Abstract
The Soviet system of knowledge production based on cooperation, knowledge sharing, but also intense competition was already an inspiration for innovation policymakers in the U.S. and in Europe back in the 1950 and 1960s. Nowadays, as the global economy is moving towards a new mode of production, the Soviet case may still play an important role to help to frame a better institutional approach to innovation. With the dramatic challenges already brought by the fourth industrial revolution and the tectonic economic and social shifts it is expected to cause around the world, the Soviet case with all its pros and cons is becoming more and more relevant for this debate as it provides necessary empirical data to consider other institutional approaches to innovation distinct from the established property-focused model. In this context, intellectual property and competition law scholars hopefully would better understand the Soviet innovation system through further academic studies.
Keywords
I. Introduction
Innovation has become a highlight of policy reforms around the world, as global economic competition has been slowly but steadily reduced to an ability to harness a dynamic technological and social change. 1 In this context, innovation policy as a scholarly field is becoming extremely vague while embracing a broad range of topics—from educational and immigration policies to environmental regulations, taxation, and capital markets. 2 But it would still be fair to say that the foundations of any institutional approach to sustaining knowledge production in the most advanced economies are primarily defined by the legal regimes of intellectual property (IP) and competition law as both the property regime and economic competition represent the key elements of market-driven knowledge production. Both IP and competition law, as it is now widely recognized, define innovation as their common objective. 3 Based on this shared vision, the discussion about the interface of IP and competition law today is focused primarily on finding an optimal combination of incentives for economic agents to intensify their innovative activities—innovation carrots provided by the exclusivity regime of IP rights, and innovation sticks coming from the potent economic competition that should be guaranteed though the effective enforcement of competition laws. 4
As this debate has evolved, a number of more fundamental questions have also arisen in an attempt to find a mode of knowledge production that can improve economic and social development. To a certain extent, we are witnessing another iteration of the debate starting back in the 1960s and commonly associated with the names of leading economists of that time, Kenneth Arrow 5 and Harold Demsetz. 6 As it is perceived now, the principal choice is between two main institutional approaches: the one based on the exclusivity regime for knowledge and information and apparent incentives to innovate that such a regime creates, and another one based on access to knowledge and information and a more vigorous economic competition in knowledge production stimulated through different public policies, including prizes and procurements. 7 As the legal instruments used for promoting exclusivity or encouraging a wider dissemination of innovation are quite diverse, there is space for institutional experimentation. A number of recent scholarly publications in the field are showing a growing interest in exploring new institutional approaches to knowledge production aiming to overcome the known shortcomings of the existing legal framework for innovation. 8
The mainstream model of the knowledge production in the most advanced economies of our time still primarily relies on property-like exclusivity as an incentivizing mechanism accompanied with a limited competition law intervention acting essentially as a balancing tool to overcome market flaws in the knowledge production. This institutional approach is compared in the literature to such alternative settings as commons-based production, prize systems, and government procurements putting more emphasis on diffusion and dissemination of knowledge rather than an exclusivity regime. All these institutional alternatives are now seriously considered as possible ways for innovation policies development. 9
At the same time, the existing legal framework both at the national and international levels creates a substantial obstacle for serious experimentation with the institutional approaches to innovation. The property-like exclusivity regime for knowledge and information is embedded in the global economic order though the World Trade Organization (WTO) Agreement on the Trade-Related Aspects of the Intellectual Property Rights (TRIPS) and supported through a number of other legal mechanisms like bilateral and multilateral free trade and investment agreements aiming to reinforce this exclusivity regime by all available means.
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The regulatory abilities of states, even the most powerful ones, are not producing the same regulatory result as in the past. Noam Chomsky underscores this problem by stating that privatization and globalization, working together, have transferred democratic decision-making on policy from the public arena of the nation-state to the masters of the new economy who can use their global information systems to tame public interest movements like antitrust and to replace the regulatory rhetoric with a new rhetoric of free markets and private power. Hence, free trade arrangements facilitating world trade and capital mobility operate without public supervision and control.
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At the same time, the twentieth century has seen an outstanding case for a large-scale alternative approach to innovation that is still primarily neglected in the innovation policy literature, not even to mention the debate in the more technocratic sphere of IP and competition laws. The Russian economic cycle in the last hundred years went through a series of transitions—from a primary agrarian economy though a rapid industrialization to one of the two most technologically advanced global superpowers, and then through a massive and abrupt deindustrialization back to a primarily commodity-exporting nation. Commemorating the centenary of the Russian Revolution, the country is again in a desperate search for a recipe for economic development. It is not yet clear whether the Russian way in the twenty-first century will be defined by a not that successful continuing replication of the existing models of innovation policies still used in the U.S. and Europe, or whether the country will try once again the uncharted waters of institutional experimentation; but the story of the rises and falls in Russian knowledge production is an important case to learn from.
