Wednesday 2 December 2009

Is IP Good for Industrial Clusters?

Small-firm clustering has been championed as a strategy for enabling such companies in the aggregate to compete successfully against rivals in emerging markets. The idea is that these companies can tap the pool of manpower and resources in a local area for their collective benefit of the participants. Perhaps the most heralded example of this strategy are the many local artisan and manufacturing industries that are found in Italy. Whether it is eyeware, recycled wool, or furniture, or hundreds of other products, these clusters of industrial activity have served as a model for Italian competitive advantage.

If this be so, then an article in the October 17 issue of The Economist surely makes depressing reading for anyone with an interest in the future of the Italian economy. Entitled "Sinking Together: Italy's Business Clusters", the article describes the difficulties facing these fabled industrial clusters. As described in the article, clustering is especially important in Italy, "where firms are generally makers of traditional consumer goods, small or medium-sized, family-owned, dependent--directly or indirectly--on exports and, for reasons of geography and history, clustered together." Whether a casualty of the world economic meltdown, or due to larger factors of the rearranged industrial balance between developed and emerging economies, the situation appears to be the same: the clusters are in trouble.

Against this gloomy backdrop, can the Italian clustering model survive? The view of Giacomo Vaciago, of the Catholic University of Milan, is that it can, if it adopts the following model, as described in the piece--"... transform themselves into districts where new ideas are dreamed up, designs developed and goods finished, with most production taking place in cheaper spots abroad." If Professor Vaciago is correct, the question then arises: What is the role of IP in this remade form of Italian industrial clustering"?

Find the Design Clusters

The immediate instinctive response is to argue that focusing the activities of the clusters on creation and design must certainly mean that IP protection will become even more important. After all, creation and design must be protected to realize their full value. Not so fast, however. An argument can be made that what is needed--IP-wise--for these clusters to flourish is actually less IP protection and more the encouragement of copying and imitation. What possibly can I mean here?

There is a developing body of research that points to norm-based systems of "IP" creation and enforcement that lie outside the traditional IP framework. One notable example is the work of Von Hippel and Fauchart ("Norms-Based Intellectual Property Systems: The Case of French Chefs", 2006) here. Another example, more germane for our topic, is that work of Raustiala and Sprigman, "The Piracy Paradox: Innovation and Intellectual Property in Fashion Design", Virginia Law Review (2006), on the nature of the U.S. fashion industry.

There the argument is made that copying and imitation are forms of signaling, which alert industry participants to ratchet up their creative activities to find the next new successful fashion. Given the short-time line of fashion cyclicality, traditional IP protection and enforcement is of lesser importance. In this context, IP litigation is all about fighting the last war rather than readying the design troops to prevail in the battle for capturing the next successful fashion design. Of course, there are limits, such as blatant counterfeiting and straight-on trade mark infringement. Short of that, however, copying and imitation should be encouraged, not discouraged.

If this view is correct, it suggests that Italian clustering will succeed only if traditional IP principles do not get in the way of exploiting the advantage offered by enhanced collective copying and imitation. Secrecy will still be important--I do not assume that all of the members of the cluster will share their creative thoughts and plans on the front page of La Stampa. That said, the enhanced focusing of design and creation as the raison d'etre of the Italian cluster industry poses a fundamental challenge: How to allow pro-competitive copying and imitation, without undermining the foundations of IP protection that are the behavioural norm in the broader competitive landscape? At least in part, the vibrancy of the Italian economy may rely on its outcome.

Inspiration or Imitation?

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