05 May 2013

IP Australia Delivers Mixed Report Card on Australian IP

Australian Intellectual Property Report 2013Last month IP Australia launched the Australian Intellectual Property Report 2013.

This report contains an attractively-packaged compilation of data and information about the IP system in Australia, and how the country measures up internationally. 

While the report includes information on patents, registered designs, trade marks and plant breeder’s rights, naturally my primary interest is in the statistics on Australia’s performance in relation to patents and technology innovation.

And what IP Australia’s report has to tell us about this is not exactly discouraging, but will hardly set the world on fire.  ‘Revelations’ in the report include:
  1. Australians are filing more patent applications than ever before, both locally and overseas;
  2. however, increasing patenting activity is not leading to any significant change in Australia’s ‘IP balance of trade’;
  3. foreign nationals file the vast majority of Australian standard patent applications, and receive most of the patents granted here; and
  4. it appears that the big challenge for Australian companies lies in capturing and extracting value from intangible assets, currently languishing at only 4% of tangible asset value (compared with 91% in the US).
IP Australia promises that this will be the first in an ongoing series of reports and updates, and it is well worth a read..

Who Is Filing in Australia?

In 2012, 26,358 standard patent applications were filed in Australia.  Of these, 90% were filed by foreign applicants, with the remaining 10% by Australian residents.

Australian national phase entry of international applications filed under the Patent Cooperation Treaty (PCT) accounted for the majority of Australian patent applications in 2012 (19,107).  However, this number has remained relatively constant for a number of years, while there has been steady growth in direct filings (7,251 in 2012, up from 6,674 in 2011 and 5,841 in 2010).  IP Australia indicates that much of this growth in direct filings is coming from the US.

US residents filed the highest number of Australian standard patent applications (11,376), followed by Japan (1,746) and Germany (1,594).

Innovation Patents

Innovation patent filings increased from 1,341 in 2009 to 1,856 in 2012.  The report states that this is mostly due to non-resident filings, and that China accounts for over half of the overall increase.

I discussed the dubious incentives for Chinese applicants to file for innovation patents in Australia back in February.  IP Australia has very kindly cited my article in its report (see footnote 3).

Provisional Applications

The number of Australian provisional patent applications filed increased in 2012, for the first time since 2004.  There were 5,660 provisional applications filed in 2012, up from 5,449 in 2011, but well below the peak of 7,378 in 2004.  IP Australia reports that 94% of all provisional filings in 2012 were by Australian residents.

However, despite the decline in provisional filings between 2010 and 2011 (as well as in the preceding years), there was an 11% increase in the number of Australian residents applying for standard patents in 2012.  There could be a number of reasons for this apparent inconsistency.  For example, Australian applicants may be making decisions about the value of new inventions earlier in the development cycle, and electing not to proceed with the expense of preparation and filing of provisional applications in cases where they are unlikely to proceed to the next stage.

Alternatively, Australian applicants may, in some cases, be bypassing the use of provisional applications in favour of alternative filing strategies, such as proceeding initially with a standard application, a PCT application, a foreign application (e.g. a US provisional or nonprovisional application), or an innovation patent.

In any event, the number of standard applications filed by Australian residents, as a proportion of the number of provisional applications filed in preceding years, appears to be improving.  This could be a positive sign that Australian innovators are becoming more sophisticated and selective in managing their IP budgets.

Australians Filing Overseas

For me, one of the more interesting statistic in IP Australia’s report relates to foreign filing activities by Australian applicants.

Although domestic residents accounted for only 2,367 Australian standard patent applications in 2011 (the most recent year for which corresponding foreign filing data is available), Australians filed 8,557 applications overseas in that same year.  (The report says that the number of foreign applications was ‘58% more’ than the number of domestic applications, however this is clearly an error in calculation.)

Of course, some of those applications are for the same invention, i.e. equivalent applications filed in multiple countries such as the US, Europe and New Zealand.

However, there were 3,767 applications filed by Australians in the US alone in 2011, indicating that for a number of local applicants the US is more important than the domestic market, certainly in terms of the perceived value of protecting their IP.  (This may be where the ‘58% more’ figure comes from.)

Challenges Ahead for Innovation In Australia

IP Australia reports that, according to the Australian Bureau of Statistics, innovative companies are making more use of IP rights.  At the same time, however, there has been no growth in Australian participation in the rising world trade in IP.

Australia is a net importer of IP, and over the past decade IP receipts have been steady at around 0.25% to 0.5% of the current account, while IP expenditure has sat at 1.0% to 1.5% of the current account.