II. An Alternative History of Innovation
A renowned MIT historian of science, Loren Graham, has noticed not without regret that the Soviet Union is gone, and most people who recall it today do so only with the thought that it was a totalitarian horror, best forgotten. The Soviet Union has a far greater significance. It was, during its existence, the only advanced industrial society based on principles—economic, social, philosophical—strikingly different from those of other industrial nations. That fact presents us…with rich analytical possibilities.
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It would not be an overestimation to say that the Soviet Union contributed much to the world’s current advanced state of science and technology. 14 Just a brief list of the main Soviet scientific breakthroughs includes the most disruptive inventions of the last century. The first and largest collection of cultivated plants in the world was created by Nikolay Vavilov at his Laboratory of Applied Botany in Petrograd in the 1920s and 1930s. The first artificially induced mutation in an organism was realized in 1925 by Georgy Nadson and Grigory Filippov in Petrograd. In 1927, Georgy Karpetchenko became the first scientist to cross two different plant species. The same year, Nikolay Koltsov became the first scientist to postulate that inheritance was controlled by a self-replicating chemical using a template mechanism—his theoretical insight was a brilliant anticipation of the discovery of the structure of DNA, which did not take place until 1953. 15 In 1937, the first organ transplant in animals was successfully made by Vladimir Demikhov, an organ transplant pioneer, who also made the world’s first artificial heart (1937), the first heart-lung transplant (1946), the first liver transplant (1947), and the first head transplant (1954). In the 1930s through the 1950s, Leonid Kantorovich, a mathematician and economist, invented linear programming and later won a Nobel Prize for Economics in 1975. 16 Pavel Cehrenkov has contributed to the progress of physics with the invention in the 1930s of Cherenkov detector and Cherenkov radiation, recognized by a Nobel Prize for Physics in 1958. In 1937, superfluidity of liquid helium was discovered by Petr Kapitza, also a Nobel Prize for Physics laureate. In the sphere of rocket science, already by the end of the 1920s the Soviet inventive engineers Michael Tikhonravov and Michael Okhotsimsky, who carried out research in a number of concrete problems of the physics and technology of jet-propulsion, practically developed the brilliant ideas of Konstantin Tsiolkovsky, a renowned father of modern rocket science, and came up with a modern multistage rocket design still used by all space rocket producers around the world. The 1950s saw a breakthrough invention of uranium cracking and the first thermonuclear bomb built by Andrey Sakharov and a famous Soviet theoretical physicist Igor Tamm. Also in the 1950s, a Soviet chemist and a Nobel Prize laureate Nikolay Semyonov created the theory of chain ramified reactions that turned out to be of great importance for world science, as it described the basic laws of chain processes and outlined the ways of controlling a developing chain reaction. A breakthrough invention of masers, prototypical laser, and laser itself was also made by the Soviet physicists Alexander Prokhorov and Nikolay Basov, both Nobel Prize laureates, who were also the creators of the first quantum generator and a range of lasers. In 1954, the first nuclear reactor in Europe was built by Igor Kurchatov. In 1957, the world’s first intercontinental ballistic missile was launched by a team led by Sergey Korolev. The same year the Sputnik satellite was launched by the same team, and four years later, the first human space flight occurred, with Yuri Gagarin the first human in space. Also in 1958, the world’s largest, 10 billion electron-volt accelerator was put into operation in the USSR based on the method that is now used all over the world (Vladimir Veksler). In 1962, the world’s most rigid intraocular lenses were invented by Svyatoslav Fyodorov, who also developed a new surgical technique to treat the early stage of glaucoma that became widely used around the world. In 1968, the world’s first supersonic airliner, Tu-144, was built by a team led by Andrey Tupolev, who designed and put into mass production over 70 types of aircraft. In 1970 the world’s first stable transistor/semiconductor heterostructures were invented by Zhores Alferov, a Nobel Prize laureate. In the same year, the world’s first lunar rover, Lunokhod-1, landed on the Moon, while Lunokhod’s main body was kept warm by a radioisotope that generated heat as its radioactivity decayed. 17 In 1971 the world’s first space station was launched into the Earth’s lower orbit. 18 There were many other breakthrough inventions made by the Soviet scientists and engineers that literally redefined the world we live in and massively contributed to the new phase of industrial revolution. 19
