Role Of Patent

ROLE OF PATENT IN

PROMOTING INNOVATION & INVENTION IN

TECHNOLOGY DEVELOPMENT

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CHAPTER I INTRODUCTION PATENT AND INTECTUAL PROPERTY RIGHTS

KEY FORMS OF INTELLECTUAL PROPERTY Copyright Trade Secrets Trademarks Industrial Design Right Other Forms of Intellectual Property

PATENT RIGHTS .

CHEMICAL PATENTS AND SOFTWARE PATENTS. Enforcement History

Patents in force in 2000 Ownership Governing laws Market Economicies Cost

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CHAPTER II TECHNOLOGY DEVELOPMENT Software engineering Biotechnology Nanotechnology Energy Emerging technologies

CHAPTER III INNOVATION & INVENTIONS AND TECHNOLOGY DEVELOPMENT

The Need for invention and innovation Role of Inventions and innovations in Developing Economies A Case Study of India

CHAPTER IV PATENT RIGHTS AND TECHNOLOGY DEVELOPMENT Economic Effects of Patent Rights Patents and innovation Patents and technology markets Growing but under–exploited patents Further analysis and data coll

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CHAPTER V PATENT PROTECTION IN PROMOTING INVENTION, INNOVATION, IN TECHNOLOGY DEVELOPMEN Criticism DIFFERENT VIEW OF DEVELOPED AND NOT-SODEVELOPED NATIONS Patent Rights And Developing Countries Economic issues raised by patents Negative Effects Positive Effects The changing context: evolving innovation processes and markets for technology Recent changes in patent regimes Intellectual property at public research organisations Biotechnology, patents and diffusion Software and services CONCLUSION: Policy issues and options Encourage the development of markets for technology Ensure access to basic inventions Protect and clarify the exemption for research use. Ensure that patenting does not reduce incentives to disseminate inventions by universities. Revisiting the working of the patent system

ROLE OF PATENT IN PROMOTING AND INVENTION IN TECHNOLOGICAL DEVELOPMENT” CHAPTER I INTRODUCTION The term patent usually refers to a right granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. A patent is a set of exclusive rights granted by a state to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an invention The additional qualification utility patents is used in countries such as the United States to distinguish them from other types of patents but should not be confused with utility models granted by other countries. Examples of particular species of patents for inventions include biological patents, business method patents

.

PATENT AND INTECTUAL PROPERTY RIGHTS Patent is one of many Intectual Property Rights. Intellectual property can be defined as intangible property based on the creations of the mind. The term” Intellectual Property” reflects the idea that the subject matter is the product of the mind or the intellect. In law, IP is a term for various legal entitlements which attach to certain names, written and recorded media, and inventions. Licensing of intellectual property allows a party to use such property without necessarily obtaining ownership, Payment for access to intellectual property rights is called licensing or royalty fee.

KEY FORMS OF INTELLECTUAL PROPERTY Intellectual property laws are designed to protect different forms of subject matter, although in some cases there is a degree of overlap. Copyright Copyright may subsist in creative and artistic works (e.g. books, movies, music, paintings, photographs, and software) and give a copyright holder the exclusive right to control reproduction or adaptation of such works for a certain period of time (historically a period of between 10 and 30 years depending on jurisdiction, more recently the life of the author plus several decades).

Trade Secrets A trade secret (which is sometimes either equated with, or a subset of, "confidential information") is secret, non-public information concerning the commercial practices or proprietary knowledge of a business, public disclosure of which may sometimes be illegal. Any information that may be used in the operation of a business and that is sufficiently valuable to afford an actual or potential economic advantage is considered a trade secret. Examples of trade secrets can be formulas for products, such as the formula for Coca-Cola; compilations of information that provide a business with a competitive advantage, such as a database listing customers; and even advertising strategies and distribution processes. Trademarks A trademark is a distinctive sign which is used to distinguish the products or services of different businesses. Trademarks are commercial source indicators, distinctive signs that identify certain goods or services produced or provided by a specific person or enterprise. In villages, cobblers' names used to serve that function. Trademarks are especially important when consumers and producers are far away from one another. Children ask for Barbie dolls, Lego building blocks, and Hot Wheels toy cars. Some adults dream of Ferrari automobiles, but more can afford to buy Toyota or Honda brands. These consumers need trademarks to seek or avoid the goods and services of particular firms. Industrial Design Right An industrial design right protects the form of appearance, style or design of an industrial object (e.g. spare parts, furniture, or textiles). Patents, trademarks, and designs rights are sometimes collectively known as industrial property, as they are typically created and used for industrial or commercial purposes. Other Forms of Intellectual Property Within the basic forms of intellectual property, many variations and special kinds of protection are possible. Geographical indications, which identify a good as originating in a locality where a given quality, reputation, or other characteristic of the good is essentially attributable to its geographic origin, are an example. Some countries separately protect geographical indications for goods such as French cognac or Scotch whiskey.

PATENT RIGHTS The word patent originates from the Latin patere, which means "to lay open" (i.e., to make available for public inspection), and more directly as a shortened version of the term letters patent, which originally denoted a royal decree granting exclusive rights to a person. A patent may be granted for a new, useful, and non-obvious invention, and gives the patent holder a right to prevent others from practicing the invention without a license from the inventor for a certain period of time (typically 20 years from the filing date of a patent application).

A

patent is a set of exclusive rights granted by a state to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an invention. A patent is not a right to practice or use the invention. Rather, a patent provides the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent, which is usually 20 years from the filing date. A patent is, in effect, a limited property right that the government offers to inventors in exchange for their agreement to share the details of their inventions with the public. Like any other property right, it may be sold, licensed, mortgaged, assigned or transferred, given away, or simply abandoned. .The procedure for granting patents, the requirements placed on the patentee and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a patent application must include one or more claims defining the invention which must be new, inventive, and useful or industrially applicable. In many countries, certain subject areas are excluded from patents, such as business methods and mental acts. The exclusive right granted to a patentee in most countries is the right to prevent or exclude others from making, using, selling, offering to sell or importing the invention.

CHEMICAL PATENTS AND SOFTWARE PATENTS. Some other types of intellectual property rights are referred to as patents in some jurisdictions: industrial design rights are called design patents in some jurisdictions (they protect the visual design of objects that are not purely utilitarian), plant breeders' rights are sometimes called plant patents, and utility models or Gebrauchsmuster are sometimes called petty patents or innovation patents. Certain grants made by the monarch in pursuance of the royal prerogative were sometimes called letters patent, which was a government notice to the public of a grant of an exclusive right to

ownership and possession. These were often grants of a patent-like monopoly and predate the modern British origins of the patent system. For other uses of the term patent see Land patents, which were land grants by early state governments in the USA. This reflects the original meaning of letters patent that had a broader scope than current usage. The rights conveyed by a patent vary country-by-country. For example, in the United States, a patent covers research, except "purely philosophical" inquiry. A U.S. patent is infringed by any "making" of the invention, even a making that goes toward development of a new invention — which may itself become subject of a patent. In contrast, Australian law permits others to build on top of a patented invention, by carving out exceptions from infringement for those who conduct research (e.g. for academic purposes) on the invention. A patent being an exclusionary right does not, however, necessarily give the owner of the patent the right to exploit the patent. For example, many inventions are improvements of prior inventions which may still be covered by someone else's patent. If an inventor takes an existing, patented mouse trap design, adds a new feature to make an improved mouse trap, and obtains a patent on the improvement, he or she can only legally build his or her improved mouse trap with permission from the patent holder of the original mouse trap, assuming the original patent is still in force. On the other hand, the owner of the improved mouse trap can exclude the original patent owner from using the improvement. Some countries have "working provisions" which require that the invention be exploited in the jurisdiction it covers. Consequences of not working an invention vary from one country to another, ranging from revocation of the patent rights to the awarding of a compulsory license awarded by the courts to a party wishing to exploit a patented invention. The patentee has the opportunity to challenge the revocation or license, but is usually required to provide evidence that the reasonable requirements of the public have been met by the working of invention.

Enforcement

The plate of the Martin ejector seat of the military aircraft, stating that the design is covered by multiple patents in Britain, South Africa, Canada and "others". Dübendorf Museum of Military Aviation.

Patents can generally only be enforced through civil lawsuits (for example, for a U.S. patent, by an action for patent infringement in a United States federal court), although some territories (such as France and Austria) have criminal penalties for wanton infringement. Typically, the patent owner will seek monetary compensation for past infringement, and will seek an injunction prohibiting the defendant from engaging in future acts of infringement. In order to prove infringement, the patent owner must establish that the accused infringer practices all of the requirements of at least one of the claims of the patent (noting that in many jurisdictions the scope of the patent may not be limited to what is literally stated in the claims, for example due to the "doctrine of equivalents"). An important limitation on the ability of a patent owner to successfully assert the patent in civil litigation is the accused infringer's right to challenge the validity of that patent. Civil courts hearing patent cases can and often do declare patents invalid. The grounds on which a patent can be found invalid are set out in the relevant patent legislation and vary between countries. Often, the grounds are a sub-set of the requirements for patentability in the relevant country. Whilst an infringer is generally free to rely on any available ground of invalidity (such as a prior publication, for example), some countries have sanctions to prevent the same validity questions being relitigated. An example is the UK Certificate of contested validity.

History

U.S. Patents granted, 1800–2004.

In 500 BC, in the Greek city of Sybaris (now in the South of Italy), "encouragement was held out to all who should discover any new refinement in luxury, the profits arising from which were secured to the inventor by patent for the space of a year." [14] Patents in the modern sense originated in 1474, when the Republic of Venice enacted a decree by which new and inventive devices, once they had been put into practice, had to be communicated to the Republic in order to obtain the right to prevent others from using them. England followed with the Statute of Monopolies in 1623 under King James I, which declared that patents could only be granted for "projects of new invention." During the reign of Queen Anne (1702–1714), the lawyers of the English Court developed the requirement that a written description of the invention must be submitted.[16] These developments, which were in place during the Colonial period, formed the basis for modern English and United States patent law. In the United States, during the colonial period and Articles of Confederation years (1778–1789), several states adopted patent systems of their own. The first Congress adopted a Patent Act, in 1790, and the first patent was issued under this Act on July 31, 1790 (and the subject matter of that patent was for the making of potash, and so on).

Patents in force in 2000 The vast majority of patent rights, however, are not determined through litigation, but are resolved privately through patent licensing. Patent licensing agreements are effectively contracts in which the patent owner (the licensor) agrees not to sue the licensee for infringement of the licensor's patent rights, usually in return for a royalty or other payment. It is common for

companies engaged in complex technical fields to enter into dozens of license agreements associated with the production of a single product. Moreover, it is equally common for competitors in such fields to license patents to each other under cross-licensing agreements in order to gain access to each other's patents. A cross license agreement could be desirable to the mouse trap developers discussed above, for example, because it would permit both parties to profit off each other's inventions. The United Nations Statistics Division reports that the United States was the top market for patents in force in 2000 closely followed by the EU and Japan. Ownership In most countries, both natural persons and corporate entities may apply for a patent. The entity or entities then become the owners of the patent when and if it issues. However, it is nearly always required that the inventor or inventors be named and an indication be given on the public record as to how the owner or owners acquired their rights to the invention from the inventor or inventors. In the United States, however, only the natural person(s) (i.e. the inventor/s) may apply for a patent. If a patent issues, then each person listed as an inventor owns the patent separately from the other. For example, if two inventors are listed on a patent, then each one may grant licenses to the patent independently of the other, absent an agreement to the contrary. It is common in the United States for inventors to assign their ownership rights to a corporate entity.[4] Inventors that work for a corporation, for example, often are required to assign their ownership rights to their corporation as a condition of their employment. Independent inventors often assign their ownership rights to a single entity so that only one entity has the right to grant a license. The ability to assign ownership rights increases the liquidity of a patent as property. Inventors can obtain patents and then sell them to third parties. The third parties then own the patents as if they had originally made the inventions themselves.

