15 Nov, 2011

“Innovation No Longer Prerogative Of High-Income Countries” – WIPO Report

World Intellectual Property Organization

Geneva, November 14, 2011 – The World Intellectual Property Report 2011- The Changing Face of Innovation – a new WIPO publication – describes how ownership of intellectual property (IP) rights has become central to the strategies of innovating firms worldwide. With global demand for patents rising from 800,000 applications in the early 1980s to 1.8 million in 2009, the Report concludes that growing investments in innovation and the globalization of economic activities are key drivers of this trend.

As a result, IP policy has moved to the forefront of innovation policy. In a foreword to the Report, WIPO Director General Francis Gurry notes that “innovation growth is no longer the prerogative of high-income countries alone; the technological gap between richer and poorer countries is narrowing. Incremental and more local forms of innovation contribute to economic and social development, on a par with world-class technological innovations.”

The Report points to a number of implications of the growing demand for IP rights, namely:

• Knowledge markets based on IP rights are on the rise. Evidence suggests that firms trade and license IP rights more frequently. Internationally, royalty and licensing fee revenue increased from USD 2.8 billion in 1970 to USD 27 billion in 1990, and to approximately USD 180 billion in 2009 – outpacing growth in global GDP. New market intermediaries have emerged, such as IP clearinghouses and brokerages.

Evidence shows that knowledge markets enable firms to specialize, allowing them to be more innovative and efficient at the same time. In addition, they allow firms to control which knowledge to guard and which to share so as to maximize learning – a key element of modern open innovation strategies.

• Patenting has grown especially fast for so-called complex technologies – that is, technologies consisting of many separately patentable inventions where patent ownership is often widespread. This partly reflects technological change. For example, complex technologies include most information and communications technologies that have seen rapid advances over the past decades.

At the same time, some complex technology industries – notably, telecommunications, software, audiovisual technology, optics and, more recently, smartphones and tablet computers – have seen firms strategically build up large patent portfolios. As a result, there is concern that increasingly dense webs of overlapping patent rights slow cumulative innovation processes. Collaborative approaches, such as patent pools, can to some extent address such concerns. However, making sure that crowded patent landscapes do not hold back innovation and entrepreneurship demands careful attention by policymakers.

• In this regard, well-functioning patent institutions have become a cornerstone of successful innovation systems. They perform the essential tasks of ensuring the quality of patents granted and providing balanced dispute resolution. Unprecedented levels of patenting have put these institutions under considerable pressure. Many patent offices have seen growing backlogs of pending applications. In 2010, the number of unprocessed applications worldwide stood at 5.17 million. The choices patent offices make can have far-reaching consequences on incentives to innovate.
• Many countries have put in place policies to harness public research for innovation. One element of such policies is to incentivize patenting by university and public research organizations (PROs) and the subsequent commercial development of their inventions. Accordingly, there has been a marked increase in patent applications by these organizations. University and PRO filings under the WIPO’s Patent Cooperation Treaty (PCT) have grown from close to zero in the 1980s to more than 15,000 in 2010. High-income economies account for most of this growth – notably France, Germany, Japan, the UK and the US. However, many middle income countries have also seen marked growth. In the case of universities, China leads with 2,348 PCT filings from 1980 to 2010, followed by Brazil, India and South Africa. In the case of PROs, China and India alone represent 78 percent of total fillings from middle-income countries.

Policy reforms aimed at promoting patent-based university technology transfer have multifaceted effects on research institutions, firms, the science system and the economy.

Other conclusions of the Report include:

• While high-income countries still dominate global R&D spending, the geography of innovation has shifted. Global R&D expenditures almost doubled in real terms from 1993 to 2009. Most R&D spending still takes place in high-income countries – around 70 percent of the world total. They spend around 2.5 percent of their gross domestic product (GDP) on R&D, more than double the rate of middle-income economies. Low- and middle-income economies have increased their share of global R&D expenditure by 13 percentage points 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 in 2009.
• Data on broader investment in intangible assets are only available for selected high income countries. They show that such investment has grown rapidly; in a number of countries, firms now invest more in intangible than in tangible assets. In Europe, investment in intangibles amount to as much as 9.1 percent of GDP in Sweden and the UK.
• There is clear evidence that innovation is increasingly international with a sharp increase in the share of peer-reviewed science and engineering articles with international co-authorship and a rising share of patents which list inventors from more than one country. In addition, multinational firms more and more locate their R&D facilities in a variety of countries – with certain middle-income economies seeing particularly fast growth. The rising share of middle-income countries in the global economy, in turn, is re-orienting innovation towards the demands of those countries.
• Some evidence exists that innovation has become more collaborative and open, but assessing the true scale and importance of new approaches is challenging. For one, it is difficult to draw a clear distinction between open innovation strategies and long-standing collaborative practices, such as joint R&D, joint marketing or strategic partnerships. For another, certain elements of open innovation strategies – such as new policies internal to firms or informal knowledge exchanges – cannot easily be traced.
• Notwithstanding this uncertainty, collaboration in the innovation process can benefit firms and society. Joint IP production occurs through R&D alliances, in particular contractual partnerships and equity-based joint ventures. Data on such alliances are limited and sometimes difficult to interpret, but they suggest that firms in the ICT, biotechnology, and chemical industries most frequently enter into such alliances. Society usually benefits from such collaboration as it enhances the efficiency and effectiveness of the innovation process.

Through its new World Intellectual Property Report series, WIPO seeks to explain, clarify and contribute to policy analysis relating to IP, with a view to facilitating evidence-based policymaking. Future reports will focus on other IP themes.