sou · GUB380 · 2007-01-01 00:00:00 — 6.The concept of competitive means will also refer to means for exploitation and growth when appropriate. 7.The concept of the Nordic patent market will refer to the Nor- dic market for technology trade, i.e., trade with patent licenses, know-how licenses, R&D services and R&D companies, or corresponding activities. 8.The expression decline of the patenting frequency in is to be interpreted as the decline in national first filings (i.e., prior- ity filings) submitted to PRV (Swedish Patent and Trademark Office). 9.The commissions third task, illuminating the reciprocal rela- tionship between patenting and economic growth, can be broadened to include patent-related recommendations for inc- reasing growth. The increasing of growth is also a means of ge- nerating resources for R&D and thereby increasing patenting in knowledge-intensive companies. The connection between patenting and growth is thus reciprocal. Clarification of this re- ciprocal relationship is a main task of the inquiry. Growth, which then will chiefly refer to growth in turnover, is therefore made central to the inquiry. I.3 The commissions frame of reference, design and method A frame of reference for the inquiry, in the form of a so-called pa- tent/growth spiral, has been developed in several steps for studies of diverse links between patenting and growth; see, Figure 1. In- termediate variables related to R&D and innovations have been in- troduced, and the mutual influence between different companies has been taken into account. The frame of reference has also been broadened into a model of the Swedish system of innovation and entrepreneurship. Figure 1 The patent/growth spiral with intermediate variables A relatively large number of substudies have then been designed with different levels and units of analysis (countries, sectors, com- panies, innovations, technologies and patents), with different methods of data collection (e.g., interviews, case studies, question- naires, and/or statistics). For reasons of time and space, a basic sampling principle has been to choose units of analysis which, in some sense, represent high growth levels or high patenting and R&D levels. Several substudies with relatively small selections have been preferred to a few with large selections. A large questionnaire study of large companies has, however, been conducted. Totally, around 75 persons have been visited for long interviews, in addition to a large number of short telephone interviews and conversations, and around 200 companies have been approached with survey ques- tionnaires. Further, there has been participation in 14 conferences, mostly international; see, Appendix 6. The inquirys substudies have involved around 10 project assistants. The substudies are fun- damental to the inquiry, in accordance with an evidence-based ap- proach for policy design. The most important results are presented in Part III, specifically, as well as in special appendices and back- ground reports. Introduction to the economics of knowledge, patents, innovation and growth – and relationships between patenting and growth Emergence of an increasingly knowledge-based economy with a new IP regime While few nowadays question the emergence of an ever more knowledge-based economy, the expression the new eco- nomy can be questioned. New is the fact that the economy has come to be dominated by intellectual capital in different forms – defined as non-physical, non-financial capital. At the same time, fundamental old capitalistic institutions have survived. Intellectual property (IP) and legal rights to it (IPRs) have consequently be- come much more important, and a new IP regime, including a pro-patent era, has developed since the 1980s. Its effects are per- vasive on diverse levels, not least internationally. Countries and companies arm themselves with strengthened IP rights as com- petitive means, at present with the and in the lead. Patent and IP issues, once obscure secondary questions for spe- cialists, have thereby become strategic and risen to high levels of political and industrial management. On the other hand, difficulties are created in integrating these issues with other economic policies and company strategies – although these difficulties appear by and large to be temporary. A trend toward more aggressive patenting policy can be expected in countries such as , and , which are thus further increasing their technology-based competitive power and, therefore, should be watched closely. Economics of innovation and patents – an introduction A special chapter gives a general introduction to patent and inno- vation economics, from the perspectives of both business and soci- ety. In this regard an inventory has been made of basic concepts, such as innovations of different kinds (technical, organizational, financial, product and process innovations, etc.) and size (large/ small or radical/incremental), diffusion of innovations among buy- ers and sellers, imitation and invention. Another inventory has been made of fundamental models, such as the product life-cycle model and an interactive innovation-activity model. Moreover, a typology of generic strategies for investment in new technology and in technology exploitation has been described, with special treatment of in- and out-licensing. These strategies are becoming ever more common and have important effects on growth. Differ- ent forms of financing have also been presented. The patent systems structure and processes have been descri- bed, and social-economic motives for the patent system have been examined, along with their advantages and disadvantages on diverse levels and the theories underlying the system. In this connection, customary as well as new criticisms of the patent systems draw- backs have been reported. The customary criticism of the patent system concerns its costs for society in the form of static limita- tions on competition