6.1 The relationship between the patent system and innovation is changing, as the nature of innovation changes: digitisation decreases the costs of innovation and increases the scope for collaboration. IPRs are becoming more important as innovation becomes a primary competitive advantage in the global economy.
6.2 The UK’s patent system has played a well understood role in supporting innovation and economic growth in important areas of the economy from pharmaceuticals to information technology and advanced manufacturing. The system is designed to give incentives:
6.3
•
•
•
to invention, by enabling inventors to protect new ideas and secure a return for their effort;
to exploitation, by giving the producer of an invention exclusive rights, in the market;
to disclosure and sharing of technology, so that innovators can learn from advances made by others and build on them.
to exploitation, by giving the producer of an invention exclusive rights, in the market;
to disclosure and sharing of technology, so that innovators can learn from advances made by others and build on them.
The evidence and representations to the Review from its users suggest that the UK patent
system is, on the whole, functioning reasonably well.
“The current UK intellectual property system is t for purpose, and supports one of the world’s
most vibrant markets for technology, creativity, innovation and growth, among a wide spectrum of companies and industry.” Microsoft submission
“Our view is that the patent system and indeed the broader intellectual property system, works substantially very well for innovative businesses. It is very far from being “broken”.” Chartered Institute of Patent Attorneys submission
“The strength of the patent system ensured that Qualcomm was in a position to defend itself and to negotiate agreements to license and commercialise its disruptive technology on an equal footing with very large and sophisticated industry players.” Qualcomm submission
most vibrant markets for technology, creativity, innovation and growth, among a wide spectrum of companies and industry.” Microsoft submission
“Our view is that the patent system and indeed the broader intellectual property system, works substantially very well for innovative businesses. It is very far from being “broken”.” Chartered Institute of Patent Attorneys submission
“The strength of the patent system ensured that Qualcomm was in a position to defend itself and to negotiate agreements to license and commercialise its disruptive technology on an equal footing with very large and sophisticated industry players.” Qualcomm submission
Review of Intellectual Property and Growth 53
6.4 While this is welcome reassurance to those responsible for the UK’s IP machinery, these are
not the only perspectives relevant to innovation and growth. Although the UK patent system continues
to function as an important core mechanism for incentivising innovation, some aspects of the way the
system is currently working are a source of concern, because they appear to be causing barriers rather
than incentives to innovation.
6.5 The most striking aspect of the patent system in recent years is the worldwide increase in the number of patent applications, as shown in Figure 6.1, causing delays in the granting process.xii These delays have led to backlogs at patent of ces. Meanwhile, in some business sectors patent proliferation is causing regulatory blockage in the form of “thickets” of pre-existing patents and pending patents which impede genuine innovators wishing to enter markets.
6.6 One outcome of these pressures is that patents of uncertain validity represent a disproportionately high share of the increase in patent numbers. This may be because they are still to be examined (the pending patents) and because the growth of patenting is strongest in areas such as ICT, where patent scope and validity is inherently more uncertain than in other, less sequentialxiii technologies such as pharmaceuticals.
6.7 These defects in the patent system may be particularly problematic for young innovative rms – a group strategically important to the UK’s innovation performance.xiv There are warning ags that action is needed now before matters become serious enough to threaten the overall functioning of the system.
6.5 The most striking aspect of the patent system in recent years is the worldwide increase in the number of patent applications, as shown in Figure 6.1, causing delays in the granting process.xii These delays have led to backlogs at patent of ces. Meanwhile, in some business sectors patent proliferation is causing regulatory blockage in the form of “thickets” of pre-existing patents and pending patents which impede genuine innovators wishing to enter markets.
6.6 One outcome of these pressures is that patents of uncertain validity represent a disproportionately high share of the increase in patent numbers. This may be because they are still to be examined (the pending patents) and because the growth of patenting is strongest in areas such as ICT, where patent scope and validity is inherently more uncertain than in other, less sequentialxiii technologies such as pharmaceuticals.
6.7 These defects in the patent system may be particularly problematic for young innovative rms – a group strategically important to the UK’s innovation performance.xiv There are warning ags that action is needed now before matters become serious enough to threaten the overall functioning of the system.
-
xii The USPTO had 708,912 pending patent applications in March 2011, according to www.uspto.gov
-
xiii In sequential technologies, as discussed below, innovation builds cumulatively on previous inventions and innovations.
-
xiv In Chapter 9 we report evidence that many young and innovative technology rms nd the patent system inaccessible.
Figure 6.1 Total patent applications
Source: WIPO Statistics Database, June 2010
Review of Intellectual Property and Growth 54
6.8 Changes in the way that innovation works and the increased propensity to patent have
implications for the role that a modern patent of ce plays in supporting innovation and growth. These
changes also affect the cost/bene t trade-off for society that patents involve. The exclusive right
that a patent confers is intended to incentivise innovation. But the presence of patents imposes transaction costs on others arising from the need to identify and license other people’s patents, or those associated with disputes over patent rights. A higher total volume of patents leads to increasing transaction costs, particularly in markets which are patent intensive. The cost/bene t trade-off of
the patent system may shift away from the socially optimal position – i.e. where innovation incentive bene ts outweigh transaction costs by the largest margin.
More Patent Applications: Strain on Patent Of ces
6.9 The increasing number of patent applications worldwide has led to large and growing backlogs at most major patent of ces. For example, the EPO now takes up to 10 years to grant patents, yet
in the UK typically fewer than 50 per cent of patents are renewed beyond the tenth year. Current trends suggest that the number of patent applications is likely to continue to increase, particularly from countries such as India and China, which is working to a government target to double the country’s patenting levels. An additional year of waiting time (known as “pendency” in the patenting world)
has been estimated to reduce growth due to innovation and enterprise by £7.6 billion in the global economy.1
6.10 Patent backlogs can generate a spiral of ill effects.2 They impose costs by increasing
the uncertainty of business decisions, impeding competition or giving a patent applicant an unfair advantage in negotiations. Backlogs may also cause more rms to protect their inventions outside the patent system, entailing a loss in the dissemination of economically important knowledge. Unexamined patent applications, which may be rejected, add to transaction costs on third parties clearing their products and services to ensure they are not infringing patents. Increased pressure
on patent of ces to examine the large numbers of applications and reduce these backlogs may lead to the grant of even more low quality patents, worsening the costs of uncertainty. This can then precipitate a further downward cycle of increased rates of defensive or “strategic” ling of applications (as rms seek to bolster their own patent portfolios to aid in negotiations), more allegations of infringement and eventually additional litigation. Incorrectly granted patents incur the social costs arising from patent protection without providing the bene t of incentivising true innovation.
