Patent Attorneys – Let’s save the nation!


Technology’s rapid globalisation has focused on the large market players such as China, Europe and the USA, followed by the smaller industrialised nations such as Israel and Sweden, who have been punching above their weight in the World IP sector for some time.

Australia is of particular interest since it:

  1. was relatively unaffected by the Global Financial Crisis compared with many other nations;
  2. has a relatively high Gross Domestic Product; and
  3. has a relatively small population with a low number of practicing patent attorneys (around 500) who have not been targeted by policy drives over the last decade.

We thought it would be interesting to see how these differences in Australia’s circumstances affects IP outcome compared with our neighbours. 

How important is it for a nation to protect its IP?

In the British television drama series “Spooks”, the value of a nation’s intellectual property is explored in one episode, where the secret service, MI5, calls in specialist assistance to prevent the theft of valuable UK intellectual property

… if only!

In Australia, “[i]nnovation is not a topic that attracts much serious political debate in Australia”, according to Adam Liberman.[1] While other industrialised nations utilise the patent system to protect valuable intellectual property, Australia is lagging. According to the World Intellectual Property Organisation, in 2008 “Australians published 3.18 per cent of the world’s research publications but held just 0.46 per cent of the world’s patents.[2] Adam Liberman urges policy reform to encourage greater participation by Australians in the international system of intellectual property protection, to avoid being left behind by our economic competitors and trading partners.[3]

This urging is similar to earlier findings where Australia is cited as a technology rich and inventive nation[4],  which outperformed the US in terms of income from licences per dollar of R&D spend; however, Australia is not protecting its IP as actively as its neighbours.[5]

In Australia we have everything – a strong economy, a technologically advanced nation that publishes peer reviewed papers well above its weight … but we are losing our position as an international patent filer. According to Adam Liberman, Australia will suffer internationally “because of the paucity of its patent holdings. This does and will continue to impose a cost.” [6]

The situation is compounded by the fact that, back at home, an increasing proportion of Australian patents are owned by non-residents.[7] The end result is that the value of these patents will also go offshore (for more on this, see further below).

Could a strong patent policy turn things around?

We analysed patent data as it provides a sensitive tool for differentiating policy, market and professional drivers impact.

Why the Nation needs saving

The World Intellectual Property Organization (WIPO) released its data on the number of patent applications and grants per country in June, 2010. Previously I wrote an analysis of the equivalent data released in 2003 for data pertaining to the year 2000.[8] Therefore, we have an analysis focusing on Australia’s performance over the last decade.

Patents leaving the Nation

Patent applications lodged Australia is one of the top 15 countries in the number of PCT applications filed.  To compare the performance between countries we have normalised PCT application filings lodged with respect to the population of the country of origin.  That is, the number of patent applications per 100,000 people in the applications country of origin.

Country of Origin

Number of PCT applications lodged per country
(normalised by population)*

Switzerland 47 52 54 54 54
Finland 38 37 40 44 43
Sweden 32 37 14 46 40
Netherlands 28 28 28 27 28
Israel 21 23 25 27 23
Japan 20 21 22 23 23
Germany 20 21 22 23 21
R. Korea 10 12 15 16 17
USA 15 16 17 17 15
France 9 10 10 11 11
UK 8 8 9 9 9
Australia 10 10 10 9 8
Canada 7 8 8 9 8
Italy 4 4 5 5 4
China 0 0 0 0 1

Table 1 is constructed from data obtained from:

1) PCT SYSTEM YEARLY REVIEW: Developments and Performance in 2009 http://www.wipo.int/freepublications/en/patents/901/wipo_pub_901_2009.pdf; and
2) CIA World Fact Book COUNTRY COMPARISON POPULATION https://www.cia.gov/library/publications/the-world-factbook/rankorder/2119rank.html

Australia has fallen in both absolute and relative terms in the number of PCT applications lodged per 100,000 people as shown in Table 1.