and monopolistic pricing, administrative costs and transaction costs, including high costs of disputes, di- storting effects, and opportunities for abuse. This is reinforced by the more recent criticism that too many patents, also of poor qual- ity, are granted in too many sectors where they hinder progress more than promoting it, for example, in the electronics and tele- communications domain, especially the software sector. Further, critics argue that there is unfair treatment of small companies, and of developing countries which are becoming too dependent on the technology of large companies and developed countries. In addi- tion, the system as it has evolved during the pro-patent era is criti- cized for paying excessive attention to big industrys interests in the developed world, notably in the . Societys interest in, for example, open access to R&D results has been deferred in this respect. In sum, the recent criticism implies that not only static competition, but also dynamic competition, is restricted by an overly strong patent system, which thereby counteracts its funda- mental aim of promoting dynamic competition – that is, innova- tion-based competition – partly at the expense of static compe- tition. Of course, these critics acknowledge that each individual patent right expires completely after 20 years, and, therefore, focus their criticisms on the 20-year period. II.3 Economic growth – general description Growth studies of different kinds (empirical, theoretical) have rather unambiguously indicated the decisive role of technological and organizational development for economic growth on the mac- rolevel, in the form of different kinds of innovations. Here, the pa- tent system, historically weak, especially in Europe, has tradition- ally played a secondary role, with certain important exceptions. On the microlevel, the links are more varied and unclear. No ge- neral results exist that point to a single size group of companies as being most important for growth. Rather, the synergies between companies and their strategies in an innovation system are of great importance. Studies during recent years have shown, for instance, the significance of technology diversification, generic technologies and convergent technologies, and creative accumulation for tech- nology-based companies growth – companies which thus become multi-technological. Structural changes in the form of company acquisitions and spin-offs also have high growth potential. Finally, it can be demonstrated theoretically that innovations of different kinds usually contribute to companies growth – but not always, and especially not for process innovations even if these have perfect patent protection or secrecy protection. Previous studies and other inquiries The state of knowledge about the role of patenting in company growth and development is generally vague. This fact is connected with a formerly weak patent system and a low interest among eco- nomists in patent issues, which traditionally have been handled by lawyers and licensing executives. However, foreign and Swedish studies have revealed certain positive links, although weak, between patenting and corporate growth. These studies have also revealed a related patenting paradox – the fact that companies, especially in chemistry and pharmaceuticals, nonetheless do considerable paten- ting despite uncertainty about the economic value of any given pat- ent. That growth generates R&D, which in turn generates patents, has been shown more clearly across industries, albeit again with variations. Thus, growth generates patents while the opposite rela- tionship is weaker and less clear. Still, the state of knowledge will very probably be strengthened in the future, just as the links between patenting and economic de- velopment have probably been strengthened by the pro-patent eras emergence. At the same time, the fact remains that the variations in economic importance between different patents are very large, and this or sometimes totally frustrates statistical inference with reasonable confidence. A major study conducted by the Royal Swedish Aca- demy of Sciences (IVA) and PRV during the early 1990s pointed to the Swedish growth paradox of strong R&D development and weak growth development. At the same time, the development of Swedish patenting was quite weak, especially in comparison with . Further, the study identified a number of weaknesses regarding exploitation of technology in the Swedish system of innovation and entrepreneurship. Abroad, numerous inquiries and reforms are being carried out after the advent of the pro-patent era. The investigative work on many issues in Europe, regarding, e.g., the proposal for a com- munity patent, common policies for patent dispute resolution, pro- posals to reduce the number of translations, and common policies for computer-related inventions, has made progress, whereas strong measures have been introduced in countries such as and . A concerted patent reform effort began in the in 2000 and has been ongoing ever since, via continual implement- tation of a series of small changes. The ultimate shape of the reforms in the is still emerging and somewhat unknown as the reforms ultimate involve the competing interests of major eco- nomic players. National economic aspects play a great role in all this reform work. The situation in and is less clear, although both countries have experienced substantially increases in domestic patent filings, and they must be kept under surveillance via preparation of comparative studies. IP questions, especially in , have been raised to the highest political level – largely be- cause of international activism against pirate copying, but also due to Chinese actors growing self-interest in patenting. The inquirys empirical studies III.1 Patents, innovations and growth in – a description and analysis The many substudies in the inquiry have been performed in order to illuminate