Although, at the end of the day, the Soviet Union turned out not to be a success story in the economic and political sense since it collapsed and basically dissolved under the pressure of the social and economic tensions it accumulated throughout its lifespan, the story of the Soviet approach to innovation taken separately from the Soviet political order and general economic well-being is a remarkable example of an efficient institutional design in its own right. It is worth noticing that the Soviet Union was a relatively isolated country during most of the time of its existence. From its inception after the 1917 Revolution, Soviet Russia with few exceptions was under the constant pressure of economic sanctions and all sorts of blockades imposed by the most advanced economies of the Western world. The USSR, for instance, was excluded from any material technological and scientific cooperation with the Western institutions. Additionally, in the short period from 1917 to 1945, Soviet Russia went through a series of some of the most tragic and disastrous catastrophes that ever happened in human history. During the Second World War, Russia had to confront the toughest hit among the nations involved, as the Nazi-led invasion took the lives of more than 30 million Soviet citizens, as well as in essence ruining the country’s economy and infrastructure. After the war, the Soviet Union for the remaining period of its existence faced the enormous challenge posed by the Cold War, which turned into an ongoing military and political confrontation with NATO. A huge amount of resources were exhausted just to sustain the geopolitical status quo in this intense multilayer confrontation with the most powerful economies of the postwar world. With all these factors taken into consideration, Soviet scientific development looks even more outstandingly successful. Soviet science for a substantially long period from the early 1950s to the mid 1970s was not just competitive but in a number of areas superior Western science. At the same time, the population of the Soviet Union never exceeded 300 million people. During the peak of Soviet knowledge production in the 1950s and 1960s, the population was less than 200 million, and that was about half the population of the core Western world (the U.S. and its main Western allies) of that time.
An answer to the question of the Soviet innovation success can be drawn from the institutional design implemented by the Soviet state in the field of knowledge production. As Loren Graham rightly observed, “The Soviet Union was the first nation to recognize science as a natural resource, to commit systematically large shares of its budget to the promotion of research, and to try to plan the development of science and technology.” 20
Although now almost neglected, the Soviet mode of knowledge production already had a huge impact on the development of the American and Western innovation ecosystem in the course of the twentieth century. The Sputnik moment that happened in 1957 was also a turning point in the history of American innovation policies development. In his recent book on the Soviet space program, Professor Asif Siddiqi describes a number of clear outcomes for Western innovation policies caused by the Soviet achievements in rocket science. First, the West had to accept the existence of a superior model for innovation: For years, many Western observers had disregarded Soviet assertions as crude propaganda, but the clear trail of the Sputnik satellite above the night skies of the American Midwest denuded the dismissive tenor of Westerners of its power, making clear once and for all that Soviet claims for global preeminence in science and technology rested on inarguable truths.
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The Eisenhower Administration produced legislation to create several new agencies, including the National Aeronautics and Space Administration (NASA). By the early 1960s, government-funded projects to improve the scientific and engineering expertise of the country vastly expanded. Believing that better education in Soviet Russia contributed to Sputnik, huge amounts of money poured into the American higher education system, making it a key component in the battles of the Cold War. These policies—the creation of new government agencies, an increase in state-sponsored research and development, and the expansion and restructuring of higher education—significantly influenced America’s political, social, and cultural trajectory in the Cold War.
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A. A Case for “Socialist Competition”
The Soviet model of innovation was envisioned soon after the 1917 Revolution. Already in January 1918, Vladimir Lenin stipulated at the Third All-Russia People’s Deputies Congress that “from now on all the marvels of science and the gains of culture belong to the nation as a whole, and never again will man’s brain and human genius be used for oppression and exploitation.”
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Historians of Marxism have explained this approach though a clear ideological narrative proposed by Marx himself. For instance, a renowned expert in Marxist studies, professor Vadim Mezhuev, has noted that Marx had no doubt that economic production in which science and knowledge became the key productive forces, the primary factors of production, could not any more operate and further develop under the rules of capitalism. Science, knowledge, cannot become objects of someone’s private property. And as a primary productive force they cannot be privatized, and by their very nature they belong to everyone and all people.
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The USSR joined the Paris Convention for the Protection of Industrial Property in 1965, the Berne Convention for the Protection of Literary and Artistic Works in 1968, and the convention establishing the World Intellectual Property Organization (WIPO) in 1973. Later in 1978, the Soviet Union also ratified the Patent Cooperation Treaty that allowed the Soviet inventors to streamline legal protection for their inventions in other jurisdictions with the help of international cooperation mechanisms. All these international agreements on IP protection support an argument that the Soviet model of recognizing inventive achievements was operating in a similar fashion than the work of the patent offices in other jurisdictions, including those in developed capitalist economies. However, as we have previously indicated, the principal model of recognition and reward for inventions in the Soviet economy was a form of fixed prize accompanied by a number of other social benefits.