6.11 The examination of patent applications is predicated on a high quality search of the prior art (i.e. the status quo in terms of relevant knowledge at the time of the patent application). Increased numbers of patent applications and the pace of change in digital technologies make searches increasingly onerous for patent of ces as the information content they must consider increases. At the same time, this work is often duplicated at other patent of ces, which are frequently considering
that a patent confers is intended to incentivise innovation. But the presence of patents imposes transaction costs on others arising from the need to identify and license other people’s patents, or those associated with disputes over patent rights. A higher total volume of patents leads to increasing transaction costs, particularly in markets which are patent intensive. The cost/bene t trade-off of
the patent system may shift away from the socially optimal position – i.e. where innovation incentive bene ts outweigh transaction costs by the largest margin.
More Patent Applications: Strain on Patent Of ces
6.9 The increasing number of patent applications worldwide has led to large and growing backlogs at most major patent of ces. For example, the EPO now takes up to 10 years to grant patents, yet
in the UK typically fewer than 50 per cent of patents are renewed beyond the tenth year. Current trends suggest that the number of patent applications is likely to continue to increase, particularly from countries such as India and China, which is working to a government target to double the country’s patenting levels. An additional year of waiting time (known as “pendency” in the patenting world)
has been estimated to reduce growth due to innovation and enterprise by £7.6 billion in the global economy.1
6.10 Patent backlogs can generate a spiral of ill effects.2 They impose costs by increasing
the uncertainty of business decisions, impeding competition or giving a patent applicant an unfair advantage in negotiations. Backlogs may also cause more rms to protect their inventions outside the patent system, entailing a loss in the dissemination of economically important knowledge. Unexamined patent applications, which may be rejected, add to transaction costs on third parties clearing their products and services to ensure they are not infringing patents. Increased pressure
on patent of ces to examine the large numbers of applications and reduce these backlogs may lead to the grant of even more low quality patents, worsening the costs of uncertainty. This can then precipitate a further downward cycle of increased rates of defensive or “strategic” ling of applications (as rms seek to bolster their own patent portfolios to aid in negotiations), more allegations of infringement and eventually additional litigation. Incorrectly granted patents incur the social costs arising from patent protection without providing the bene t of incentivising true innovation.
6.11 The examination of patent applications is predicated on a high quality search of the prior art (i.e. the status quo in terms of relevant knowledge at the time of the patent application). Increased numbers of patent applications and the pace of change in digital technologies make searches increasingly onerous for patent of ces as the information content they must consider increases. At the same time, this work is often duplicated at other patent of ces, which are frequently considering
Review of Intellectual Property and Growth 55
identical patent applications in different territories. As we have discussed in Chapter 3, improving
trust in the system of international search provided by the PCT would provide an opportunity to reduce
duplication. Patent of ce recognition of each others’ work as part of work sharing agreements would
offer a reduction in duplicated activity, which would make a substantial impact on managing backlogs.
By reducing the backlog, and hence pendency times, substantial savings could be made.3
6.12 The UK has taken a commendable lead promoting work sharing measures, actively working with the patent of ces in at least six countries as well as the EPO to reduce duplication worldwide and participating in work sharing schemes including the Patent Prosecution Highway (PPH), Vancouver Group Mutual Exploitation and Utilisation Implementation Project (UIP). The United States Patent and Trademark Of ce (USPTO) has worked closely with the UK IPO, also introducing measures to tackle backlogs. These agreements have begun to reduce the amount of work duplicated at patent of ces around the world and there is considerable further scope to extend collaboration. As well as increased work sharing, other patent of ces are taking steps to tackle the backlogs by increasing productivity.xv As in copyright, digital technology offers some of the solutions to the challenges it generates in terms of networked global operations in patent examination. The Review encourages the IPO to intensify its pursuit of these improvements.
More Patents: the Growth of Thickets
6.13 A particular danger from increasing numbers of patents is the development of “thickets” of patents with overlapping claims. The result of these is that businesses working at the leading edge of a particular technology may nd it dif cult or even impossible to know with whom they are in con ict, or whom they should approach for a licence. A current generation smartphone, for example, may well be covered by hundreds of patents owned by tens of rights holders. And these patents are often relevant to multiple phones, particularly if they cover, for example, the communications standards used. The resulting smartphone patent thicket (illustrated below) leads to an environment where litigation is commonplace in a market crowded with patents of overlapping scope.
xv The USPTO outlined their approaches to increasing productivity to the Review during a visit to the US.
6.12 The UK has taken a commendable lead promoting work sharing measures, actively working with the patent of ces in at least six countries as well as the EPO to reduce duplication worldwide and participating in work sharing schemes including the Patent Prosecution Highway (PPH), Vancouver Group Mutual Exploitation and Utilisation Implementation Project (UIP). The United States Patent and Trademark Of ce (USPTO) has worked closely with the UK IPO, also introducing measures to tackle backlogs. These agreements have begun to reduce the amount of work duplicated at patent of ces around the world and there is considerable further scope to extend collaboration. As well as increased work sharing, other patent of ces are taking steps to tackle the backlogs by increasing productivity.xv As in copyright, digital technology offers some of the solutions to the challenges it generates in terms of networked global operations in patent examination. The Review encourages the IPO to intensify its pursuit of these improvements.
More Patents: the Growth of Thickets
6.13 A particular danger from increasing numbers of patents is the development of “thickets” of patents with overlapping claims. The result of these is that businesses working at the leading edge of a particular technology may nd it dif cult or even impossible to know with whom they are in con ict, or whom they should approach for a licence. A current generation smartphone, for example, may well be covered by hundreds of patents owned by tens of rights holders. And these patents are often relevant to multiple phones, particularly if they cover, for example, the communications standards used. The resulting smartphone patent thicket (illustrated below) leads to an environment where litigation is commonplace in a market crowded with patents of overlapping scope.
xv The USPTO outlined their approaches to increasing productivity to the Review during a visit to the US.
Figure 6.2
Source: www.techdirt.com4
Review of Intellectual Property and Growth 56
6.14 As well as added transaction costs, patent thickets encourage strategic or defensive patenting
behaviour,5 particularly where there is fragmentation of IPRs into the hands of multiple owners.6
Strategic patenting behaviour occurs when rms build portfolios of patents for defensive rather
than innovative purposes, creating a store of bargaining chips in cross licensing negotiations or as
a defensive shield to avoid patent litigation. This intensi es thickets, raises transaction costs, and reduces the market value of private sector rms.7
6.15 Strategic patenting behaviour has been further encouraged in some markets by an increase in the number of weak, low value patents.8,9 High transaction costs, and the need to overcome strategic behaviours, cause rms to under invest in the commercialisation of downstream technologies resulting in a form of gridlock, sometimes referred to as a “tragedy of the anticommons” in which rms underuse new knowledge because too many owners can block each other.10, 11
Which Technologies are Causing the Problem?
6.16 The increase in numbers of patents and patent applications is at least in part a consequence of the way that the innovation process has changed. But the increase is fuelled in particular by growth in applications for computer technology patents.
