08 May 2018

Australian Patent Performance is the Victim of a Vortex of Negativity, and Education (Alone) is Not the Solution

Vortices of negativityIn my previous article, I wrote about low patent-filing rates by Australian innovators, and lamented that this is the continuation of the country’s long history of giving intellectual property away for free.  And while occasionally this has been done intentionally, with good (if misguided) intentions, more often it is the result of a failure, through ignorance or inadvertence, to recognise and protect IP where suitable forms of protection are, in fact, available.  I speculated that there may be some fairly persistent cultural biases that keep IP protection generally, and patents in particular, off the radar of many Australian innovators, and I suggested that lifting Australians’ use of the patent system may require little more than some effort at self-education, and a change in mindset.

Thinking about this further, however, I have realised that it is mindset-change that represents the real challenge here.  There already exist many resources to assist Australian innovators in improving their IP awareness and knowledge.  IP Australia provides a range of educational materials, including videos published via its YouTube channel, and (in a very welcome change from its reticence just a few years ago) is active on both Facebook and Twitter.  It also does a lot of outreach and educational work through email lists, seminars/webinars and other events.  Another major source of information is the Australian IP profession – patent attorneys, trade marks attorneys, and IP lawyers.  Most patent attorneys, for example, do not charge for initial consultations, and between phone enquiries and initial meetings often provide over an hour of free education and general advice before a potential client makes a decision on whether to proceed or not.  And for every such enquiry that leads to paid work, there may be half-a-dozen or more that go nowhere.  IP Australia’s recently-developed ‘Engaging an Attorney Toolkit’ is yet another good educational resource, which assists innovators in getting the most out of their initial contact with a patent attorney.

However, there is nothing new about the availability of many of these types of educational materials.  Furthermore, while they have been growing in number and quality over recent years, there has been – as the charts in my previous article show – absolutely no real growth in the numbers of patents being filed by Australians, in Australia and elsewhere, over this period.  Just today, I attended IP Australia’s first ever IP Summit, ‘Launch to Export’, where rooms of interested members of the public heard about various aspects of IP protection, government assistance programs, and the experiences of successful entrepreneurs.  My guess, however, is that this event will also have no impact on patent filings.

What I realised, as I looked around the room, is that all of these educational events, efforts and materials have one thing in common – the people who engage with them have already made the decision that they need to find out more about IP.  The information may now be more readily-available, and of higher quality, than in the past, but what has not changed is that the subset of innovators and entrepreneurs actually motivated to seek IP knowledge has not fundamentally changed.  Unlike the schooling of children, neither the government, nor anybody else, has the power to make IP education compulsory!  Nor is it a question of leading the horse to water in the hope that it may decide to drink – the horse has refused the bridle, cantered across the paddock, jumped the fence, and decided to forego all aqueous opportunities in favour of pursuing its own interests elsewhere!

So the educational content is available, but we need to get Australian innovators and entrepreneurs to want to consume it.  To make that happen, we are going to have to figure out why there is so little interest in IP in general, and patents in particular.  I maintain that this is largely a cultural issue, and I hypothesise here that there is a reinforcing feedback system operating, that I will call the ‘vortex of negativity’!  To drag the mindset of Australians caught in this vortex back into the light, where they can evaluate the potential value of patenting their innovation with clear and unbiased vision (and I am not, of course, suggesting that patents are always the right choice), I suggest that we may need to appeal to their basest economic instincts, by providing clear financial incentives or rewards to businesses that patent their new technology.  And I have a few modest proposals as to how this might be done!

What is the Problem With Australians and Patents?

Why do Australian businesses not seek patent protection for their hard-won innovations?  I can think of two possible answers to this question.  Either this is something that is simply not on their radar (either through ignorance, or active aversion), or they are conscious of the possibility but perceive that there is insufficient value in securing patent rights.  By ‘value’, in a commercial setting, we can assume ‘return on investment’ (ROI), i.e. that the costs (financial and otherwise) of applying for patents are perceived to outweigh the potential benefits of obtaining them.

For those businesses that believe patenting has a negative (or insufficiently positive) ROI, why do they hold this belief?  It cannot be because it is true – at least not as a general proposition.  There is no shortage, globally, of sophisticated companies, large and small, that find significant value in developing substantial patent portfolios.  Nor is it difficult to find examples of companies started only within the past three or four decades that are now global giants gaining significant revenues and/or competitive advantage from licensing or enforcing their patent rights (e.g. InterDigital, Microsoft, Apple, and Qualcomm all come immediately to mind).  Even a single patent can be hugely valuable, as CSIRO proved in a rare Australian IP success story involving Wi-Fi technology

So whatever pessimism Australians hold with regard to the value of patenting, it is likely that it lies in their own diffidence, i.e. lack of confidence that their patents, in particular, could deliver sufficient value to justify the costs.  Yet this pessimistic attitude to patent value is not shared by businesses and individuals in higher-performing economies.  As I noted in my previous article, relative to GDP US residents file seven times as many patent applications in their home country as Australians do in Australia.

