Role of Japan’s Intellectual Property System in its Economy (*)
Attempts are being made in various countries to empirically analyze the impact of intellectual property systems on
the intellectual property and innovation activities of companies, etc. In particular, in recent years, demand forevidence-based policy-making has been growing worldwide, so intellectual property offices in the U.S.A. and Europe
have responded by establishing chief economist positions and promoting scientific research into intellectual propertysystems. Amid this situation, in this study, we conducted six empirical analyses to examine the relationship of company
performance to the contribution of intellectual property rights and licensing, the impact of changes in intellectual
property policy on companies in the life sciences sector, the concordance between IPC and industrial classifications, theimpact of intellectual property systems on the economy, and studies using data from surveys of intellectual property
activities. In doing so, we made full use of such databases as the Patent Database, the Ministry of Economy, Trade andIndustry Basic Survey of Japanese Business Structure and Activities, the Japan Patent Office Survey on Intellectual
Property-Related Activities, and the Ministry of Internal Affairs and Communications Survey of Research andDevelopment. Furthermore, we examined the organization of survey items in the Survey on Intellectual Property-Related
Activities, which is the basis for empirical research.

I

Introduction

This report features an empirical economic analysisof the role that the intellectual property (IP) system playsin the economy. The key feature of the studies carried out
during the current fiscal year is that they have usedfundamental statistics in the form of the Basic Survey ofJapanese Business Structure and Activities published by
the Ministry of Economy, Trade and Industry (METI) andthe Survey of Research and Development published by
the Ministry of Internal Affairs and Communications(MIC), and have combined these with the Survey onIntellectual Property-Related Activities published by theJapan Patent Office (JPO) to carry out a much morein-depth analysis of the economic role of IP. Using suchexternal statistics facilitates the construction of a large
panel data set that also includes companies that do nothold patents, as well as providing a more comprehensive
understanding of innovation activities by companies. In
addition, we have built an international patent family of
patents protecting pharmaceuticals on the Japanesemarket and are using it to analyze such matters as trends
in the international protection of substance patents, etc.
Our research consists of the following studies
concerning the role that the IP system plays in the economy:(1) Effects of Intellectual Property Rights on Companies’
Financial performance; (2) Research on the Relationshipbetween Corporate Performance and Licensing; (3) Survey
on the Effects of Change in Intellectual Property Policy on
Companies in the Life Sciences Field; (4) A Study ofConcordance between the IPC and Industrial
Classification; (5) A Survey of Trends in Studies of
the Impact of IP Systems on the Economy; and (6) Study
using data from Survey of Intellectual Property-Related
Activities. Furthermore, it includes an Examination of theOrganization of Survey Items in the Survey onIntellectual Property-Related Activities.
(Sadao NAGAOKA)

II Studies of the Role of theIntellectual Property System in
the Economy

1

Effects of Intellectual Property Rights on
Companies’ Financial PerformanceThis chapter analyzed the impact that obtaining
patent rights has on a company’s performance. In
analyzing this topic, we used the IIP Patent Database tocompile panel data concerning the number of patents held
per company and linked this to the Basic Survey ofJapanese Business Structure and Activities, therebybuilding a large new data set that also included
companies that do not hold patents.
When analyzing the relationship between theacquisition of patents and performance, we attempted toresolve the challenge of controlling for endogeneity,
which had been an issue in many previous studies, byusing as instrumental variables such exogenous variables
asexamination
requestandpatentfee
reduction/exemption systems for small and medium-sizedenterprises (SMEs), and distance to the nearest patent
attorney office. At the same time, we revealed that
reduction/exemption systems and ease of access to patent
attorneys helps to promote the acquisition of patents.
As a result of our analysis, we discovered that the
number of patents held increases value-added productivity,
even after using these instrumental variables to control for
endogeneity. Similarly, the results demonstrated that added
value and net sales grow as a result of the acquisition of(*) This is an English summary by the Institute of Intellectual Property based on the FY2015 JPO-commissioned research study report on theissues related to the industrial property rights system.
●

