15 June 2015

Innovation Patent Analytics

IP Australia has released a research paper [PDF] on The Economic Impact of Innovation Patents.

The paper - which has influenced ACIP - states
The innovation patent is a second-tier patent with a lower inventive threshold, lower cost and shorter term than a standard patent. The policy objective of the innovation patent is to encourage innovation among Australian Small and Medium sized Enterprises (SMEs) by offering protection for lesser inventions.
The evidence shows that firms who file innovation patents are less likely to participate in the standard patent system afterwards. The great majority of Australian SMEs and private inventors appear to gain little benefit from the system. Three quarters of these applicants file one innovation patent and then never file another innovation or standard patent again.
Only 23 SMEs have become moderate users of the innovation patent system, filing at least 5 innovation patents, with at least one enforceable right, and entering the patent system via an application for an innovation patent. The average SME or private inventor files once and never again (74%) does not receive any enforceable right (83%), and lets their patent expire early because they see its value at less than the $110-$220 cost of renewal (78%).
The evidence shows that innovation patents have some positive effects, but in the one area of impact, firm survival, standard patents are found to have a bigger positive effect, and there is no effect from certifying innovation patents. Firms in the manufacturing sector, who file innovation patents, invested more in R&D than other manufacturing firms, but the same holds for standard patent applicants, both in manufacturing and across broader set of industries. The innovation patent by itself has no correlation with firm sales growth and no impact on market entry rates across industries.
Innovation patents impose a regulatory cost on Australian SMEs and private inventors of over $10 million per year, equating to nearly 95% of the regulatory cost of the system. The maximum private value of the innovation patent system as a whole was calculated to be in the low tens of millions per annum. This private value is expected to be offset by third party uncertainty costs to consumers and other producers, as the majority of innovation patents are not enforceable rights, but this offset could not be quantified. Large firms tend to obtain the majority of this value from their innovation patents, followed by SMEs and private inventors. This highlights that the costs and benefits are not accruing evenly across firms.
The low levels of repeated use by SMEs suggest that the innovation patent is not fulfilling its policy goal of providing an incentive for Australian SMEs to innovate, and the evidence shows a reduced likelihood of patenting after participating in the innovation patent system. Given the low private value of the system, it is likely that the system is a net cost to most of the SMEs that use it, and the system has imposed a regulatory burden of more than $100m since its introduction.
IP Australia concludes -
We investigated whether having innovation patents would encourage R&D and traditional patent applications that would not otherwise have occurred, particularly by SMEs. The evidence suggests that this does not happen.
Private inventors and SMEs do participate in the innovation patent system, but the vast majority, 74% of all applicants between 2001 and 2013, only ever file one innovation patent, and tended to allow their innovation patents to lapse early, rather than pay the renewal fee. This suggests that the vast majority of SMEs found little value in the system, or at least not enough value to use either the innovation or standard patent system again, or indeed pay the renewal fee of $110 to $220. We found evidence that the system discouraged follow-on patenting or innovation if we consider additional patenting a proxy for innovation. If we broaden that group of SMEs and private inventors out, to define a set of light users of the innovation patent system, we find that 86% of SMEs and private inventors only ever file 1-4 innovation patents and never file any standard patents.
Only 1% of the SME and private inventors in the innovation patent system are moderate to heavy users of the system: They entered the patent system by first filing an innovation patent and filed at least 5 applications over the 12 year period, having at least one examined. This is the type of repeat use which would indicate a perception of additional value from each innovation patent. Of the 9,644 SMEs and private inventors that filed innovation patents, only 37 entities fall into this category. With that in mind, it is not surprising that we see no macroeconomic effect from the innovation patent system.
The innovation patent system may or may not have a net benefit in aggregate terms. The private value generated by innovation patents appears to be in low tens of millions of dollars, and this should theoretically accrue mainly to firms that maintain and certify their patents, of which large firms hold the greatest proportion. The regulatory and private cost of the system is equally in the low tens of millions of dollars, but fall mainly on private inventors and SMEs. It is not possible to quantify the third-party costs, but even if they were relatively low costs, the system would not be expected to yield an aggregate net benefit. The distribution of costs and benefits are however skewed against SMEs. We estimate the range of regulatory burden to be between $5.8m and $17.4m per annum. The majority of this, around 95%, fall on SMEs and private inventors, suggesting that since its introduction, the innovation patent system has imposed a regulatory cost on SMEs and private inventors exceeding $100m.
Contrary to evidence in developing countries, the innovation patent system does not appear to have resulted in higher sales growth or more innovation as proxied by patenting in Australia. The innovation patent system does attract R&D spenders, but only in the manufacturing industries, while the standard patent system also attracts firms in the manufacturing industry and it is also is used by a broader range of industries.
We find evidence that innovation patents have some positive effects, but in the one area of impact, firm survival, standard patents are found to have a bigger positive effect, and there is no effect from certifying innovation patents. ACIP (2014: 38-39) noted that while large international companies may obtain private value from the system, it is unlikely that the innovation they are protecting would not have occurred if not for the innovation patent system - i.e. that the innovation patent system did not incentivise the innovation as such, and is therefore imposing a deadweight cost on third parties. The majority of innovation patents are not certified, and so the value of these patents are likely to exist in the uncertainty they create in the marketplace, a key factor in abolishing the system in the Netherlands and Belgium.