions on exports, bolstering global prices that have rallied 72

percent this year. Cotton reached $1.5195 on Nov. 10, the highest price since trading began 140 years ago, as

adverse weather damaged crops in China, Pakistan and the U.S.

Theres a near-consensus that the crop will be below 30 million bales this year after the unseasonal rains and

floods in some areas, Nair said. A lower crop should prompt a review of the surplus availability and the export

strategy.

Indias textiles ministry Oct. 11 halted registration of new export contracts after it got applications to ship 5.5

million bales, the maximum permissible this year. Louis Dreyfus Commodities, the top trader of cotton, and Cargill

Inc. are among companies that won permits.


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Shipments Capped

There may not be more than 3 million bales available for export as rains last month in Gujarat, Maharashtra and

Andhra Pradesh, the biggest growers, damaged crops, Nair said. Shipments may total 2.5 million bales, less than

5.24 million bales permitted by the Textiles Ministry for export by Dec. 15, Nair said.

The South Asian nation, a major supplier of cotton to China, will cap shipments of yarn at 720,000 metric tons inthe year started Oct. 1 to bolster domestic supplies, the government said last week.

There has to be some predictability about government policy related to cotton, Nair said. Any review of export

policy should be based on actual crop size.

Futures for March delivery fell 1.7 percent to $1.3002 a pound on ICE Futures U.S. in New York today. The

commodity is set for its biggest annual gain since 1973, according to Bloomberg data.

Demand in China is forecast to outpace supply by 17 million bales in the year ending July 31, the U.S. Department

of Agriculture forecast on Nov. 9. Stockpiles in the U.S. are predicted to fall to 2.2 million bales this season, down

25 percent from 2.95 million last year. A bale in the U.S. weighs about 480 pounds, or 218 kilograms.

Consumer Resistance

Global availability isnt likely to improve anytime soon and that may be seen as supportive for prices, Nair said.

But prices have reached a peak where consumer resistance will come into play, he said.

Cotton arrivals in India this year have lagged behind last years levels after rain slowed harvests in the main

growing region. Arrivals were 7.02 million bales by Dec. 5, compared with 7.21 million a year ago, Cotton Corp. of

India said Dec. 6.

Indias post-monsoon rainfall in October and November was 17 percent higher than the level deemed normal for

that time of the year, according to the weather department.

NEW DELHI/COIMBATORE: Union Textiles Minister Thiru Dayanidhi Maran on Saturday indicated that

not a single bale over the 55 lakh bales already approved for exports would be allowed to be exported.

Maran said this while laying the foundation stone for Erode Powerloom Mega Cluster in Erode, Tamil

Nadu.

Pointing out that the exorbitantly increasing cotton prices are harming the domestic textile industry as a

whole, he assured that the Textiles Ministry would make all out efforts to protect the domestic industry.

Maran today laid the foundation stone for a massive textile marketing complex under the

comprehensive Powerloom Cluster scheme administered by the Textiles Ministry.

For this mega cluster the Union Government has sanctioned Rs.70 crore as subsidy.

Dip in cotton production and boost in consumption


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With cotton production for 2010-11 estimated at 309 lakh bales and consumption about 285 lakh bales,

any further export would seriously affect the entire textile value chain, Southern India Mills Association

(SIMA) said here today.

The Cotton Advisory Board (CAB) at its January 6 meeting has overestimated production and under

estimated consumption, SIMA Chairman, J Thulasidharan said in a statement here.

As against CAB estimates, Northern crop would be less than 40 lakh bales, Gujarat's less than 100 lakh

and Maharashtra 80 lakh bales as against estimated 92 lakh bales, he said.

Based on the latest information from South India Cotton Association and SIMA members, estimated

cotton production would be around 309 lakh bales, he claimed.

On consumption, Thulasidharan said the Textile Commissioner's office has already estimated it at 275

lakh bales. However, non-submission of data by some mills and also capacity being added in the

spinning sector, the requirements, including non-mill consumption, would exceed 285 lakh bales.

Viewing production and consumption data,any further export would seriously affect the entire textile

value chain,he said, adding that even with current cotton position,mills would face cotton shortage from

July, resulting in abnormal increase in yarn prices, ultimately affect the common man, he said.

