New Research Study from IP Australia Confirms IP Rights Ownership as a Signal to Identify Successful SMEs

If you are a policy-maker, prospective business partner or investor, IP Australia wants you to know that a useful way to identify small and medium enterprises (SMEs) with high growth potential is to look at their IP activity.  A new research report from the Office of the Chief Economist, titled Intellectual property rights and enterprise growth: The role of IP rights in the growth of SMEs, describes a study using data on the full population of Australian businesses – around 600,000 SMEs over the period 2002–2017 – to examine correlations between IP activity, employment, and growth of SMEs.  The study finds that, on average, SMEs that own IP rights (IPRs) are 3.5 times larger than SMEs with no IP rights (7 employees compared to 2 for SMEs with no IP rights).  Furthermore, rights-holders pay their employees better, with median annual wages being A$53,755 per employee compared to A$43,304 for SMEs with no IP rights.

My opening sentences above were very carefully chosen.  There is a risk that this study may be understood or reported in some quarters as implying the presence of a causal relationship between ownership of IP rights and business success.  It should go without saying, however, that (in the absence of evidence otherwise) correlation is not causation.  This is expressly acknowledged in the report itself (page 10), but IP Australia is also choosing its words carefully in promoting the report.  In information provided to media, the Director General, Michael Schwager, is quoted as saying:

This research paper presents evidence, for policy makers and business investors, that SMEs who file for IPRs are more likely to experience high growth than those who do not file for any IPRs.

On average, SMEs that own IP rights are around 3.5 times larger, are older and pay a higher median wage. SMEs filing for all the three types of IPRs, namely patents, trade marks, and designs, are the most likely to achieve high growth in terms of both turnover and employment.

To the casual reader, these statements might be taken to imply a causal relationship.  Saying that entities that do X are more likely to achieve Y arguably implies that X might be a good thing to do if your goal is to achieve Y.  But of course that is not true here.  If all anybody needed to do to succeed in business was to file a trade mark application, then I am sure everybody would be doing it!  An economist or statistician reading the above statements would merely find a few interesting facts regarding the observed relationships between IPR ownership, business growth, company size, longevity, and employee remuneration.  They would see nothing regarding any causal relationship among these characteristics.  All they would learn is that entities represented in the study data that have achieved Y are also more likely than average to have done X.

It is also notable that Michael Schwager’s statements specifically address policy makers and investors.  What about business owners?  Surely they would want to know how to maximise their prospects of success?  Well, of course they would.  But this study, by itself, tells them nothing about how to achieve that outcome.  Just because more successful businesses are more likely to own more IPRs does not imply that simply filing more applications for IPRs is the hidden secret to business success!

So, let’s delve a little more deeply into this report and see what else it tells us about IPRs and successful SMEs, and attempt to infer, from its findings, something about what makes an SME successful, and where other SMEs should be looking to find exemplars from which they can learn.

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Tags: Economics, Innovation policy, IP Australia

New Data Released by IP Australia Provides Fascinating Insights Into Patent History

In the first year of operation of the Australian national patent system – 1904 – just over 1,200 patent applications were filed, more than 85% of which were lodged in the names of individual inventors, rather than companies.  In 2017, by contrast, around 28,600 Australian standard patent applications were filed, of which just 10% named personal applicants – nowadays, 90% of all patent applications are filed by companies and other collective organisations.  This observation naturally prompts the question: when did invention cease to be a predominantly individual activity, and become principally the product of corporate research and development?

With the release by IP Australia last week of the first stage of the 2018 Intellectual Property Government Open Data (IPGOD) it becomes possible to directly answer this question for Australian patent filings.  For the first time, thanks to machine learning technology, every applicant on every application for all four registered IP rights (patents, trade marks, registered designs and plant breeder’s rights) is flagged as either an individual, or a corporate entity.  In past years this information was only consistently available for patent records from around 1980, due to the more limited data that could be extracted from earlier record-keeping systems.  By the 1980’s, over 80% of all patent applications were being filed each year by corporations rather than individuals.

In fact, the transition from consistently 80% or more personal filings to consistently over 80% corporate filings took place over a period of nearly four decades, starting in 1920.  The final year in which more patent applications were filed by individuals than by corporations was 1933, and by the start of the second World War over two-thirds of patent applicants were corporations.

Historical records also clearly show the impact of international conflicts, and global and domestic economic events, on patent filing behaviour.  A comparison using US patent data as a benchmark also shows that filings of Australian patent applications have historically tended towards strong growth, but relatively high volatility.  In the 21^st century, however, growth in Australian patent filings has clearly slowed relative to the US benchmark.