6.17 This is important because the evidence that patenting supports innovation is weaker in computer technology and telecoms than in other areas. In these industries, inventions are nearly always “sequential,” where innovation builds cumulatively on previous inventions and innovations, rather than non-sequential, where a patent generally corresponds to a single product and knowledge is not particularly cumulative.
than innovative purposes, creating a store of bargaining chips in cross licensing negotiations or as
a defensive shield to avoid patent litigation. This intensi es thickets, raises transaction costs, and reduces the market value of private sector rms.7
6.15 Strategic patenting behaviour has been further encouraged in some markets by an increase in the number of weak, low value patents.8,9 High transaction costs, and the need to overcome strategic behaviours, cause rms to under invest in the commercialisation of downstream technologies resulting in a form of gridlock, sometimes referred to as a “tragedy of the anticommons” in which rms underuse new knowledge because too many owners can block each other.10, 11
Which Technologies are Causing the Problem?
6.16 The increase in numbers of patents and patent applications is at least in part a consequence of the way that the innovation process has changed. But the increase is fuelled in particular by growth in applications for computer technology patents.
6.17 This is important because the evidence that patenting supports innovation is weaker in computer technology and telecoms than in other areas. In these industries, inventions are nearly always “sequential,” where innovation builds cumulatively on previous inventions and innovations, rather than non-sequential, where a patent generally corresponds to a single product and knowledge is not particularly cumulative.
Figure 6.3
Source: WIPO Statistics Database, September 2010
Review of Intellectual Property and Growth 57
6.18 Research has established that patents encourage innovation in non-sequential elds where
upfront costs are high, such as drug development.12,13,14,15,16 But with the growing importance
of sequential technologies, innovation across the economy is becoming more cumulative and collaborative in nature, building on previous inventions and innovations. The “patent model” of incentives works less well for these industries, where initial cost does not dominate to the same extent the cost of subsequent reproduction. Further, in a strongly sequential environment it is often unclear where the boundaries of protection afforded by one patent lie in comparison with another. This compounds the thickets problem discussed above.
6.19 Industries working in sequential technologies therefore face a “double whammy”: the incentives provided by patents are reduced, while the negative consequences, in the form of thickets which must be navigated, are increased. This means that while for non-sequential inventions, such as a new drug or medical treatment, having a patent system generally yields higher welfare than not having one; in a fully sequential case, higher welfare and more innovation may be more likely to result from the absence of patenting opportunities.17 Over time, as digital technology becomes pervasive across the economy, this represents a serious concern.
Paths through the Thickets
6.20 There is no single solution to the growing problem of patent thickets. The market itself has already devised partial solutions in the form of standards, patent pools, and the like. These enable players in a particular area of patenting to set terms for access to each others’ patents. Government can take three further steps to resist the growing damage of patent thickets by:
6.22 Evidence considered by the Review is at best equivocal on the bene t of patentability for computer programs.18 It has been argued that these patents help small businesses to secure investment (although there is some evidence that this is not the case).19 But it is not clear that increased patent activity resulting from affording protection to these inventions is associated with increased innovation and any bene ts are likely to be outweighed by the negative effects outlined above. Transaction costs associated with thickets appear to be particularly pronounced in the programming industry.20 The burdens of patent clearance and licensing, and the possibility of litigation associated with others’ computer program patents, often discourage innovation.21, 22
of sequential technologies, innovation across the economy is becoming more cumulative and collaborative in nature, building on previous inventions and innovations. The “patent model” of incentives works less well for these industries, where initial cost does not dominate to the same extent the cost of subsequent reproduction. Further, in a strongly sequential environment it is often unclear where the boundaries of protection afforded by one patent lie in comparison with another. This compounds the thickets problem discussed above.
6.19 Industries working in sequential technologies therefore face a “double whammy”: the incentives provided by patents are reduced, while the negative consequences, in the form of thickets which must be navigated, are increased. This means that while for non-sequential inventions, such as a new drug or medical treatment, having a patent system generally yields higher welfare than not having one; in a fully sequential case, higher welfare and more innovation may be more likely to result from the absence of patenting opportunities.17 Over time, as digital technology becomes pervasive across the economy, this represents a serious concern.
Paths through the Thickets
6.20 There is no single solution to the growing problem of patent thickets. The market itself has already devised partial solutions in the form of standards, patent pools, and the like. These enable players in a particular area of patenting to set terms for access to each others’ patents. Government can take three further steps to resist the growing damage of patent thickets by:
-
preventing the extension of patenting to business sectors where the incentive effect of patents
is low compared with the overheads imposed;
-
resetting nancial incentives for assessing whether to renew patents;
-
and ensuring that only high quality patents are granted.
Computer Program (and Business Method) Patents
6.22 Evidence considered by the Review is at best equivocal on the bene t of patentability for computer programs.18 It has been argued that these patents help small businesses to secure investment (although there is some evidence that this is not the case).19 But it is not clear that increased patent activity resulting from affording protection to these inventions is associated with increased innovation and any bene ts are likely to be outweighed by the negative effects outlined above. Transaction costs associated with thickets appear to be particularly pronounced in the programming industry.20 The burdens of patent clearance and licensing, and the possibility of litigation associated with others’ computer program patents, often discourage innovation.21, 22
3.18 Beyond the EU there are two key global fora which specialise in IP: the World Intellectual Property Organisation (WIPO) and the Trade Related aspects of Intellectual Property rights (TRIPs) Council, which is part of the World Trade Organisation (WTO).
3.19 WIPO is the United Nations (UN) agency which administers most of the global IP treaties. In recent years, divisions between the developed and developing world have led to a general stalling of discussions on a range of issues. However, the current Director General, Francis Gurry, has shown a strong commitment to reforming the organisation, focusing it upon economic issues and improving its effectiveness since his appointment in 2008.
3.20 The TRIPs Agreement is one of the agreements underlying the WTO, and ties a number of the key provisions of international treaties into the WTO dispute resolution system, meaning that violation of those provisions can lead to trade sanctions within the WTO framework. Development issues have come to the fore in recent years, particularly at the beginning of the Doha trade round, when access to medicines for developing countries was a key issue in the trade talks.
3.21 With the basic structure of rights generally established by international treaties and in particular the TRIPs Agreement, attention in international negotiations – particularly Free Trade Agreements (FTAs) and most recently the Anti Counterfeiting Trade Agreement (ACTA) – has focused on effective enforcement of rights.
3.22 It is apparent from the sometimes heated nature of discussions in WIPO and the WTO that developing countries often feel the developed world is seeking to impose an approach to IP which serves the interest of advanced economies upon countries whose economies are at an earlier stage of development. The evidence based approach advocated in this review offers a better basis upon which to seek routes through these complex questions and con icts of interest.
