China climbs ladder of knowledge as Union?clings on

Time was when the value of most top companies was still determined by the income generated from ownership of tangible assets, notably machines. These days, however, large chunks of the global economy are fuelled by something far more abstract: ideas.

But this magical knowledge economy is not as simple as it seems. Carving up ideas, contrary to the fencing-off of land that sparked the property rights movement a few hundred years ago, is an inexact science.

"Pretty much all intellectual property is a deal. It’s a trade-off," says Paul Leonard, director of the Intellectual Property Institute, a UK charity. "If you take patents, the whole idea is that it encourages you to open up your secrets to the public. You’re allowing everyone to have access to your ideas, but in return for that you get protection for your invention. Increasingly, in rapidly changing areas of technology, framing the law so that interests are balanced is becoming a challenge."

Deciding what is and, inversely, what is not worth patenting in new sectors can be difficult, particularly in domains such as science where the flow of information was freer in the past. As science becomes increasingly commercial, so the pressure to patent anything and everything grows. As a result, areas such as biotechnology have experienced something of a gold rush. Conferring a monopoly on relatively minor discoveries, however, has little economic or legal value.

Developing patent standards to ensure the highest possible quality can take time. "The thing is to ensure that people get it right, rather than throwing the baby out with the bathwater. We’re still struggling to work out what is and what isn’t inventive," says Leonard.

Deciding on appropriate methods of protection can also be an issue. Copyright law (used to protect artistic, musical or literary works) is often blamed for a range of ills, Leonard points out. But, he says, many of the problems cited by industry come down to a failure to respond to new technologies. Those major music companies complaining about peer-to-peer downloads may have avoided major financial losses had they moved quickly enough to exploit the new technologies.

The craze for patents in economies such as the US, where companies claim as many rights as possible as a means of self-defence, is often derided for its potential chilling effect on innovation. Using this method, big companies ensure they are not held to ransom and keep rivals at arms length. Smaller companies are ill equipped to compete in this kind of environment. The flip side of locking up intellectual riches is that the supply of new ideas could be diminished.

But the trend for securing rights is set to continue. As it becomes harder and harder to compete with Eastern economies on price and manufacturing competence, intellectual property is becoming increasingly valuable in the West. But the latter’s ‘knowledge edge’ over developing countries will be short-lived. China, for example, which is often mocked for its copycat tendencies, is scrambling to form its own knowledge economy. This year, a manufacturer of flash memory products from Shenzhen brought a patent suit against a US rival in a Texas court in what is believed to be the first serious challenge of this kind mounted by a mainland Chinese company. The case, it was said, was a harbinger of things to come.

Time was when the value of most top companies was still determined by the income generated from ownership of tangible assets, notably machines. These days, however, large chunks of the global economy are fuelled by something far more abstract: ideas.