New Face of Innovation

Introduction

Creativity and innovation have now come to be regarded as universal natural resources at par with or even more valuable than the conventional factors of production for economic growth. These intellectual assets are invariably referred to as ‘intangible assets’ to distinguish them from physical assets referred to as ‘tangible assets’.

Intellectual Property Systems all over the world have become all too important in economic growth and international trade following reforms and harmonization of intellectual property laws in most of today’s globalised world. The ownership of intellectual property (IP) rights on ‘intangible assets’ has become central to the development and growth of companies both in high-income as well as low and medium income countries.

Between 1982 and 2001, the proportion of intangible assets in the total assets in many companies in the United States, on an average, has jumped from 38% to as high as 70%. Even in Europe, the proportion of intangible assets is reported to have escalated from 30% in 1990 to more than 40% as of now.

Innovation by businesses is achieved in many ways, with formal research and development (R&D) for ‘breakthrough innovations’ taking the central stage. A broad view of innovation includes incremental product and process improvements that helps ideas to reach the commercialization stage. IP ownership helps achieve these objectives; the unprecedented growth of patent filing all over the world is a testimony to this view. With empirical view of the relationship between IP assets and the economic growth, we seem to have arrived at a stage where an analytical insight from an Economist’s point of view can now be obtained based on the global trends of acquiring IP assets coupled with other surveys.

On November 14, 2011, the World Intellectual Property Organization (WIPO) issued a report, entitled “World Intellectual Property Report 2011 – The Changing Face of Innovation” which precisely deals with the subject. This essay essentially attempts to highlight the findings from this first ever report on this subject from WIPO.

Growing Global Inventory and Significance of IP

  1. The demand for patents has risen from 800,000 applications worldwide in the early 1980s to 1.8 million 2009. This growth was spurred initially by Japan in 1980s, joined by the United States (US) and Europe. In 1990s, the Republic of Korea drove this growth which has been followed up more recently by China.
  2. The demand for Trademark, similarly, has increased from just below one million registrations per year in the mid-1980s to 3.2 million trademark registrations by 2009. Design also seems to be increasingly getting due importance in facilitating the journey of technology or an invention from development through to the marketplace. The latest estimates for the UK suggest 30 per cent of all intangible investments going for design registrations, which is about five times the spending on R&D. The most popular industrial design classes as reported are packages for the transport of goods and food products; clocks and watches; furniture, house wares and electrical appliances; vehicles and architectural structures; fashion and textile designs; and leisure goods. New classes for graphic logos are also increasingly filed in design registrations. The number of industrial design applications filed worldwide in 2009 stood at approximately 640,000.
  3. IP is being treated today more as a central business asset that is managed strategically and valued and leveraged with a view to generating returns through active licensing. Patents in particular are being increasingly used as collateral for bank loans and as investment assets by financial institutions. Patents have become all too important for knowledge based start-ups. Beyond patents, new business models increasingly tend to rely on protection of other forms of IP also, namely, trademarks, designs and copyright.

The Changing Nature of Innovation
and Intellectual Property

  1.  The geography of innovation is changing as evidenced by the trends in last two decades.
  • Global R&D expenditure almost doubled in real terms from 1993 to 2009. Since this period also saw  marked growth of the global economy, the share of global gross domestic product (GDP) devoted to R&D increased at a more modest rate – from 1.7 per cent in 1993 to 1.9 per cent in 2009.
    •  Most R&D spending still takes place in high-income countries – around 70 per cent of the world total. They spend around 2.5 per cent of their GDP on R&D – more than double the rate of middle-income economies.
    • Low- and middle-income economies increased their share of global R&D expenditure by 13 per cent between 1993 and 2009. China accounts for most of this increase – more than 10 percentage points – propelling China to the world’s second largest R&D spender.

         2.   The process of innovation is no longer dependent entirely on radical breakthroughs.

  • Intangible assets other than R&D are now attracting significant investments, such as corporate reputation and advertising, organizational competence, training and know-how, new business models, software and IP (copyright, patents, trademarks and other IP forms).
    • Investment in intangible assets in United States is estimated to be of the order of US$ 1.2 trillion per year for the period 2000-2003 in comparison to that on scientific R&D that makes up about US$ 230 b.
    • Similar data for Sweden and Greece show investment in intangibles at 9.1 and 2 per cent of GDP respectively which are considerably higher than that on scientific R&D estimated to be 2.5 and 0.1 per cent of GDP respectively.
  1. Despite difficulties in measuring authentic data on payments for royalties and license fee (RLF), there are clear signals that international trade in knowledge, in particular patents in disembodied form has significantly increased in recent decades.
  • In nominal terms, international RLF receipts for IP increased from USD 2.8 billion in 1970 to USD 27 billion in 1990, and to approximately USD 180 billion in 2009. Over the period 1990-2009, RLF receipts and payments in the world economy grew at a fast rate – 9.9 percent per annum.
  • In the US, the only country with available data, industrial processes and computer software account for over 70 percent of all RLF.
  • In 1990, 62 countries made RLF payments and, by 2007, this number increased to 147 countries. Similarly, in 1990 only 43 countries received RLF payments but, by 2007, this number increased to 143 countries. In the recent decade, the BRICS economies, Ireland, the Republic of Korea, and former Eastern European nations gained in economic importance.
  • RLF contribution in the total revenues, nevertheless, remains small and RLF on IP particularly is beginning to grow from a low baseline.
  • In most countries, less than ten per cent of patents are subject to licensing outside the company even though there has been steady growth in the number of companies licensing out their patents.
  • IP services intermediaries beyond traditional patent agents and attorneys have emerged in recent times and are growing further. These cover IP clearinghouses, exchanges, auctions and brokerages, model agreements, IP management support, IP trading, IP portfolio building to licensing, defensive patent aggregation and others.