3.23 The evidence suggests that developed economies such as the UK’s bene t from effective IPR regimes, and in particular from effective enforcement regimes, in markets for their goods. It also appears to be the case that for low income countries with a weak scienti c and technological infrastructure, stronger IP protection has little effect on their own economic growth and may even hinder it – while having no signi cant effect on the likelihood of developed country industry seeking to sell goods there. Access to infrastructure, nance and skills can be much more important to investment decisions in low income countries than the effectiveness of the IP regime. By contrast, for middle income and emerging economies such as China, improved enforcement regimes may yield better rewards both for domestic innovation and returns to foreign rms through foreign direct investment and technical cooperation.12
3.19 WIPO is the United Nations (UN) agency which administers most of the global IP treaties. In recent years, divisions between the developed and developing world have led to a general stalling of discussions on a range of issues. However, the current Director General, Francis Gurry, has shown a strong commitment to reforming the organisation, focusing it upon economic issues and improving its effectiveness since his appointment in 2008.
3.20 The TRIPs Agreement is one of the agreements underlying the WTO, and ties a number of the key provisions of international treaties into the WTO dispute resolution system, meaning that violation of those provisions can lead to trade sanctions within the WTO framework. Development issues have come to the fore in recent years, particularly at the beginning of the Doha trade round, when access to medicines for developing countries was a key issue in the trade talks.
3.21 With the basic structure of rights generally established by international treaties and in particular the TRIPs Agreement, attention in international negotiations – particularly Free Trade Agreements (FTAs) and most recently the Anti Counterfeiting Trade Agreement (ACTA) – has focused on effective enforcement of rights.
3.22 It is apparent from the sometimes heated nature of discussions in WIPO and the WTO that developing countries often feel the developed world is seeking to impose an approach to IP which serves the interest of advanced economies upon countries whose economies are at an earlier stage of development. The evidence based approach advocated in this review offers a better basis upon which to seek routes through these complex questions and con icts of interest.
3.23 The evidence suggests that developed economies such as the UK’s bene t from effective IPR regimes, and in particular from effective enforcement regimes, in markets for their goods. It also appears to be the case that for low income countries with a weak scienti c and technological infrastructure, stronger IP protection has little effect on their own economic growth and may even hinder it – while having no signi cant effect on the likelihood of developed country industry seeking to sell goods there. Access to infrastructure, nance and skills can be much more important to investment decisions in low income countries than the effectiveness of the IP regime. By contrast, for middle income and emerging economies such as China, improved enforcement regimes may yield better rewards both for domestic innovation and returns to foreign rms through foreign direct investment and technical cooperation.12
1.12 As advanced economies become ever more knowledge intensive, the stakes involved in
IP are rising. Profound and far from complete economic and technological changes mean that an appropriate and enabling IP framework has become one of the prerequisites for prosperity. IP related spending has come to dominate rms’ investment across the developed world while services now dominate these economies.9 UK rms spent £137 billion on intangible investment, or investment in IP, compared to £104 billion on xed assets in 2008 (see Figure 1.1).10 This investment in IP is worth 13 per cent of market gross value added (GVA), with almost half of it covered by IPRs.11 Global trade in patent and creative industry licences alone is now worth more than £600 billion a year, over ve per cent of all world trade - and rising.12
The Innovation Ecosystem
1.13 Small and young innovative rms are playing an increasing role in job creation. They represent only six per cent of UK rms with more than 10 employees but they have created 54 per cent of all new jobs since 2002,13 although churn amongst Small and Medium Enterprises (SMEs) remains high and their contribution to net employment is lower than this.14 At the same time, larger rms continue to play a crucial but changing role in innovation, with less emphasis on in-house R&D
IP are rising. Profound and far from complete economic and technological changes mean that an appropriate and enabling IP framework has become one of the prerequisites for prosperity. IP related spending has come to dominate rms’ investment across the developed world while services now dominate these economies.9 UK rms spent £137 billion on intangible investment, or investment in IP, compared to £104 billion on xed assets in 2008 (see Figure 1.1).10 This investment in IP is worth 13 per cent of market gross value added (GVA), with almost half of it covered by IPRs.11 Global trade in patent and creative industry licences alone is now worth more than £600 billion a year, over ve per cent of all world trade - and rising.12
The Innovation Ecosystem
1.13 Small and young innovative rms are playing an increasing role in job creation. They represent only six per cent of UK rms with more than 10 employees but they have created 54 per cent of all new jobs since 2002,13 although churn amongst Small and Medium Enterprises (SMEs) remains high and their contribution to net employment is lower than this.14 At the same time, larger rms continue to play a crucial but changing role in innovation, with less emphasis on in-house R&D
Figure 1.1 UK Business Investment, £bn
Source: NESTA (2011)
Review of Intellectual Property and Growth 12
and increased partnerships with smaller companies developing new technologies. These trends
are very apparent in, for example, the biotechnology and software sectors. Hence the relationship between SMEs and larger rms can be symbiotic: they provide each other with direct support for innovative thinking and work together on R&D. Larger rms then provide routes to new and emerging markets for smaller rms.
1.14 Another shift in the innovation ecosystem is the increasing internationalisation of research – in 2007 the top 50 European corporate R&D spenders spent $51 billion of their $117 billion total R&D spend overseas.15 This shift in the landscape changes the pattern of how rms have to manage their still largely nation-speci c IPRs and indicate the importance of policy makers taking an international approach to IP systems.
The Increasing Impacts of Transaction Costs
1.15 IP transaction costs have risen as rights users navigate an ever more densely populated landscape of increasingly subdivided rights. This presents a risk analogous to the problem
familiar in the world of planning, where small ownership interests can block value generating large developments. In the patent world, a surfeit of property rights can mean that the transaction cost of acquiring permission to innovate or create new work is prohibitively high. Research shows that in certain technology elds this can cause a kind of gridlock with innovation delayed or even prevented.16 Michael Heller, an American law professor, coined the phrase “tragedy of the anticommons” to describe this situation,17 which he says has resulted in signi cant blockages in areas such as medical research.18
1.16 In the copyright area transaction costs can create similar problems. Digital technologies have brought large reductions in the cost of copying, storage and distribution for words, music, images
and all forms of data. This has the effect of making transaction costs around rights a much more signi cant element in the business equation and so, potentially, a likelier barrier to licensing and follow on innovation.
The Transforming Effects of Digital Technology
1.17 Digital technology is probably the most important and transformative technology of our time. Because digital is fundamentally an information and communication technology (ICT), intellectual property rights lie at its heart. Not only has ICT adoption and use been among the strongest drivers
of growth,19 but it has pushed content and communication technology into new uses, meaning the IP system has become part of people’s daily lives.20 This has transformed us all into regular, if not daily, copyright creators and allows rms to capture information on customers and transactions in ways that help them experiment in real time with business models and marketing approaches.21 Digital also gives rms the opportunity to market themselves locally, nationally and internationally at relatively low cost, reaching previously inaccessible customers. These are already unprecedentedly global markets, even though the internet has yet to be used directly by two thirds of the world’s population.22
are very apparent in, for example, the biotechnology and software sectors. Hence the relationship between SMEs and larger rms can be symbiotic: they provide each other with direct support for innovative thinking and work together on R&D. Larger rms then provide routes to new and emerging markets for smaller rms.