The Soviet participation in the abovementioned international conventions makes possible a comparison of innovation results if these are measured by the number of inventions recognized by a patent office. The Soviet system of inventions recognition both resulting in the issuance of patents and the “certificates of invention” was using essentially the same three-element test on novelty, nonobviousness and utility as any other patent office. The only difference was in the form of reward the inventor could claim if he chooses to apply for a “certificate” instead of a patent. The fact that the majority of the Soviet era inventors were preferring the “certificates” rather than patents can be explained by the simple fact that in the Soviet economy there was no open market for inventions, and the patent could make sense only in the case of possible licensing agreements with some foreign enterprises. For an average inventor, this kind of opportunity was a serious challenge, as he would not have direct access to the foreign markets to sell his invention. The internal market for inventions in the Soviet economy was nonexistent, as most of the knowledge produced by the Soviet enterprises was freely shared among the enterprises involved in the innovation process. One can argue that the innovation system as a whole was operating on the basis of open exchange and scientific collaboration—knowledge was freely disseminated along a number of channels including libraries, and a wide network of scientific and industrial R&D centers and so on. In this context, a fixed monetary award combined with other social benefits would be the better practical choice for the Soviet inventor.
The open exchange of inventive results was one of the characteristics of the Soviet innovation ecosystem. This also meant that in the Soviet system, market forces did not play an essential role. However, we cannot say the same about competition. “Socialist competition,” a concept widely used in the organization of Soviet science and industry, was an elaborate process aimed at releasing human competitive forces based on a whole range of incentives—public recognition, career promotions, and even material rewards. Vladimir Lenin has criticized competition under capitalism as “the incredible brutal suppression of enterprise, energy and bold initiative,” playing into the hands of corporate financial interests. At the same time, he argued that under socialism, competition would allow workers to “display their abilities, develop their capacities, and reveal those talents” suppressed under capitalism. 28 The socialist competition should therefore be considered as a special form of competition generating reputation-building behavior. In this framework, the loser does not leave the stage, but gets the opportunity to improve his results based on the advantages of a more competitive product. It was perceived not as a form of struggle, but as a form of cooperation to achieve a common goal—the progress of science and humanity.
The phenomenon of socialist competition could be best understood from the perspective of the competitive altruism conception, according to which cooperation and not conflict is used as the way to get competitive advantage. 29 Sport served as an inspiration. Already in 1928, the young Soviet government had introduced a law on the stimulation of innovation through personal awards to inventors and so-called “rationalizers” (those who provide incremental rather than breakthrough innovation). 30 This approach, based on the personal achievement or personal reward model, eventually proliferated across the whole Soviet industrial and scientific complex. The system of incentives included a number of personal material gains as well as the potential to improve one’s own social status. By 1970, more than 76 million people had received some personal rewards, even small ones for incremental innovations, as a result of participation in the socialist competition. 31 As pointed out by the authors of a recent study on socialist competition: “Competition was officially authorized from above, but nevertheless…enjoyed the approval of the people, suggesting that competition served the purposes of both the power elite and society.” 32 Considering that the science and technology industries were highly respected in the Soviet system, the social status of a successful inventor was close to that of a successful athlete or entertainer.
As renowned history Professor Kendall Bailes noted in his already classic book on the Soviet technological ecosystem, “an interpretation of Soviet society and, by extension, those societies of Eastern Europe and Asia that have borrowed heavily from Soviet experience, is incomplete without an understanding of the role played by the technical intelligentsia.”
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In the period from 1914 to 1941, graduate engineers proved to be the fastest-growing professional group in Soviet society.
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At the time Kendall Bailes was writing his book, “the technical intelligentsia [was] the most influential stratum in contemporary [to the author] Soviet society.”
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“By the mid-sixties 65% of the full membership of the Central Committee, by the early seventies about 80% of the membership of the Politburo belonged to the group Bailes defined…as ‘technical intelligentsia.’”
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This dramatic rise in the social status for the knowledge production professionals was a distinctive feature of the Soviet social and economic order and constituted one of the important driving forces behind the creativity of the Soviet techno-workers. Kendall Bailes also noted that the Soviet technical intelligentsia had become a form of community with shared values and interests. This community was putting a lot of emphasis on such values as personal reputation, cooperation, and altruism. Sharing of knowledge and information, open access to the most advanced scientific findings were among the valued features of the technical intelligentsia. Two Russian influential sociologists of science, Sergey Kara-Murza and Gennady Osipov, in this regard have pointed out that the Soviet society was structured in a different way than the class society in the West or the estate system of the Russian Empire. For the historically sufficient period of time, all the class, ethnical and other social barriers blocking dissemination of knowledge and cultural products across the society were eliminated. In this system, knowledge became a real public good in the common possession, and it became a fundamental factor defining both structure and dynamic of the knowledge production.