 

The Economics of Intellectual Property
- Old Insights and New Evidence

  1. Patenting activity has been seen to grow fast for so-called complex technologies, e.g., those that consist of numerous separately patentable inventions with possibly wide spread patent ownership in comparison to simple and discrete technologies. Complex technologies envelop – ICTs in general and, in particular, tele- communications, software, audiovisual technology, optics and, more recently, smart phones and tablet computers.
  2. Such portfolios of patents seem to strengthen firms’ bargaining position vis-à-vis their competitors. Moreover, a firm with a basket of related patents in a crowded technology space is better able to preempt litigation from potential competitors and effectively deal with cross-licensing for commercializing new technologies.
  3. Over the last 15 years, most patent offices have seen unprecedented growth in patent applications with the result of mounting backlog of unexamined applications. As per WIPO estimate, the number of unprocessed applications worldwide stood at 5.17 million in 2010. JPO, USPTO and EPO are among the offices with largest backlogs; many low and medium income countries including India is also known to have substantial piles of unexamined applications.
  4. In addition to backlogs, many offices have also seen extended patent pendency times. For example, between 1996 and 2007, average pendency times increased from 21.5 to 32 months at the USPTO and from 24.4 to 45.3 months at the EPO.
  5. To ease the backlog problems, some Patent Offices have taken recourse to outsourcing the examination of patent applications; this modus operandi is finding ready acceptability in other offices as well. A new crowd-sourcing initiative launched in 2007 – called Peer-to-Patent – makes use of social networking software to assist patent offices in their examination work wherein members of open source community help identify relevant prior-art. Given the success of the pilot program in the US, patent offices in Australia, Japan, the Republic of Korea and the United Kingdom are examining the feasibility of a similar programme in their respective offices.

Balancing Collaboration and Competition

  1. Research Collaboration between firms and institutions that result into IP are more widespread; however, precise data to gauge the growth rate and trend is somewhat challenging to collect. Of various fields, biotechnology and chemicals exhibit frequent collaboration. Patent data from USPTO during the years 1989-1998 shows that co-patenting was most frequent in the chemical, ICT and instrumentation industries.
  2. It has been shown that collaboration for innovation can happen in ‘Open Source’ mode in certain fields where large talent-pool through voluntary contribution is more effective than the IP exclusivity for market dominance. It involves developers as individuals and institutions having complimentary skills and competence who willingly share their resources for a lofty objective of technology development which is then distributed at no or low direct cost.
  3. Open source projects, particularly in computer software field have increased rapidly: a well known website SourceForge.net acting as a platform for open source software developers, grew from a handful of projects ten years ago to over 250,000 today. A few open source platforms have also emerged for technology development in the tropical medicines field largely participated by university researchers and public funded institutions.
  4. A new wave of collaboration as ‘Patent Pool’ has emerged in last two decades essentially with a view to commercialize patents where patent rights are distributed over a fragmented base of patent holders which can best be exploited as a package. Patent pools have gained popularity in ICT field followed by the biotechnology. Patent pools are being employed for philanthropic purposes also in some cases, e.g., the Public Intellectual Property Resource for Agriculture (PIPRA) patent pool for genetically modified rice brings together over 30 different IP owners to make patented technologies available to less developed economies free of charge.
  5. Research Collaboration between firms and institutions that result into IP are more widespread; however, precise data to gauge the growth rate and trend is somewhat challenging to collect. Of various fields, biotechnology and chemicals exhibit frequent collaboration. Patent data from USPTO during the years 1989-1998 shows that co-patenting was most frequent in the chemical, ICT and instrumentation industries.

Role of Intellectual Property in Harnessing
Public Research for Innovation

  1. Research Collaboration between firms and institutions that result into IP are more widespread; however, precise data to gauge the growth rate and trend is somewhat challenging to collect. Of various fields, biotechnology and chemicals exhibit frequent collaboration. Patent data from USPTO during the years 1989-1998 shows that co-patenting was most frequent in the chemical, ICT and instrumentation industries.
  2. Research Collaboration between firms and institutions that result into IP are more widespread; however, precise data to gauge the growth rate and trend is somewhat challenging to collect. Of various fields, biotechnology and chemicals exhibit frequent collaboration. Patent data from USPTO during the years 1989-1998 shows that co-patenting was most frequent in the chemical, ICT and instrumentation industries.

Conclusion

The face of innovation is changing as also the geography and is likely to evolve further with new opportunities and challenges in the globalized world. The growing demand for innovation is continuously influencing the IP systems. New approaches and IP-based incentives are further shaping the scope and prospects of commercialization of public and private research. There is a need to develop further insights on the inter-relationship between ‘intellectual property’ and ‘innovation’ to develop appropriate public policies.

Go to

World Intellectual Property Report :
The Changing Face of Innovation – 2011

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