Katonomics 14: largely neglected -- design rights

When it comes to design,
who says the Kat's no mug?

Today we take pride in welcoming back the irrepressible, irresistible, inimitable Doctor Nicola Searle for the third in her series of Katonomics posts. For the benefit of new readers (and the IPKat is delighted to say that there are 298 more email subscribers now than there were in February, when the second series finished), Katonomics is the Kat's IP-friendly version of economics. The idea is that economics, which almost exclusively drives IP these days, should be demystified and made more accessible to the IP community. If you don't believe that this can be done, or done well, you can check out the details of the two earlier series here. The chosen subject for Nicola's first post in the third series is designs. She writes:

Greetings IPKat readers! It is a pleasure to return for my third Katonomics series. To start off the new series, I’m looking at design rights. I knew before researching this post that it would begin with the words “Economics has largely neglected design rights.” What I didn’t appreciate was how true that would turn out to be. My first stop, Google Scholar, drew zilch, not a single paper. Much to my academic chagrin, I then resorted to a generic Google search. There, in the un-peer-reviewed masses, was a wealth of excellent work. The UK IPO has the lion’s share of economic analysis of design rights. 

What does design contribute to the UK economy? Measuring this is not straightforward as design activities occur across a number of sectors and jobs. Economists Haskel and Pesole in their IPO report map the state of UK design. Defining design occupations as “Architects, Engineers and Graphic, Product, Clothing and related designers”, they calculate that there are 55,000 people employed in the UK in the sector (slightly smaller than the pharmaceutical industry, and a small enough number to fit into Chelsea's hoped-for new football stadium, the IPKat adds). In 2008, UK private sectors purchased £26 billion worth of design services in addition to £7.5 billion of in-house production. Design looks to be big business. 

As an incentive to innovate, protection for designs is reasonably straightforward using social contract theory. Designers invest in R&D to innovate and generate better designs. Without protection, these designs are easily copied which decreases the ability of the designer to appropriate the rewards from their investment. It is in the interest of society to encourage innovation in design as it leads to economic growth and better experiences for consumers (and iPods.) Hence, we have design rights. 

Evidence to support this for this comes from Bascavusoglu-Moreau and Tether’s report for the IPO. The authors use matching to examine the impact of the use of design rights on financial performance. Matching is an analysis technique that pairs up different populations (e.g. subjects taking a placebo and subjects taking a medicine) and tests for differences. This allowed Bascavusoglu-Moreau and Tether to test if a firm’s use of registered design rights is associated with improved financial performance. The results were ambiguous in that there was no performance bump (or dip) from the use of registered design rights. 

Are design rights not working? If there is no relationship between registered design rights and financial performance, what is the incentive to innovate? As a potential explanation, Bascavusoglu-Moreau and Tether note that, given the limited market lifespan of some designs (e.g. fashion) the three-year lifetime of an unregistered Community design may suffice. Haskel and Pesole find, “firms report that design gives benefits for just under 4 years (4.6 years in production, but 3.7 years in services).” For many designs, the cost of a registering the design outweighs the benefit of the additional protection. 

Perhaps we interpret design rights incorrectly. Parchomovsky and Siegelman argue here that the benefits of IP can be found in the combinations of IPR. Rather than view design rights independently, we should consider them in the context of their combination with other IPR. For design rights, which overlap with other IPR, this integrated approach may be appropriate. 

Copyright, trade marks, patents and secrecy are cited as IP protection mechanisms used by design firms in the IPO report by Moultrie and Livesey. They find firms are sceptical about the costs and success of registered design litigation, particularly UK registered designs, and instead rely on other IP. Branding can be an effective substitute. However, the study found relatively low knowledge of design rights (particularly among technology firms). 

To complicate the picture further, Orozco argues here that design rights are not obtained because individual departments fail to coordinate. He calls this process “rational design rights ignorance.” As office politics teaches us, departments often operate in the best interests of the department, and not of the firm. This discord means firms will fail to obtain the more integrated design rights and instead rely on a collection of trade marks, copyright and patents. 

Moultrie and Livesey also find that firms are confused by the various national and international design rights. The final chapter in the IPO tome, by BOP Consulting, details these rights. The UK has relatively low levels of design registration in comparison to the similar economies of Germany and France. Again, they find that UK design innovators rely on other forms of IP for design protection. 

Finally, enforcement of design rights is not straightforward because design is often cumulative (builds on existing design).  Determining where one design ends and another begins is difficult. American researcher Callman noted in 1940 that design patents in the US “failed to realize that the occasion is rare when a purely original design is created,” and that slight modifications in design can be very valuable. If, as Moultrie and Livesey’s research suggests, firms do not feel that design rights are enforceable, then the current regime leaves these valuable modifications unprotected. 

Design rights remain a challenging policy area because their use is little understood. In an effort to correct this, the UK IPO is conducting a survey (closing soon!) 

And for IPKat readers, I invite you to propose solutions to the design right conundrum: if design rights are confusing and under-used, how should we change them?