PFF announced this week that it's going back to Europe for a second consecutive year, with Digital Europe 2006. We will again discuss with government leaders, industry executives and academics the importance of intellectual property in a global digital economy. PFF's Ray Gifford, Tom Lenard, Jim DeLong and I will be in Prague on January 17th, co-hosting an all day conference with CERGE-EI and the Liberalni Institut titled "Intellectual Property and Innovation in the Digital World."

The conference on IP comes at a critical time for European policymakers, now halfway through the 10-year Lisbon Strategy aimed at making Europe competitive economically with the United States.

Essentially, the collective economies of the EU (now 25 members) have made no progress in closing the gap with the U.S., and EU economists point to an innovation gap as the cause. In the most recent European Innovation Scoreboard produced by the European Commission under the Lisbon Strategy, an examination of 12 innovation indicators shows that since 1996, the EU has hovered around 0.42, while the U.S. has ranged from a low of about 0.57 in 1996 to about 0.68 in 2003 (with a peak above 0.80 during the dot-com boom resulting from venture capital).

If the EU has spent the last five years striving to close this gap, why have they remained stagnant in innovation? The report gives three indicators. It states 11% is related to a lack of business R&D spending; 26% stems from insufficient members of the working population with higher education; and a full 50% of the cause is due to fewer patents.

We have made the case many times in this space that intellectual property protection spurs innovation. We made it in the context of Europe's debate earlier this year regarding its patent initiative, which proved to be a disaster from any perspective. Yet here are EC economists saying that half of Europe's problem in innovation stems from insufficient patents.

The Czech Republic is one of the newer members of the EU, and these central and eastern European nations have attracted a lot of capital due to the relatively well-educated work forces there. But the Czech Republic, according to the EC report, is struggling in innovation. On a scattergraph of the 25 EU nations, the Czech Republic finds itself as both "losing momentum" (the y axis) and "falling further behind" (the x axis). A close look at the numbers show some reasons. With 100 as an EU baseline, the Czech Republic scored a 2 in high-tech patents obtained both from the EPO and the USPTO. Not surprisingly, early-stage venture capital scored only a 4 compared to the EU baseline of 100. And don't forget that the report already established that the EU trails the U.S. in patents, so the 2 and 4 recorded for the Czech Republic would get even smaller when compared to U.S. figures. The Czech Republic ranks 18th out of 25 EU countries in early-stage venture capital, and 23rd out of 25 in EPO high-tech patents.

This is not meant to pick on the Czech Republic. We are going there in large part because this is a nation of great promise, directly in the heart of Europe and thus the EU. Our partners there are very forward-looking and serve as models for higher education and free-market thinking in Europe. Lisbon Strategy authors have acknowledged that the most dramatic economic growth is not likely to come from mature economies with fixed labor policies such as France but from members with emerging economies that can be further fueled through their EU membership. (Ireland's high-tech renaissance is an oft-cited example, although the report says that they and France are among those "losing momentum").

It's unclear to what extent European Commissioners look at the conclusions in their own reports. But they have provided further evidence of the direct links between innovation ,intellectual property protection, venture capital and economic growth. It should be quite enlightening to see how the discussion unfolds in Prague.