Governing laws The grant and enforcement of patents are governed by national laws, and also by international treaties, where those treaties have been given effect in national laws. Patents are, therefore, territorial in nature. Commonly, a nation forms a patent office with responsibility for operating that nation's patent system, within the relevant patent laws. The patent office generally has responsibility for the grant of patents, with infringement being the remit of national courts. There is a trend towards global harmonization of patent laws, with the World Trade Organization (WTO) being particularly active in this area. The TRIPs Agreement has been largely successful in providing a forum for nations to agree on an aligned set of patent laws. Conformity with the TRIPs agreement is a requirement of admission to the WTO and so compliance is seen by many nations as important. This has also led to many developing nations, which may historically have developed different laws to aid their development, enforcing patents laws in line with global practice. A key international convention relating to patents is the Paris Convention for the Protection of Industrial Property, initially signed in 1883. The Paris Convention sets out a range of basic rules relating to patents, and although the convention does not have direct legal effect in all national jurisdictions, the principles of the convention are incorporated into all notable current patent systems. The most significant aspect of the convention is the provision of the right to claim priority: filing an application in any one member state of the Paris Convention preserves the right for one year to file in any other member state, and receive the benefit of the original filing date. Because the right to a patent is intensely date-driven, this right is fundamental to modern patent usage. The authority for patent statutes in different countries varies. In the United States, the Constitution empowers Congress to make laws to "promote the Progress of Science and useful Arts..." The laws Congress passed are codified in Title 35 of the United States Code and created the United States Patent and Trademark Office. In the UK, substantive patent law is contained in the Patents Act 1977 as amended.[5] In addition, there are international treaty procedures, such as the procedures under the European Patent Convention (EPC) [administered by the European Patent Organisation (EPOrg)], and the Patent Cooperation Treaty (PCT) (administered by WIPO and covering 137 countries), that

centralise some portion of the filing and examination procedure. Similar arrangements exist among the member states of ARIPO, OAPI, the analogous treaties among African countries. Market Economicies In accordance with the original definition of the term "patent," patents facilitate and encourage disclosure of innovations into the public domain for the common good. Because, in a free market economy, it benefits consumers for producers to openly share their ideas. However, modern patent systems impliment notions of Intellectual Property to justify the granting of monopolies on the production of goods that utilize patented technology. While this certainly provides a powerful incentive for inventors to patent their ideas, it mainly serves to eliminate competition for corporations and allows them to profit off of the labor and capital of other companies through licensing, or resulting in a tragedy of the anticommons. Without the exclusive production rights of patent grants, corporations would be unable to monopolize the production of goods that utilize patented technology. They would be free to replicate each others technologies thereby increasing competition and the veriety of goods for consumers. It would also eliminate bariers to entry into many industries for small producers. Inventors may choose to keep their inventions secret rather than patenting them, however, the details of new technology is always made public whenever goods that use it are produced and sold. It can be back researched by anyone and even improved. Still, public record at least ensures that the origionators of ideas get the credit they deserve. Cost The costs of preparing and filing a patent application, prosecuting it until grant and maintaining the patent vary from one legislation to another, and may also dependent upon on the type and complexity of the invention, and on the type of patent. The European Patent Office estimated in 2005 that the average cost of obtaining a European patent (via a Euro-direct application, i.e. not based on a PCT application) and maintaining the patent for a 10 year term was around 32 000 Euro.

[8]

Since the London Agreement entered into

force on May 1, 2008, this estimation is however no longer up-to-date, since fewer translations are required.

CHAPTER II TECHNOLOGY DEVELOPMENT Technology development is the process of research and development of technology. Many emerging technologies are expected to become generally applied in the near future. There is an accelerating progress in technology, perhaps approaching a technological singularity. Examples of technology development include: •

Software engineering

•

Biotechnology

•

Nanotechnology

•

Energy

•

And many more Emerging technologies

Software engineering Software engineering is the application of a systematic, disciplined, quantifiable approach to the development, operation, and maintenance of software.[1] It encompasses techniques and procedures, often regulated by a software development process, with the purpose of improving the reliability and maintainability of software systems.[2] The effort is necessitated by the potential complexity of those systems, which may contain millions of lines of code. The term software engineering was coined by Brian Randell and popularized by F.L. Bauer during the NATO Software Engineering Conference in 1968.[4] The discipline of software engineering includes knowledge, tools, and methods for software requirements, software design, software construction, software testing, and software maintenance tasks.[5] Software engineering is related to the disciplines of computer science, computer engineering, management, mathematics, project management, quality management, software ergonomics, and systems engineering.[6] Biotechnology Biotechnology is technology based on biology, especially when used in agriculture, food science, and medicine. The United Nations Convention on Biological Diversity defines biotechnology as:[1]

Any technological application that uses biological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use. Biotechnology is often used to refer to genetic engineering technology of the 21st century, however the term encompasses a wider range and history of procedures for modifying biological organisms according to the needs of humanity, going back to the initial modifications of native plants into improved food crops through artificial selection and hybridization. Bioengineering is the science upon which all biotechnological applications are based. With the development of new approaches and modern techniques, traditional biotechnology industries are also acquiring new horizons enabling them to improve the quality of their products and increase the productivity of their systems. Before 1971, the term, biotechnology, was primarily used in the food processing and agriculture industries. Since the 1970s, it began to be used by the Western scientific establishment to refer to laboratory-based techniques being developed in biological research, such as recombinant DNA or tissue culture-based processes, or horizontal gene transfer in living plants, using vectors such as the Agrobacterium bacteria to transfer DNA into a host organism. In fact, the term should be used in a much broader sense to describe the whole range of methods, both ancient and modern, used to manipulate organic materials to reach the demands of food production. So the term could be defined as, "The application of indigenous and/or scientific knowledge to the management of (parts of) microorganisms, or of cells and tissues of higher organisms, so that these supply goods and services of use to the food industry and its consumers. Biotechnology combines disciplines like genetics, molecular biology, biochemistry, embryology and cell biology, which are in turn linked to practical disciplines like chemical engineering, information technology, and robotics. Patho-biotechnology describes the exploitation of pathogens or pathogen derived compounds for beneficial effect.

Insulin Crystals

DNA Microarray chip -- Some can do as many as a million blood tests at once Nanotechnology Nanotechnology refers to a field of applied science whose theme is the control of matter on an atomic and molecular scale. Generally nanotechnology is approximately 100 nanometers or smaller and involves developing materials or devices within that size. Examples of nanotechnology include the manufacture of polymers based on molecular structure and the design of computer chip layouts based on surface science. Despite the promise of nanotechnologies such as quantum dots and nanotubes, real commercial applications have mainly used the advantages of colloidal nanoparticles in bulk form, such as suntan lotion, cosmetics, protective coatings, drug delivery,[2] and stain resistant clothing. One nanometer (nm) is one billionth, or 10-9 of a meter. To put that scale in context, the comparative size of a nanometer to a meter is the same as that of a marble to the size of the earth.[5] Or another way of putting it: a nanometer is the amount a man's beard grows in the time it takes him to raise the razor to his face.[5]

Typical carbon-carbon bond lengths, or the spacing between these atoms in a molecule, are in the range 0.12-0.15 nm, and a DNA double-helix has a diameter around 2 nm. On the other hand, the smallest cellular lifeforms, the bacteria of the genus Mycoplasma, are around 20000 nm in length.

Buckminsterfullerene C60, also known as the buckyball, is the simplest of the carbon structures known as fullerenes. Members of the fullerene family are a major subject of research falling under the nanotechnology umbrella. Energy Energy development is the ongoing effort to provide sustainable energy resources through knowledge, skills, and constructions. When harnessing energy from primary energy sources and converting them into more convenient secondary energy forms, such as electrical energy and cleaner fuel, both emissions (reducing pollution) and quality (more efficient use) are important.

Higher electricity use per capita correlates with a higher score on the Human Development Index (1997). Developing nations score much lower on these variables than developed nations. The continued rapid economic growth and increase in living standards in developing nations with large populations, like China and India, is dependent on a rapid and large expansion of energy production capacity. Energy development is the ongoing effort to provide sufficient primary energy sources and secondary energy forms to power the world economy. It involves both installation of established technologies and research and development to create new energy-related technologies. Major considerations in energy planning include cost, impact on air pollution, and whether or not the source is renewable. Technologically advanced societies have become increasingly dependent on external energy sources for transportation, the production of many manufactured goods, and the delivery of energy services. This energy allows people, in general, to live under otherwise unfavorable climatic conditions through the use of heating, ventilation, and/or air conditioning. Level of use of external energy sources differs across societies, as do the climate, convenience, traffic congestion, pollution, production, and greenhouse gas emissions of each society. Increased levels of human comfort generally induce increased dependence on external energy sources, although the application of energy efficiency and conservation approaches allows a

certain degree of mitigation of the dependence. Wise energy use therefore embodies the idea of balancing human comfort with reasonable energy consumption levels by researching and implementing effective and sustainable energy harvesting and utilization measures. Emerging technologies Examples of emerging technologies are Genetic engineering / Synthetic biology, Electric cars with range extenders and Personal rapid transit, Flash memory with smaller, faster, lower power consuming storage, Nanomaterials, CVD diamond, Scramjet, Wireless communication with ubiquitous network connectivity, Anti-aging drugs, Semantic Web or Answers Machine, more efficient bio fuels, OLEDs, Machine translation bob, Nuclear fusion power, 3D optical data storage or Holographic data storage, Metamaterials, 3D displays, Quantum computing, Nanowire batteries, Virtual retinal displays and WiTricity (Wireless energy transfer). Emerging technologies are new and potentially disruptive technologies, which may marginalize an existing dominant technology. Only new and potentially disruptive technologies should be included in the list. Information technology is an example of a technology which has already proven disruptive, whereas artificial intelligence is a subset information technology with the potential of becoming disruptive in its own right. Controversy exists over the degree of impact and economic viability of some instances of emerging technology. There is on going public policy debate over emerging technologies and their implications for society.

CHAPTER III INNOVATION & INVENTIONS AND TECHNOLOGY DEVELOPMENT Innovation is vital for the viability and success of a modern economy. It is vital to protect the fruits of innovation. In economic terms, it has been clearly established that companies with specialized know-how which sell branded products and patented products or processes have a competitive advantage when it comes to maintaining or 7expanding their market share. We are now witnessing the globalization of our economies. At the same time, the value of what is produced lies more in the intangible investment component.

The basic premise driving the discussion is this: creative thinking has always been integral for improving well-being. New inventions and innovations in agriculture, mass production, transportation and communication during the Industrial Revolution were largely responsible for proving wrong. English economist Thomas Malthus, who Predicted that the world couldn’t support an exponentially increasing population. In the same vein, today’s inventors and innovators could very well prove wrong the skeptics who say that economic development and environmental protection cannot possibly go and in hand. Drawing on, cases showing what is possible when creative thinking and focused effort is put into practice, our participants asked and responded to a range of key questions, including: What kinds of new products and services are needed to create sustainable livelihoods worldwide?

The Need for invention and innovation Invention stimulates entrepreneurship and overall economic activity, according to Merton Flemings, director of the Lemelson-MIT Program. He defines invention as a focused application of the human mind to the world that yields an original creation with practical use. Inventions are typically patentable, but patents aren’t necessary to make it an invention. Innovation, as defined here, is the practice of bringing inventions into widespread usage, through creative thinking, investment, and marketing. That’s why basic invention is typically needed to spur innovative activity. “Invention is that spark where it all begins,” said Flemings. Iteration must typically happen between all three realms human creativity, technology and the marketplace, Ammon Salter, research fellow in the Innovation Studies Center at Imperial College, said, invention is a complex interaction between human creativity, technology and the marketplace, and iteration must typically happen between all three realms before an invention has a significant economic impact. Salter’s studies relate to the practice of technology diffusion: How are new technologies propagated through a marketplace, and how good are certain societies at not only creating but diffusing those technologies. In this realm, Salter said, there is good news and bad news. The bad news is that only a small minority of the world’s countries are practicing a significant level of invention and innovation. The good news is that this list of countries is growing and is now up to about two dozen. The two most populous countries, China and India, are in the process of becoming world leaders.