Thulasidharan urged the textile ministry to take up the matter with Commerce and Agriculture

ministries and restrict the cotton export at 55 lakh bales. The permitted quantity of cotton export has

already exceeded the quantity decided by the Group of Ministers, by two lakh bales, he added.


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Obama Speaks Out Against Offshore Outsourcing

In his acceptance of the Democratic presidential nomination last Thursday, Senator Barack Obama promised to

deny tax breaks to companies that send American jobs overseas. Critics say Obama's plan needs more specifics.

Computerworld Sen. Barack Obama (D-Ill.) attacked offshore outsourcing in his acceptance of the Democratic

presidential nomination Thursday night, drawing a bead on a practice that has displaced nearly one in 10 IT

workers, according to a new study.

Obama said that as president, he "will stop giving tax breaks to companies that ship jobs overseas, and I will start

giving them to companies that create good jobs right here in America."

Economists and legal advisors contacted about those comments said they are unaware of any specific tax breaks

aimed at offshoring tech jobs. Instead, they said, Obama may be targeting broader tax deferment strategies, such

as the ability of multinational firms to avoid taxes on profits by moving money overseas.

Joe Greco, director of California State University-Fullerton's Center for the Study of Emerging Markets, discounted

the impact of tax code changes on the broader offshore trend. "Any plans for a tax code change are like trying to

plug a hole in a leaky dam with your fingerto believe the U.S. government tax code promotes outsourcing is a

major misconception of the fiery debate around outsourcing offshore," he said.

But Obama could have more success fighting the shift of jobs overseas through the second half of his pointby

creating incentives for companies to add jobs in the U.S, said Greco. "If you want to be a magnet, you can be a

magnet," he said.

Indeed, Jim Harvey, the partner and co-chair of the global technology and outsourcing practice group at Hunton &

Williams LLP in New York, said state and local governments can be very active in creating incentives to retain jobs,

including tying a particular number of jobs to the size of a tax break. Such incentives, he said, can make a

difference for some clients. "Incentives to keep jobs on shore, targeted at the IT industry, would make a lot of

sense," Harvey said.

But tax breaks to keep jobs in the U.S. don't always work. The Nielsen Co., recently gave up local tax breaks it

received in Florida after it hired an India-based firm.

If Obama plans to keep giving attention to offshore outsourcing, he is hitting an issue that is having a major effect

on tech workers. In what may be the largest study of its kind, involving 10,000 workers and human resources

professionals across a range of occupations, researchers at the New York University Stern School of Business and

Wharton School of the University of Pennsylvania found that 8 percent of IT workers in the U.S. have been

displaced. The study was released last week.

As high as that figure is240,000 out of some three million tech workersRon Hira, an assistant professor of

public policy at the Rochester Institute of Technology and author of Outsourcing America , said it still understates

the impact of offshoring on IT workers.

"First, there are many cases when a worker or even employer doesn't realize that they lost a job or a project to an

offshore outsourcing firm," said Hira. "Second, it (the study) doesn't count the number of jobs that are created

offshore in lieu of being created here. Before offshore outsourcing, those job opportunities would have been

here."

Among other issues Hira raised is the effect of offshoring on wage suppression in the U.S., as well as the impact of

H-1B and L-1 visas.


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Advocates of offshore outsourcing, which include the titans of the tech industry, have argued that it creates jobs at

U.S. firms. That argument is typically raised as a lobbying point in getting Congress to raise the H-1B cap, now set

at 85,000. That total includes 20,000 for foreigners who have earned advanced degrees at U.S. institutions.

Obama has supported raising the H-1B cap, as has Sen. John McCain, (R-Ariz.), the presumptive Republican

presidential nominee. Opponents of the H-1B visa program cite its heavy use by offshore firms in arguing that it

facilitates the offshoring of U.S. jobs.

Firms in India, in particular, aren't just competing on low cost but on the increasing quality of their services, said

Stephanie Moore, an analyst at Forrester Research Inc., in Cambridge, Mass. The cost of doing work in India is

increasing, but users are gaining through the better efficiencies these firms offer, which can deliver savings in their

own right.

Virendra Singh, a senior economist at Moody's Economy.com, said the cost savings overseas is too great. "In case

of labor-intensive industries like programming, help desks, call centers..., the labor cost differential between the

U.S. and countries like China, India, Philippines and other developing countries is too large to make any

difference."

Singh also said the computer and systems programming "visa regime in the US is too restrictiveso companies willgo wherever talent is available."

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