Authors: Dr Gillian Kaggwa & Peter Caporn
Abstract: Numerous industries across the Australian economy rely on the adequate enforcement of their patents, trademarks and copyright as evidenced by the recent increase in IP filings. However, despite the increase in filings, Australia is seeing relatively low returns in spite of the strong investment in innovation. Low innovation efficiency is clearly not sustainable for Australia’s businesses and the overall economic growth of the country.
At the same time, the rate of global IP filings has been growing strongly, particularly in by the US and China. This increase should be of major concern to Australian businesses as not protecting IP in markets of interest may lead not only a loss in potential revenue, but may result in payment of licensing royalties to foreign companies. As such, there is room for improvement when it comes to protecting IP and capitalising on strong investment in innovation.
Intellectual property (IP) contributes enormously, not only to national and state economies, but to individual businesses and associated stakeholders. Numerous industries across the Australian economy rely on the adequate enforcement of their patents, trademarks and copyright as evidenced by the recent increase in IP filings. Despite this increase, Australia is seeing relatively low returns for its strong investment in innovation, which in the long run is not sustainable for Australia’s businesses and the overall economic growth of the country. By these measures alone, IP rights are worth protecting, both domestically and abroad.
IP Australia, home to Australia’s Patent Office, is receiving more and more applications to protect IP rights. Between 2013 and 2014, the number of patents submitted increased by 13 per cent, designs by seven per cent, plant breeder’s rights by nine percent and trade mark filings by less than one percent year-on-year.[1]
With respect to patent applications, the statistics show that in 2013 there was a total of 29,717 patent applications filed in Australia, and of those only about 10 percent were filed by Australian residents.[2] Additionally, about 44 percent of the patent filings originated from the United States[3] and applicants from Japan, Germany and Switzerland also filed regularly in Australia.
On average over the past ten years, Australian residents have filed three times as many patents overseas as they have domestically. For example, in 2012 Australian residents filed 2,627 at home but 8,287 patent applications abroad, with the top three filing destinations being the US, Europe and China.[4]Australia’s national and international patent filings are growing, but how does this compare to global trends?
Global patent filings reached unprecedented levels in 2013, with an estimated 2.57 million patent applications filed worldwide, representing a growth of 9 percent on 2012.[5] The US is a dominant market for patent application filings, but there has been a clear shift in recent years to more patent application filings coming out of Asia. For example, in 2011 the Chinese Patent Office (SIPO) became the world’s largest patent office, handling 526,412 patent filings compared to the handling of 503,582 patent filings by the USPTO.[6] Additionally, in China the number of resident patent applications per million people was only eight in 1995 but had grown to 396 by 2012.[7] The comparable figures for Australia are 99 in 1995 and 116 in 2012.[8] The main filers in Asia, being China, Japan and South Korea, also have a much higher percentage of residents seeking patent protection than other regions and, as such, we are likely to see increasingly large contributions from emerging economies in driving innovation due to their large market size.
The global increase in patent filings is believed to be related to subsequent patent filings or additional filings of the same invention in multiple countries, as opposed to an increase in research activity or productivity. That is, patent applicants are now more likely to seek protection in a number of countries than they were in the past, which is due to the increasingly global nature of business and the ease with which products and brands now cross national borders.
With respect to innovation, Australia has a low innovation efficiency ratio due to its relatively low innovation output rank despite ranking strongly in innovation investment.[9] In other words, Australia has the right foundation for innovation but has been ineffective in capitalising on these investments when it comes to innovative output, especially with respect to protecting intellectual property. Australia’s investment in generating IP, as a share of GDP was 2.6 per cent in 2013. In comparison, the US, which has of the most dynamic and innovative economies in the world, had a ratio in 2013 of 4.7 percent or about 1.8 times higher than the Australian figure.
Additionally, in 2013, Australian entities paid nearly $4 billion to foreign companies or entities and received $748 million from foreign entities in charges for the use of IP.[10] Australia is therefore operating in an environment where the value of IP imports exceeds IP exports and is therefore running what can be considered a consistent IP trade deficit. As such, there is further room to improve for Australian businesses when it comes to generating innovative outputs that can provide a source of revenue, not only for business but also for the national economy.
It is important to understand the role of IP in the Australian economy because investment in IP appears to correlate well with higher productivity and economic growth. But this economic outcome is only made possible by the actions of individual businesses. By way of example, Apple retains roughly 60 percent of the value from iPhones sold around the world through IP protection, with only 6 percent of value going to the people manufacturing the phone.[11] A recent study on the value of patentable technology in the iPhone has found that the patentable technology accounts for around 25 percent of the value iPhone.[12]
The global increase in IP filings should be of significant importance to Australian businesses as not protecting your IP could lead to paying licensing royalties to foreign companies once they have patented similar inventions. It is therefore important for businesses to understand the patent landscape in their industry, but also to make definite decisions regarding what to keep confidential, what to proactively share publically to prevent others from patenting, and what to protect with patents.
Businesses around the world are clearly recognising that IP not only protects products and brands, it can also diversify earnings. As the resources boom comes to an end and other sources of revenue are sought, Australian businesses are only slowly coming to the same realisation and are beginning to capitalise on IP rights. There is clear room for improvement on this front, and the likes of China and the US should highlight the need to do more.
[1]Australian Government, IP Australia, Australian Intellectual Property Report 2014. ISBN 978-09804542-3-9, page 3.
[2] Ibid, page 8.
[3] Ibid, page 8 and 9.
[4] Ibid, page 15.
[5]World Intellectual Property Organization, Publication No. 941E/14:World Intellectual Property Indicators, Geneva, 9December 2014.
[6]World Intellectual Property Organization, PR/2012/726: World Intellectual Property Indicators 2012, Geneva, 11 December 2012.
[7]Australian Government, IP Australia, Australian Intellectual Property Report 2014. ISBN 978-09804542-3-9, page 25.
[8]Ibid.
[9]Australian Government, IP Australia, Australian Intellectual Property Report 2014, ISBN 978-09804542-3-9, page 25.
[10]ABS 5302, Balance of Payments and International Investment Positions, Charges for the use of intellectual property, sub categories, Tables 15 and 16. Data as published 3 March 2014.
[11]See Australian Government, Australian Intellectual Property Report 2013, p.25, Table 3 and K. Kraemer, G. Linden & J. Dedrick, Capturing value in global networks: Apple’s iPad and iPhone, July 2011. Available at http://pcic.merage.
uci.edu/papers/2011/Value_iPad_iPhone.pdf.
[12]T Korkeamaki& T Takalo, ‘Valuation of innovation: The case of iPhone’, Bank of Finland Discussion Papers 24,2012.