Role of Inventions and innovations in Developing Economies Ashok Khosla, President of New Delhi-based Development Alternatives, said “It’s a numbers game,”, this is the story of how all inventions and innovations get to the big time, from CocaCola to the Sony Walkman, can be understood through showing how much money was invested at each stage of a product’s development and diffusion. The same process of studying economic returns must be applied to investment in the developing world. “A dam built for $8,000 transforms life for 20,000 people,” Khosla emphasized. With a dam in place, people no longer have to spend much of their day walking to a well, and so they can perform more productive work. Meanwhile, the water from the dam irrigates crops that can sustain entire villages and towns. In the developing world, however, innovations such as dams are typically planned and funded by governments or international organizations such as the World Bank, noted Adil Najam, associate professor of international negotiation and diplomacy at Tufts University’s Fletcher School. As a result, local inhabitants sometimes fall into the trap of thinking that new technologies are things that are provided to them rather than something they create on their own. “They say, ‘This is a World Bank dam,” said Najam. That’s why it’s so important for invention and creativity to be nurtured on the local level. As noted by Mert Flemings, an invention can be a little thing that helps a small village. It doesn’t have to be a scientific breakthrough like the laser. It can be a simple tool adapted to local needs in developing countries, such as the micro-irrigation pumps supplied by one of the workshop’s participants, Nick Moon, co-founder of ApproTEC. That’s why “technology push” is often not a good way to do things, said Adil Najam, and why “technology pull,” identifying demand in local markets, is so crucial. “What is a winning product?” Najam asks, “A StairMaster is a winning product in the developed world but not in developing world.” Yes, Coca-Cola can sell sugar water to anyone, but a fresh lime drink may end up being more popular in certain locations. Highlighting the differences between markets, Nick Moon noted that capital is cheap in the developed world, while time and labor are expensive. In the developing world, however, capital is so expensive as to be practically unavailable, while time and labor are cheap. These stark differences were highlighted in Najam’s studies of sustainable development and technology diffusion around the world during the past ten years. Collecting more than a thousand stories from around the world, including India, Pakistan,

A Case Study of India As the world’s largest democracy, with a diverse population of more than one billion, India has become a key testing ground for sustainable development. Most of the media attention has been focused on the country’s pockets of urban, English-speaking university graduates

who

are

“piggybacking,”

capitalizing

on

the

Internet

and

decreasing

telecommunications costs to capture hundreds of thousands of software and customer service jobs from overseas, at a fraction of American or European wages. The high-tech startups of Bangalore have been heralded in the press. Corporations such as GE and IBM have even opened R&D centers there, employing PhD-level engineers who are helping to invent and improve info tech, biotech and nanotech. But Ashok Khosla, founder of Development Alternatives, is focused on the rural poor, the 70 percent of India’s population who are almost completely untouched by any of this. He envisions bringing 700 million people in India out of poverty or subsistence living. Borrowing ideas he has seen all over the world, Development Alternatives has invented a series of new products, including: •

A hand-operated press that converts mud into hard bricks for low-cost housing.

•

A vertical kiln that bakes on a continual basis bricks made from native clay.

•

A machine for transforming industrial waste into cheap roofing tiles.

•

A process for converting local weeds into a substitute for diesel fuel to make electricity.

•

Woodstoves that dramatically reduce fuel smoke, thus reducing early cancer death.

•

Hand-powered looms and paper-making machines made by modernizing centuries-old designs.

One of Khosla’s most significant innovations is his franchising system. Borrowing a page from Ray Kroc of McDonald’s, Khosla has created a network of dozens of profitable local telecenters – TARAkendras, business and community facilities that set up their own businesses training and supporting people in the use of dozens of these technologies. Just as important as creating jobs at the franchise level are the jobs that are created by the inventions themselves. Each of Khosla’s products, once up and running, creates an enterprise that requires hiring from four to four dozen employees. The entrepreneurs who use credit to invest in the company’s kilns, looms, papermaking units and energy systems now have a sustainable way to market products that people want, and can use or sell. Such a systematic strategy gives people the chance to escape the cycle of poverty while having a negligible impact on the environment. Using its own mud bricks, Development Alternatives built its headquarters for 150 employees. The building consumes the

same amount of electricity as a single American household. Using similar bricks, one of the organization’s customers built the Indira Gandhi National Center for the Arts in only 120 days. The cost was only $40,000. The center has hosted dozens of national exhibitions over the past 15 years. Development Alternatives is in the process of signing up franchises in new locations, providing a source of royalties and training fees that are invested back into the organization. It also generates income from data mining and by running an Internet portal, www.tarahaat.com, for communicating with franchisees and customers. “We are bringing the Internet to small villages,” he said. Despite the fact that Khosla has been running his organization for more than 20 years, he struggles to raise capital. Traditional nonprofits and for-profit investors typically don’t encounter social enterprises that generate income, and so they don’t know how to assess what he is doing. Non-profit donors, such as those in the international development community, are often reluctant to give money to anything but pure charities. While Development Alternatives is a non-profit organization, the companies that it operates, such as DESI Power Pvt. Ltd. and TARAhaat, are set up as for-profit enterprises that help pay for further research and development of new products and ideas at the parent company. This kind of model is alien to much of the traditional donor community. He also said that foreign aid and government grants often come with their own conditions and objectives, often making the acceptance of such funding counterproductive. When it comes to raising money from private venture capitalists, there is a different disconnect. Venture firms are comfortable investing in software startups carrying out customer relationship management applications, but they aren’t familiar with hybrid enterprises that primarily focus on social value creation but also generate revenues. Intellectual property is another sticking point. Venture firms typically look for protected intellectual property, such as patents, to assure that they can exclude lower cost rivals from markets, at least for a time. But patents aren’t easy to enforce in India. In addition, at least for Khosla, these have not been necessary to provide a motivation for commercialization, and so he hasn’t focused on protecting his organization’s inventions. In certain cases, however, his success has drawn imitators. After he sold more than 100,000 units of his TARA wood stoves, entrepreneurs in the rest of India and also as far away as Nigeria and Ghana took the stoves back to their shops and copied the productsexactly, including the TARA logo. “They didn’t know what made it work so well,” Khosla said. “So they copied everything.” Khosla said this is not necessarily bad for him. “People who copy us open new markets,” he said. Lack of financing is the only obstacle Khosla cited, the only thing standing in the way of reaching his goal of reaching the mass markets. He said his overall objective is to “make a dent in the employment problem” in India. He said the

country needs to create 15 million new jobs per year. The high-tech and outsourced jobs from overseas only contribute to a small fraction of that and are available only for a limited few. He said that this larger number of jobs is needed for several reasons beyond economic ones: psychologically, these jobs are needed to give people dignity. In terms of the environment, these jobs are also needed to avoid the temptation for people to make money by further damaging the soil, air and water. Khosla said that Gandhi himself had a lot to say about “sustainable technology” and how people relate to machines. Good technology, according to Gandhi’s principles, helps people reach their aspirations, liberates human potential, creates economic opportunity, and regenerates environmental resources. “Technology should be the servant of man, not his master,” said Gandhi. When Khosla is assessing which kind of products and technologies to develop and market, he looks for those that can catch on in the marketplace quickly, those that can be embraced and replicated by new enterprises that work as his franchisees. “Viral multiplication,” he said. “This is the crucial term. It doesn’t matter how bleeding your heart is, if it doesn’t get out there, it doesn’t do any good.” He also looks for high social impact, large scale economic returns, environmental benefits, and customer opportunities. Finally, Khosla looks to “cluster” sets of technologies together, so that his franchisees can diversify and sell many products, not depending on just one for their own livelihoods. On its TARAhaat.com website, the company provides customer support and servicing, and its franchisees and customers trade tips and gossip. Typically, even small villages have phone and Internet connections in community centers and other public facilities. Khosla said that the Internet can enable him to scale out his system to hundreds or thousands of franchisees over time. Despite all this success, the process is slow. “At the current rate we will be able to raise everyone out of poverty in India in 200 years,” Khosla pointed out.

CHAPTER IV PATENT RIGHTS AND TECHNOLOGY DEVELOPMENT Investments in a technology have to consider its current life cycle stage. The widespread approach of studying technology life cycles by measuring patent activity indices, especially patent applications, raises a practical problem: it requires the survey of all applications and applicants on a technological field. On the basis of an empirical study on pacemaker technology

the paper identifies several patent indices as appropriate life cycle stage indicators which do not require the survey of the complete patent activity.

Economic Effects of Patent Rights The increase in patents over the past two decades — in areas ranging from semiconductors and software to human gene sequences — has been well publicised and its sources and economic effects are widely discussed. The embracing of patenting by universities has also been a subject of debate, raising questions about the consequences of patenting on the progress of science and the advancement of technology. As technologies become more interdependent and innovation relies more and more on fragmented proprietary knowledge, concerns are emerging about innovation becoming more difficult and the commercialization of technologies being held backed by patents. And yet, many patents correspond to a new wave of inventions (information and communication technology, biotechnology) and technological activities, which might have not appeared, or might have been delayed, without patent protection. For this reason, there is an imperative need to better understand the obstacles which patents might generate to the diffusion of technology, how they can be overcome, and how patents may be used in contracts to ensure fluidity in technology markets. There is need to discusses the multiples role played by patents in fostering innovation and the commercialization of technology: how patents affect innovation incentives, the building of knowledge infrastructures and the development of technology markets. Lastly, it stresses the need to collect and analyze new data in order to design evidence–based policies in this field.

Patents and innovation When thinking about the role of patents in the production of knowledge, we need to think first about their incentive effect, related to the exclusive right they entitle their holder with, and second about how patents facilitate or hinder the diffusion of technology, through market and non–market transactions. Compared to other IP rights — e.g. copyrights and database rights — the particularity of patents lies in the criteria required to enjoy protection: i) obligation of disclosure, and ii) patentability criteria. The fact that inventions must be publicly disclosed implies that a detailed description of the invention must be submitted jointly with the patent application. To be patentable, a product or process innovation needs to be novel, involve an inventive step (non–obvious), and be capable of industrial application. There are several ways in

which patents can influence the production of knowledge and speed of innovation (Guellec and van Pottelsberghe, 2007): •

By providing protection and exclusivity , a patent is a policy instrument intended to encourage inventors to continuously invest in research and the subsequent innovative work that will put those inventions to practical use (Griliches, 1990).

•

Because patents reveal new knowledge through disclosure of inventions, they diffuse information enabling other inventors to develop new technological innovations.

•

Through market transactions and contracting (i.e. licensing), patents enhance the exploitation and commercialization of technology thereby fostering the diffusion of knowledge.

Patents do not only exclude third parties from the use of inventions. The patent system attempts to compensate inefficiencies associated with market exclusivity. By making public new knowledge through disclosure, patents contribute to making innovation more efficient by avoiding needless duplication of R&D efforts. From a social point of view, patents are therefore preferred to secrecy as they increase the stock of knowledge available to society. Another way through which patents foster knowledge diffusion is by encouraging markets for technology. By facilitating technology transactions and division of innovative activities amongst firms, patents help to make innovation and exploitation of technologies more efficient.