1.14 Another shift in the innovation ecosystem is the increasing internationalisation of research – in 2007 the top 50 European corporate R&D spenders spent $51 billion of their $117 billion total R&D spend overseas.15 This shift in the landscape changes the pattern of how rms have to manage their still largely nation-speci c IPRs and indicate the importance of policy makers taking an international approach to IP systems.
The Increasing Impacts of Transaction Costs
1.15 IP transaction costs have risen as rights users navigate an ever more densely populated landscape of increasingly subdivided rights. This presents a risk analogous to the problem
familiar in the world of planning, where small ownership interests can block value generating large developments. In the patent world, a surfeit of property rights can mean that the transaction cost of acquiring permission to innovate or create new work is prohibitively high. Research shows that in certain technology elds this can cause a kind of gridlock with innovation delayed or even prevented.16 Michael Heller, an American law professor, coined the phrase “tragedy of the anticommons” to describe this situation,17 which he says has resulted in signi cant blockages in areas such as medical research.18
1.16 In the copyright area transaction costs can create similar problems. Digital technologies have brought large reductions in the cost of copying, storage and distribution for words, music, images
and all forms of data. This has the effect of making transaction costs around rights a much more signi cant element in the business equation and so, potentially, a likelier barrier to licensing and follow on innovation.
The Transforming Effects of Digital Technology
1.17 Digital technology is probably the most important and transformative technology of our time. Because digital is fundamentally an information and communication technology (ICT), intellectual property rights lie at its heart. Not only has ICT adoption and use been among the strongest drivers
of growth,19 but it has pushed content and communication technology into new uses, meaning the IP system has become part of people’s daily lives.20 This has transformed us all into regular, if not daily, copyright creators and allows rms to capture information on customers and transactions in ways that help them experiment in real time with business models and marketing approaches.21 Digital also gives rms the opportunity to market themselves locally, nationally and internationally at relatively low cost, reaching previously inaccessible customers. These are already unprecedentedly global markets, even though the internet has yet to be used directly by two thirds of the world’s population.22
Review of Intellectual Property and Growth 13
1.18 Because copyright governs the right to own and use data and information, as well as the output of authors, musicians, photographers and lm makers, copyright law is now of primary interest to players across the whole of the knowledge economy, not just those involved in the creative industries. Digital technologies are based on copying, so copyright becomes their regulator: a role it was never designed to perform.
Services and the New Innovation Process
1.19 The services which provide most jobs in advanced economies are being changed in other ways by digital technology. Innovations in the insurance industry, for example, rely upon improved data from medicine, demographics and pro ling of individual customer lifestyles. Risk calculations applied to premiums for farmers and event organisers rely upon improved data analysis of weather patterns. Sophisticated assessment of safer cars and better roads can be factored into motor insurance judgments. Understanding these connections and computing the related business risks requires knowledge of what happens at boundaries between systems and the ability to analyse large quantities of data from what, until recently, were separate industries and sectors.
1.20 Collaborative and more “open” distributed innovation processes are especially important because services are not produced in the laboratories and factories of the industrial R&D arena where they can be tested and optimised. Services are usually produced at the point at which they are consumed: the act of consumption rather than invention is the focal point for innovation.
1.21 New services are therefore developed using a “market facing” approach, often connected
to information databases generated by people and organisations that articulate and express their requirements and demands as they experience the innovation. This is sometimes described as a more democratic approach to innovation, where companies trial different approaches – such as beta versions of web pages – and respond to user feedback. It also, however, frequently relies upon the ability to analyse large and complex volumes of data copied between machines, potentially raising multiple copyright issues.
1.22 The nature of services innovation implies that answers to technical problems will not lie exclusively within research institutions or companies with proprietary R&D cultures and the means to manage and protect IP. Instead, they will emerge through integration of ideas from a wide range of organisations, some of whom may consider managing IPR to be an unacceptable obstacle in a high value business, raising further challenges to traditional concepts of ownership of IP.
The Next Wave – Cloud Computing and the Internet of Things
1.23 The next wave of digital technologies and services is likely to create opportunities and disruptions in a very broad range of industries. The internet of things – billions of devices and components with an internet address, enabling them to communicate in massive sensing systems – coupled with cloud computing, will underpin more sophisticated applications, and thereby a host of new services: digital wallets will replace cheques and credit cards; personalised electronic adverts will compete with static hoardings; transport, electricity, power and water systems will provide a continuous
Services and the New Innovation Process
1.19 The services which provide most jobs in advanced economies are being changed in other ways by digital technology. Innovations in the insurance industry, for example, rely upon improved data from medicine, demographics and pro ling of individual customer lifestyles. Risk calculations applied to premiums for farmers and event organisers rely upon improved data analysis of weather patterns. Sophisticated assessment of safer cars and better roads can be factored into motor insurance judgments. Understanding these connections and computing the related business risks requires knowledge of what happens at boundaries between systems and the ability to analyse large quantities of data from what, until recently, were separate industries and sectors.
1.20 Collaborative and more “open” distributed innovation processes are especially important because services are not produced in the laboratories and factories of the industrial R&D arena where they can be tested and optimised. Services are usually produced at the point at which they are consumed: the act of consumption rather than invention is the focal point for innovation.
1.21 New services are therefore developed using a “market facing” approach, often connected
to information databases generated by people and organisations that articulate and express their requirements and demands as they experience the innovation. This is sometimes described as a more democratic approach to innovation, where companies trial different approaches – such as beta versions of web pages – and respond to user feedback. It also, however, frequently relies upon the ability to analyse large and complex volumes of data copied between machines, potentially raising multiple copyright issues.
1.22 The nature of services innovation implies that answers to technical problems will not lie exclusively within research institutions or companies with proprietary R&D cultures and the means to manage and protect IP. Instead, they will emerge through integration of ideas from a wide range of organisations, some of whom may consider managing IPR to be an unacceptable obstacle in a high value business, raising further challenges to traditional concepts of ownership of IP.
The Next Wave – Cloud Computing and the Internet of Things
1.23 The next wave of digital technologies and services is likely to create opportunities and disruptions in a very broad range of industries. The internet of things – billions of devices and components with an internet address, enabling them to communicate in massive sensing systems – coupled with cloud computing, will underpin more sophisticated applications, and thereby a host of new services: digital wallets will replace cheques and credit cards; personalised electronic adverts will compete with static hoardings; transport, electricity, power and water systems will provide a continuous
Review of Intellectual Property and Growth 14
real time update of their performance and user status. Firms will offer us advice and services built on analysis of this kind of data – assuming IP law allows them to copy and manipulate it.