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This open science organization combined with the system of motivations and rewards on a personal level produced an extremely productive system in terms of innovation that was able in a short period of time to build an advanced knowledge-based industry of a world-class standard basically from scratch after the devastating Revolution and the ensuing Civil War and Second World War.
As the role of ideological factors in the Soviet governance has been steadily declining in the 1970s and 1980s, the new era of Zastoi or lasting stagnation of Brezhnev years turned a new page in Soviet life. As any system based to a large extent on such symbolic capital as reputations, trust, and faith in humanity the Soviet innovation system happened to be extremely fragile and weak to overcome the ideological crisis of Zastoi that put bureaucratic institutions rather than innovator’s (ideological) incentives and motivations in the frontline of the innovation process.
B. From Socialist Competition to IP Fetishism
The Soviet Union collapsed almost overnight in 1991 after the country went through the political turmoil of the so-called August Putsch 39 and the accompanying unrest in Moscow and the country’s periphery. The beginning of the new era commonly known as a transition to a market economy was accompanied by a significant changes in the legal and institutional environments.
In 1991 alone, four new laws on IP protection were enacted: the Patent Law; the Law on Trademarks, Service Marks and Geographical Identifications; the Law on Protection of Topology of Integral Microchips; and the Law on Protection of Software and Databases. All these laws radically and abruptly changed the legal framework in the sphere of knowledge production. The extant model of the two-form recognition of inventions primarily based on some sort of prizes and personal rewards was abolished in full and substituted with a system of a property-like exclusivity regime for innovation. Also, new forms of exclusive rights on knowledge and information, nonexistent before in the Russian legal system, were introduced—legal protection for trademarks, topology of integral microchips, software, and databases. All these new forms of protection were essentially built on the same blueprint replicating the most protectionist regime for IP protection.
The new Russian government was trying to be revolutionary in establishing a market economy “in six to eight months”
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through a so-called “Shock Therapy” program. Peter Murrell, a prominent theorist of Soviet and East European economics, described this program in the following terms: Just four months after the abortive coup that led to the breakup of the Soviet Union, a small group of economists began to implement a program of radical reforms that aimed at irreversibly changing Russian society. These reforms were condoned, if not endorsed, by the International Monetary Fund; they were strongly encouraged, if only weakly aided, by Western governments; and they were promoted, if not designed, by the usual, peripatetic, Western economists.
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In the sphere of IP protection, the underlining principle, as Alan Greenspan said, was that the state should not interfere and just maintain the “rule of law that protects property rights, both real and intellectual.” 47 This approach—that the state should loosen its economic regulations “to safeguard the incentive to innovate,” but IP law should grow in importance and even reach a level of protection of tangible property, even though it could seriously undermine the same incentive to innovate—was paradoxically considered as a miraculous solution for the economic growth and efficiency in the twenty-first century.
In compliance with this dogmatic approach, the IP rights protection regime in Russia benefits from the restricted use of exemptions and the national exhaustion regime, but also from a complete exclusion from any forms of antitrust regulation. Concerning the two most important Articles of the Federal Law “On the Protection of Competition,” the general law in the sphere, Articles 10 (abuse of dominant position) and 11 (anticompetitive agreements) include provisions excluding the full range of market relations based on IP rights from the scope of application. Practically, it means that any hardcore anticompetitive agreement could be excluded from the antitrust review if it deals with IP rights. The same is true for any forms of abuse of market dominance by the IP rights’ holder.
As the most direct effect, the “Shock Therapy” program and accompanying legislative and institutional changes led to a total destruction of the existing innovation system. Peter Murrell considers this effect as an expected outcome on the side of the reformers because the program was designed in this way from the very beginning. While examining the economic events in Russia in 1992, he concludes, The core group of Russian reformers was more intent than were the Poles on destruction of the existing system at whatever cost.…Hence, after the initial, primarily destructive, burst of shock therapy had accelerated the breakdown of the mechanisms of government that had begun in the Gorbachev years, there was much less on which to build a recovery. The economic foundation stones for sustained economic progress in Russia are far from being in place.
