The business activity of multinational enterprises (MNEs) is impacted by the quality of a host country’s patent system. A firms’ ability to appropriate returns for their investment in areas such as R&D and innovation depends upon both the existence of patent-related legislation in the legal framework of countries, and the ability of government agents and institutional actors to enforce it.
Until now, other available indices in this field were mainly designed to indicate the existence of patent-related legislation only. The Index of Patent System Strengths rates the effectiveness of the patent systems of 49 countries by focusing on the enforcement of patent legislation. Following the rationale of transaction cost theory, we calculate a new dataset that captures how managers perceive levels of patent enforcement in a country as well as the general effectiveness and efficiency of the national patent system. The index is calculated by applying a methodology which is fully transparent and replicable, following established and reliable procedures recommended by the OECD (2008).
- For the majority of countries covered, the new index reveals a clear contrast between levels of book-law protection and the enforcement system on the other. In other words, while legal protection for protectable technology is readily available, adequate enforcement of these rights might not be.
- In countries where patent systems are weaker, managers are likely to experience greater transaction costs as they engage with enforcement issues.
- In the post-TRIPs era, governments have sought to improve book-law protection levels to align with international standards. But problems associated with the enforcement of such laws means that MNEs continue to experience difficulties in upholding their patent rights around the world.
- Managers will be able to use the new index to identify those countries where the enforcement aspect of the patent system is liable to be problematic or to consider numerical values that may confirm or reject their preconceptions.
- The study has implications for business and economic analysts who are looking to model the policy implications of macro-economic and institution-related phenomena from a patent enforcement-related perspective.
- Managers should be cognizant of the nature of local patent protection and enforcement levels when developing business activities abroad, rather than simply responding to infringement issues as they arise.