1.24 The convergence of technologies is likely to increase the range of context aware, location based services available to and about citizens. In some cases digital content may be transferred
from one system to another automatically as people or businesses interact using digital devices. Improvements in machine to machine learning, for example, may create the possibility for further automation in transfer of content. Interactions may therefore become implicitly as well as explicitly monitored and measured. This data will form new and valuable content to be traded within and between systems in the delivery of new services. Data on context and activities transferred to adjacent systems may be repurposed and traded, giving rise to a range of issues relating to copyright.
1.25 These issues are already visible – as the Review goes to press, concerns are being raised by the discovery that the Apple iPhone tracks and stores its location continuously, giving a complete picture of its user’s movements for later retrieval, with legal justi cation in a short paragraph in a long “terms of use” agreement.23 Questions of IP, privacy, and security are converging in ways that will, over time, present sharp challenges to the current legal framework.
The Work of the Review
1.26 The full shape and impact of this coming revolution in innovation models is, by de nition, unknowable.
1.27 The point is that the UK’s system of IP will be tested by some version of these scenarios and it will need to be ready to adapt. The challenge is to make sure that the IP framework is exible enough to facilitate, rather than obstruct, the capacity for digital technology to deliver growth. This needs to
be accomplished in a way that simultaneously protects, as far as possible, the position of existing communities of rights holders, notably the extraordinary diversity of individuals and rms which make up the UK’s highly successful creative industries.
1.28 Digital technology has already generated enormous turbulence among creative businesses. That is certain to continue, until digital business models establish themselves around a new settlement for the terms and conditions on which digital goods and services are priced in global digital markets. As digital’s full impact extends across the rest of the economy, it is impossible to imagine that the line between IP protection which merits public support and that which does not will remain static.
1.29 The Review has set itself the challenge of identifying 10 recommendations to ensure that
UK policy on IP moves in a direction which will enable the necessary adaptation to take place. The explicit goal of all the recommendations in this review is to support dynamic UK businesses, within and beyond the creative sector, which will deliver innovation, growth and jobs in the years to come.
1.24 The convergence of technologies is likely to increase the range of context aware, location based services available to and about citizens. In some cases digital content may be transferred
from one system to another automatically as people or businesses interact using digital devices. Improvements in machine to machine learning, for example, may create the possibility for further automation in transfer of content. Interactions may therefore become implicitly as well as explicitly monitored and measured. This data will form new and valuable content to be traded within and between systems in the delivery of new services. Data on context and activities transferred to adjacent systems may be repurposed and traded, giving rise to a range of issues relating to copyright.
1.25 These issues are already visible – as the Review goes to press, concerns are being raised by the discovery that the Apple iPhone tracks and stores its location continuously, giving a complete picture of its user’s movements for later retrieval, with legal justi cation in a short paragraph in a long “terms of use” agreement.23 Questions of IP, privacy, and security are converging in ways that will, over time, present sharp challenges to the current legal framework.
The Work of the Review
1.26 The full shape and impact of this coming revolution in innovation models is, by de nition, unknowable.
1.27 The point is that the UK’s system of IP will be tested by some version of these scenarios and it will need to be ready to adapt. The challenge is to make sure that the IP framework is exible enough to facilitate, rather than obstruct, the capacity for digital technology to deliver growth. This needs to
be accomplished in a way that simultaneously protects, as far as possible, the position of existing communities of rights holders, notably the extraordinary diversity of individuals and rms which make up the UK’s highly successful creative industries.
1.28 Digital technology has already generated enormous turbulence among creative businesses. That is certain to continue, until digital business models establish themselves around a new settlement for the terms and conditions on which digital goods and services are priced in global digital markets. As digital’s full impact extends across the rest of the economy, it is impossible to imagine that the line between IP protection which merits public support and that which does not will remain static.
1.29 The Review has set itself the challenge of identifying 10 recommendations to ensure that
UK policy on IP moves in a direction which will enable the necessary adaptation to take place. The explicit goal of all the recommendations in this review is to support dynamic UK businesses, within and beyond the creative sector, which will deliver innovation, growth and jobs in the years to come.
Review of Intellectual Property and Growth 24
3.24 The UK recently13 announced that it would be appointing IP attachés in a number of countries including China and India, re ecting the importance to the UK of sound IP frameworks in these countries, as well as in assisting IP intensive UK rms to exploit new markets. Deployment of evidence-based positions in global negotiations can move parties further from entrenched positions, towards an overriding objective of developing a mutually bene cial world trade in intangibles. This represents a high strategic priority for the United Kingdom.
The Patent Cooperation Treaty
3.25 One area where the international patent system is not functioning well enough is the operation of the Patent Cooperation Treaty system. This system, administered by WIPO, provides a single point of entry to the patent systems of 142 contracting states via a single application. Applications are sent to one of a number of patent of ces which have been designated as “International Search Authorities” for a search to determine if the invention claimed is novel or inventive. The results of the search
are then sent, along with the application, to the individual of ce of the country the applicant wants
protection in, for grant or refusal.
3.26 In theory, this system offers a highly ef cient way of processing patent applications; in particular, by providing a way of only requiring one search worldwide. Unfortunately, as documented by WIPO,14 national of ces have proved reluctant to commit themselves to relying on the international searches, on the grounds that they doubt the quality of the examinations meets their own standards.
The Patent Cooperation Treaty
3.25 One area where the international patent system is not functioning well enough is the operation of the Patent Cooperation Treaty system. This system, administered by WIPO, provides a single point of entry to the patent systems of 142 contracting states via a single application. Applications are sent to one of a number of patent of ces which have been designated as “International Search Authorities” for a search to determine if the invention claimed is novel or inventive. The results of the search
are then sent, along with the application, to the individual of ce of the country the applicant wants
protection in, for grant or refusal.
3.26 In theory, this system offers a highly ef cient way of processing patent applications; in particular, by providing a way of only requiring one search worldwide. Unfortunately, as documented by WIPO,14 national of ces have proved reluctant to commit themselves to relying on the international searches, on the grounds that they doubt the quality of the examinations meets their own standards.
6.23 In Europe, in contrast to Japan and the US, there are restrictions laid down by the EPC on
how far computer programs may be patented. Programs considered to make a “technical contribution”
– such as controlling a robot, or making the internal operation of a computer more ef cient – can be
patented; general application programs – such as word processing software – cannot.
6.24 However, applications for patents on computer programs face differing interpretations of precisely where this boundary line lies on the part of the EPO and the UK IPO. The EPO, having started from a position similar to the UK, has in recent years become more open to awarding such patents than the IPO. Submissions to the Call for Evidence differed on the question of whether computer programs should be afforded patent protection, but many appealed for consistency between the IPO and the EPO.23
6.25 This presents a dilemma for an evidence-based patent policy; the evidence points to signi cant bene ts arising from European harmonisation (as discussed in Chapter 3), but also to the UK’s current position of denying or at least severely restricting patents to non-technical computer programs. In this case, the Review believes the balance of evidence lies in continuing to withhold patent recognition of non-technical computer programs as part of a sustained effort to deal with the growing and dangerous problem of thickets. The UK should seek to convince its European partners of the force of this case.