Australia is ahead of China in the number of filings per 100,000 head of population; however, China is on a steady rate of increase and is likely to overtake Australia in the next decade.  The only other counties that Australia leads is Italy and Canada, both of which were strongly impacted by the Global Financial Crisis.

The United Kingdom is of a similar standing as Australia; however, the UK has increased its number of filings in the face of severe economic downturn, whilst Australia has decreased its output whilst in an economic boom over the same period.

Australia has a population of approximately 21.8 million people and so its eight (8) PCT applications made per 100,000 people is massively behind Switzerland (7.6 million people), Finland (5.3 million people), Sweden (9.1 million people) and the Netherlands (16.8 million people), which have approximately four- to five-fold more filings per 100,000 head of population.  Further, countries such as Sweden and Finland were severely impacted by the global financial crisis; whereas Australia had a relative boom economy.

It appears that being a nation with a relatively small population is not an impediment with regard to patent output  (see Table 1), since the nations that are leading PCT filings per head of population all have smaller populations than Australia.

The Gross Domestic Product of each of the leading PCT filing countries (as normalised) is below that of Australia’s GDP (with only two exceptions – Switzerland and the USA):

Origin PCTs per 100,000
people (2009)*
GDP””
USA 15 $45,110
Switzerland 54 $42,900
Australia 8 $41,300
Netherlands 28 $40,500
Canada 8 $39,600
Sweden 40 $39,000
Germany 21 $35,900
Finland 43 $35,300
UK 9 $35,100
Japan 23 $34,200
France 11 $33,300
Italy 4 $30,700
R. Korea 17 $30,200
Israel 23 $29,500
China 1 $7,400

Table 2 is constructed from data obtained from:
1) PCT SYSTEM YEARLY REVIEW Developments and Performance in 2009 http://www.wipo.int/freepublications/en/patents/901/wipo_pub_901_2009.pdf; and
2) CIA World Fact Book COUNTRY COMPARISON GDP – PER CAPITA (PPP) https://www.cia.gov/library/publications/the-worldfactbook/rankorder/2004rank.html

* Normalisation of patent data by listing the number of PCT National Phase Entries per 1,000,000 people in Country of Origin so as to account for the population of each country
**Gross Domestic Product (GDP) shows the purchasing power parity basis divided by population

What drives inventors to seek patent protection offshore?

Drivers such as:

  • the relative wealth of a nation;
  • how technologically advanced the nation is;
  • the size of the population of a nation; or
  • the impact of the global financial crisis;

do not appear to have influenced the ranking of nations as international patent filers. Sadly, Australia has slipped in its ranking even though it has wealth, is well technologically endowed, and underwent an economic boom whilst other nations suffered the Global Economic Crisis.

Could patent perception between nations be a differentiating factor?

This can be deduced by observing the origin of patents leaving Australia as PCT filings.  This “perception” is investigated below in “Patent Perception differs between nations”.

Policy hints:

If you are a UK, Canadian, Italian or French Patent Attorney you can substitute Australia with your nation (even though none of you are steadily slipping backwards like Australia).

For some reason patent protection across Europe is well spread: Switzerland (54), Finland (43) and Sweden (40) lead by far the next European nations of Netherlands (28), Germany (21,) with France (11), the United Kingdom (9) and Italy (4) lagging behind.

Alternatively, we could follow China who is coming from a low base but is having such exponential growth that, instead of being at the base of the pack as shown in Table 1, is likely to lead the pack in the next decade.

Australia’s National Survey of Research Commercialisation for the period 2005 to 2007 as published in July 2009[9]revealed that Australia improved its number of invention disclosures per $US100m research expenditure relative to the US, Canada and the UK between 2000 and 2007. However, this Research Commercialisation finding is not sustained when compared to the number of PCT filings out of Australia over the last three years.

Patents entering Australia

Incoming patents, that is, patents applied for as national phase entries into Australia make up the vast majority of the Australian applications (87.2% in 2000 and 83% in 2008). These patent applications are made by non-residents (that is, other countries’ patents coming into the Australian jurisdiction).