IIP Bulletin 2016 Vol.25

1 ●patents and the achievement of this at an earlier stage, evenafter controlling for endogeneity in the acquisition ofpatents by start-up companies. These results suggest thatthe existence of a patent system helps to promote
innovation by expanding research and development andaccelerating corporate growth.
Furthermore, we ascertained that examination
request and patent fee reduction/exemption systems
increase the number of patents held by SMEs and theprobability that they will begin to hold patents. In
addition, it emerged that being located closer to a patent
attorney encourages SMEs to obtain patents. In otherwords, there is a possibility that policies such as
reduction/exemption systems and easier access to patent
attorneys would promote patent acquisition by SMEs,
thereby helping to encourage innovation.
(Isamu YAMAUCHI, Sadao NAGAOKA, Koichiro Onishi)
2

Research on the Relationship between
Corporate Performance and Licensing
In this chapter, we used the JPO’s Survey onIntellectual Property-Related Activities and METI’s
Basic Survey of Japanese Business Structure andActivities to ascertain the licensing situation in Japan andinvestigate its impact on company performance (profits,
net sales, salary levels, research and development
expenditure, etc.) The main results are as follows.
When we looked at the impact of license-related
inventions on the performance of the applicant, an analysis
on a numerical basis demonstrated that licensing out has
both positive and negative effects on profits, net sales,
market share, and salary levels, and that these effects
cancel each other out. Licensing in and inventions deemed
to be company secrets did not have any kind of effect oncompany performance. It would appear that this is because
the effect of saving on company research and development
expenditure by licensing in is canceled out by the researchand development promotion effect resulting from theintroduction of complementary technology.
Due to the constraints of both time and the database,this study was not able to adequately address suchproblems as endogeneity in relation to simultaneity andthe like, so some reservations must be expressed in regard
to the conclusion.
(Yoichiro NISHIMURA)
3

Survey on the Effects of Change inIntellectual Property Policy on Companies inthe Life Sciences Field
We built an international family from theapproximately 1,200 patents protecting pharmaceuticals
on the market in Japan (with a priority claim date in 1969or later) and then analyzed how these patents areprotected internationally and how this protection haschanged as a result of the strengthening of patent●

protection in each country. Furthermore, we analyzed theimpact that substance patents in a broad sense (substancepatents and crystal patents), which are the fundamental
basis of patent protection for pharmaceuticals, have on acompany’s profitability rate and licensing income.
Around 40% of the aforementioned patents are substanceor crystal patents, and a quarter are held by Japan’s top
ten pharmaceutical manufacturers.
The strengthening of patent protection in developing
countries led to a substantial rise in the number of patents
obtained in those countries over the course of the 1990s.
For example, China’s introduction of substance patents
in 1993 resulted in a doubling of the propensity to file apatent application in China, from 40% to 80%. The
propensity to file a patent application also rose in regard
to method-of-use patents and process patents. Moreover,in the Philippines, the propensity to obtain a patent rose
by approximately 20% from the early to the late 1990s,
due to such factors as the introduction of a substancepatent system in order to implement the TRIPS
Agreement (as a result of the TRIPS Agreement, thePhilippines became obliged to begin accepting substancepatent applications from 1995). An analysis of the policy
effects in countries other than China and the Philippines
was not possible, due to a lack of past gazette andregistration data, among other issues.
While almost all substance patents were also
protected in major developing countries, including India
and Mexico, by the early 2000s, the number of crystal
patents and method-of-use patents obtained remained low.
There could be differences in such areas as criteria for
determining an inventive step, so more thoroughexamination would be preferable in future.
The number of substance patents in a broad sense
held by a company had a significantly large impact on
disparities and fluctuations in the profitability rate(equivalent to the price-cost margin) of drug discovery
companies. This shows that patent protection has asubstantial impact on the appropriability of research anddevelopment investment for Japanese drug discovery
companies. The number of substance patents held byJapanese drug discovery companies has a significant
impact on licensing income from the U.S.A., but there isno significant correlation with licensing income fromdeveloping countries. One of the key factors contributing
to this is believed to be the fact that Japanese drug
discovery companies frequently grant global
development rights to major foreign companies.
(Yoshimi OKADA, Sadao NAGAOKA,
Naotoshi TSUKADA)
4