6.26 Similar considerations apply to the patenting of business methods24 (for example, particular pricing and marketing schemes) which are also allowed in the US but not in Europe – and unlike in the computer program area, there is no sizeable European lobby arguing for their patenting. Here, the correct course is clear: Europe should continue to resist the patenting of business methods.
Standards, Patent Pools, and Cross Licensing 25
6.27 Various attempts to tackle the issue of patent thickets have developed within the market. Cross licensing, patent pools and open technology standards26 can be effective measures for navigating a thicket.27 These approaches all involve a community of patent holders coming together and agreeing rules for use of each others’ patents, simplifying licensing problems and reducing the need for litigation, thus alleviating the problems associated with patent thickets.28 Standards setting bodies in particular can also help establish royalty rates. This approach is particularly useful in computer technology products such as mobile phones.
6.28 However SMEs have reported barriers to participation in standards arising from the costs and terms of participation, which are often prohibitive for small rms;29 in some cases, “royalty stacking”, i.e. the accumulation of royalty payments on different patents embodied in a standard, can present insuperable barriers to market entry, particularly to SMEs without patents of their own to cross license.30 The situation is even more severe when a single product embodies numerous standards. A mobile phone, for example, has to support multiple cellular air interface standards (which can amount to 15-20 per cent of the value of the handset for each standard) as well as other operability standards.
6.24 However, applications for patents on computer programs face differing interpretations of precisely where this boundary line lies on the part of the EPO and the UK IPO. The EPO, having started from a position similar to the UK, has in recent years become more open to awarding such patents than the IPO. Submissions to the Call for Evidence differed on the question of whether computer programs should be afforded patent protection, but many appealed for consistency between the IPO and the EPO.23
6.25 This presents a dilemma for an evidence-based patent policy; the evidence points to signi cant bene ts arising from European harmonisation (as discussed in Chapter 3), but also to the UK’s current position of denying or at least severely restricting patents to non-technical computer programs. In this case, the Review believes the balance of evidence lies in continuing to withhold patent recognition of non-technical computer programs as part of a sustained effort to deal with the growing and dangerous problem of thickets. The UK should seek to convince its European partners of the force of this case.
6.26 Similar considerations apply to the patenting of business methods24 (for example, particular pricing and marketing schemes) which are also allowed in the US but not in Europe – and unlike in the computer program area, there is no sizeable European lobby arguing for their patenting. Here, the correct course is clear: Europe should continue to resist the patenting of business methods.
Standards, Patent Pools, and Cross Licensing 25
6.27 Various attempts to tackle the issue of patent thickets have developed within the market. Cross licensing, patent pools and open technology standards26 can be effective measures for navigating a thicket.27 These approaches all involve a community of patent holders coming together and agreeing rules for use of each others’ patents, simplifying licensing problems and reducing the need for litigation, thus alleviating the problems associated with patent thickets.28 Standards setting bodies in particular can also help establish royalty rates. This approach is particularly useful in computer technology products such as mobile phones.
6.28 However SMEs have reported barriers to participation in standards arising from the costs and terms of participation, which are often prohibitive for small rms;29 in some cases, “royalty stacking”, i.e. the accumulation of royalty payments on different patents embodied in a standard, can present insuperable barriers to market entry, particularly to SMEs without patents of their own to cross license.30 The situation is even more severe when a single product embodies numerous standards. A mobile phone, for example, has to support multiple cellular air interface standards (which can amount to 15-20 per cent of the value of the handset for each standard) as well as other operability standards.
Review of Intellectual Property and Growth 59
“A number of companies own patents that will be essential to implementation of the 4th generation (4G)
standard for mobile phones. These companies have made statements on their expected maximum
royalty rate for products implementing this standard which amount to around 15% of the product’s
sale price, and this only covers part of the technology. The total rate may be higher because other companies will choose not to make public disclosures and the number of essential patents will likely increase as the standard matures.” Research in Motion submission
sale price, and this only covers part of the technology. The total rate may be higher because other companies will choose not to make public disclosures and the number of essential patents will likely increase as the standard matures.” Research in Motion submission
6.29 Additionally, the ability of the patent holder to obtain an injunction against infringing rms,
while traditionally fundamental to the property right associated with patents, places the patent holder
in a strong position in negotiations or disputes (so called patent “hold up”). Often these infringing rms
will be young, small businesses which, in high technology areas, hold fewer patents when the market
is more competitive.31
6.30 Thus, although these market solutions offer ways around the thicketing problem, they bring their own dif culties, particularly for the very rms most crucial to innovation. It follows that standards setting and cross licensing pools are valuable, but not a complete answer to the growing problem of thickets and the risk of “gridlock.”
In uencing Patenting Behaviour through Patent Of ce Fees
6.31 Patent of ces have an obvious tool available to them in in uencing numbers of patent applications in the form of fees charged for applying for and renewing patents.
6.32 In the UK, patent fees have been set by reference to the IPO’s costs which they need to cover.xvi This re ected wider thinking about Government service delivery organisations, speci cally that ef ciency and effectiveness is promoted if organisations like the IPO bene t from the degree of autonomy that self funding brings. The UK Government has also, like governments in other countries, wanted to keep fees as low as possible within the framework of self funding, since fees are sometimes attacked as being a form of “taxation” on innovation.
xvi IPO patent fees have been altered relatively infrequently, although they were amended in 2010, perhaps because secondary legislation is required.
6.30 Thus, although these market solutions offer ways around the thicketing problem, they bring their own dif culties, particularly for the very rms most crucial to innovation. It follows that standards setting and cross licensing pools are valuable, but not a complete answer to the growing problem of thickets and the risk of “gridlock.”
In uencing Patenting Behaviour through Patent Of ce Fees
6.31 Patent of ces have an obvious tool available to them in in uencing numbers of patent applications in the form of fees charged for applying for and renewing patents.
6.32 In the UK, patent fees have been set by reference to the IPO’s costs which they need to cover.xvi This re ected wider thinking about Government service delivery organisations, speci cally that ef ciency and effectiveness is promoted if organisations like the IPO bene t from the degree of autonomy that self funding brings. The UK Government has also, like governments in other countries, wanted to keep fees as low as possible within the framework of self funding, since fees are sometimes attacked as being a form of “taxation” on innovation.
xvi IPO patent fees have been altered relatively infrequently, although they were amended in 2010, perhaps because secondary legislation is required.