The countries with patent filings entering Australia according to WIPO are as follows:

Country of Origin
US JP DE FR GB NL CH KR SE IT Other Total
Australia 9,137 1,259 1,332 661 1,119 548 1,099 286 477 304 4,301 20,523

The countries of most interest in order of preference for National Phase Entries to go into are:

National Phase Entries Applications per head of population (1,000,000) PCT National Phase Entries per 1,000,000 people
Europe 83,576 852.4 98.05
USA 61,122 313 195.15
China 57,641 1,337 43.12
Japan 54,546 126 431.53
Canada 31,975 34 940.44
Republic of Korea 31,909 49 655.22
Australia 20,523 22 945.76

Table 3. The number PCT applications from within the specified nation entering national phase into another nation (column 2) compared to the number of National Phase entries into the specified nation (column 3). Data in columns 2 and 3 are normalised as per 1,000,000 head of population for the specified nation.

The data in Table 3 shows that Australia has both:

  1. the lowest number of applications (22) per head of population (1,000,000) entering a foreign nation; and
  2. the highest number of incoming PCT National Phase Entries (945.76) per 1,000,000 people entering Australia.

Positive spin

One interpretation of the data in Table 3 is that Australia is the sixth most favoured country (in terms of absolute filings per country) to enter into for patent protection, which makes it a country of great interest compared to its size.  Does this make Australia, as seen internationally, a country worth investing in, so the investment of patent filings continues?

As for all nations to maintain patent investment by other countries, Australia has to maintain a positive perception as to the role of patents for its growth. If Australia falls in its ranking of PCT filings there is likely to be tipping point where investment in patent filing into Australia falls.

Why? Patent filing is indicative of patent perception: if PCT filings per head of population in Australia are falling, then patent perception is falling (which may make patent enforcement more difficult etc.), which in turn discourages patent investment into Australia.

Not so positive spin

Australia, according to the data in Table 3, has the highest number of offshore patent registered within its shores. This is an indicator of royalty payments going:

1) offshore; compared with

2) incoming patents  per head of population.

The problem of an excessive number of foreign patent applications entering smaller industrialised nations, such as Australia, Canada and the Republic of Korea, is that it causes an increased royalty payment outflow.   This can impair a nation’s development since it creates a colonisation scenario where the money and the fruits of a nation are exported instead of investing in the nation that creates the wealth.  Such a scenario can also give rise to a negative patent perception.

Patent Perception differs between nations

Patent perception between nations is inferred from Table 3, in that it reveals:

  1. the relative importance of patent filing between nations (practice is indicative of importance); and
  2. specifically, Australia has the least patent filings entering other nations when normalised by filings per head of population.

A differentiating factor between the nations studied is the relative importance of patents within a nation’s psyche.  Australia has the lowest number of patent filings entering other nations, which is indicative of Australia holding patent filing as less important relative to other nations.

Can we change the importance of patents in the Australian psyche?  The importance of patents is dependent on policy.  Policy can change perception which, in turn, can change practice.

Conclusion

Why is Australia’s performance relatively weak against its neighbours’ activities?

Australia’s performance, as stated in 2003 and, as revealed by the WIPO data over the last decade, is indicative of an economy that will be milked for royalties by other nations. That is, if Australia does not improve its resident patent portfolio, it will pay increasing licensing royalties to non-resident patentees and sacrifice the opportunity to receive royalties.

What’s the problem with an excessive number of external patent filings?

If Australia is not protecting its IP then the fruits of Australian innovation are leeched out of our nation.  Thus, we can become subject to patent “colonisation” – the fruits of Australian efforts are paid out of as royalties or given out as technological improvements to other jurisdictions and our nation becomes poorer as a result.  The CSIRO’s endeavours with breeding and cultivating cotton are such an example.

To reverse this trend, Australia must become more active in protecting its IP globally. Australia has many policy initiatives in place to promote intellectual property protection. However, comparison with historical data does not reveal a relative increase in resident patent grants, when compared to other nations.