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In reality, the introduction of exclusivity rights for knowledge and information became an important element of the above-mentioned institutional destruction in relation to the Soviet system of knowledge production. The property-like rights were introduced overnight in the complex environment of the established predominantly common usage of the existing knowledge base organized though a number of efficient sharing channels like libraries and open access cooperative platforms operating among the Soviet academic and industrial enterprises. Consequently, the sphere of knowledge production experienced the same destiny as the Soviet infrastructure and industrial base. The new laws on IP were combined with a major privatization campaign. The inventions, which were created through the Soviet times, were not automatically put into the public domain, as one can imagine considering the collective production of this knowledge, but were privatized along with the state enterprises in a completely unpredictable and chaotic manner.
The Russian privatization of the industrial enterprises happened in the early 1990s as an important element of the transition. The campaign of privatization of the Soviet legacy as “Shock Therapy” focused primarily on the destruction of the existing regime rather than establishing a new one. A direct important effect of a hasty privatization was a brutal partition of the knowledge base built in Soviet times along lines with the privatized lots of the former Soviet enterprises. The privatization laws allowed the specially assigned state agents of the reformist government to put on sale (or actually transfer for free) any enterprise or its part as a separate lot and include in this lot all sorts of assets apparently attached to the enterprise (or its part) without a proper audit and even fixation of titles. The only document proving a transfer of property from the state (or as the Soviet law called it, “a collective socialist possession”) to a new private owner was a so-called privatization inventory briefly describing the assets attached to a privatized lot. As a result, a substantial part of the existing inventions and other forms of IP assets were randomly included into the inventories of some of the privatized entities. For instance, an aircraft building enterprise could be split into a dozen of separate lots, and some inventions could be included into an inventory related to a production division rather than an engineering one because those particular archives were physically located in the production division premises.
This kind of hassle and negligence accompanying the privatization process in general had the most blatant effect for knowledge production as these intangible assets were considered less valuable and more difficult to monetize immediately by the groups gaining control over the privatized assets in the early 1990s. In this messy institutional environment, the most valuable intellectual assets were simply transferred abroad in the course of a “brain drain” taking enormous pace in the 1990s. For instance, “Some 750,000 immigrants from the former Soviet Union, most of them highly educated, have poured into Israel in the 1990s, helping feed the far-reaching growth in advanced technologies that is transforming Israeli society.” 50 As the Israeli Minister of Industry and Trade of that time, Natan Sharansky, was saying, “The new immigrants who came in the last years doubled the number of engineers and scientists and doctors in Israel.” 51
A similar story could be told about the American and European innovation sectors in the 1990s. Already in 1991, Bloomberg was reporting that “hundreds of top-flight Russian specialists, who remain Soviet citizens, are coming to the U. S. on long- and short-term fellowships and work contracts to fill jobs everywhere from Cambridge, Mass., to Silicon Valley.”
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Just a couple of months after the dissolution of the Soviet Union, “already, Soviets experts are helping recharge physics and mathematics departments at colleges across the country.”
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For instance, Virtually the entire faculty at the University of Minnesota’s Theoretical Physics Institute is from the Soviet Union;…[k]ey research centers such as the National Institutes of Health are tapping Soviet talent. During a three-month stay at NIH, which has long sought foreign scientists, Oleg Svirdov helped develop new techniques for measuring thyroid hormones in the blood; [a]t Stanford, a Soviet biologist helped solve a Florida AIDS mystery.
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The Soviet engineers and scientists were taking any opportunity to capitalize on the achieved results of their collective work while bringing to their new employers in the West the best achievements of the Soviet science basically for free compared to the price paid for those developments by the Soviet society as a whole. This form of global technology transfer from the Soviet economy to the Western countries was one of the key drivers for the major technological and economic development in the West that happened in the 1990s.
Knowledge belonging to the Soviet state and being an integral part of the whole innovation ecosystem of the country, was either privatized and partitioned in the course of messy en masse privatization and basically turned into a social deadweight loss as the newly established owners got this knowledge by accident and without any plans to use it, or it was unilaterally transferred without any consideration paid to the Soviet society to the West and then properly privatized though the existing mechanisms of IP protection in the economies of the countries receiving this innovation capital.
IP rights introduced to the innovation system already built on a solid foundation of commons-based production and principles of broad dissemination of knowledge had essentially a destructive effect for the Russian innovation ecosystem as they effectively deterred new market agents from utilizing the existing knowledge base by establishing new barriers and legal uncertainty with regards to the use of knowledge and information. In the quasi-market economy of the 1990s in Russia with progressing hyperinflation, extreme deficit of any capital, and ongoing deindustrialization, any possible market incentives to innovate provided by the IP regime did not make any sense for the market players who were focused on survival rather than on an investment strategy. At the same time, a wider dissemination of the Soviet knowledge legacy and a broader use of the Soviet innovation results by the new market enterprises could benefit them and the economy as a whole while allowing the commercialization of Soviet inventions without prior partition and privatization of the Soviet knowledge base. In this context, the agreement between the Russian Federation and the European Communities of 1994 on Cooperation and Partnership, which prescribed Russia to introduce IP protection on the same level as Europe, seems especially cynical and destructive.