“Hold up” is illustrated by the widely publicised patent infringement case between NTP, Inc. and
Research in Motion (RIM) who came under enormous pressure to settle the case to avoid a shutdown
of their BlackBerry service, eventually paying NTP $612.5 million to settle the case. This may be
more problematic when the patent holder is not involved in manufacture themselves (a non-practising
entity (NPE) or “troll”) since a rm attempting to license an NPE’s patent will not be able to use the
bargaining chip of cross licensing their own patents to the NPE.
In the UK the fee for obtaining a patent is £280. Renewal for the full term of 20 years costs £4,500. In
Germany a 20 year term costs £11,500 and in the US £4,700 (or £2,400 for small entities).
Review of Intellectual Property and Growth 60
6.33 To optimise the IP framework for innovation and growth, there is a strong case for setting
patent fees in pursuit of these goals, rather than simply meeting the relatively arbitrary cost level of a
patent of ce. The people best quali ed to judge which are the least useful and so most dispensable
patents in the system are those who own them. This suggests that patent fees might be set in a way
that encourages every patent holder to self screen their patents for value. This would encourage the
surrender of less valuable patents, reducing the density of thickets in a way consistent with achieving
the maximum net economic bene t. There is growing evidence that fees set at an appropriate level
can, in fact, in uence the behaviour of patentees.32, 33, 34
6.34 There are essentially two key types of fee charged by patent of ces: fees for making an application and having it processed through to grant (application fees), and fees for maintaining a patent in existence after grant (renewal fees).
6.35 The application fees charged by the UK and other of ces are low, and a small share of the cost of applying for a patent. The IPO fee of £280 is a tiny proportion of the £20,700 which we report in Chapter 9 is the average cost to an SME of applying for, maintaining and protecting a patent. Because of this, changes in application fees do not tend to affect behaviour.35 Furthermore, at this early stage, the patent holder’s ability to judge the relative value of his patent (or application) is limited by lack of information. Screening at this stage is less likely to be effective in targeting low value patents.
6.36 Renewal fees are, in the UK, paid annually to maintain a patent in force, and they increase gradually each year. Here lie greater possibilities for more effective self screening of patents, particularly after approximately six years from patent grant, when the patent holder has a clearer idea of a patent’s value.36
6.34 There are essentially two key types of fee charged by patent of ces: fees for making an application and having it processed through to grant (application fees), and fees for maintaining a patent in existence after grant (renewal fees).
6.35 The application fees charged by the UK and other of ces are low, and a small share of the cost of applying for a patent. The IPO fee of £280 is a tiny proportion of the £20,700 which we report in Chapter 9 is the average cost to an SME of applying for, maintaining and protecting a patent. Because of this, changes in application fees do not tend to affect behaviour.35 Furthermore, at this early stage, the patent holder’s ability to judge the relative value of his patent (or application) is limited by lack of information. Screening at this stage is less likely to be effective in targeting low value patents.
6.36 Renewal fees are, in the UK, paid annually to maintain a patent in force, and they increase gradually each year. Here lie greater possibilities for more effective self screening of patents, particularly after approximately six years from patent grant, when the patent holder has a clearer idea of a patent’s value.36
Figure 6.4
Source: IPO data
Review of Intellectual Property and Growth 61
6.37 However, the level of renewal fees required to in uence applicant behaviour appears
to be quite signi cant.37 A unilateral attempt to increase renewal fees by the UK would risk a disproportionate impact on UK patent holders compared to the potential gain. This is therefore an area for the UK to explore in the context of international efforts to thin out patent thickets worldwide.
6.38 The evidence shows that SMEs suffer disproportionately from the effects of patent thickets. Given their importance to innovation it would be logical to explore the potential for differentiating the patent fee structure in favour of smaller companies. The current UK patent framework includes a provision for a reduction in renewal fees for patents endorsed with a Licence of Right (which means anyone may obtain a licence at a reasonable rate). These provisions could be built upon as an additional means to reduce renewal costs while having the added bene t of encouraging patentees to make their patents available to third parties, subject to an appropriate royalty fee.
Improving Patent Quality
6.39 Maintaining the quality of patents is fundamental to the remit of all patent of ces, though performance around the world varies a great deal. The IPO’s record and reputation are strong. In seeking to improve its ability to stay on top of assessment of the “prior art” in the area of digital technology, the IPO is shortly to test an initiative developed by the USPTO to improve access to information and insight outside the domain of formal patent documentation – a so called “peer to patent” approach.xviiii
6.40 Following granting of a patent, a post grant opposition process similar to that provided by the EPO offers an effective substitute for early stage post grant litigation, and may offer a more effective means of subjecting weaker granted patents to early challenge.38 The cost of such a process is relatively low in comparison with court proceedings, so measures to discourage strategic use of
such a process to create uncertainty would be necessary. In the UK, it is currently possible to obtain revocation of patents by bringing a case before the IPO Tribunal but the UK should learn from the EPO experience.
Conclusion
6.41 The increased numbers of patents and patent applications bring challenges to which thus far only partial solutions have been found. There is no evident single solution to the resulting problems of thickets and the consequent diminished effectiveness of the patent system to incentivise innovation.
to be quite signi cant.37 A unilateral attempt to increase renewal fees by the UK would risk a disproportionate impact on UK patent holders compared to the potential gain. This is therefore an area for the UK to explore in the context of international efforts to thin out patent thickets worldwide.
6.38 The evidence shows that SMEs suffer disproportionately from the effects of patent thickets. Given their importance to innovation it would be logical to explore the potential for differentiating the patent fee structure in favour of smaller companies. The current UK patent framework includes a provision for a reduction in renewal fees for patents endorsed with a Licence of Right (which means anyone may obtain a licence at a reasonable rate). These provisions could be built upon as an additional means to reduce renewal costs while having the added bene t of encouraging patentees to make their patents available to third parties, subject to an appropriate royalty fee.
Improving Patent Quality
6.39 Maintaining the quality of patents is fundamental to the remit of all patent of ces, though performance around the world varies a great deal. The IPO’s record and reputation are strong. In seeking to improve its ability to stay on top of assessment of the “prior art” in the area of digital technology, the IPO is shortly to test an initiative developed by the USPTO to improve access to information and insight outside the domain of formal patent documentation – a so called “peer to patent” approach.xviiii
6.40 Following granting of a patent, a post grant opposition process similar to that provided by the EPO offers an effective substitute for early stage post grant litigation, and may offer a more effective means of subjecting weaker granted patents to early challenge.38 The cost of such a process is relatively low in comparison with court proceedings, so measures to discourage strategic use of
such a process to create uncertainty would be necessary. In the UK, it is currently possible to obtain revocation of patents by bringing a case before the IPO Tribunal but the UK should learn from the EPO experience.
Conclusion
6.41 The increased numbers of patents and patent applications bring challenges to which thus far only partial solutions have been found. There is no evident single solution to the resulting problems of thickets and the consequent diminished effectiveness of the patent system to incentivise innovation.
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