Australia needs to increase internal patent filings, so there needs to be a policy investment internally to change the filing incentives.

What should our commercialisation policies touch on to change our global position?

Patent perception is the place to start:

Australian policies have had difficulty with complex issues of the Australian psyche.  For example, the ingrained misconceptions that patents are:

  1. expensive but not worth having if you cannot afford to enforce them;
  2. that patentees receive a raw deal, when it comes to enforcing their patents in the courts; and/or
  3. that patents hinder innovation because they reduce access to another person’s work.

To change such ingrained beliefs, different initiatives are required.

Can we change this? Yes, we can

Firstly, there needs to be better policy consideration to improving attitudes to patent protection. Secondly, this policy consideration should take into account the role of patent attorneys. This may range from promoting and educating to give effect to policy, but there also need to be incentives to promote investment in patents, including in the high investment costs of seeking patent protection. This work is often “loss leading” for patent attorneys (little wonder that there may be little or no value in competing for this kind of work – particularly if the client is a “reluctant” investor unwilling to extend the investment beyond the “loss leading” stage).

Changing a nation’s perception may require more than changing grants and taxation

Is the Australian scenario that markedly different to our neighbouring countries with regard to tax and other incentives in place to promote inventive disclosures?

Tax incentives are in place or are being implemented in many nations.  For example,  a recent announcement in the United Kingdom states that a 10% corporation tax for profits on patents starting 2013 (reduced from 28%) is undergoing implementation.[10]  Australia has grants available to help fund patents going into other jurisdictions that are only activated once the initial expenditure is over $10,000 (for example, the EMDG grant[11]).

Such policy announcements are often encouraging and raise awareness about patents, but do not change practice since their impact:

  1. is dependent on some future time (re UK announcement); or
  2. has threshold that is too high for most patent applicants except those that have a firmly established return on investment strategy (see Australia’s EMDG grants).

Nations implementing the tax or rebate incentives may create the equivalent of “price cutting wars” between nations without changing practice.  For example, over the past decade Australia has had many grant and tax incentives; however, in light of these incentives, Australia has continued to “create world class research, but…[remains] deplorably bad at commercialising it”.

Policy targeting patent attorneys

I agree with Moir’s[12] (2008) statement that “Patent Attorneys … play a major role in the formulation of patent policy”.  Thus a policy re-focus involving the patent profession may lead to a different outcome for the next decade.

This issue of changing the Australian psyche also needs to address change within the patent profession:

For the patent profession, the drafting and filing of a provisional patent is often regarded as a loss leader – that is, the time invested in drafting the patent gives very little return compared with other areas of attorney investment, such as lodging a national phase entry into Australia.

If patent attorneys get “easy” money from international filings, why would patent attorneys promote patents in Australia?

The “follow the money” scenario in Australia clearly provides a basis as to why there are a greater number of patents filed in Australia by offshore entities (patents coming in from overseas) than by residents. Therefore policy targeting the patent profession must target and change the practice of  “follow the money” to offshore patents.  Patent attorney firms seemingly provide more resources in seeking national phase entries (typically referred from patent attorneys overseas) than encouraging protection of home-grown inventions.

Policy should educate and assist in increasing the incentive to file patents is to protect our nation’s IP. It is more effective to be proactive rather than to let it slip from the nation’s grasp then having to redress the damage. The path we are currently travelling brings to mind Ireland’s potato famine where there was an excess of food exported whilst Ireland’s residents starved.

Recent policy

Finally, there is a policy in Australia to address the problem of falling investment in IP protection. This is by promoting the value of IP protection through accountants by getting accountants to encourage consumers/businesses to file for IP protection.  The rationale is that most people see their accountant once a year and therefore this presents an opportunity to “sell” the idea of IP protection.