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Tags: Australia, Economics, IPGOD, Patent analytics

Latest Annual US Patent Litigation Data From Lex Machina Provides Insights Into the ‘Troll Narrative’

Although there are various accounts of the story – particularly as people’s memories start to fade – there is little doubt that the term ‘patent troll’, as currently employed, has its origins at Intel at around the turn of the 21^st century.  As Brenda Sandburg reported at the time (in 2001), Intel’s Peter Detkin defined a ‘patent troll’ as ‘somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced.’  Ironically, Detkin subsequently went on to become a founder of Intellectual Ventures (IV), a company that has made a great deal of money from patents that it is not practicing, has no intention of practicing, and has never practiced.

Sorry – it seems I have that wrong.  According to IV’s profile of co-founder Nathan Myhvold, the company is actually ‘building a market for invention’ to enable inventors to ‘realize the value of their ideas’. It ‘manages one of the largest and fastest growing intellectual property (IP) portfolios in the world, with more than 40,000 assets and more than $6 billion in total committed capital’ and its investors include ‘many of the world’s most innovative companies and renowned academic and research institutions.’  All of which actually sounds kind of like a good thing, and not at all troll-y.  It is also notable that Detkin’s original definition would encompass most universities and research institutes.

So, where does the truth lie?  Somewhere between the two extremes, no doubt, as technology analyst Roger Kay has eloquently explained in an article on Medium this week, Where did the Patent Troll Narrative Come From?  At one end of the spectrum, there are certainly genuinely predatory ‘trolls’ using the patent system to extort payments from companies that lack the resources to fight back.  At the other end, however, are big tech companies, like Intel, Google, Facebook, and Apple, which have adopted a strategy of ‘efficient infringement’ – the practice of using a technology that infringes on someone’s patent, ignoring the patent holder entirely, and when (or if) the patentee decides to sue, tying them up in court by challenging the patent’s validity.  As I have argued in the past, slapping the positive word ‘efficient’ on the front does not alter the reality that this is also an abuse of the system, and of the infringers’ superior economic power.

In other words, it’s complicated.  As Kay notes:

Among combatants in the patent wars, entities are divided along multidimensional lines: practicing vs. non-practicing, dominant vs. upstart, technological vs. financial, inventing vs. acquiring, licensing vs. using internally, R&D-oriented vs. manufacturing-oriented, invention-focused vs. product-focused. While some of these creatures are truly odious, using the word “patent troll” to describe any of them would be to allow Intel and its allies ownership of the narrative. There are no hard and fast rules to separate them into good and bad buckets.

The latest Patent Litigation Year in Review report, from legal analytics company Lex Machina, provides some insights pertinent to the troll narrative, and in particular the impact of changes in US patent law driven, in large part, by lobbying from the ‘efficient infringer’ constituency which, as noted in this IAM Media article, ‘invested large sums in spreading a narrative around the problems posed by “patent trolls” that has been used to justify the need for a re-engineering of the US system to make it less friendly to all rights owners.’

Lex Machina’s analysis shows that since the commencement of the US patent law reforms introduced by the America Invents Act (AIA), rates of patent litigation have been in steady decline in real terms.  Furthermore, while the list of top plaintiffs remains dominated by non-practising entities (NPEs), in 2017 two pharmaceutical companies entered the top ten, with two more filling out the top 15.  And while headlines tend to be captured by a small number of very high awards of damages against big infringers, the reality for most plaintiffs is sobering.  Just 11% of all cases terminated since 2000 reached a final judgment, with around three-quarters settling.  While patentees are victorious slightly more often than defendants (around 60/40), compensatory damages are awarded in less than half of the cases won by plaintiffs, and for those cases in which ‘reasonable royalty’ damages were awarded during the three years up until the end of 2017, the median amount was just US$4.4 million – perhaps barely enough to justify litigation in a jurisdiction where the usual rule is that each party must bear its own costs of the proceedings.

While this might be bad news for the genuine trolls in the system, it is at least as bad – if not worse – for individual inventors, research groups, universities, and other innovators who are better-placed to invent than they are to commercialise their inventions, and therefore rely on licensing to secure a return from their efforts.

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Tags: Economics, Patent litigation, Trolls, US

IP Australia’s Chief Economist on the Role of Economic Modelling, the Innovation Patent... and Perpetual Motion!

[Note: This is the third, and final, part of the transcript of my conversation last year with IP Australia’s Chef Economist, Benjamin Mitra-Kahn.  The first two parts were A Conversation with IP Australia’s Chief Economist and Talking ‘Data’ with IP Australia’s Chief Economist.]

The Australian innovation patent system has been under a cloud for some time, with first the (now defunct) Advisory Council on Intellectual Property (ACIP), and then the Australian Government’s Productivity Commission, calling for the system to be abolished.  The original source of evidence behind these calls was a report produced by IP Australia’s Office of the Chief Economist entitled The economic impact of innovation patents.  The report used Australian patent filing data, linked to company-level business information, to make the case that the innovation patent is not achieving the objective of stimulating innovation among Australian small and medium enterprises (SMEs).