Patents and technology markets Research has shown that patents encourage the development of technology markets. By facilitating exchanges, patents contribute to making technology markets more fluent and well– organized. They help lower the cost of transactions (e.g. by providing information about the value of technologies, they reduce the search costs for partners and informational asymmetries), thereby fostering the diffusion of knowledge. Recent research shows that patents can enhance the efficiency of knowledge transfer through licensing. Patents have been found to facilitate the provision of non–protected complementary tacit knowledge when technology contracting occurs (e.g. know–how, technical assistance, etc.), that can be crucial to accomplishing innovation (Arora, et al., 2001). In addition, the informative contents of patents (through disclosure of inventions) helps to define the market for technology

— the inventions available for exploitation, for exchange or buying — which in turn makes the pricing of technology easier. By facilitating transactions in technology, patents allow both small and large innovating firms to increase economic value gained from innovation. For the former, patents facilitate the licensing and the selling of technology to firms having the downstream capabilities. For the latter, patents help to leveraging economic value from intellectual assets, accessing and exchanging technologies. In other words, by facilitating the delegation of R&D or production tasks, patents facilitate the vertical specialization of companies. They contribute thus to a better allocation of resources through a more efficient division of labour among firms, the best example being the transfer of technology between biotechnology firms and big pharmaceutical firms. By facilitating entry into the research and product markets (through licensing), patents help to prevent R&D duplication. Technology markets also contribute to increasing the diffusion of public and private R&D outcomes, and permit more competitive prices for consumers (Gambardella, 2002). Patents are also useful in diffusing technology, notably network technology where standards are crucial for generating economic returns. Nevertheless, the large number of IP rights on increasingly fragmented knowledge (e.g. genes sequences, research tools, etc.) may raise considerable inefficiencies if transactions are too costly. When licenses from too many individual intellectual property owners are required to develop a new product or technology, organizations may under–invest in the commercialization of downstream technologies (“the anti–commons” tragedy, Heller and Eisenberg, 1998). It becomes very expensive and difficult to get into all the licensing agreements needed. Likewise, the increasing risk and costs related to litigation, in turn makes innovations more costly. These difficulties limit the economic returns from research activities and discourage further investment in technology [4]. It should be noted however that empirical evidence of “anti–commons” is restricted to very few reported cases (OECD, 2007b). Patents, because they constitute an exclusive legal title, can also play a positive role in ensuring downstream development and transactions. They can serve as a basis for contracting and ensuring the commercialization of technology. Patents help to reduce the gap between science and industrial innovation by ensuring finance in the later stages of development, exploitation by best positioned firms through licensing, and hence economic returns for research (OECD, 2007a).

Growing but under–exploited patents In spite of the impressive growth in the number of patents during the last decade, figures on licensing activity show that technology markets are still at the emergent stage. They suggest however that the economic value of technology licensing is increasing. World–wide licensing transactions averaged more than USD 36 billion per year between 1990 and 1997, compared to USD 5.6 billion in the 1980s (OECD, 2006). The most recent statistics (from the World Bank: World Development Indicators online database) indicate that the value of the cross–border licensing transactions was around USD 115 billion in 2005.

Other indicators from surveys suggest an under–exploitation of patents: •

According to the PATVAL–European Union Survey on the value of patents, the share of patents that are not used at all is significant: 35 percent of patents are not used at all; 18.7 percent of inventions are actually patented with the aim of blocking competition, and 17.4 percent are considered as sleeping patents.

•

This survey also reports that less than 10 percent of patents are subject to licensing outside the company, 10–15 percent of inventions are candidates for license. According to the estimated economic value of these inventions (as declared by inventors), this would imply a non–negligible potential for increasing the value of licensing activity (50 percent potential increase in the size of the market). The inventions that have not been licensed but are candidates for license are not significantly different from other inventions in terms of quality.

•

A survey conducted by the Japanese Patent Office (JPO) on similar issues reports lower figures on licensing activity and willingness to license. Accordingly, 8 percent of JPO patents are licensed, while 7 percent are unsuccessfully offered to license. The reasons for such patterns have to do with embryonic stage of technology, underestimation of the value of inventions, e.g. underestimation when there is lack of awareness of commercialization potential, lack of information on potential partners, etc.

While these figures evidence the importance of motivations other than the protection of innovation in patenting activity, they also suggest that there is still a lot to do regarding the development of technology markets. Given these trends, several policy concerns arises:

•

How to unlock the latent economic value of patents and increase exploitation of technology;

•

How to enhance licensing by technology producers in the interest of both buyers and sellers; and,

•

How to improve and accelerate access to technology.

In order to answer these questions, both private and public policy solutions are required. Private mechanisms for unlocking or increasing the economic value of patents are currently emerging (technology transfer intermediaries such as patent funds and auctions, IP consulting companies, etc.). They consist of a variety of services to intellectual property holders to enhance commercialization of intangible assets and maximize economic value (OECD, 2007a): patent (portfolio) value assessment, logistic and financial services, searching for partners and assistance in establishing partnerships; insurance strategies (protection against litigation), monetization of patents (proper accounting practices). Public policy solutions include the integration of competition policies. These include mechanisms to promote and encourage licensing practices with careful attention to competition (reasonable and non–discriminatory practices). Patent pools have been found to be an efficient solution in some technology fields. And yet, careful attention must be given to ensure compliance with competition rules. Patent pools are pro-competitive when they: i) integrate complementary technologies, ii) reduce transaction costs and iii) help to clear blocking positions (U.S. Department of Justice and the Federal Trade Commission, 2007). They are conceived to avoid costly infringement litigation and promote dissemination of technology. Patents pools are anticompetitive when: i) excluded firms cannot effectively compete, ii) pool participants collectively possess market power, and iii) limitations on participation are not reasonable. They can also be anticompetitive if they deter or discourage R&D activities (U.S. Department of Justice and the Federal Trade Commission, 2007). Hence, by facilitating transactions and delegation of innovation and production tasks, intellectual property rights are needed to ensure transformation of scientific advances into technological and economic progress. Best practices should be identified however to deal with “patent thickets” and reduce “anti–commons” problems.

Further analysis and data collection The difficulties of the patent system in fulfilling its mission in the current economic environment have spawned exchanges of arguments and attempts to reform the system in various ways, in Europe, Japan, the United States and other countries. Thanks to recent progress made by the EPO (notably the worldwide patent statistics database — Patstat), the NBER database and the JPO–Tokyo University database, patent data have become increasingly accessible, allowing more in–depth analysis of the patenting strategy of firms and of broad trends in–patent systems. Patent data allow the tracking of companies’ patenting strategies, comparative trends across patent systems, and knowledge diffusion effects. And yet, information on technology markets and companies’ strategies for exploiting and managing IP portfolios remains very limited. In order to better understand the economic use and impact of the patent system, complementary information is required concerning the use of patents and non–patent appropriability mechanisms by companies (such as secrecy, first mover advantages or complementary capabilities), strategies for exploiting patents, and the economic impact of patents. The most practical way of obtaining such data on a broad basis is to conduct a business survey. Building on previous international experience, the OECD is planning to conduct a joint survey with the EPO and Tokyo University uncovering the uses of patents and strategies for exploiting patent portfolios. The aim of the survey is to investigate the use of patents for licensing and raising capital: its development over recent years, its motivations, its articulation with other practices of companies, its outcomes, and the obstacles encountered. Other issues for investigation issues are: the speed of expansion of the market for licensing, the differences between small and medium enterprises and large firms in terms of commercialization strategies, the licensing behaviour of multinational firms, the role of patents in open innovation modes, the obstacles to licensing technology, and other uses of patents (strategic, financial). 1) However, patent rights are not the sole means of precluding imitation and exercising market exclusivity. Non–legal strategies such as secrecy, rapid launching, short product development cycle times, low prices and other competitive approaches (production and marketing capabilities; after–sales services; long–term contracts), allow inventors to gain market exclusivity and appropriate rents from innovation. 2) The reasons for the need to provide a legal framework for protecting inventions are that information is a non–excludable and non–rival good. “Non–excludable good” means that

it is impossible to exclude others, who did not bear the cost of the invention, from using the good (i.e. “free–riding” issue). “Non–rival” good means that consumption of the good by one person does not reduce the quantity available to other individuals i.e. the marginal cost is zero). The legal mechanism of conferring patent rights to individual deals with both the non–excludable and non–rival good problems. 3) In particular, the overlapping of rights in particular technology fields — semiconductors, gene sequences, research tools — makes the cost of transactions considerably higher. 4) A situation similar to that of the “patent thicket” occurs in the context of scientific research. The extension of intellectual property to tools for research and other inputs (e.g. databases and software), considered until recently as public or communal information for specific groups (scientists), may restrain the functioning of these open systems and in turn delay the progress of science. 5) The 1994 Carnegie Mellon Survey (Yale 2: USA) on the effectiveness of patents, the JPO Survey (Japan, Uses of IPR and types of licensing), the 2005/2006 EPO Survey: Motivations for patenting and proportion of patents in each category; the 2003 OECD– BIAC Survey: In and out–licensing strategies; the 2002–2003 PATVAL Survey on the Uses and Value of patents. 6) The point of view will be of out–licensing, rather than licensing–in, as the surveyed population is made of patent holders only.

CHAPTER V PATENT PROTECTION IN PROMOTING INVENTION, INNOVATION, IN TECHNOLOGY DEVELOPMEN

Patent regimes have experienced major changes that have encouraged an increase in patenting. Not only have new types of inventions – software, genetic, and business methods – been deemed patentable by some patent offices, but the ability of patent holders to protect and enforce their rights has also increased, leading many to call the past two decades a pro-patent policy era. There is little doubt that many of these policy changes have helped the patent system to cope with changes in innovation systems by attracting more private-sector funding for R&D and supporting the development of markets for technology to help diffuse patented knowledge. In that sense, the patent system has been instrumental in the recent waves of innovation which have occurred in the fields of biotechnology and ICT.

Criticism This strengthening of patent systems in the European Union, Japan and the United States has, however, raised new concerns and exacerbated old ones. There have been numerous claims that patents of little novelty or excessive breadth have been granted, allowing their holders to extract undue rents from other inventors and from customers. This has been of particular concern in software, biotechnology and business methods, where patent offices and courts have had most difficulties in responding to rapid change, building up institutional expertise, evaluating prior art and determining correct standards for the breadth of granted patents. More basically, it has also been asked whether patentability might hamper the diffusion of knowledge, and therefore innovation, notably in these new areas. Other concerns have been raised about access to basic technologies, and research tools, which seems to have been hindered sometimes by patent holders exercising their right to exclude. As universities are becoming more likely to patent and commercialise their own inventions, exemptions for research use of existing inventions are under threat, with the danger of public research being faced with rising costs and difficulties of access. Patents from time to time have been criticized for being granted on already known inventions. In 1938, for example, R. Buckminster Fuller, inventor of the geodesic dome wrote: "At present (1938), the (US patent) files, are so extraordinarily complex and the items so multitudinous that a veritable army of governmental servants is required to attend them and sort them into some order of distinguishable categories to which reference may be made when corresponding with patent applicants for the purposes of examiner citation of "prior art" disclosure. This complexity makes it inevitable that the human-equation involved in government servants relative to carelessness or mechanical limitations should occasion the granting of multitudes of "probably" invalid patent claims." Patents have also been criticized for conferring a "negative right" upon a patent owner, permitting them to exclude competitors from using or exploiting the invention, even if the competitor subsequently develops the same invention independently. This may be subsequent to the date of invention, or to the priority date, depending upon the relevant patent law (see First to file and first to invent). [10] Patents may hinder innovation as well in the case of "troll" entities. A holding company, pejoratively known as a "patent troll", owns a portfolio of patents, and sues others for infringement of these patents while doing little to develop the technology itself. [11]

Another theoretical problem with patent rights was proposed by law professors Michael Heller and Rebecca Sue Eisenberg in a 1998 Science article.[12] Building from Heller's theory of the tragedy of the anticommons, the professors postulated that intellectual property rights may become so fragmented that, effectively, no one can take advantage of them as to do so would require an agreement between the owners of all of the fragments. Addressing these concerns and ensuring that patent systems continue to fulfil their mission of both stimulating invention and promoting diffusion of knowledge requires careful examination of broader issues.