The policy of “let’s promote IP” to accountants is implemented by:

  1. providing accountants with the promotional material; and
  2. enabling accountants to file trademarks on their client’s behalf using the Australian TM Headstart program– since this continues the tradition of self-filing (since by not mentioning the cost to the client for the accountant filing the trademark, it continues as self-filing):

Is this good policy?  In my mind it is poor policy in that promoting accountants as the link to trademark filing results in:

  1. lowering the standing of intellectual property in the community in that any professional – albeit untrained in IP – can file a trademark … and does this next extend to a patent? …
  2. promoting misconceptions in the Australian psyche that intellectual property protection is expensive, unenforceable etc., since another layer of charging for IP services is introduced by a profession not trained in IP; and
  3. confusion of practice and usurps the profession by providing accountants with the ability to charge for filing trademarks without the benefit of a firm grounding in IP law (which is different to a self-filer, who does not pay for professional services).

Actively encouraging consumers / businesses to securing IP protection is a positive move.  However, has this policy targeted the most suitable profession by targeting accountants?

We are talking specifically about trade marks at the moment, but the policy nevertheless completely dismisses the value of having a suitably qualified professional who understands IP laws to assist in protection. It results in the deflection of valuable resources away from a suitably qualified professional to a different profession purely on the basis that most people see their accountant once a year. On this basis, a doctor, chiropractor, beautician or hairdresser or any other service provider who provides services on a regular basis would be an appropriate alternative to suitably qualified advice.

The outcome might be a short term increase in filings but not in quality (due to the lack of appropriate qualification, not a reflection of the service provider). This will ultimately simply result in the perceived lack of value in IP being a self-fulfilling prophecy. Self-filers often have difficulty getting a return on their IP investment because their self-filed application fails or simply does not provide the protection they thought it would because the way it was sought did not take into account the intricacies of IP law. It might be better than nothing and it may work for many, but this is a very different position than paying a professional to assist when that professional has no more relevant training than a self-filer. Thus this policy is, in my mind, not the most ethical approach –  that is, to encourage expenditure in a manner that is contrary to the interests of the client.

Currently the patent profession is relatively untouched by policy. Having a voice and being involved in policy can help educate the business community about the value of IP protection. In turn, this can assist in improving investment in IP beyond the “loss leading” phase (loss leading for attorneys, business and the nation).

Happy IP Day 2011


[1] http://theconversation.edu.au/articles/australias-approach-to-intellectual-property-is-undermining-innovation-policy-768

[2] http://www.theaustralian.com.au/business/legal-affairs/millions-lost-by-failure-to-shield-intellectual-capital/story-e6frg97x-1226039377694

[3] http://theconversation.edu.au/articles/australias-approach-to-intellectual-property-is-undermining-innovation-policy-768

[4] Inge J ‘Australia’s first National Survey of Research Commercialisation’ (2003) 16(1) IPLB 1 at 13-14.

[5] Bates, Michael (2003) SMALLER DEVELOPED NATIONS: THE CASH COWS FOR ROYALTY MILKING? Australian Intellectual Property Law Bulletin Vol. 16 No. 4, August 2003, pp. 54-56

[6] http://theconversation.edu.au/articles/australias-approach-to-intellectual-property-is-undermining-innovation-policy-768

[7] http://theconversation.edu.au/articles/australias-approach-to-intellectual-property-is-undermining-innovation-policy-768

[8] Bates, Michael (2003) SMALLER DEVELOPED NATIONS: THE CASH COWS FOR ROYALTY MILKING? Australian Intellectual Property Law Bulletin Vol. 16 No. 4, August 2003, pp. 54-56

[9] http://www.innovation.gov.au/Innovation/ReportsandStudies/Documents/NSRCReport200507.pdf

[10] Reforming IP taxation in the UK: changes for the better? 19 April 2011 http://www.cpaglobal.com/newlegalreview/4839/reforming_ip_taxation_in_the_u

[11] http://www.austrade.gov.au/exportgrants

[12] Moir, Hazel V J (2008) Who benefits? An empirical analysis of Australian and US patent ownership
CENTRE FOR GOVERNANCE OF KNOWLEDGE AND DEVELOPMENT WORKING PAPER: OCTOBER 2008
http://cgkd.anu.edu.au/menus/workingpapers.php

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: