INTRODUCTION BY PROFESSOR BRIAN FITZGERALD

This session is about copyright and innovation policy. Now Dr Terry Cutler requires little introduction to those of you who have an interest in innovation policy and practice in Australia. He’s been closely involved in this area for many years.

For the benefit of our international visitors, I would introduce Terry Cutler by explaining that he was the person who was entrusted by the Federal Minister for Innovation with the very important, I’d say crucial, job of running a review of our national innovation system which commenced in early 2008, just a few months after the Rudd Labor Government came to office in late 2007.

The need for such a review, and the real interest in kick starting innovation in Australia was clearly demonstrated by the fact that really, thousands of people turned up in person at the public hearings that the Innovation Review convened, right around Australia, and the fact that more than 700 written submissions were received, many of them very substantive, and it was really an unprecedented number of written submissions received to a Review Enquiry.

So from the perspective, as head of the Innovation Review which consulted widely around Australia, Terry really is in a unique position to comment on the relationship

148between intellectual property, specifically copyright, and innovation. When we look at the relationship between copyright and innovation over the last twenty years, it’s very much a story of how copyright applies, or is adapted to apply, to digital materials distributed through online networks.

These issues specifically are exactly the kind of thing that Terry has been writing and thinking about for a long time. My first introduction to Terry was through his written materials in this area through reports such as Commerce and Content in the early 1990s. So without more ado I’d like to bring Terry up to the stage.

DR TERRY CUTLER

Thank you, I’ll start with an apology if I croak a lot, I’ve got a bad cold. My second apology is for not being a lawyer, so I feel quite intimidated to be in such company today.

One of the arguments I think I want to make is in fact the next conference you have Brian, should not be opened by an Attorney General, it should be opened by the Treasurer. One of the points I’d want to make today is that, to me, intellectual property issues, copyright and innovation is all about economic policy and needs to be thought of in the context of economic policy.

I also don’t know why I thought the colour red was appropriate as a background today, but perhaps it was because of the incitement to think about freedom and cry freedom. I think one of the interesting issues when we talk about freedom is the wonderful phrase that Amartya Sen, the great development economist, coined when he talked about unfreedoms. The lack of access as a barrier to development at all levels. I think unfreedoms is a very useful way to think about some of the issues we’re talking about today.

I want to make some really very simple observations today, but I think it’s often good to go back to basics. The first point I want to make is that when you think about innovation and innovation policy, we often think in Pollyanna-like terms that innovation is good, but we need to remind ourselves that it is in fact not morally neutral at all. If you think about some of the messes we’re in today, they were all caused by innovation. The global financial crisis was a dazzling example of how innovative financial instruments crippled an economic system. Think about 200 years of breakneck technology innovation that has produced the global warming problems we have today. So innovation is not a good or a bad thing in itself, it depends on the purposes to which we are directing it. So it’s about purposeful change.

The second point is that innovation is all about the clash of vested interests. I think we spend too little time articulating the nature of these vested interests and what they involve. During the review last year, one of the interesting things we did was to say to 149people making submissions “You can only make your submission if you actually declare your interest in what you are submitting about”. It was a modest attempt to put some of these issues on the table.

At the core of the problem here, when we talk about innovation and change, it is about the problems of incumbency of established interests, and the often weak voice of people trying to introduce something new, the insurgents if you like. So it is fundamentally about conflict and vested interest, and I think we need to be far more up front about what’s involved here.

Now this is not only vested interest in the marketplace, we also have vested institutional interests. One of my disappointments, I suppose, with the Government’s response to our Innovation Review, is the institutional push back we’ve seen from our proposals to create a new focus for innovation within central Government, and particularly our proposal for a National Innovation Council at the centre of Government.

We’ve put a lot of emphasis on innovation within the public sector itself, and here you’re really talking about public sector reform. Also about rediscovering the centrality of public interest in the innovation debate. And here our focus today I think is about recognising that so many of the great challenges that our society faces are global challenges like climate change, ageing populations, peak oil, food security, can only be resolved through massive investment in innovation.

The third point I want to make is that when we talk about the innovation agenda, I think we’re often in danger of ignoring half the picture. During the Innovation Review I was often asked what do we mean when we talk about a national innovation system. My simplest explanation of an innovation system is to say it’s a bit like the money supply. You have stocks of currency, you have bank notes which you can have in a vault, but they actually have absolutely no value until they’re in circulation. It is all about circulation that matters, the flows as well as the stocks. Often we focus all our attention on investment in the stock of innovation, whether its talent pools, human capital facilities, or even information and data. We pay too little attention to the issues of flows, the networks that we talked about before. Anything from social networks, information flows, trusted transactions, and crucially, access. So the core of innovation policy is this notion of the importance of information flows, and information networks.