DIFFERENT VIEW OF DEVELOPED AND NOT-SO-DEVELOPED NATIONS At the beginning of the Uruguay Round of the GATT in 1986, the mandate of the negotiating group on intellectual property was to discuss “the trade-related aspects of intellectual property rights in the context of promotion of growth and development” a formula which seemed to leave both the economically developed nations and the economically developing nations plenty of negotiating room. From the very beginning, the focus of the developed nations (particularly the United States) in the negotiations was upon strengthening standards of legal protection for intellectual property across the board. That was not the view of the most articulate voices in the developing countries, particularly Brazil and India. For them, the key issue was the latter part of the mandate, the one providing them with “access to technology” -- not “intellectual property rights.” The debates over the scope of intellectual property protection within the United States, which play government policies which foster the creation of intellectual property by stimulating investment in R&D and rewarding creativity against those which foster the rapid diffusion of technology through commercialization, widespread adoption and ultimately, standardization, and which stimulate future innovation by competitors within the country, are endless and complex. By contrast, the terms of the intellectual property debate as posed by the less developed nations in the early days of the Uruguay Round were straightforward and simple: how can the developing nations get the best access to technological innovations made elsewhere -- that is, in the developed countries. Patent protection was an issue for the developed world -- not the developing one.

Patent Rights And Developing Countries The stance of Brazil and India, among others, on IPRs was something like the following: o Rigid IP protection impedes access to latest technological innovations, and therefore restricts the participation of developing countries in international trade; o “Abusive use” of IPRs distort international trade; o What is “trade-related” about intellectual property rights is the “restrictive and anticompetitive behavior of the owners of intellectual property” and not the behavior of commercial interests in developing countries or that of their governments; o Patent systems can have adverse effects in critical sectors such as food production, poverty alleviation, health care and disease prevention, and have a dampening effect on the promotion of R&D in developing countries and in improving their technological capabilities; o Systems for the protection of IPRs are by nature “monopolistic” and sovereign nations should be free to attune their own systems of intellectual property protection to their own needs and conditions. According to this view, a TRIPs agreement which was to be the “best of all possible worlds” for the developing nations would have been –  one in which barriers to market entry created by the “exclusive rights” granted to the owners of intellectual property would fall,  the sacred principles of national sovereignty and freedom to adopt lower standards of intellectual property protection would be preserved,  and the market to which entry would be afforded would now be a global one. That is not the way it worked out, however. The “minimum standards” for the protection of intellectual property eventually enacted into international law in the TRIPS Agreement are significantly higher than the norms of substantive protection in effect in many developing nations prior to its adoption. What, then, if anything, is there of advantage in strengthening patent protection for a developing country attempting to catch up? Extrinsic benefits of stronger patent protection emerging from the TRIPs Agreement

Economic issues raised by patents Viewed from the angle of innovation policy, patents aim to foster innovation in the private sector by allowing inventors to profit from their inventions. The positive effect of patents on innovation

as incentive mechanisms has been traditionally contrasted with their negative effect on competition and technology diffusion. Patents have long been considered to represent a trade-off between incentives to innovate on one hand, and competition in the market and diffusion of technology on the other. However, recent evolutions in science and technology and patent policy and progress in the economic analysis of patents have nuanced this view: patents can hamper innovation under certain conditions and encourage diffusion under others. The impact of patents on innovation and economic performance is complex, and fine tuning of patent design is crucial if they are to become an effective policy instrument. Empirical evidence tends to support the effectiveness of patents in encouraging innovation, subject to some cross-industry variation. In a series of surveys conducted in the United States, Europe and Japan in the mid-1980s and 1990s, respondent companies reported patents as being extremely important in protecting their competitive advantage in a few industries, notably biotechnology, drugs, chemicals and, to a certain extent, machinery and computers. Companies in other industries reported that patents play a secondary, if not negligible, role as a means of protection for their inventions, as they tend to rely more on alternative means such as secrecy, market lead, advance on the learning curve, technological complexity and control of complementary assets (Levin, Klevorick, Nelson and Winter, 1987; Cohen, Nelson and Walsh, 2000).

Negative Effects However, patent protection may also hamper further innovation, especially when it limits access to essential knowledge, as may be the case in emerging technological areas when innovation has a marked cumulative character and patents protect foundational inventions. In this context, too broad a protection on basic inventions can discourage follow-on inventors if the holder of a patent for an essential technology refuses access to others under reasonable conditions. This concern has often been raised for new technologies, most recently for genetic inventions (BarShalom and Cook-Deegan, 2002; Nuffield Council on Bioethics, 2002; OECD, 2003a) and software (Bessen and Maskin, 2000; Bessen and Hunt, 2003). In addition, as has long been recognised, the main drawback of patents is their negative effect on diffusion and competition. As patents are an exclusive right that creates a temporary monopoly, the patent holder can set a market price higher than the competitive price and limit the total volume of sales. This negative impact on competition could be magnified as patent holders try to strengthen their position in negotiations with other firms, in an attempt to block access by competitors to a key technology, or inversely, to avoid being blocked by them (Shapiro, 2002).

Such strategic patenting seems to have developed over the past 15 years, notably in the electronics industry (Hall and Ziedonis, 2001).

Positive Effects Nevertheless, patents can also have a positive impact on competition when they enhance market entry and firm creation. Not only is there evidence of small companies being able to assert their right in front of larger ones thanks to their patent portfolio, but patents may also be a decisive condition for entrepreneurs to obtain funds from venture capitalists (Gans, Hsu and Stern, 2002). Moreover, patents may enhance technology diffusion. Patenting means disclosing inventions which might otherwise be kept secret. Industrial surveys show that the reluctance of firms to patent their inventions is primarily due to the fear of providing information to competitors. This has been confirmed in the OECD/BIAC survey on the use and perception of patents in the business community, sent to firms in OECD countries in 2003 and in which respondents indicated their intensive use of patents as a source of information (Bo 2; Sheehan, Guellec and Martinez, 2003). Patents also facilitate transactions in markets for technology: they can be bought and sold as property titles or, more frequently, be subject to licensing agreements which allow the licensee to use the patented invention in return for payment of a fee or royalty (Arora, Fosfuri and Gambardella, 2001; Vonortas, 2003). Finally, enhancing technology diffusion has been the goal put forward by governments to encourage universities to patent their inventions, with the objective of licensing them to businesses that will further develop and commercialise them (OECD, 2003b).

In summary, the traditional view of patents as a compromise between incentives to innovate and barriers to technology diffusion, if not incorrect, presents a rather partial picture, as patents can either encourage or deter innovation and diffusion, depending on certain conditions. In fact, the effect of patents on innovation and diffusion depends on particular features of the patent regime. Patent subject matter, patenting requirements and patent breadth are three basic tools for policy makers involved in the design of patent regimes that could be used to enhance both innovation and diffusion (Encaoua, Guellec and Martinez, 2003): 

Patent subject matter is the domain of knowledge that can be patented, if the patenting criteria of novelty, non-obviousness and usefulness are also met. For instance, scientific discoveries and abstract ideas are generally excluded. Its definition must be based on a careful examination of when it is efficient for society to offer patent protection in addition to other legal or market-based means of protection.



Patenting requirement is the height of the inventive step required for a patent application to be granted. It is understood as the extent of the contribution made by an invention to the state of the art in a particular technology field. The higher that contribution, the more selective the process, thus the lower the number of patents granted. The lower it is, the larger the likelihood of finding many inventions with no significant social value. Conversely, too high a requirement would discourage innovations which, while not being radical, are still necessary for technological breakthrough to translate into actual products and processes.



The breadth of a patent is the extent of protection granted to patent holders against imitators and follow-on inventors. Not only do patentees obtain exclusive rights on their own invention but also on other inventions which are deemed “functionally equivalent”, and to a certain extent on improvements of their inventions. Patents that are too broad allow their holders to “pre-empt the future”, while patents that are too narrow discourage research that feeds into follow-on inventions.

Other policy or legal aspects have an impact on the patent system, including the amount of damages attributed by courts in case of infringement, the conditions for exemptions for research use, etc. Taken together, these aspects determine the strength of patents. Overall, excessively weak and narrow patents might deter business investment in R&D, as it becomes too easy for an imitator to undercut the inventor’s market price. Weak and narrow patents may also encourage secrecy at the expense of publicity, and harm markets for technology, hence hindering diffusion of technology. Conversely, excessively strong and broad patents may open the door to undesired strategic behaviour by patent holders, who may use their titles to appropriate revenue from existing inventions marketed by other companies. For instance, a broad patent on a basic invention with no substitutes may be equivalent to having an exclusive right of exploitation over an essential facility, allowing its holder to bar follow-on inventors who would be willing to invest in R&D to create socially useful applications. By carefully balancing these multiple instruments, policy makers can design patent regimes that are favourable to both innovation and diffusion.

The changing context: evolving innovation processes and markets for technology Changes in patenting and licensing behaviour occur against a backdrop of changes in industrial innovation processes. Over the last decade, the importance of innovation as a driver of competitive advantage in OECD economies has grown. Innovation has also become more

globalised, with small and medium-sized enterprises (SMEs) playing an increasingly important role. These changes have contributed to more collaborative innovation processes that involve a larger number of more diverse actors and inter-linkages among them. Growing levels of business patenting have helped inventors appropriate the returns from their investments and facilitated cooperation via market-based transactions of knowledge. •

Innovation is central to business strategy. Firms in a wide range of industry sectors see innovation and R&D as means of improving their competitive advantage. Between 1990 and 2001 industry-financed R&D in the OECD region rose 51% in real terms from USD 244 billion to USD 368 billion, or from 1.31% to 1.48% of GDP. Much of this growth was driven by high-technology manufacturing and knowledge-intensive service sectors, in particular ICT and pharmaceuticals – the same sectors that have seen the most rapid increases in patenting (Mairesse and Mohnen, 2003).

•

Globalisation of innovation processes. Foreign affiliates of multinational enterprises accounted for between 15% and 17% of total business manufacturing R&D in the United States, France and Germany in 1998, more than 30% in the United Kingdom, and more than 65% in Ireland and Hungary. These investments increased by more than 50% in the OECD area between 1991 and 1998 as firms located R&D closer to foreign markets (in order to adapt products to local needs) and, increasingly, closer to sources of scientific and technological excellence. The globalisation of R&D contributes to international patenting.

The expansion of ICT and the Internet has accelerated the availability of

information on new technologies, making secrecy a less viable strategy. Such codified information can be more easily accessed by competitors who can imitate in a shorter period of time, thus reducing the efficiency of market-based strategies of appropriation. As the number and variety of potential competitors has increased notably due to globalisation, innovative companies have been demanding enhanced legal protection, including patents. •

New technology-based firms play an important role. In the United States, R&D in SMEs grew at almost twice the rate of R&D in large firms during the 1990s, with the smallest firms increasing the most rapidly. This trend was supported in part by increased venture capital funding to the advantage of the activities for new technology-based firms. Patents are especially important to new technology-based firms because such firms often have

few assets other than their intellectual property, and need patent protection to attract venture capital. The ability to license intellectual property further enables their participation in the innovation networks of other firms. •

Greater collaboration. The growing technological complexity of products and processes, increased technological opportunities created by recent scientific advances (e.g. life sciences, ICT, nanotechnology), rapid technological change, more competition and higher costs and risks of innovation are forcing firms to work in greater collaboration. Firms are focusing a larger share of their R&D on activities that are linked to their specific competencies, and are acquiring complementary technologies from other firms, universities and government labs.

This trend has been facilitated by the expansion of ICT, which reduces communication costs. The result has been a rapid rise in virtually all forms of collaboration, from sponsored and collaborative research to strategic alliances, mergers and acquisitions, and, notably, technology licensing. Collaboration has been facilitated by the expansion of markets for technology that allow for formal, market-based exchanges of knowledge via patent licences. Licensing provides another channel by which patented technology can be disseminated and utilised – at a price negotiated by buyer and seller. In the OECD/BIAC survey, 60% of responding firms reported increased inward and outward licensing over the past decade, and 40% reported increased cross-licensing. While good statistics on inter-firm licensing are lacking, estimates in the United States suggest an increase in licensing revenues from USD 10 billion in 1990 to more than USD 100 billion in 2000. Markets for technology affect economic performance and structure in many ways. They provide a means for the diffusion of patented technologies among a larger number of innovating organisations. In addition, they allow firms to concentrate their R&D resources in areas in which they have relative strength and allow them to rely on others for complementary technologies, possibly improving the overall efficiency of industrial R&D and innovation. Technology markets can also provide a channel through which firms sell or license technologies they cannot use themselves, encouraging additional investments in innovation. A growing number of firms report significant revenues from outward licensing of technologies they have developed, but do not

intend to commercialise. IBM alone has

reported revenues of more than USD 1.5 billion in

recent years from technology licences, mostly on a non-exclusive basis. Markets for technology also influence industry and market structures. Technology markets create niches for new types of firms, such as intermediaries that broker matches between potential buyers and sellers of technology and R&D service firms. The number of such firms has grown in recent years, as has R&D performed by technical service firms. Markets for technology are also important to so-called fab-less semiconductor firms that design chips and license them to other manufacturers, and to small biotechnology firms that identify drug targets that are then licensed to larger pharmaceutical firms for clinical trials, manufacturing and marketing. These firms lack the complementary assets, such as marketing and manufacturing, which are necessary to successfully commercialize their inventions. However, the full economic effects of markets for technology are not well understood. It is not clear, for example, how such formalized, marketbased transactions complement rather than substitute

for the more informal exchanges of

technical knowledge that are recognized as drivers of innovation performance. Nor is it clear how markets for technology compare with other formalized channels of technology transfer, such as strategic alliances, mergers and acquisitions and collaborative research, in transferring codified and tacit knowledge. Numerous questions remain about the role of public policy in facilitating and sustaining technology markets. What role can and should governments play in linking buyers and sellers of technology or in creating technology markets? Can changes in accounting standards to highlight the value of intangible assets and revenues associated with licensing encourage the development of technology markets? There is some evidence to show that the strengthening of patent rights in Japan has stimulated greater inward and outward licensing of technology, but does this also apply elsewhere? Other countries, including the United Kingdom and France, have established licences of right that offer patentees a discount on certain fees in exchange for a commitment to license their inventions; however, their effectiveness has not been evaluated. How effective are mechanisms such as licenses of right in encouraging technology licensing? Additional work is needed to answer these questions.

Recent changes in patent regimes

Patent regimes have gone through important changes in the past two decades, most in the direction of strengthening patent rights, in the sense of reinforcing the exclusive rights conferred to patent holders, expanding their coverage and easing their enforcement. This upward shift in most countries coincided with upward international harmonisation of patent regimes. It was based on the view that stronger patents would boost innovation (Jaffe, 2000; Gallini, 2002; Schatz, 2003; Martinez and Guellec, 2003). The design and enforcement of patent policies is increasingly the responsibility of new and morepowerful governing bodies. Reforms were initiated in the United States in the late 1970s, and the centralised court system set up in 1982 (Court of Appeal of the Federal Circuit, CAFC) has been instrumental in strengthening the rights of patent holders in the United States. The EPO, with Europewide coverage and a centralised examination system, was also set up in the late 1970s. In 2002, the Japanese government created the Strategic Council on Intellectual Property under the Prime Minister’s Cabinet with the aims to establish a national strategy for intellectual property (IP) and to implement the corresponding policies (an IP strategic programme was issued in July 2003). At the global level, IPRs were included in international trade negotiations, and WTO was given enforcement power at the Uruguay Round in 1986-1994, resulting in the signature of TRIPS in 1994, which is considered as an important milestone in international harmonisation efforts. Negotiations are currently taking place at WIPO to increase international harmonisation of substantive patent law across countries, and some efforts have been initiated at the trilateral level to increase co-ordination among the three major patent offices in the world: the USPTO, JPO and EPO. Major changes experienced by patent regimes in the United States, Japan and Europe in the past two decades can be summarised as follows: •

Extended coverage of intellectual property protection. Areas that used to fall outside the patent subject matter are now partially or totally included, notably software, business methods and

some inventions close to basic science, although differences remain across

jurisdictions (which are significant in the case of business methods). •

Patents confer broader protection, especially in new areas. Patent claims in new areas often cover far more than what the inventor actually discovered or invented. Some of the current patenting practices in new areas may extend protection to a broad range of applications unknown at the time of patenting (e.g. uses of genes).

•

Filing procedures are increasingly flexible and less costly, notably at the international level. Several mechanisms to defer filing and examination procedures at patent offices, such as the system introduced by the Patent Cooperation Treaty (PCT), have transformed the initial application into a sort of option to patent that allows inventors to retain the right to patent in foreign countries for longer periods of time.

•

The rights of patent holders are more frequently and strongly enforced in court. Since the creation of the CAFC in 1982, the rate of invalidation of patents by courts has substantially decreased in the United States. Efforts to create specialised courts are ongoing in other jurisdictions: legislation is expected to be passed next year in Japan in order to create a high court specialised in IPRs, and the implementation of a centralised patent litigation system is currently under discussion in Europe. Moreover, damage awards in patent litigation trials have substantially increased in recent years.

•

Restrictions on the exemption for research use. Recent developments indicate that the conditions to apply research exemptions may become increasingly restrictive in the future. In 2002, the CAFC held that research exemptions would be granted in the United States when research is solely for amusement, to satisfy idle curiosity, or for strict philosophical inquiry. Despite trends towards harmonisation, differences remain in patenting requirements across jurisdictions.

A comparison between USPTO and EPO estimated grant rates for patents applied in both jurisdictions (see Figure 7) reflects those differences and suggests that the patenting requirement may have been lower in the United States than in Europe during the 1980s and 1990s: i) the difference between USPTO and EPO grant rates for patents with US priorities also applied at EPO was around 30 percentage points; and ii) the estimated EPO grant rate for patents first filed in the United States (US priority) has remained about 6-8 percentage points below the average grant rate at EPO. Differences in granting procedures in the United States and at the EPO might have contributed to these differences (Quillen and Webster, 2001). Notably, the US system seems to be more flexible, allowing the final grant to be different (usually narrower) than from the initial application. In fact, concerns

about low patenting requirements, especially in new

patenting areas, have prompted some reforms at USPTO in recent years, such as the introduction of a second examination for business methods in 2000, and the explicit requirement of a

“specific, substantial and credible utility” for biotechnological inventions to be patentable in 2001. Recent changes in patent regimes have contributed to the rapid growth in patenting activity in most countries by making patents a more attractive strategy for inventors. Reinforcing and broadening the rights provided by patents have resulted in increasing their value to firms, while the opening of new fields to patents has had a direct effect on filing numbers.

Intellectual property at public research organisations Academic patenting – the patenting of inventions resulting from university and public research, whether supported fully or in part by public funds – has emerged as a new arena for the expansion of intellectual property policies in OECD countries and beyond (OECD, 2003b). The rise of academic patenting is to a large extent founded in the notion that it encourages the commercialisation of research results, with significant private and social benefits. It is part of a broader policy framework aimed at fostering the impact of public research on the economy through various means such as public/private partnerships, incubators, etc. In 1980, the United States passed what is widely considered landmark legislation, the Bayh-Dole Act, which granted recipients of federal R&D funds the right to patent inventions and license them to firms. The main motivation for this legislation was to facilitate the exploitation of government-funded research results by transferring ownership from the government to universities and other contractors. Although academic patenting did occur prior to Bayh-Dole, it was far from systematic. Taking inspiration from the United States, nearly all other OECD countries have reformed research funding regulations or employment laws to allow research institutions to file, own and license the IP generated with public research funds. The main focus of the legal and policy changes has been to transfer title from governments or individual researchers to PROs, and to give academic inventors a share of royalty revenue in exchange. The rationale is that ownership by the PROs, as opposed to individual researchers (or to not patenting), provides greater legal certainty, lowers transaction costs and fosters more formal and efficient channels for technology transfer. In addition to reforming legal and regulatory frameworks for the ownership and exploitation of academic IP, governments are encouraging the development of academic patenting by other means, such as reduced patent application fees for universities and support, often on a time-limited basis, for the creation of technology transfer offices or the prosecution of academic patents.

Results from the recent OECD/PRO survey on patenting and licensing, sent to PROs in OECD countries in 2002 show that the United States has a huge lead over other OECD countries in academic patenting: universities and federal labs received over 8 000 patents in 2000 (5% of total patenting, rising to 15% in biotechnology). Academic patenting in other countries, as measured by the number of patents granted to public research institutions, ranged from the low hundreds in Japan, the Netherlands and Switzerland, to close to 1 000 at German public labs and Korean research institutions in 2000- 2001. Not all academic patents are licensed and not all patents earn income, however. Most public research organisations negotiate a very small number of licences per year (often fewer than ten). Evenin the United States, the average number per university is 24 per year. A few leading research organisations in countries such as the United States, Germany and Switzerland may earn millions of dollars or euros in licensing revenue, but the gains are highly skewed as a few blockbuster inventions account for the greater share of revenue. Licensing income, even at the best performing institutions, is an extra benefit for research and education and rarely represents more than 10% of research budgets. A fact frequently missed, however, is that in several countries most licences are for non-patented intellectual property, such as biological research material or copyrighted works. Despite the small amount of (formal) academic patenting activity that takes place outside the United States, the increased focus on protecting academic inventions and licensing them to companies has raised a number of concerns common to countries throughout the OECD area and beyond. These concerns range from the impact of patenting on the traditional missions of universities, the effect on the direction of research, the actual costs and benefits of patenting and licensing, to the effects on the diffusion of and access to publicly funded research results. What has been the impact of IP and technology transfer activities on the direction of research? Quantitative studies tend to show that patenting has led universities to conduct more applied research. By making university research more responsive to the economy, is there a danger that basic research will suffer? On the one hand, several studies in the United States have found that universities and individual researchers that have seen the largest increases in patenting are also those which experienced the greatest gains in academic publications. On the other hand, the rate at which academic patents are cited in other patents fell (relative to the average) between the early 1980s and late 1990s in the United States and is now lower than the citation rate of patents granted to business. This suggests a possible drop in the quality of public research – or at least of its patented component. Should all patentable academic inventions be patented?