Many patent professionals have a different perspective on this issue, albeit one that is strongly influenced by the particular cross-section of users of the innovation patent system that they encounter in their daily practice.  I recently read a ‘defence’ of the system by a New Zealand-based practitioner arguing, in essence, that innovation patents had been useful to a number of his clients, and he would be sorry if they were to be abolished.  While I believe that there is an argument to be made, based upon the data, that more weight should be given to attorney-represented SME applicants in assessing the worth of the innovation patent system, the kinds of ‘feelpinions’ expressed in that article do not, in my view, constitute a very useful contribution to the debate.

But if those at the coal face might have difficulty in seeing the forest for the trees (if you will pardon my carbon-based mixed metaphor), might it not also be the case that economists, with their penchant for aggregating and analysing data, could sometimes fail to see the trees for the forest?  Either way, it seems that a clash of cultures has arisen between those who view the individual trees as important and those who believe that the system can only be properly evaluated via an aerial view of the entire forest.  My own inclination, absent evidence to the contrary, is to presume that each of these perspectives lies at the extreme of a continuum, and that they are therefore equally likely to provide an incomplete view.

In any event, this disparity in the perspectives of IP practitioners and economists was a topic I was very keen to discuss with IP Australia’s Chief Economist, Ben Mitra-Kahn, when we spoke last year.  But before we got to that, we first covered the future of IP Government Open Data, a.k.a. the IPGOD, and the fate of patents on perpetual motion under the new ‘utility’ requirements introduced in 2013 by the Raising the Bar patent law reforms.

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Tags: Benjamin Mitra-Kahn, Economics, Innovation patent, Innovation policy, Interview, IPGOD, Patent Office

Private R&D Expenditure Positively Impacted by Clustering and Academic Research Spending, New Study Finds

The Australian Government’s Office of the Chief Economist recently published a new research paper entitled The role of spillovers in research and development expenditure in Australian industries (which I will refer to as ‘the Spillover paper’).  The paper describes an econometric model that uses data from Australian companies that conduct research and development (R&D), and looks at how R&D activity of other firms and public institutions affect a firm’s own R&D expenditure, i.e. the effects of ‘spillover’ of R&D being conducted elsewhere.  The paper also examines the impact of geographical proximity and clustering on these R&D spillovers.

Overall, the model indicates that there are positive effects on R&D expenditure due to spillovers from peers and clients to companies that are located nearby (within 25 or 50km).  Furthermore, R&D expenditure by academia also has a positive influence on a company’s R&D expenditure within state boundaries.  However, R&D spending by government bodies appears to have the opposite effect, seemingly ‘crowding out’ private R&D spending.

The study has important policy implications, because it suggests that public support for R&D, whether to private firms through grants and/or tax incentives, or through funding of research in universities and other public institutions, results in benefits not only to the organisation receiving the direct support, but also to other firms and institutions more broadly.

Significantly, the modelling provides further evidence that Australia’s reputation for having a woefully low level of industry/research collaboration (which is based on one rather dubious OECD data point) is largely undeserved.  I have previously observed that Australian companies clustered geographically close to major academic institutions tend to file more patent applications, while research by IP Australia has shown a healthy rate of patent applications naming industry and research partners as co-applicants from Australia when compared with other OECD nations.  The Spillover paper supports this by showing a positive correlation between academic and industry R&D spending, particularly for companies and institutions located within the same state (and, in practice, probably more closely than this, although the paper does not break down academic R&D expenditure below state level).

I discuss further details of the model, and the paper’s key findings, later in this article.  If this is all you are interested in, feel free to skip ahead.  But first I would like to take the opportunity to explain the general process of econometric modelling for readers who may be interested in better understanding how economists think about the kinds of questions addressed by this paper, and how to interpret their results.

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Tags: Australia, Economics, Public policy, Statistics

Talking ‘Data’ With IP Australia’s Chief Economist

It has been an unduly long time – just over a year, in fact – since I published the first part of a conversation I had with IP Australia’s Chief Economist, Benjamin Mitra-Kahn.  But the two of us (mainly me, if I am honest) have finally got our act together to edit most of the transcript into a readable form.  I am therefore very pleased to be able to start publishing the remainder of our discussion.  Despite the passage of time, the content is still highly relevant, indeed in some ways even more so, considering the increasing importance of economic analysis and the role of data science in driving government policy in relation to intellectual property.

Late last year, for example, the Australian Productivity Commission (PC) released its final report on its Inquiry Into Australia’s Intellectual Property Arrangements.  The report reviewed the Australian IP system in its entirety, and made a number of significant recommendations to the Government, which are currently under consideration.  While prior reviews and inquiries into components of the IP system had been conducted by panels that included economists, the PC’s review was the widest, and the first to be conducted entirely by economists.  Naturally, the PC sought to draw conclusions and make recommendations based on evidence, and a key theme of the final report is the need for accountability in the IP system, including by developing and maintaining a sound evidence base to inform policy decisions.