A Study of Concordance between the IPC
and Industrial Classification
This chapter investigated what kind of concordancetables have been compiled to correlate each country and2 ●IIP Bulletin 2016 Vol.25

region’s industrial classifications to the International
Patent Classification (IPC), and examined approaches toconcordance in Japan.
There are two methods of linking industrial
classifications to patents: (i) patents can be allocated tothe industrial sector of origin (to the main economic
sector of the inventing/applicant company); or (ii) they
can be allocated to the sector of use (to the main industry
to which the product incorporating the invention belongs).
In Japan, precise information about the inventing
companies can be obtained by using METI’s Basic
Survey of Japanese Business Structure and Activities.
Accordingly, for this survey, we adopted method (i). To
address the issue of how to assign industrial
classifications to diversified companies, we used four
approaches to create concordances and carried out acomparative examination of the results. Based on theseresults, from the perspective of the coverage, stability, andease of preparation of the concordance, we proposed an
approach based on tallying the number of patentapplications by industry and IPC, taking the biggest
industrial sector in the net sales composition of eachcompany to be the industrial classification of thecompany in question.
In the latter half of this chapter, we prepared aconcordance between the major field of business of eachcompany and the various technical fields, and identified
the relationship between patent trends and the economic
status of each industry. According to this, the relationshipbetween trends in patent applications and trends in net
sales differs considerably from one industry to another.
For example, some industries demonstrate an upward
trend in both indicators, such as the transportationequipment manufacturing industry, while in others, suchas the pharmaceutical manufacturing industry, chemicalindustry, and steel and non-ferrous metal manufacturingindustry, net sales are growing, but the number of patentapplications is on the decline.
Moreover, looking at changes in the distribution of
applications by technical field in each industry, the shareof applications in Section G (physics) and Section H(electricity) is growing in the transportation equipment
manufacturing industry, the chemical industry, and thepharmaceutical manufacturing industry, even thoughthese are not the fields attracting the largest number ofapplications. This suggested that technologies relating totelecommunications, artificial intelligence, and big data
analysis, among others, could be growing in importancein response to the rise of the IoT (Internet of Things).
(Kenta NAKAMURA, Isamu YAMAUCHI)

5A Survey of Trends in Studies of the Impact
of IP Systems on the Economy
Examples of Analysis at the IP Statistics for
Decision Makers Conference
Each country's patent office employs a chief
economist and advisors on the economics of intellectual
property (IP), who study the impact of IP systems on theeconomy. As such, the Organisation for Economic
Co-operation and Development (OECD) and theEuropean Patent Office (EPO), in partnership with patentoffices in countries such as the U.S.A. and Japan, haveheld the IP Statistics for Decision Makers Conference
annually since 2003, in an effort to publicize theoutcomes of empirical research concerning IP rights andIP systems, as well as facilitating networking among
researchers.
This chapter examined what kind of empiricalresearch is currently being conducted concerning theimpact of IP systems on the economy, as well as trends inthat research, by providing an overview of the research
reports at the 2015 IP Statistics for Decision Makers
Conference (held in Vienna). The conference featured thefollowing six sessions.
Session 1: IP commercialization and markets）
Session 2: Patents in bio and pharma
Session 3: Patent markets and agents
Session 4: Patent system design
Session 5: Innovation policy
Session 6: IP economic performance
The content of the research reported covered a wide
range of topics, involving sophisticated researchtechniques in most cases, so it offered useful suggestions
for this report. Of these, the studies reported in Sessions 1,
4, and 5 have a very profound connection to the analyses
in Chapters 1, 2, and 3 of this report. In addition, there areclose relationships between Session 2 and the analysis in
Chapter 3, and Session 6 and the analysis in Chapter 4.
These studies involved empirical analysis of the roleof IP based on unique viewpoints and incorporated patentand other data. It seems likely that analyses combining IP
statistics with other data would yield more detailed,rigorous research output that could be used as evidence
for policy-making in Japan as well. In this sense, the IP
Statistics for Decision Makers Conference provided an
insight into the way in which advances in empiricaleconomic research are contributing to policy-making in
the field of IP.
(Isamu YAMAUCHI)
6