the often complex connections between R&D, pa- tents, innovations and growth in . The results shed light on many disparate connections that do not readily lend themselves to summarization. A substudy of the principal Swedish innovations pointed to several structural problems in the Swedish innovation system. These were the low overall frequency and proportion of innovations in SMFs (small and medium-sized firms), large com- panies low frequency of radical innovations in new business areas, and the rapidly increasing foreign ownership of innovative Swedish companies, especially in the pharmaceutical industry. The interplay between large and small companies, as well as that between com- panies and universities was important in the processes of inno- vation and diffusion, while the growth rate and the speed to inter- national markets did not differ much between large and small com- panies. Another substudy, of how exploitation has occurred for important patents, indicated once again the dominance of large companies and how seldom they arise from small companies, even from those small companies that have good patent protection. Here, too, foreign ownership of important patentees has increased markedly. Fast-growing small companies in general grow for many diffe- rent reasons, and patents could not be proved to play any role in this group of companies. However, their patent awareness was stri- kingly low and the selection very small, with a large share of service companies. This result suggests further investigation of the role of patenting for fast-growing companies in general. On the other hand, and not surprisingly, patents had a clearer connection with growth in fast-growing small technology firms, which were also patent-aware even if their patent know-how was low. In these firms, patents also had great significance for attracting risk capital. The study of small companies in the IT sector, including software companies, demonstrated the great importance of product inno- vations for software companies growth, although patenting was less important for growth. The proportion of IT companies that engage in license trading was comparatively high. A major part of the software companies believed that legal patent protection should be extended to pure software, as did nearly all the patent asked in a separate substudy. A number of short case descriptions provided more situation-specific clarifications. Further, one should remember that several of the substudies sample sizes were rela- tively small, which calls for caution in their interpretation. A large questionnaire survey of 50 large companies in , of which 38 answered, showed in sum what importance patents and patenting possibilities have for their R&D, innovations and growth. The companies product development rate is high in a Nordic comparison. Much of the companies sales, and most of their in- ventions in both products and processes, are protected by patents. Patenting in order to delay or prevent competition by imitations is also the most important commercialization strategy for new pro- ducts, and is now considered more important in big Swedish com- panies than previously, as well as by comparison to companies in the . The relative strength (elasticity) in different variable relation- ships in the companies patent/growth spirals is also clearly and consistently positive. The companies own R&D also often grows through other com- panies patenting, which causes extra work in order to circumvent blocking patents. At the same time, although much less often, ones own R&D is reduced through others patents and patent in- formation, since duplicate work is avoided but ones own R&D is obstructed so much that it is discontinued. Finally, the patent system itself has great influence on large companies inventions, new products and R&D efforts, which wo- uld be reduced by roughly one third – and product sales by a fourth – if the possibilities of patenting were to disappear. The study of large companies also concerned the question of reasons for the decline in patent applications to the PRV. This part of the study of large companies is reported in Chapter 9. A ques- tionnaire survey of 12 respondents from 14 large patent with a similar focus, however, was reported in this chapter. This patent study confirmed, on the whole, corresponding parts of the picture reported in Chapter 9 – i.e. that the PRVs share of first, or priority, filings is decreasing, mainly due to greater use of PCT and EP applications, and that the primary reasons for the decreasing number of first filings to the PRV are more selective patenting and more emphasis on quality instead of quantity. The turnover in the patent business, though, did not decrease during 2001–2004. A survey of the IP education offered in indicated, among other things, that fewer than of the graduate students in technology, economics, and law have been given any course in IP; that almost no qualified education exists in IP eco- nomics; that qualified advice is scarce throughout the IP sectors range of competence, despite the abundance of actors in the area of innovations and entrepreneurship; and that business managers in Swedish technology-based companies do not receive any sub- stantial education in IP issues. Moreover, there is a great shortage of certified patent specialists in . These conditions are far from consistent with the dominance of intellectual capital in an ever more knowledge-based and IP-oriented economy. III.2 Has Swedish patenting declined, and if so, why? As one of the inquirys four main tasks, a description and analysis have been made of changes in Swedish companies patenting fre- quency and in numbers of patent applications received by the Swedish PRV, especially priority application filings. The patenting frequency as a concept can then refer to both patent-application frequency and patent-granting frequency, where as a rule fre- quency refers to number