It is in this context that economic research, such as the 2012 study by Boston University academics James Bessen and Michael Meurer which concluded that ‘patent trolls’ cost the US economy $29 billion in 2011, can have a huge impact.  Some people (including me) questioned the reliability of the source data and methods used in that study, but a far larger number – including some widely-read media outlets – simply took the Bessen and Meurer results at face value.

I was therefore very interested to get the views of IP Australia’s Chief Economist on that particular study, and to talk about the work that is being done in Australia to make better-quality data available to researchers, and other interested stakeholders, through the IP Government Open Data (IPGOD) initiative.

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Tags: Benjamin Mitra-Kahn, Economics, Innovation policy, Interview, IPGOD, Patent Office

A Conversation With IP Australia’s Chief Economist, Part I

I have written previously about what I have called the growth profession of ‘IP Economist’, including the trend in recent years for IP administration authorities to develop an in-house capacity for economic analysis.  IP Australia is no exception in this regard, having established its own Office of the Chief Economist back in 2012.

Among a number of projects, including production of the annual Australian Intellectual Property Report, the Office of the Chief Economist has developed the IP Government Open Data resource (a.k.a. the IPGOD) which was used to assess the Economic Impact of Innovation Patents.  That study, in particular, is having a significant policy impact, with both the (now defunct) Advisory Council on Intellectual Property (ACIP) and the Productivity Commission subsequently recommending that the innovation patent system be abolished (see ACIP Says ‘Abolish Innovation Patents’ Based on IP Australia Report and Australian Productivity Commission Releases Draft Report on Intellectual Property Arrangements).

In this context, I was very interested to have the opportunity a short while ago to sit down and have an on-the-record conversation with the Chief Economist himself, Dr Benjamin Mitra-Kahn.  He and I approach the IP system from quite different perspectives – whereas I work at the ‘coal face’ (as it were), largely focussed on what my clients hope to achieve through their engagement with the system, Ben’s interest is in obtaining and analysing the data that will enable his team (and the rest of us) to better understand the IP system as a whole, and the role it plays in the economy.

I immediately liked Ben and enjoyed our discussion immensely.  Over the next few weeks I will be bringing it to you in instalments, and I hope you will find it as interesting as I did.  In this first part, we talk about how Ben got into the economics of IP, the process of bringing together the annual IP Reports, and a bit about the role of economics in shaping IP policy. 

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Tags: Benjamin Mitra-Kahn, Economics, Innovation policy, Interview, Patent Office

I Don’t Care How ‘Efficient’ It Is, It’s Still Infringement!

On 23 October 2015, New York Times op-ed columnist Joe Nocera published a piece entitled The Patent Troll Smokescreen, in which he wrote that ‘according to Robert Taylor, a patent lawyer who has represented the National Venture Capital Association, a new phrase has emerged in Silicon Valley: “efficient infringing.”’

In fact, as we shall see, the term ‘efficient infringing’ is not new – it first emerged in 1998 – and, furthermore, there have been ‘efficient infringers’ outside the realm of patents for much longer than this.  Indeed, I personally know people who have indulged in a little efficient infringements, and maybe you do too.

As one everyday example of efficient infringing, consider an office-worker in an area with limited free on-street parking, restricted to a maximum stay of one hour.  If the local paid parking garage charges $12 per day, and the fine for exceeding the maximum on-street parking time is $120, it does not take an Einstein to work out that it is cheaper overall to park on the street every day if the average frequency with which parking inspectors patrol the area is less than once every 10 business days.  That is efficient infringement!  There are, no doubt, other areas of everyday experience in which a similar analysis can be applied, e.g. payment of fares on public transport.

In some cases – such as the trouble-plagued electronic transport ticketing system in Victoria, Australia – well-advised efficient infringers may be able to tip the scales further in their favour by challenging the validity of their fines.

Of course, for most people this economic rationale cannot be taken too far.  For example, stealing your groceries rather than paying for them might well pay off in the long term from a purely financial perspective, but is liable to land you with a criminal record and possible jail-time.  Efficient infringement, as an economic strategy, is effective only when the worst consequences of getting caught can themselves be expressed in purely economic terms.

Efficient patent infringement is just the same.  As described by Nocera:

That’s the relatively new practice of using a technology that infringes on someone’s patent, while ignoring the patent holder entirely. And when the patent holder discovers the infringement and seeks recompense, the infringer responds by challenging the patent’s validity.

I object less to the practice of so-called ‘efficient’ patent infringement, at least in some of its more benign forms, than I do to the terminology itself, and the way it is being used by some very powerful organisations.  And here is why.