The fourth point I wanted to make is that Australia has a particular innovation challenge. We often don’t face up to the hard realities that everything is going against Australia as a country when you look at the map. I love this NASA earthlights map, because it really does put us in our place. We’re right at the end of the line in the wrong hemisphere. In real estate terms of location, we fail. Also, though, we’re a huge country with a very low population density. This means we have a huge disadvantage 150in terms of infrastructure overhead requirements that are much, much higher than in virtually any other country. And we’re a long way from our major markets.

We’re also a very small economy. On any major metric we represent about 2% global market share. What we often neglect to think about is, “Okay, if we produce 2% of the world’s new knowledge and innovation in R&D, how do we best access the 98% that is being produced elsewhere in the world?” That is one of the greatest innovation and public policy challenges I think small country economies like Australia have, and one which is very seldom addressed.

This is not a level playing field, and it seems one of the great challenges we still have to come to grips with is how do we avoid being a chronic intellectual property price taker, where other people set the price and the terms of access to that 98% of knowledge not produced here. Not a level playing field so we need to think carefully about what are the David and Goliath strategies that we need as a small player. Again, I think we spend far too little time thinking about those. But what does that mean for copyright policy for intellectual property rights and policy in a small country economy like Australia? And are our intellectual property interests best served by those defined by the world’s dominant intellectual property markets?

My fifth point is that innovation thrives in a free trade environment, and we need a free trade of knowledge. When we talk about systems we need to distinguish between open and closed systems. Closed systems do not produce innovation. In fact one of my favourite throw away lines comes from William Blake where he describes closed system as stagnant pools which breed reptiles of the mind. An open system by contrast is where you have active feedback loops, it is about open networks. Again that concept of network information and how we promote that with our intellectual property thinking is a crucial challenge I think for all of us.

I want to get back to the point I started with, that we need to think about intellectual property issues outside of narrow legal frameworks. Copyright information knowledge is at the core of a economic agenda and we need to think about it in the same way as we think about competition policy and issues around open access that we talk about in most other areas of competition policy, particularly with respect to utilities, whether it’s telecommunications, water, electricity, or I would suggest, information and knowledge.

Now information flows, therefore, I see as being at the heart of any innovation system. That means that information access is a central issue underpinning freedoms to innovate. There are three areas that I think we need to look at here. First of all the issue about freedom to access prior art and knowledge. We all know that knowledge builds on knowledge, it’s a cumulative process. Unless we can build and preserve and have access to that accumulated knowledge efficiently, including economically efficiently, we’re shooting ourselves in the foot. 151

A secondary issue that is important about this freedom to access prior art and knowledge is around the role of publicly funded content, and access to public sector information. I think we’ve talked about that at conferences like this for many years now, and it’s time we actually did something about it.

The second aspect of information flows and information access is around search and navigation. It is about finding relevant information for the problem solving that you’re addressing. So issues around format, discoverability. If you like, global positioning systems for information and knowledge are absolutely crucial. I don’t think we pay enough attention to the issues of search and navigation within our innovation frameworks.

Finally, innovation only delivers economic and social benefit when its diffused and put to use. So diffusion and the ability of end users to pick up, absorb, and adapt, and use knowledge and ideas is absolutely fundamental to any innovation policy framework. So the issues of usability and remix therefore become central issues for us to think about.

So I’ve suggested that innovation and IP law are not morally neutral. Innovation is about the conflict of vested interests and we need to identify and look at those interests. It is about change versus incumbency. We need to really put a focus on the importance of information flows, information networks and access as crucial issues in any innovation agenda. We need to rise to the 2% challenge that everyone in Australia faces, of how we access the 98% generated and held elsewhere. How do we avoid being an IP price taker? We need to recognise the importance of open systems and feedback loops.

So my bottom line is that when the circulation stops, when the circulation of information stops, innovation dies. So information policy therefore needs to be at the centre of any national innovation strategy, which is why in our review last year, we called for a far more active focus on a national information policy framework and strategies. It seems to me that one of the challenges here is that no-one in Government is really taking ownership or responsibility for the sort of issues I’ve been outlining. It’s like an orphaned policy area. It’s a challenge because it’s an area where we do need a whole of Government framework and way of thinking about this. A national information policy is something that affects every aspect of Government, as does innovation itself.

It strikes me, as I was thinking about this, that it’s ironic that in a digital economy, information policies should be a central policy priority. I think we’ve gone backwards over the last decade or so. I was recalling that in the mid 1990s, when we were confronting the emergence of the internet, and trying to think about the policy implications and what sort of policy frameworks we should develop around the internet, we had far more coherent responses and approaches than we do today. Perhaps it’s because I’ve got a vested interest, but I remember the Government of the day set up an Information Policy Advisory Council, which I chaired, to address the frameworks for internet regulation, or to make sure in fact that we didn’t 152inappropriately constrain the development of the online world with inappropriate regulation.