The results of this transition were devastating. As the Nobel Prize laureate economist Josef Stiglitz summarized it, The radical reform strategy did not work: gross domestic product in Russia fell, year after year. The devastation—the loss in GDP—was greater than Russia had suffered in World War II. In the period 1940—46 the Soviet Union industrial production fell 24 percent. In the period 1990-98, Russian industrial production fell 42.9 percent—almost equal to the fall in GDP (45%). Those familiar with the history of the earlier transition in the Russian Revolution, into communism, could draw some comparisons between that socioeconomic trauma and the post-1989 transition: farm livestock decreased by half, investment in manufacturing came almost to a stop. Russia was able to attract some foreign investment in natural resources; Africa had shown long ago that if you price natural resources low enough, it is easy to attract foreign investment in them.
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III. Implications for IP and Competition Equilibrium
The Soviet system of knowledge production based on cooperation, knowledge sharing, but also intense competition was already an inspiration for innovation policymakers in the U.S. and its satellite economies in Europe in the 1950s and 1960s after the Sputnik moment. Later on, in the 1990s, the Soviet innovation legacy may have been among key drivers for the decade-long intense economic growth in the West. Nowadays, as the global economy is moving towards a new mode of production, the Soviet case may still play an important role to help to frame a better institutional approach to innovation.
The global market developed a new dimension, a new quality, which influences the traditional analysis of the competitive process. Put simply, as Lawrence H. Summers did in his programmatic speech “The New Wealth of Nations,” 59 the Smithian perception of the economy and the competitive process was in many senses transformed into a more Schumpeterian model—one encouraging monopolization through innovations and network externalities, and cherishing the “creative destruction” of incumbent monopolies, rather than a level playing field for competition. The new trends in assessing competition dynamics, for instance, though the lens of co-opetition, 60 a nonintuitive combination of cooperation in knowledge sharing and competition in product development, allow for framing a better policy solution for high technology industries. Some studies are showing that “co-opetition is challenging yet very helpful for firms to address major technological challenges, to create benefits for partnering firms, and to advance technological innovation.” 61 And it is especially important for high technology industries as they “face unique challenges and opportunities and therefore are more conducive to co-opetition.” 62
Collaboration with direct competitors becomes important in order to acquire new technological knowledge and skills from the partner. 63 Other scholars have emphasized the importance of commons for the knowledge production and better dissemination of knowledge as a key component of an efficient innovation policy. For instance, Amy Kapczynski defines the new economic model developing in the West “as a distinct institutional approach to scientific and cultural production that can be distinguished from property approaches along three parameters: (1) rules of access, (2) sources of support, and (3) modes of governance.” 64 In contrast to the IP focused systems based on norms of exclusion, dependent on revenues associated with the sale of information, and concentrated governance, “a commons-based approach” is characterized by the sharing of information assets; by the fact that it sustains the production of information by means other than price; and by disaggregated governance, with groups rather than individuals being entitled to contribute to decisions about resource use and about the norms governing the community. 65 All these new trends in designing institutional framework for innovation that would fit best the needs of the modern day global economy make the Soviet experience relevant again as its experimentation with socialist competition and knowledge commons is of a unique scale and value.
Unfortunately, Russia is not yet ready to rethink its approach to knowledge production and in another idle attempt is trying to emulate the property approach proliferated around the globe through the WTO framework.
In 2007, Russia passed a new law on IP rights—the Fourth Part of the Civil Code. This law has systematized and codified all the IP regulations existing at the time. Celebrating this legislative move, Veniamin Yakovlev, one of the key drafters of this law and a former Chairman at the Supreme Commercial Court of the Russian Federation, 66 stated that the law would allow Russia not only to comply with the existing international commitments like the WIPO administrated conventions but already to comply with the TRIPS Agreement, although Russia was not yet a member of WTO 67 and joined the organization only in 2012—five years later.