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Tags: Economics, Infringement, Litigation, Patents and society, Public policy

Australia’s Productivity Commission to Examine ‘IP Arrangements’, but Hands Will Be Tied on Patents

The Australian Government has directed its Productivity Commission to undertake a 12 month public enquiry into the intellectual property system, including its effect ‘on investment, competition, trade, innovation and consumer welfare.’

The enquiry has been established in response to Recommendation 6 of the Competition Policy Review (a.k.a. the ‘Harper Review’) which issued its final report on 31 March this year.  The Harper Review’s recommendation stated, in relevant part, that:

The Australian Government should task the Productivity Commission to undertake an overarching review of intellectual property. …

The review should focus on: competition policy issues in intellectual property arising from new developments in technology and markets; and the principles underpinning the inclusion of intellectual property provisions in international trade agreements.

The Terms of Reference for the Productivity Commission Review into Intellectual Property Arrangements require the Commission to:

1. examine the effect of the scope and duration of protection afforded by Australia's intellectual property system on
   1. research and innovation, including freedom to build on existing innovation
   2. access to and cost of goods and services
   3. competition, trade and investment;
2. recommend changes to the current system that would improve the overall wellbeing of Australian society, which take account of Australia's international trade obligations.

The review will look at all aspects of Australia’s intellectual property system, including patent, trade mark, registered design and copyright laws and regulations.  I anticipate that copyright, in particular, will receive close scrutiny.  There are a number of aspects of Australian copyright law – including the treatment of unpublished and ‘orphan’ works, as well as issues relating to technology-neutrality – where substantive reforms may be both desirable and feasible.

Of course, my primary interest is in the patent system.  And here, in particular, the Productivity Commission will find that its hands are largely tied by Australia’s commitments under long-standing international agreements.  Options such as targeting local innovators for preferential treatment,  reducing the term of patents, limiting the scope of patentable subject matter and restricting the rights of patent-holders are all substantially off-the-table as a result of Australia’s existing international obligations.  In any case, none of these things would solve the real problem, which is the lack of an effective innovation ecosystem in Australia which can support the development of new home-grown technologies, and assist Australian innovators to take them to the world.

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Tags: Australia, Economics, Patents and society, Public policy, Reviews

ACIP Says ‘Abolish Innovation Patents’ Based on IP Australia Report

On 25 May 2015, IP Australia published a report entitled The Economic Impact of Innovation Patents.  The innovation patent is Australia’s second-tier patent right, characterised by a shorter term (eight years), a lower threshold of innovation (‘innovative step’ rather than ‘inventive step’), and lower cost (largely because substantive examination of an innovation patent is optional, unless enforcement is required) than a regular ‘standard’ patent.

The new report is the result of analysis conducted under the auspices of IP Australia’s Office of the Chief Economist, as part of its ongoing studies of the Economics of IP, and concludes that ‘the innovation patent is not fulfilling its policy goal of providing an incentive for Australian SMEs to innovate’.

And while the IP Australia report does not quite go so far as to explicitly recommend abolition of the innovation patent system (merely pointing out that some other countries have abolished their second tier patent rights on the basis of similar considerations), the Australian Government’s Advisory Council on Intellectual Property (ACIP) has been very quick to come out against the innovation patent in response, stating that it has failed to achieve its policy objectives, and that the Government should consider its abolition.

There is, in fact, a great deal of interesting and thought-provoking analysis and information in the IP Australia report.  Whether the facts actually support all of the inferences and conclusions set out in the report is another matter.  It is an even greater leap to conclude that the innovation patent system should be abolished.

In my opinion, the facts laid out in the report need to be considered from the perspective of a range of different stakeholders in Australia’s patent system.  ACIP’s new recommendation appears to have been reached on purely economic grounds, taking the many inferences and conclusory statements in the report at face value.  I believe that the facts support more than one possible set of conclusions, and that abolishing the innovation patent system rather than considering some sensible reforms could well be a case of throwing out the baby with the bathwater.

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Tags: Australia, Economics, Innovation patent, Law reform, Public policy

The Growth Profession of ‘IP Economist’

The Managing IP blog reported this week on comments made by Professor Sir Robin Jacob in his speech inaugurating the Sir Hugh Laddie Chair in IP Law at University College London.  In particular, Managing IP blogger James Nurton took Sir Robin to task for his criticisms of the increasing role being played by economists in IP policy.

I recently had the privilege of hearing Sir Robin speak at the University of Melbourne, on the topic of 'Patents – is Europe making a mess of things?'  In that talk, he also touched on what he sees as the inappropriate, unnecessary and potentially damaging influence of economists over IP policy in various jurisdictions.

I have to say that I am inclined to similar views.  We are seeing a corresponding rise of economists to positions of influence within the Australian IP system.

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Tags: Economics, Innovation policy, Patent Office, Patents and society, Public policy

Compulsory Licensing Inquiry Draft Report—Evolution, Not Revolution

The Australian Government’s Productivity Commission has released its draft report on the public inquiry into the Compulsory Licensing of Patents.

