Rise in intellectual property is changing the face of innovation

Ownership of intellectual property (IP) rights has become central to the strategies of innovative companies worldwide, with increasing investment in R&D and the development of global markets driving demand for patents from 800,000 applications in the early 1980s to 1.8 million in 2009, according to the World Intellectual Property Organisation.

As a result, IP policy has moved to the forefront of innovation policy. The increased focus on knowledge, the focus given to innovation in emerging economies, and the desire to protect inventions abroad are generating a growing demand for IP protection. As a result IP has moved from being a technical topic tended to by small, specialised communities and now plays a central role in corporate strategies and innovation policies.

There are a number of implications of this growing demand for IP rights. For one, knowledge markets based on IP rights are on the rise, with companies trading and licensing IP rights more frequently. Internationally, royalty and licensing fee revenue increased from $2.8 billion in 1970 to $27 billion in 1990, and to approximately $180 billion in 2009 – outpacing growth in global GDP.

A key to open innovation

At the same time, new market intermediaries have emerged, such as IP clearinghouses and brokerages. According to the report by the World International Property Organisation, knowledge markets are enabling firms to specialise, to be more innovative and more efficient. In addition, they allow firms to control which knowledge to guard and which to share so – a key element of open innovation strategies.

Patenting has grown especially quickly in the area of complex technologies consisting of many separately patentable inventions, where patent ownership is often widespread. This partly reflects technological change.

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 dense webs of overlapping patent rights will slow cumulative innovation processes.

Collaborative approaches, such as patent pools, can to some extent address such concerns. But policymakers need to make sure that crowded patent landscapes are not allowed to not hold back innovation and entrepreneurship.

Patent offices under pressure

Given these trends well-functioning patent institutions are now a cornerstone of successful innovation systems, ensuring the quality of patents granted and providing balanced dispute resolution.

But the unprecedented levels of patenting have put these institutions under considerable pressure and 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 incentivise patenting by university and public research organisations and the subsequent commercial development of their inventions. As a result there has been a marked increase in patent applications by such organisations. University 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.

Shifting geography of innovation

High-income countries may still dominate global R&D spending, but the geography of innovation has shifted, according to the report. 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 per cent of the world total. However, low- and middle-income economies increased their share of growing 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 in 2009.

While 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 companies now invest more in intangible than in tangible assets. In Europe, investment in intangibles amount to as much as 9 per cent 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.

Innovation becomes more collaborative

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.

Data on the outcomes of open innovation projects 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.

World Intellectual Property Report 2011- The Changing Face of Innovation