As academic inventions arise in areas closer to basic research, scientists and policy makers are concerned that choosing to patent certain inventions could block downstream research. One example is that of research tools, in which grantinga patent could inhibit diffusion by increasing the costs and difficulty of using such tools in applied research. In response, the National Institutes of Health in the United States (NIH) have espoused a policy to not knowingly apply for patents on research tools and to discourage their grantees from doing so. Such guidelines are being emulated by funding agencies and research institutions in other countries. What is the impact of patenting on the diffusion of public research? There has been some debate about whether PROs should grant exclusive licences to the private sector for discoveries that have benefited from public funds. Licensees often require exclusive licences as they offer more protection for the necessary development to be conducted before a university-provided invention can become a marketed product. The issue is particularly crucial for start-ups which have no other asset than the licence. On the other hand, by definition, exclusive licences limit the diffusion of technologies. The OECD/PRO survey shows that the mix of exclusive and non-exclusive licences granted by PROs is

fairly balanced, and that

exclusivity is often granted with restrictions on the licensee side. Research institutions often include clauses in licence agreements to protect public interest and access to the IP for future research and discovery. Licensing agreements in many institutions include a commitment to exploit the invention on the part of the licensee, particularly if the licence is exclusive, and to agree on milestones in order to assure that commercialisation will take place. Hence these patents cannot be used simply to block competitors. Another area of debate concerns the use of the so-called exemption for research use that has been in use in universities in both the United States and in EU countries, either formally or informally. Traditionally, universities have been exempted for paying fees for patented inventions they use in their own research. The rationale is that universities fulfil a public mission. As more public research is carried out with business and generates monetary rewards, the rationale becomes less clear. The extent and status of this exemption differs across countries and is often ill defined. This research exemption –or rather its interpretation – has recently been the subject of policy debate and litigation: recent court decisions in the United States have tended to restrict its meaning. There is now growing pressure on governments to clarify the scope of the research exemption in relation to the research missions of universities. This issue also relates to the management of IPR for international co-operative projects. Many of these concerns or issues will take time to resolve. The growing reliance of public research institutions on various sources of funding, including from industry and contract

research, as well as demands by society for greater economic and social returns on investment in public R&D, have made academic patenting a reality that is more likely to increase than decrease. While research institutions and firms are working to find solutions to problems as they arise, governments and research funding agencies have a role to play in providing guidelines on academic patenting and licensing and in fostering debate. More information on the amount of patenting and licensing, and the costs and benefit of patenting for universities, would also help inform policy makers and institutions alike. Data are needed on the costs of managing IP, interuniversity licensing activity, and the amount of additional industry-sponsored research generated as a result of academic patents. Greater effort should be made to repeat the OECD/PRO survey in order to build time-series data and improve international comparability of data.

7. Biotechnology, patents and diffusion The biological sciences are yielding an impressive array of inventions which involve the manipulation and use of genes and genetic elements, and there has been a surge in patenting in this area in recent years. Patents have emerged as the most important form of intellectual property protection for much of the biotechnology industry, in particular the biopharmaceutical sector. Patent protection for biotechnology inventions has been available for over 20 years. Each year, thousands of biotechnology patents are issued worldwide, leading to the successful development of new products, services, and tools in fields as diverse as agriculture, pharmaceuticals, environmental clean-up, and industrial products and processes. An important early legal landmark was the 1980 US Supreme Court Diamond vs. Chakrabarty decision on the patentability of a genetically modified bacterium, after which inventions involving life forms were deemed patentable in the United States. Over time, court decisions, legislation (such as the 1998 EC Biotechnology Directive), multilateral trade agreements and examination guidelines at the major patent offices have confirmed the patentability of biotechnology-based inventions. The categories of patentable biotechnology inventions in many OECD countries have expanded over the years to include genes, gene fragments and genetic-based tools and diagnostics, genetically modified plants and animals, and a host of inventions derived from the revolutions in genomics, proteomics and pathway engineering. Biotechnology patent statistics show some special characteristics. First, there has been a rapid rise in patent grants. From 1990 to 2000, the number of patents granted in biotechnology rose by 15% a year at the USPTO, and by 10.5% at the EPO, compared with a 5% increase in overall patents. Second, the share of US organisations granted patents is much higher in this sector than in other sectors. Third, the public sector has played an important role in the growth of patents for biotechnological inventions. For example, US and European PROs own 30% of all the patents for DNA sequences filed between 1996 and 1999.

Finally, start-up companies have a higher share of Biotechnolo gy patents than do large, established pharmaceutical companies. Industrial surveys on the effectiveness of patents in protecting inventions across sectors show that pharmaceutical firms traditionally place a high value on patents for protecting intellectual property – more so than do other industries (Levin et al, 1987; Cohen et al., 2000). In the pharmaceutical sector, where innovation costs are very high, regulatory approval substantially increases time-to-market, and few R&D projects result in marketed drugs, patents are considered an essential factor in protecting competitive advantage. Patents are also very important to startups and university spin-offs in the biomedical field because both rely on protected intellectual property as their main asset in raising capital for development. The importance of patent protection for public sector research is more controversial. Commercial innovations are generally considered a by-product of government-funded basic research. Whether patent protection helps or hinders the development and use of these innovations by others is still unclear. In public debates about patent protection for biotechnology, there are some concerns related toadequate access to patented inventions, and the quality of issued patents. By definition patent holders are granted the right to restrict others from using their inventions. In some cases, it is felt that this restricted access can have negative effects on upstream research or downstream clinical use. For example, patents over research tools may increase the difficulty of obtaining the necessary tools and materials for basic research and increase its cost. There is also some concern about the quality and breadth of patents issued by patent offices, notably some DNA patents. Some believe that in a number of cases the criteria of novelty and inventive step are not being met, and that broad patents are issued that could give the patent holders an overly-strong negotiating position vis-à-vis possible licensees (Nuffield Council on Bioethics, 2002; Walsh, Arora and Cohen, 2003; OECDc, 2003). Despite these concerns, recent empirical surveys conclude that, on the whole, the patent system as applied to biotechnology inventions is doing what it is intended to do and that there is no widespread breakdown in the licensing of biotechnology patents. Examples of licence stacking, restricted access, and poor quality patents do exist, but in the majority of cases industry and universities have found workable solutions to mitigate their effects. Diffusion occurs through licence negotiations, inventing around and alternative access solutions, such as the creation of public databases. Nevertheless, continued vigilance is necessary to ensure that licensing practices do not overtly restrict access.

Meanwhile, there is room to improve access and market penetration without undermining the patent system. Given the important role of PROs in biotechnology patenting and licensing, many of the problems highlighted here were mentioned in the previous section; in particular OECD countries should consider: o Encouraging good licensing practices in the public and private sectors. The licensing of patented technologies can provide financial rewards to inventors while encouraging the dissemination and use of inventions by others. Licensing guidelines or model contracts are self-regulatory solutions to some of the perceived problems associated with the patenting of biotechnology. OECD governments are working towards good practice guidelines that should encourage their development and use. o • Clarifying and reinforcing research exemptions. There is a consensus in favour of defining a space in which basic research inquiries could be free of overly burdensome IP restrictions. Many observers are concerned that the present patchwork of national research exemptions is both ill defined and may be breaking down due to legal challenges. OECD countries may wish to clarify how research exemptions are used in practice and consider how better research exemptions that would permit limited use of patented technologies, while offering adequate protection for those who create novel research tools, might be crafted. o Exploring alternative access arrangements. The private and public sectors are beginning to experiment with alternative institutional solutions to access problems, in some cases agreeing to place certain inventions in the public domain, in others creating mechanisms for sharing bundles of IP. Understanding how patent pools, patent clearinghouses and public databases can be used in biotechnology, and what peculiarities of the technology or industries will require different solutions than in, for example, electronics, would help move these access arrangements closer to reality. o Economic analyses of knowledge transfer mechanisms. Technology diffusion occurs within an increasingly complex web of relationships involving industries, universities, and small and large firms. Patents allow these informal and ad hoc forms of interaction to occur. It is important to develop methodologies that can explain how technology transfer

occurs in these structures, and how market and non-market transactions are affected by various features of the patent system. o Improving the quality of patents issued. Some observers are of the view that the administration of the patent system could be improved so that fewer patents, of less expansive scope are issued, which in their view would increase certainty about the validity of granted patents. Governments could compare how examiners in different jurisdictions interpret the criteria of patentability for biotechnology inventions, and whether these criteria are applied with sufficient rigour. o Monitoring emerging access challenges. New challenges for access and high transaction costs are likely to emerge as different types of intellectual property – patents, copyrights, and database rights – are brought together by firms exploiting interdisciplinary fields such as nanotechnology. Governments need to anticipate where the next generation of challenges are likely to emerge.

Software and services The patentability of software-related inventions is currently one of the most heated areas of debate. Software has become patentable in recent years in most jurisdictions (although with restrictions in certain countries, notably those signatories of the European Patent Convention) and the number of software patents has risen rapidly. However, there remain fundamental questions about whether software should be patentable and, if so, whether specific characteristics of software demand that different rules be applied to ensure that patenting provides true incentives for innovation, allows follow-on or incremental innovation and facilitates knowledge diffusion. The patentability of business methods – often software-based – has further fuelled the debate, especially as concerns the possibility that low quality patents might block or impede the fledgling electronic commerce sector. Since 1998, software-related inventions (and mathematical algorithms in general) are patentable in the United States as long as they produce a “useful, concrete and tangible” result, in addition to the usual criteria (novelty, non-obviousness and industrial application). However, in Europe and to some extent in Japan, they are only patentable if “sufficiently technical in nature” (which excludes business methods in particular), a position which has been recently confirmed in Europe, although the legislative process is still ongoing (Hall, 2003; Motohashi, 2003).

Following permissive patentability trends, patents for software and business method inventions have increased rapidly in recent years in the United States. Various estimates indicate that the number of software patents granted by the USPTO grew from fewer than 5 000 per year in 1990 to approximately 20 000 in 2000, or approximately 15% of all US patents granted in that year (Hunt and Bessen, 2003). In contrast, business methods patents represent a very low share of the total number of grants, with around 1 000 grants per year in the US since 1998. Interestingly, software publishers account for only a fraction of software patents – only 6% of software patents according to one recent study – with the majority of software patents owned by large firms in the ICT manufacturing and electrical machinery sectors. Large software consultancies and other service-sector firms also account for a small, but growing, number of patents to date. This pattern reflects the increasing role of software and services business units within large ICT firms, as well as the growing pervasiveness of embedded software in a range of electrical and electronic devices. Growth in software and business methods reflects both increased innovative activity and changes in patenting behaviours. R&D spending by software and ICT firms has grown rapidly over the past decade. Microsoft’s R&D expenditures alone grew from USD 270 million in 1991 to USD 4.4 billion in 2002. More than three-quarters of ICT firms responding to the OECD/BIAC survey reported that they were generating more inventions now than ten years ago (Sheehan, Guellec and Martinez, 2003). Nevertheless, the patenting strategies of these firms have also changed. More than three-quarters of ICT firms in the survey reported that they now patent technologies they would not have patented a decade ago – even if the technology had been patentable then. Software and ICT firms see patents as an important bargaining chip in negotiating alliances with other firms and as a means of generating additional revenue via licensing. Indeed, more firms in the ICT sector than in other sectors reported ncreases in ou tward licensing and cross-licensing over the past decade. Other research has also demonstrated the key role of strategic patenting in the semi-conductor industry (Hall and Ziedonis, 2001). Does increased patenting for software and business methods stifle innovation and facilitate anticompetitive behaviour? Software programmes tend to be complex, modular products that combine multiple functions, each of which may be the subject of a different patent. Increased patenting may therefore inhibit follow-on innovation or the assembly of complex programmes as it increases transaction costs. Interoperability also needs to be high, meaning that open standards and interfaces are critical to ensuring innovation and market entry. On the other hand, if patents give more protection, they

also could require more disclosure, which can be helpful for reducing the exclusion effect generated by patents. Network effects are also strong in the software sector, and switching costs can be high, locking-in customers to dominant products, especially if interoperability cannot be assured. In this context, patents might contribute to enhancing competition and innovation by allowing new market entrants to defend their technological position against incumbents. In summary, when addressing the issue of software protection, the following points should be considered:  As in other areas, patent offices should ensure the quality of software-related patents. Patents with extremely broad, abstract claims have sometimes been granted, notably in the field of Internet-related business methods. Not only should patented inventions be novel and not excessively broad, but patent documents should also disclose all the information necessary for a person skilled in the art to be able to replicate the invention in a reasonable period of time. The information disclosure requirement should be subject to the same standards prevalent in other fields of technology, which stress the importance of publicising patented source code for software-related inventions.  The interaction of patents and copyright may be an obstacle to the diffusion of technology in this area, and thus further innovation, as patents protect the invention whereas copyright forbids the publicity of the way in which the invention is implemented by forbidding reverse engineering (Graham and Somaya, 2003). In addition, as copyright forbids reverse engineering (closed source code is protected as such), and as software patents do not have to reveal their source code, disclosure of software knowledge is clearly hampered in the current IPR setting. This calls for government attention focusing particularly on the cross effects of copyright and patent, and on insufficient disclosure requirements in software patents.  Software is pervasive. Less than 10% of software patents in the US are granted to software companies. Actually, according to survey data, between 25 and 40% of business expenditure R&D in all industry has a software-like outcome, reflecting the fact that many operations which used to be monitored by mechanical means are now mediated by software. Hence, a

special treatment of software in general regarding IP might affect

patterns of innovation beyond the software industry, and create unintended effects on the R&D industry-wide.  Important segments of the software market are moving towards an open-source approach, which clearly helps disclosure and follow-on innovation, but the viability of the economic model for open source software is uncertain. In current open source approaches, attracting financing for innovation is not as straightforward as with proprietary, closed source software that is sold in the marketplace. To date, rewards to open source innovation have been essentially non-monetary (e.g. reputation) or based on the provision of complementary ervices (e.g. customisation, support). It would be worth exploring whether patent protection could be useful to open source software developers in creating sustainable business models and markets for technology, while guaranteeing the disclosure of source code. One aspect of this question is that patents might provide, as in other fields, the protection that inventors require to fully disclose their inventions – a necessary condition for an open source approach.