The inquiry was initiated in July this year (see Australian Public Inquiry into the Compulsory Licensing of Patents), and an issues paper was released in August, seeking public input by 28 September 2012 (see Compulsory Licensing Inquiry – Issues Paper Released).

The Commission is now inviting written comment on the draft report, prior to its finalisation and delivery to the government.  The deadline for public submissions is Friday, 8 February 2013.

We must confess that we are a little surprised – though not unpleasantly so – by the draft findings and recommendations in the report.  We had foreshadowed the possibility that the Commission’s remit of identifying ‘ways of achieving a more productive economy’ might lead to some significant proposals for change.  In fact, the draft report proposes only some relatively modest evolution and fine-tuning of the existing non-voluntary access provisions (i.e. compulsory licensing and Crown use).

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Tags: Australia, Compulsory license, Economics, Innovation policy, Law reform

Should Compulsory Licensing Provisions be Abolished?

We wrote recently about the ‘issues paper’ which has been released by the Australian Government’s Productivity Commission in relation to its inquiry into the compulsory licensing provisions in the Patents Act 1990 (see Compulsory Licensing Inquiry – Issues Paper Released).

On 15 August 2012, senior representatives of the Licensing Executives Society (Australia and New Zealand) – a.k.a. LESANZ – met with members of the Productivity Commission, at the Commission’s invitation.  Following the meeting, LESANZ published a summary, and an invitation to members to provide input to a formal written submission (currently available here, on the LESANZ web site, dated 16 August 2012).  This publication includes the intriguing statement that LESANZ proposed to the Commission that:

…consideration be given to replacing the existing statutory provisions with a streamlined, potentially deregulated access regime which better reflects market forces in technology transfer.

It is interesting to take this notion of ‘deregulation’ to its logical conclusion – the complete abolition of all of the non-voluntary access provisions (compulsory licensing, Crown use and compulsory acquisition) in the current Patents Act.

The fact is that these provisions are rarely used.  They are complex and expensive to invoke.  In many ways they are anachronistic, having their origins in an earlier time when there were genuine concerns that patent monopolies might be used by unscrupulous proprietors to slow the rate of industrialisation within the realm.  Such fears turned out to be largely unfounded – actually providing an increasingly affluent society with desired products and services has generally proven to be more lucrative than holding it to ransom!

So do we really have anything to fear from the abolition of non-voluntary access provisions, or would we be better off removing this burden from the statute books?  And how would someone go about persuading the Productivity Commission to recommend such radical reform?

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Tags: Australia, Compulsory license, Economics, Innovation policy, Law reform

Compulsory Licensing Inquiry – Issues Paper Released

As we have reported previously, the Australian Government has asked its Productivity Commission to conduct a nine-month inquiry into the compulsory licensing provisions in the Patents Act 1990 (see Australian Public Inquiry into the Compulsory Licensing of Patents).

As a first step in this inquiry, the Commission released an issues paper on 9 August 2012. The purpose of the issues paper is to clarify the scope of the inquiry, and to assist interested parties in preparing submissions to the Commission.  The paper covers a range of issues on which the Commission is seeking information and feedback.

The deadline for submissions is Friday, 28 September 2012.  Details of how to make a submission are provided in the issues paper, and on the Commission’s web site.

COMPULSORY LICENSING

As the issues paper points out, most countries have adopted mechanisms – including compulsory licensing – to enable, in limited circumstances, access to patented inventions without the permission of the patent holder.  The mechanisms are generally seen as a safeguard for exceptional cases in which the patent system may fail to provide the best outcome for the community as a whole.  Examples include the failure of a patent holder to exploit the patented invention so that it is made sufficiently available to the public, the need to satisfy important public health or security objectives, and cases in which a patent is used in an anticompetitive manner.

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Tags: Australia, Compulsory license, Economics, Innovation policy, Law reform

Patent Trolls: As American As Apple Pie?

Whether they are called patent trolls, non-practicing entities, patent assertion entities, invention capitalists, defensive patent accumulators or patent licensing organisations, one thing is for certain – the only place in the world you will find them roaming the courts is the United States of America.

While some commentators have suggested that it is only a matter of time before similar business models are deployed in other jurisdictions, we are not convinced that this is an inevitable – or even very likely – outcome.

We would suggest that there are features of the US patent system in particular, and its legal system in general, which together make it a uniquely profitable environment for patent assertion entities (PAEs – we will use this relatively neutral term throughout this article to avoid the need to distinguish between different business models).  Conversely, the systems in other countries are configured so that turning a profit purely on licensing and litigation is a decidedly marginal business proposition.