It is striking that the main apologists of the existing model of regulation in Russia opposed the application of antitrust regulation in the sphere of IP rights on the grounds of the so-called “legal monopoly” theory. This theory, presumably based in the legal tradition of Continental Europe (in a simplistic interpretation of it), attributes to IP rights an intrinsically anticompetitive character. 68 This opinion is widely supported by leading IP rights scholars in Russia including the principal drafters of Part IV of the Civil Code 69 as well as the judiciary. 70 It allows its apologists to oppose any antitrust intrusion in the sphere of commerce based on IP rights. At the same time, this theory does not preclude the employment of a number of additional public mechanisms of supporting this “legal monopoly.” For instance, Russia has one of the most vigorous systems of public enforcement of the restrictions on parallel imports. Parallel imports are not only prohibited by law; the customs authority is in charge of enforcing this restriction. A complex system of IP rights customs register and authorization of agents dealing with importation of IP related goods is established in order not to allow for any such goods to be shipped to Russia without the IP rights holders’ approval. Further developing a metaphor of IP rights as a “legal monopoly,” it would be fair to say that this monopoly in Russia took the form of a medieval privilege, protected with all the power of a crown. This approach is far from being based on any considerations about economic efficiency or increasing total welfare. It represents an extreme and indoctrinated view of IP rights protection taken as a self-propagating imperative rather than an economic or legal institution requiring a certain rationalization.
In the absence of efficient legal instruments, the Russian Federal Antimonopoly Service (FAS) makes every effort to address the anticompetitive practices of IP rights holders. For example, in 2013, FAS Russia found that Teva Pharmaceutical Industries Limited has violated Article 10 of the Russian Federal Law “On the Protection of Competition” while having abused its dominant position and refused to deal with one of its Russian former counterparties. In this case, the defendant who possessed a dominant position in a certain pharmaceutical market had refused to enter into licensing agreement and relied on the above-mentioned exemptions to the Russian competition laws for the IP right holders while insisting that the antitrust authority was not allowed to review such abusive conduct. FAS has disregarded this argument while claiming that the licensing agreement was used to control the market for tangible goods—certain pharmaceutical products and the IP exemption to the Russian competition laws could not be used to justify this abusive behavior.
This sort of unusual but necessitated distinction between the execution of IP rights and use of IP rights to influence markets for tangible goods and services became a desperate tool for FAS to address striking anticompetitive behavior of the IP rights holders in the context of an extremely property-focused institutional approach to innovation.
For instance, in 2015, FAS Russia has accused Google of abusive anticompetitive conduct with regard to its Android platform. Google defended by triggering the same Article 10(4) of the Federal Law “On the Protection of Competition” that exempts “execution of IP rights” from the unlawful abuse. FAS has decided that this exemption should not apply in this case either and distinguished between the licensing agreements related to the IP rights on computer programs and other agreements related to computer programs but not covering the IP rights execution as such: Computer program (application) is an independent object of exclusive rights, and the relevant exclusive rights cover only the use of such program rather than the whole range of business activities connected with it.…Any other aspects of relations between the parties which may also be governed by a license agreement would be out of the scope of the license-related legal relations.
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This pendulum switch from the understanding of knowledge as implicitly a public good that should be commonly accessible and used in a fair competitive process by all the participants that has accompanied most of the Soviet era to a dogmatic perception of IP as “legal monopoly” even more exclusive than tangible property to the prejudice to both competition and innovation teaches us a lesson about the power of narratives in institution building.
IV. Conclusion
Competition and IP are key elements of any institutional design for innovation. They define both efficiency and distribution of resources in the operation of innovation ecosystems. The modern debate on the interface of competition and IP is essentially a debate about the best institutional approach to stimulate innovation, as innovation has become the centerpiece of modern economic competition.
A lack of solid empirical data on alternative approaches to knowledge production makes it difficult for policymakers to advance the debate further to the domain of practical policy experimentation. The Soviet innovation enterprise was primarily neglected in the Western academic and policy discussions as it was wearing a certain stigma of the Soviet project that apparently failed “at the end of history” proclaimed in the West immediately after the Cold War ended. The neoliberal consensus dominating much of the policy debate for the last couple of decades made it almost impossible to consider other institutional approaches to innovation distinct from the established property-focused model. But with the dramatic challenges already brought by the fourth industrial revolution and the tectonic economic and social shifts it is expected to cause around the world, the Soviet case with all its pros and cons is becoming more and more relevant for this debate. As one of the most important aspects of these discussions on the optimal institutional approach to knowledge production would be the distributive effects of innovation policies, the Soviet innovation system driven by the common consciousness of the technical intelligentsia and being in its best inclusive and focused on the common goal of progress of science and humanity can be of great importance.
The Soviet innovation system that managed to create an enormous amount of disruptive breakthrough inventions in an extremely short period of time and under severe economic constrains could be an inspiration for technological and economic development in the twenty-first century and hopefully would be better understood in further academic studies by IP and competition law scholars.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
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