CONCLUSION: Policy issues and options The paucity of economic evaluation of the patent system is striking. Most of the changes to patent regimes implemented over the past two decades were not based on hard evidence or economic analysis. It is necessary to develop economic analysis in this domain that would inform the policy debate, giving governments a clearer view beyond the arguments put forward by pressure groups. Such analysis should rely notably on quantitative evidence: an effort to build and make available to analysts the corresponding databases has been initiated notably by the OECD, but this work needs to be broadened. In addition, more information is needed on the ways in which patents are used by their holders, for instance as regards in-house implementation, licensing contracts and business strategies. In parallel to this analytical effort, policy makers might encourage experience-sharing across countries: there are significant differences in patent regimes and many countries have experimented with various policy mechanisms, but there have been few attempts to systematise this experience and disseminate best practices across countries. Analysis and policy messages presented in this report also apply to a certain extent to developing countries with significant national innovation capacity. These countries need a patent system strong enough to attract foreign direct investment, to ensure inward licensing and to encourage local investment in research. However, these countries also need to protect their ability to access

and digest existing foreign technology, just as developed countries used to do in their development stage (Barton, 2003). The specific features that these countries might build into their patent systems to address these various objectives is a topic for future research.

Encourage the development of markets for technology The expansion of markets for technology is a major achievement of a well-functioning patent system, as these markets enhance the circulation of technology. Our knowledge of technology markets remains insufficient, and future studies should be devoted to improving it and addressing many of the questions that have not been yet fully investigated: How do they work? How does information circulate between the various actors? How are agreements settled? What is the role of intermediaries? What is the impact of technology markets on technology diffusion and competition? To what extent, and in which areas if any, do market transactions on technology substitute for non-market spillovers? As technology markets interact with important government concerns - notably competition – there is a need for further reflection on the economic impact of certain instruments such as cross-licensing and patent pools. In addition, governments are potentially important actors in technology markets as they sponsor most basic research that is then licensed by PROs. Government policies on patenting and licensing practices at PROs affect certain segments of the market, such as users of basic science. More broadly, one might wonder whether these markets are confronted with certain failures that might justify some kind of government intervention, especially as regards SMEs. On this basis, policies could be designed to support the development of markets for technology and remove barriers which could hamper their development.

Ensure access to basic inventions Patenting of basic research and patenting by PROs (which perform most basic research) have contributed substantially to increasing investment, achievements and commercialisation in the research areas concerned, notably biotechnology. This practice raises new issues, mainly regarding the conditions of access to the outcome of that research. Although there is no sign of a global failure here, there have been cases of restricted access (e.g. genetic tests) and proliferation of rights slowing down research and raising its cost (tragedy of the anticommons). New entrants and future developments could upset the delicate balance between protection and diffusion. In order to avoid future problems in this regard, governments may consider taking two steps:

Protect and clarify the exemption for research use.

This is needed to ensure that the conditions and cost of basic research remain manageable while preserving incentives for business to invest in certain upstream areas of research. The statute and extension of research exemption differ across countries. An international comparative study analysing its evolution across time and how it is currently used by universities and businesses is necessary to clarify the current debate.

Ensure that patenting does not reduce incentives to disseminate inventions by universities. There have been publicised examples of academic publications being delayed due to patent filing, licensing terms reducing diffusion, etc. The extent of these phenomena is unknown, and needs to be monitored. As market signals are increasingly and efficiently used for orienting university research and linking it to the needs of the economy, governments should take measures to safeguard the public mission of universities which is a major factor of innovation in the long run. Based on a broad review of the evidence, governments might consider a series of policy measures aimed at fostering the diffusion of university research. Such policy measures may include the following: i) grace period: the possibility given to the inventor to file for a patent in a given period of time after publishing the invention; ii) provisional patents: one-year option for possible future filing; iii) elaborating and promoting guidelines for licensing of basic research that support the broad diffusion of basic research. Governments might also explore policies for promoting the diffusion of non-patented inventions made by PROs. More generally, policies for promoting the use of public domain knowledge and information, notably through the Internet, need to be made more systematic in order to provide the appropriate conditions and incentives for public knowledge to actually be accessed and used by the public.

Revisiting the working of the patent system An initial economic investigation of the working of the patent system reveals limitations in the adequacy of this system for enhancing innovation and diffusion of technology. Historically, the patent system evolved for various purposes, including, but not only, the economic benefit to society. In this respect, it is necessary to review recent problems with a certain sense of urgency, but it might also be useful, in a longer-term perspective, to revisit certain pillars of patent systems as they stand today. An immediate issue is to assess how new areas of technology and knowledge are addressed by the patent system. Software, genetics, and business methods are the

most recent, and are soon to be followed by proteins and nanotechnology. New areas are subject to controversy: should they be patent subject matter at all? How to ensure that patent protection in these areas is not mainly an instrumentfor rent seeking and blocking access? How to equip patent offices with the ability to grant patents of sufficient quality in these new areas (e.g. relevant breadth, sufficient inventive step, etc.)? As the patenting tradition evolves based on experience gained in established fields, accommodating new fields is not straightforward. Patent offices faced this problem previously when chemicals and pharmaceuticals became patent subject matter. The issue actually is twofold: i) to analyse the economic impact of patent protection in these fields and compare it with alternatives, such as copyright or no specific legal protection at all; and ii) to have patent offices rapidly accumulate experience in new fields so as to avoid early-stage mistakes. Databases of prior art should be set up rapidly. In addition, criteria for granting or rejecting applications and for giving patents an appropriate breadth should be clarified as rapidly as possible after patentability of the subject matter has been decided (more rapidly than was the case for biotechnology and software). A second issue is the quality of patents. Low-quality patents are those that protect inventions of limited novelty or that provide overly broad protection. Low quality patents can be costly to society. Their proliferation not only swells the number of patents and patent applications that must be reviewed by potential innovators and patent offices, but also creates uncertainty about the validity and enforcement of patents more generally. The societal benefits of such patents are likely to be low, but they can nevertheless be leveraged by their holders for rent-seeking purposes: they may be used as a threat against other companies, especially small ones, or as part of patent thickets for closing market access to potential competitors. The more important patents become to innovation and economic performance, the more necessary it is to improve the quality of granted patents, and to do so at a reasonable cost. Various means have been already set in place in different jurisdictions and could be considered by others: •

An opposition system seems an efficient way of ensuring the quality of patents: once a granted patent is published, third parties can oppose the decision at the patent office, where an internal court examines the case including any new evidence provided in the opposition process. The positive European experience supports this approach, which should be carefully examined by other offices.

•

• A centralised court system is necessary for ensuring higher legal certainty of enforcement and the validity of rights. The United States pioneered this with the creation of the CAFC in 1982, Japan is following step now with an IP high court, and it is key to the success of the future Community patent that Europe does the same.

•

International co-operation for promoting quality at the lowest cost. Current negotiations at WIPO (Substantive Patent Law Treaty, SPLT) and formal co-operation among the trilateral offices go in this direction. Discussions are being conducted for setting up databases of prior art in new fields and mutual recognition of search and examination results. These are steps, in a way, towards the objective of a global patent system which would allow inventions to be protected worldwide. The rationale for this evolution is the increasing share of patent applications filed in different national offices at the same time (as part of the globalization process), which generates duplication of work between national patent offices and increases costs for patentees. Limits to international harmonisation at this stage are fixed by differing patent regimes across countries concerning, among other things, subject matter, inventive step or scope of patents.

•

Encouraging patentees to self-select their applications: The social cost of filing patents could also be reduced by discouraging both applications for minor or economically unimportant inventions and strategic patenting. Alternative means for that purpose include the following: i) stricter examination: low-quality applications would be deterred by a low probability being granted; ii) reduction of fees once a patent is granted (as opposed to rejected): such a discount would encourage self-selection by patentees so that the number of low-quality applications would decrease; iii) second-tier patent protection: enhance the use of so-called petty patents or utility models systems as an alternative to standard patents for minor and less novel inventions (such a system has been working for a long time in many countries; it was recently modernized in Australia); and iv) setting up a credible public domain alternative: for example, encouraging firms to publicise their inventions on dedicated Internet sites at low cost when the only purpose for patenting is to avoid others patenting first (a practice referred to as defensive patenting).

Taking a longer-term perspective, certain fundamentals of the patent system could be subjected to economic scrutiny with the view to improving the incentives to innovate and diffuse technology. The uniformity of the patent system, understood as equal treatment for all inventions

within the subject matter, is a prominent example of a principle which should be reviewed. Given the diversity of inventions across industries and fields of technology in terms of cost, and the existence of other means of protection or market conditions, it is not clear whether the “one size fits all” principle of the current patent system should be maintained. Should patent protection for software and drugs be awarded for the duration, given that technology and economic cycles are widely different in these two areas? What are the alternatives to this uniform approach, and what would be their costs and advantages as compared with the current system? Other directions to be investigated in the long term include the possibility of tailoring the degree of protection to the value of the invention. This is already the case for renewal fees. Considering that patentees have to pay to keep their patents in force, there is an incentive to inventors to stop renewing protection once the value falls below a certain level and let them lapse so that the invention becomes part of the public domain. Such an approach could be consistently extended to other aspects of patents which affect the degree of protection, notably breadth. This is to some extent the purpose of petty patent systems, which provide narrower and less expensive protection than standard patent systems. The current two-tiered system in Europe, with national patents of national validity only, a usually smaller novelty requirement and a lower cost than Europe-wide patents granted by the EPO corresponds in a way to this differentiated approach. Having patentees pay more for broader patents would not be straightforward to implement, but it certainly deserves investigation. As patents play an essential role in market-centred systems of innovation, economic criteria should be used more systematically to evaluate the ability of patent systems to foster innovation and to encourage technology diffusion. Despite broad changes in patent regimes over the past two decades, no systematic economic evaluation has been carried out with a view to informing policy choices. The patent system will face new challenges in the future with the emergence of new technologies; the increasing importance of service-type innovations; the growing role of markets in the production and diffusion of knowledge; the arrival of new countries on the technological scene; increased globalisation; the convergence of various technology domains (e.g. biotechnology and ICT), fostered by the emergence of broad-band communication, which generates overlapping of various types of IPR (database protection, copyright and patents); and the promotion of the public domain in the Internet age. In this context, the importance of patents will not decrease but the conditions under which patent systems fulfil their role, encouraging innovation and diffusion, will evolve. Patent systems will bebetter prepared to confront these challenges if they have already been subjected to policy-oriented economic analysis.

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