It does not help that Australian innovators are operating in an environment that does little to encourage a more positive attitude to intellectual property protection.  The recent review of Australia’s IP arrangements by the Productivity Commission – many recommendations of which are now policy and being implemented by the Australian government – took the view that, ideally, patents would only be granted for innovations that are both socially valuable and additional.  Social value, in this context, relates to innovation that results in new goods, services or production methods ‘that improve the allocation of society’s limited resources’, while an ‘additional innovation’ is one that ‘would not have been developed or commercialised absent patent protection’.  The consequence of this, naturally, is that the patent system works best when patents are harder to get, and are only granted is clearly-deserving cases.

What message does this send out to a community of people and businesses that is already sceptical of the value of patent rights, and specifically lacking belief in the benefits of protecting their own innovations?  I would argue that it just reinforces their pessimism, confirming that they are right not to bother themselves with the costs and complexity of even the Australian patent system, let alone to seek international protection.  It might even serve to amplify any existing hostility to the patent system, suggesting as it does that Australia at least, and possibly the rest of the world, is already awash with troublesome and unworthy patents.

And where would an innovative Australian company find an alternative view?  From support and incentives for financing of IP protection in government grant programs?  No, not there.  From any government policy that actually encourages patenting activity?  Not that I have seen.  From venture capitalists, or anybody else in the Australian investment scene?  Not so much, in my experience.  From the Shark Tank TV series?  No (and it is a sign of desperation even to be looking there).  From IP Australia?  As I have already noted, the government’s IP office does have some good educational materials, and a definite financial and policy interest in increasing use of the patent system, however it is also the body largely responsible for making the case against the innovation patent system, and for communicating and implementing less-encouraging government policy.  So Australian innovators could be excused for questioning IP Australia’s seemingly inconsistent messaging.

Which brings us back full-circle, to Australian businesses that either give little or no thought to patents – in an environment where there is scant encouragement to do so – or do not see the value in patenting – a view that is largely reinforced wherever they look.  The attitudes that I have described above are so ingrained in the Australian commercial, political and social fabric that to call this merely a ‘vicious circle’ does not do it justice, implying as it does that escaping the cycle might be a simple matter of breaking the loop.  It is more like a vortex of negativity that continues to suck more Australians away from any positive attitude toward patenting.

Australian Per-Capita Patenting Activity is in Decline

In case there could be any doubt about the effect of the vortex, the chart below plots the number of standard Australian patent applications filed by Australian residents, per million population, over a 20 year period (filing data from IPGOD 2017 and the 2018 Australian IP Report, population data from the Australian Bureau of Statistics).  While the population of Australia has grown by nearly 33% during this period, from 18.5 million to 26.5 million, there has been no significant overall change in the rate of patent filing.  In fact, since a peak in 2006, and accounting for the adjustments in 2013/2014 due to commencement of the Raising the Bar patent reforms, the rate of Australian resident patent application filings has, if anything, been declining.
Applications per million population

It seems clear that something more than education will be required to create a cultural shift in Australian innovators’ attitudes towards patenting.  The promise of an exclusive right, providing a potential competitive advantage or an alternative means to commercialise and monetise innovation is, apparently, not enough.

Can We Pay People to Patent?

In developing nations, there is a reasonable argument to made for providing a direct financial incentive for obtaining patents, e.g. paying a ‘bounty’ on each granted patent, as the Chinese have been doing for a number of years.  Certainly such incentives do nothing to guarantee the value or quality of patents obtained, and they are liable to be exploited by a minority of bad actors.  However, what they do achieve is to make the protection of intellectual property a core element of corporate culture as industries grow and mature, along with the economy.

It is too late for Australia to adopt such a policy.  Nobody in their right mind would find it acceptable, in a modern democratic society, to expend taxpayers’ money financing dubious patent applications merely for the sake of boosting numbers.