We established the national office for the information economy as a whole of Government executive agencies, to make sure that a coherent approach to information policy was developed and implemented. Now I think it’s a great pity that we’ve let that policy focus lapse. I don’t think we’re going to have the right economic or development framework around information policy, the right context within which to think about copyright and intellectual property issues until we recapture that centrality of having a national information strategy.

Thank you.

QUESTIONS AND ANSWERS

QUESTION:

Dr Cutler I congratulate you on your presentation, and I always ask myself that very question. Why aren’t more economists at these sorts of enquiries and meetings? That’s really the question I have for you. This is a field which is rich for economists and research, and yet we have such paucity of empirical data on the very things that you were discussing today. The value of these information flows, not just in terms of copyright, but in terms of patent law. Can you explain to me why economists have essentially left this area well alone, and allowed lawyers, unfortunately, to dominate?

TERRY CUTLER

A very good, and provocative, and brave question in this environment. The short answer is I don’t know the answer to your question, because it really puzzles me. I think it’s partly a lack of public policy leadership generally. We can all assume some blame for not being more active in making this a more mainstream agenda.

On the other hand, I look back and think you can change over time. Remember a time when trade practise were seen to be a narrow preserve of Attorney General’s and lawyers, rather than being seen as a central element of economic management, and the shift of the responsibility for the Trade Practices Act to Treasury. That’s exactly the sort of shift I think we need to see today. If I had one wish it would be that we could shift copyright and patent law out of Attorney Generals and put it smack bang into Treasury. That would be the recommendation I’d love to see coming forward from this conference. 153

QUESTION:

Hi, thank you very much Terry. I don’t think you quite meant to say take patent law out of Attorney General’s because it doesn’t reside there, but it gives me the segue, as the Americans say, to my question, which was why Treasury, rather than say the IP Australia, which is where patents, plant breeder’s rights, designs and trademarks currently reside. I agree with you absolutely that I don’t think Attorney General’s Department has covered itself in glory over the last 100 years, and certainly the last 15, and 10, and 5 years on copyright policy, I don’t think it has. But Treasury versus say an innovation department, why Treasury not the Department of Innovation?

TERRY CUTLER

I think because I really want these issues to be looked at in the context of competition policy, and because I think the core issues to me go to issues of access. I think the same principles we apply to access frameworks in other areas of competition policy could very usefully be applied to intellectual property issues.

QUESTION:

Terry, Oliver Freeman. I’d just like to add something here. I welcome the emphasis of what you’ve been saying of course, I’m just wondering whether you’re going far enough. It seems to me we have a big issue with economists at the moment. They are rather on the nose in terms of what’s happened in the last 12 months, and I’m not sure that I would like our future to be delivered from lawyers to economists.

TERRY CUTLER

There is a difference between economists and financial engineers.

QUESTION:

Okay, but I want to add two things. There seem to be two other planks that we’re missing here. The first is all about a world in which some of us feel we’ve reached a stage of enoughism. That is a sense that we are depleting the resources of our planet in an unregulated and stupid kind of way, and that the whole issue around sustainability – and I’m not taking a narrow ecological view of sustainability – I’m talking about strategic alignment between the way we live our lives, and what the life we want to live has to offer us back. So there’s a whole issue about sustainability. 154

The other issue, which of course is already implicit in the title of this conference, is to do with social equity. It seems to me I don’t want to go into bat with the economists with our social equity and sustainability in the same frame, thank you.

TERRY CUTLER

Both really terrific points. When I think about open systems I think about open societies. So I think innovation is inherently around a democratic instinct, and that’s very important. Your first point is also incredibly important, and I probably didn’t emphasise it enough. You’re quite right. The great challenge for our age is around sustainability. When you think about how we’re going to resolve those challenges, we need massively different approaches to the way we do science, the way we collaborate, the way we share knowledge. I think that needs to become a mainstream part of the agenda at discussions like this. So I totally agree with you.

QUESTION:

Thanks very much, Tim Hollow, I’m an advisor to the Australian Greens and thank you for that wonderful presentation. One of the things that I picked up on what your point about the incredible need for public interest research and innovation. I guess I’d ask if you’ve got any policy prescriptions for how one rediscovers that. Obviously we have a situation, as you yourself have discovered in your career, you noted that even within the public sector you get these stagnant pools breeding reptiles of the mind, and you get Government directed research and innovation which actually constricts where we’re going, which through public policy, directs innovation into areas where it might not be best placed. So do you have any prescriptions for how you might actually get around that?

TERRY CUTLER

In our report last year we spent quite a bit of space talking about promoting innovation in the public sector. Part of it is through the promotion of experimentation and freeing up scope for bottom up pilot activity and so forth. There’s been a lot of work done, particularly in recent years in the UK, that I think gives us role models. One of the crucial things is actually to give people permission to innovate. One idea being pushed very much in the UK is the notion of having almost an Innovation Ombudsman who can unplug all the nay sayers and blockers, and have an override for innovative proposals. Essentially, it’s a leadership issue at the end of the day, like all these things are.