As IP Australia rightly points out, an ‘IP trade deficit’ does not necessarily have adverse implications, if the imported IP contributes to sufficient improvement in productivity in Australia.  However, there would clearly be a multiplicative effect if Australia could generate and export a majority of its own productivity-enhancing innovation.

Australia’s investment in ideas is well below that of leading developed countries.  Perhaps the most shocking statistic in the report is that in Australia, the intangible stock of capital is equal to only 4% of tangible assets, whereas in the US it is 91%!

There is a fascinating chart (Figure 13), based on research conducted by the Intellectual Property Research Institute of Australia [PDF 500MB], which shows that 90% of the value represented by Australian patents obtained by domestic companies resides in just 30% of those patents.  I dare say, however, that the situation would not be too much different in other developed countries.  It appears that the old ‘80/20 rule’ applies to patents, i.e. 20% of patents hold 80% of total patent value.


The Australian Intellectual Property Report 2013 is an easy read, which nicely packages up an overview of the health of the Australian IP and innovation systems.

Unsurprisingly, I would have to say that it is something of a mixed report card.  The report reveals an Australia which is, typically, chugging along in a conservative, ‘business as usual’ manner, slowly and steadily increasing its stock of knowledge, innovation and intangible capital.

In my experience – of which I have quite a lot in my line of work – there are plenty of Australians out there with great ideas, and the passion to take them to the world.  Where they struggle is in finding the support (especially money, but also a range of business advice and other assistance programs) to enable them to scale up to the point at which they can actually become a self-sustaining business.

There are sources of venture capital in Australia, and there are government initiatives(such as the Commercialisation Australia program, and the R&D Tax Incentive scheme) to assist with funding and other support.  The government invests in research through grants and funding to universities, the CSIRO, and other research organisations, as well as in more commercially-oriented activity through its contributions to the Cooperative Research Centres program.

Yet there never seems to be enough assistance to go around, or even to kick-start many of the recipients of what there is to the next level of success.  Maybe investing a little more generously, rather than reining-in funding in pursuit of a budget surplus would tip the balance.  Or perhaps some more fundamental change in innovation policy is required.  Or maybe Australians just lack the right temperament to be commercially successful innovators and entrepreneurs.

I really do not know the answer, but would welcome readers’ thoughts in the comments.


Chris said...

Thanks for the interesting insights into Australian innovation.

My two cents be that much investment in Australia, especially in recent years, has been in low-risk activities that produce high returns, namely in mineral extraction. This 'low hanging fruit' has attracted the attention of the public and governments, while R&D has really taken a bit of a back seat in the public eye.

I agree that there are lots of Australians with good ideas. In my experience, many of them are working for foreign companies (including those with R&D centres here) so their ideas contribute to the intangible stock of capital of countries other than Australia.

I would also like to see much more innovation in this country, especially where the value from the IP accrues here. Although policies such as the ones identified above can help, I really think the answer lies elsewhere.

Just some thoughts on what is needed:
- An improved culture of venture capitalism, with more emphasis on risky research, such as in 'pre-competitive' fields than 'social media'.
- Our superannuation funds seem a huge source of money that mostly goes into secondary markets (stocks). Surely there is an opportunity there to provide capital for R&D. Even a small portfolio allocation could fund a substantial local R&D industry.
- Better management culture; there is a certain tenacity required to try so many things and get so much experience before your intuition can capture the trends in technological development (and you can get there first).

Mark Summerfield said...

Thanks for your comment, Chris.

I agree with what you say, particularly about the need for investment in higher-risk R&D, as well as commercialisation. Despite our relatively small and sparse population, there is plenty of money that could be invested (especially, as you point out, in superannuation funds) if the fund managers were not so risk averse.

Obviously it would not be good to gamble away Australians' retirement savings! But many funds have underperformed, even by the low standards set during the GFC, so it is a little hard to accept that there is no scope for a little more 'high-risk, high-return' investment in the portfolio, especially with all signs being that mineral extraction is not going to continue to give high returns.

Mark Summerfield said...

I think the cost of litigating is more of a barrier than the lack of penalties. Unfortunately, there is no simple solution to this problem, because patent litigation inherently involves a complex mix of law and technology.

Having said that, however, very few cases of infringement actually end up in court. It is quite surprising how often a carefully-worded 'cease-and-desist' letter is enough to persuade an infringer to back off. There are plenty of patent-holders who have successfully extracted commercial value from their patents, despite the fact that they may never have been in a financial position to enforce them through the courts.

Mark Summerfield said...

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