The Internet is an important driver of innovation and growth. It accelerates the diffusion of information, boosts communication efficiency, facilitates networking among firms, and reduces geographical distance. The eco-system of the digital economy is mainly composed of high-speed communications infrastructure, digital content and smart applications.

Clusters are a geographic concentration of firms, higher education and research institutions, and other public and private entities that facilitate collaboration on complementary economic activities. While some of the world’s leading clusters specialise in high-technology industries (e.g. Silicon Valley, Bangalore) they are also found in sectors ranging from wine making to automobiles to biotechnology.

A patent is a legal title that gives the holder the right to exclude others from using a particular invention. If the invention is successful on the market, the patent holder will profit from its monopoly power. Patents therefore allow inventors to internalise the benefits they generate. Without such a mechanism, inventions could be imitated, which would reduce inventors’ return on their investment. Patents are granted in return for disclosure of the invention and therefore play a role in the diffusion of knowledge. Inventors and firms apply for patents at patent offices, which grant or reject patents for their jurisdiction, mainly the domestic market, in accordance with their legal statutes. Most patent offices are national organisations; the main exception is the European Patent Office (EPO).

Intellectual property rights (IPRs) – patents, trademarks, industrial designs and copyrights – are increasingly traded in markets. Public policy plays an important role in shaping intellectual property (IP) markets and thus their impact on innovation. In today’s highly networked world, the circulation of ideas is vital to innovation. Knowledge flows make possible a broader, more diverse and better use of existing competences and knowledge, beyond the uses or applications foreseen by the sole proprietor. Inventors, designers and authors, particularly researchers in universities and public research institutes, are not always best placed to exploit their own knowledge. Organisations are therefore increasingly looking for ways to trade knowledge capital. However, high transaction costs often impede the successful negotiation of licences or other types of agreements.