But before anybody starts to get too excited about the prospect of slaying the monster trolls with a few well-placed legal reforms in the US, we need to point out that many of the PAE-friendly features of the US system are exactly the same features which many believe have fostered a historical culture of innovation and entrepreneurial spirit among individual inventors and the small businesses that are the backbone of the US economy.  In other words, the very reforms which might actually make a difference to the prevalence or PAE’s would also shift the balance of the system against smaller innovators and in favour of big companies and multinationals.

The major features of the US patent and judicial systems which we see as contributing to the PAE ‘problem’ are discussed in greater detail below.

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Tags: Economics, Innovation policy, Patents and society, Trolls, US

Patentology Cited in Academic Paper on Cost of Patent Trolls

About a month ago we published an article in response to a widely-reported study, conducted by Boston University law researchers James Bessen and Michael Meurer, which concluded that, in 2011, patent ‘trolls’ imposed a $29 billion burden on innovation in the US, and that this is further proof that the patent system is ‘broken’ (see A $29 Billion US Troll-Tax or Just Another Statistical Smokescreen?).

Our interest was piqued by the sheer unbelievability of the quoted cost, and in addition to questioning the plausibility of the conclusion we raised three main criticisms of the assumptions and methodology in the Bessen and Meurer study:

1. there is ‘selection bias’ in the sources of the data used in the study;
2. the study makes no meaningful distinction between different types of non-practicing entity (NPE), and thus fails to distinguish between deadweight costs (which are genuine burden on the economy) and transfer costs (which are not); and
3. the statistical methods and assumptions employed in the study are decidedly opaque, and fail to place any estimate of confidence on the $29 billion figure.

We were therefore very pleased to read a paper entitled Analyzing the Role of Non-Practicing Entities in the Patent System, which was placed up on SSRN in the past week, authored by David L Schwartz of the Chicago-Kent College of Law and Jay P Kesan of the University of Illinois College of Law, which concurs with our criticisms, and even cites the Patentology article (see footnote 4). 

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Tags: Economics, Innovation policy, Patents and society, Trolls

Australian Public Inquiry into the Compulsory Licensing of Patents

The Australian Government has asked its Productivity Commission to conduct a nine-month inquiry into the compulsory licensing provisions in the Patents Act 1990. 


The stated purpose of the inquiry is to ‘assess, advise and recommend on the impacts and mechanisms of compulsory licensing invoked by the Patent Act's public interest and anti-competitive safeguard.’

The Terms of Reference require the Commission to:

1. assess whether the current Australian provisions can be invoked efficiently and effectively;
2. recommend any measures to efficiently and effectively exercise these safeguard provisions, in a manner consistent with Australia's international obligations; and
3. recommend any alternative mechanisms, to ensure that the balance between incentives to innovate and access to technology best reflects the objectives of reasonable access to health care solutions, maximising economic growth and growing the Australian manufacturing industry.

The inquiry will be relatively wide-ranging, taking into account an number of specific areas of sensitivity and public interest, including access to affordable healthcare, impact of gene patents, climate change mitigation, food security and alternative energy technologies, and technical standards essential patents.  It will also look at comparisons with compulsory licensing provisions in other jurisdictions, and consider how the provisions interact with crown use (i.e. provisions enabling government authorities to compulsorily acquire patent licenses) and the new research exemption to infringement introduced by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (see Bar Raised, as IP Law Reforms Signed Into Law).

The Commission is inviting submissions from interested stakeholders, and will be conducting public hearings.

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Tags: Australia, Compulsory license, Economics, FRAND, Genetic technology, Innovation policy

A $29 Billion US Troll-Tax or Just Another Statistical Smokescreen?

In the past few days, there has been a disproportionate level of attention given to a somewhat academic study of the costs imposed upon the US economy by purported patent ‘trolls’, or 'non-practicing entities' (NPEs).

The study, conducted by Boston University law researchers James Bessen and Michael Meurer, is entitled The Direct Costs from NPE Disputes, and a working draft is available from SSRN.

As it has been presented in the technology media (see, e.g., US patent trolling costs $29b: study and Patent trolling cost the US $29 BILLION in 2011), the study shows that patent trolls impose a huge burden on innovation, and that this is further proof of our ‘broken’ patent system.  This is great headline fodder (or click bait), but does it really add up?

Reading the full paper by Bessen and Meurer raises, for us at least, a number of issues, concerns and questions which are (unsurprisingly) absent from the bulk of the media coverage.  Here are just a few…