per year. Various factors lie behind com- panies patenting frequency and patent propensity – that is, the propensity to patent a given patentable invention – as well as the frequency of filing patent applications at PRV. When counting pat- ent applications, it is important at least to separate the four main paths by which a first filing can be submitted: as a national applica- tion in or in some foreign country, and as an EPO or a PCT application. These paths can then be combined in several ways, e.g., a patentee could co-file an application with the EPO and the UK Patent Office, with the intention of receiving an early search report from the UK Patent Office to show to investors or others but with the intention of ultimately protecting the invention via the EPO. Large multinational companies such as , with large and internationalized R&D and large patent portfolios, are to an increa- sing extent internationalizing their patenting work and their appli- cation procedures. This leads, all things being equal, to a decline in the number of patent applications received by the national patent offices of small countries that have many large multinational com- panies, such as . But this does not necessarily mean a de- cline in the number of EPO applications designating , e.g., the application will be reviewed by the EPO and not the PRV. The statistics also show that a decline occurred for national filings in , and during the last five years, simultane- ously with a steady rise on the whole throughout the pro-patent era in filings in the , , and the PCT. The decline in was attributable mainly to Swedish applicants and, to a greater extent, to large companies patenting. The percentage de- cline, though, was roughly similar for the two groups of patent- seeking companies and individual inventors, which were about equally large in 1998. The turnover in the population of applicants was moreover very high. Of the applicants who, at least in some year during the seven-year period 1998–2004, submitted a first fil- ing to PRV, only around had submitted further first filings during each of four or more of the seven years – i.e., around of the applicants submitted first filings less often than every other year. The flow of patentable inventions for an actor to consider is thus of great significance. This flows size depends mainly on R&D resources and patenting resources. The decline in also varied a good deal according to the area of technology in question, with a striking drop in the electrical and electronics sector from 2000 until 2004. The large companies in this sector – , ABB and TeliaSonera – dominated the decline both in this sector and among the 20 companies which were largest in terms of numbers of first filings to PRV during the pe- riod 1998–2000. This indicates that the decline owed much to a bu- siness recession within the IT and sector, although not solely in view of other specific problems, chiefly at and ABB. To simplify, one can say that the IT bubble burst and, with it, a patent bubble. At the same time, companies sensitive to business cycles within the mechanical sector, such as , , , and , increased their pa- tent-application frequency. If and ABB are counted out, the increase among these companies roughly compensates for the decline among other companies on the top-20 list of most frequent patentees at PRV. A questionnaire study among the largest R&D-intensive compa- nies, with a control group among SMFs, then showed that changes in R&D resources and patenting resources are important factors behind changes both upward and downward in patenting frequency for both large and small companies, in line with previous studies. Besides these factors, a main explanation given for a decline in pa- tenting frequency is a decline in patent propensity, in the form of a more selective and quality-oriented patent strategy which, in seve- ral companies, followed a period of quantity-oriented patenting during the 1990s. This view was generally confirmed by a ques- tionnaire study among the largest patent in . Fur- ther, for SMFs, patents played a much smaller role in financing af- ter the IT bubble burst, when access to risk capital decreased sharply as a whole in . The quality and cost-efficiency of PRV services were considered satisfying by most of the large companies, even though a substan- tial potential for improvement of customer satisfaction could be noted. The PRVs share of the Swedish large companies first fil- ings was also generally during the period 1998–2004, while the USPTOs share of Swedish large company priority filings dropped greatly, according to the study. The share of PCT app- lications has also grown among the large companies during the pe- riod, and most of these applications went to the PRV as the inter- national receiving office. However, the PRVs share of the PCT applications as international receiving office has declined on the whole. applicants are also electing either the Euro- pean Patent Office or the as their inter- national receiving office. Swedish large companies did not, on average, decrease their pa- tenting in the to any substantial extent during the period 1998–2004 in absolute numbers, although they did so proportio- nally. has also, on the whole since 1994, retained its tenth place on the top-20 list of most frequent patentees in the . On the other hand, several countries in have climbed up this list – , South , and – and dominate, to- gether with and , over countries on the list, in terms of numbers of patents in the . IV.1 Discussion and general recommendations The inquirys general recommendations are largely concerned with the wider context of patenting – R&D, innovations, business de- velopment and growth, and the mutual relationship between pa- tenting and growth. The more specific recommendations address the inquirys first two tasks – to increase understanding and insight in patent economics and to increase companies patenting.