Yet the Australian government does expend taxpayers’ money financing R&D and commercialisation activities, despite the fact that there is no guarantee that these will produce successful outcomes.  Furthermore, as matters currently stand it is quite possible that this investment will generate unprotected intellectual property that is then out there for the taking by domestic and foreign competitors.  And we are talking about a lot of money.  A 2016 review of the Australian R&D Tax Incentive scheme found that it had direct fiscal costs of over A$3 billion per year, which was projected to continue growing.  (The scheme provides a 38.5% tax offset for larger companies, and a 43.5% refundable tax offset – equivalent to over 150% deduction, for companies eligible for the small business company tax rate of 27.5% – to start-ups and small and medium enterprises that undertake eligible R&D activities).  Australian federal and state governments also offer numerous grants to assist companies at various stages of research, development and commercialisation, including the Accelerating Commercialisation program, which ‘provides businesses with access to expert advice and matched funding of up to $1 million to cover eligible commercialisation costs to help them to take novel products, processes and services to market.’ 

Not all of these government incentives cover the costs of protecting IP, and even fewer provide any active encouragement to do so.  On a positive note, unlike some other current and past grant schemes, ‘IP protection’ constitutes an ‘eligible expenditure’ under Accelerating Commercialisation, however this is subject to review to ensure that the IP is appropriately related to the agreed project.  Furthermore, since the program provides matched funds, the recipient must still be willing to contribute half of the costs rather than, for example, spend their available money and matching funds on some other activity that they consider to be more worthwhile.  So this does not address the fundamental underlying cultural issue.

If the Australian government really wants to increase the patenting activity of innovative Australian companies (and it must be said that, despite much talk about the importance of innovation, there is not a great deal of evidence to suggest that it does want to do this), then it seems likely that some direct economic incentive will be required.  This should not only put money back in the bank accounts of companies that secure valuable IP rights, it should send a message that the government is really serious about growing the national patent portfolio, and considers patents to be an important and valuable asset.

Some Modest Proposals

I have a few basic suggestions as to how the government could provide financial incentives for patenting.
  1. Provide an enhanced R&D tax offset for activities that result in granted patent rights, in Australia and/or overseas.  The existing R&D tax incentive scheme is already targeted to activities that result in new knowledge, although the level of novelty required is generally considered to be lower than the combined novelty and inventive step standards necessary for a valid patent.  Making the highest level of tax offset contingent upon securing patent rights not only provides an incentive to pursue patent protection, it also relieves other government departments of the burden of assessing eligibility for the maximum benefit level.  As a further incentive, the cost of obtaining patents could also be included in the scheme.
  2. Introduce a ‘patent box’.  Unlike R&D tax incentives and commercialisation grants, which are available regardless of whether or not the activities covered ultimately result in significant commercial success, a so-called ‘patent box’ scheme operates at the ‘output’ end of the process, by providing reduced tax rates (typically between 5% and 15%) on income that is attributable to patented IP.  Such schemes have been introduced in a number of countries, including the UK, the Netherlands, Belgium, France, Ireland, Spain, Luxembourg, Switzerland and China.  The current Australian government flirted with introducing a patent box program early in its term, but was subsequently scared off the idea by other participants at a G20 Finance Ministers’ meeting in 2014, on the back of a wave of negativity resulting from concerns about international tax avoidance by multinationals.  That decision should be revisited.
  3. Include additional funding components in grant schemes that are allocated specifically for IP protection costs, on a ‘use it or lose it’ basis.  Since such funds could not be used for other purposes, spending them would not detract from other project activities.  IP protection funds could also be excluded from any ‘matched contribution’ requirements, again to avoid there being any disincentive for using them.  Use of the funds could still be subject to a review for relevance to the project, to ensure that the money is not wasted or spent gratuitously.

Conclusion – Australia is Not a (Metaphorical) Island

My suggestions above are pretty basic, and doubtless require significant further development.  But they should not be hugely expensive, compared to the costs already being expended on subsidising R&D and commercialisation activities.

They would, however, require a change in mindset, for the government to decide – and for taxpayers and innovative companies to accept – that, as a matter of both good policy and good business, protecting Australian-developed IP with patents is generally a Good Thing, rather than some kind of commercially or morally dubious activity, and is therefore worthy of public and private investment.

The poet John Donne wrote that ‘no man is an island entire of itself’, and the same applies to nation states.  Australia is literally an island, of course, but metaphorically it is a piece of the global continent, a part of the economic main.  Those economists (and others) who are suspicious of patents can rail to their hearts’ content against the ‘easy’ grant of exclusive rights in Australia, but the fact remains that the world is teeming with innovators of a less-cynical bent than many Australians, who are happy to develop new IP, and protect it wherever they can, as well as to adopt and build upon existing IP wherever they are not constrained from doing so.  We cannot beat them, so I say we had better join them!


Post a Comment

Copyright © 2014
Creative Commons License
The Patentology Blog by Dr Mark A Summerfield is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Australia License.