1. If it is indeed true that patent trolls exact a $29 billion ‘tax’ on the US economy, then this is certainly cause for alarm.  But does this figure really pass the ‘smell test’, or is it just too implausible to take seriously?  If it is wrong, then this study is adding to the hysteria around purported problems with the patent system without due cause.  When the figures in the study are stacked up against the total number of technology companies operating in the US, and the total R&D expenditure, it is frankly difficult to believe that the results are a true reflection of reality.
2. The raw data for the study comes from RPX Corporation, a ‘patent aggregator’ which offers ‘defensive buying, acquisition syndication, patent intelligence and advisory services’.  Basically, RPX acquires patents (just like a ‘troll’), but with the stated intent of using them to remove trolls from the market, and to assist the victims of trolls.  Companies pay to become RPX ‘members’ for not-insubstantial fees.  The survey data used in the study is from RPX clients, or other associated firms, and the broader litigation data is from RPX’s own database, selected and compiled according to its own criteria.  While the study’s authors are keen to point out that RPX had no say in how they used the data, or presented their research, they are nonetheless completely dependent on information that is unlikely to be free from selection bias.
3. There is no differentiation in the study (because there is no differentiation in RPX’s data) between different kinds of NPE.  RPX uses the term to encompass patent assertion entities (i.e. organisations whose primary business model is to acquire and assert patents in order to obtain settlement and license fees) as well as individual inventors, universities, and non-competing entities (i.e. operating companies asserting patents well outside the area in which they make products and compete).  Not all of these entities are patent ‘trolls’.  Indeed, it may be that the true ‘trolls’, i.e. those entities which make absolutely no contribution to innovation within the economy, are in a minority.
4. The statistical methods employed in the study are opaque, and lacking in any sensible or meaningful assessment of error or confidence.  For all we can determine from the published data, the number ‘$29 billion’ could mean ‘anywhere between $100 million and $100 billion’.  Or it could mean something else entirely.  People who perform these kinds of analyses need to start to understand a simple fact: if you cannot establish the ‘error bars’ on your results, they are meaningless to a statistically-informed reader, and worse than meaningless to the lay person, who may treat them as accurate and precise.

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Tags: Economics, Innovation policy, Patents and society, Trolls

Bickering About Software Patents Misses the Point About Innovation

On Thursday 16 May 2012, IP Australia held an ‘IP Forum’ event in Sydney, on the subject of ‘software patents’.

Regrettably, being located in Melbourne, Patentology was unable to attend in person.  However, past events have been recorded and made available via YouTube, so we are hopeful that this will also be the case for the software patent forum.  Especially because, by all accounts, it was a fairly spirited occasion.

In the pro-software-patent corner was Australian inventor Ric Richardson, whose company Uniloc has recently reached a substantial settlement with Microsoft over Richardson’s patent covering anti-piracy technology, including Microsoft’s online activation system.  The history of Uniloc’s battle with Microsoft has been covered by two episodes of the ABC television program Australian Story: ‘A Done Deal’ in April 2012, and ‘The Big Deal’ in August 2009.

For the anti-software-patent side, IP Australia invited Ben Sturmfels, principal of free software developer Sturm.  Sturmfels is also the Melbourne discussion group organiser for the Australian Free Software Association, which in 2010 gathered over 1000 signatures on a letter to (then) Innovation Minister Senator Kim Carr calling for the abolition of software patents in Australia.

IP Australia was represented by Deputy Commissioner Phil Spann, who is perhaps not especially averse to software patents, unless they happen to involve ‘business methods’.  His most recent decisions as a Hearing Officer include Network Solutions, First Principles, Iowa Lottery, and Invention Pathways.

So the stage was certainly set for a lively discussion.  But is all this energy really being well-directed?  What actual impact are software patents having on innovation?  And is the question of whether of not software should be patentable really the most important issue to which we should be drawing politicians’ attention, or are there greater barriers to the successful commercialisation of innovative technologies on which to be focussing?

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Tags: Business processes, Computer programs, Economics, Innovation policy, Law reform, Patentable subject matter, Politics

Instagram, AOL … Are We Headed for an Intangible Meltdown?

‘Those who cannot remember the past are condemned to repeat it’ – George Santayana, Reason in Common Sense (1905)

In March 2000, Facebook co-founder Mark Zuckerberg was 15.  Instagram founders Keven Systrom and Mike Krieger were 16 and 14 respectively.  In the past week these three people – all still under 30 – have done a deal in which Zuckerberg’s company has acquired Systrom and Krieger’s for a cool US$1 billion.

At almost the same time, Microsoft has acquired 800 patents from AOL for just over US$1 billion.

These deals follow hot on the heels of last year’s acquisition of Motorola Mobility by Google for US$9.8 billion, and the purchase of 6000 former Nortel patents by the Rockstar Bidco consortium (Apple, Microsoft, RIM, EMC, Ericsson and Sony) for US$4.5 billion.

All of these deals have in common the fact that the entire valuation is based on intangible assets.  How do you put a price on a bundle of patents?  On a team of great employees?  On a loved brand?  Or on the future potential of a technology?

Are the recent valuations justified, or are we heading for another industry meltdown similar to the ‘dot-com’ bust of March 2000?  After all, the Zuckerbergs, Systroms and Kriegers of the world could be excused for failing to learn the lessons of history – they were little more than kids at the time!

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Tags: Economics, Intellectual Asset Management, Patents and society