Study Using Data from Survey of Intellectual
Property-Related Activities
This chapter used the JPO’s Survey on Intellectual
Property-Related Activities to gain a more objective●

IIP Bulletin 2016 Vol.25

3 ●understanding of the propensity of Japanese companies tohold patents and file patent applications, or to keep
inventions as trade secrets, and then analyzed the impactthat this propensity has on corporate performance. For the
purposes of analysis, companies were classed as either
SMEs or large corporations. The problem that arises
when analyzing the impact of patent acquisition on acompany’s performance is the question of endogeneity,
including the reverse causal relationship of
high-performing
companies
acquiringpatents.
Accordingly, in the analysis of SMEs, to guarantee
exogeneity, we used Fuzzy RDD (Regression
Discontinuity Design), taking examination request andpatent fee reduction/exemption systems as the
instrumental variable. In the case of large corporations, nosuitable instrumental variable of this kind is available, so
we used the research of Hall et al. (2005) to analyze theeffectiveness of companies’ patent application/ownershipstrategies via evaluations of the companies in capital
markets. The results of the analyses revealed that whereas
examination request and patent fee reduction/exemption
systems increase the number of patents held and thenumber worked by the company itself, as well as thepropensity to file a patent application (number of patentapplications/number of inventions disclosed), such systems
reduce the propensity to keep inventions as trade secrets(number of inventions kept as trade secrets/number of
inventions disclosed). This result shows that examination
request and patent fee reduction/exemption systems play apart in encouraging companies to file patent applications
and maintain rights, while preventing inventions frombeing kept secret. Furthermore, it emerged that the numberof patents held through such systems and the number ofpatents worked by the company itself have a positive
impact on the company’s performance. On the other hand,
we obtained results suggesting that keeping inventions a
trade secret might have a negative effect on performance. It
would be fair to say that the results of these estimates showthat for SMEs, holding patents plays a key role in
improving performance, while keeping inventions as atrade secret does not increase the appropriability of an
invention.
In regard to the relationship between the patents held
and applications filed by a company and that company’s
corporate value, focusing on large corporations, theresults showed a statistically significant negative
relationship in the case of the simple number of patentapplications, including the possibility that this was due tomulticollinearity. On the other hand, it also emerged thatthe number of patents worked by the company itself has apositive impact on the company’s value. More detailed
analysis is required, but these results suggest that
selectively filing patent applications for inventions likely toresult in the acquisition of rights is important in increasing
corporate value. In other words, it would appear to be vital●to file patent applications strategically, based on an
approach of selection and concentration that also includes
the option of keeping an invention a trade secret.
(Koichiro ONISHI, Yoichiro NISHIMURA)

Ⅲ Revising Survey of Intellectual
Property-Related Activities
We examined the survey items in the JPO’s Survey
on Intellectual Property-Related Activities and considered
whether or not they need to be changed to take account of
the current status of IP worldwide. This study revealed
the following: (1) looking at individual response data,
improvements in the accuracy level of responses are
required, because a few companies that seem likely to beengaged in licensing have answered “No” to the question
about whether or not their company has licenses, but
although suggestions for improvements to this question
have been put forward several times in the past, aconclusive proposal for improvement has yet to emerge;(2) additional survey items required include overseas net
sales and overseas research expenditure, and qualitative
data would also be useful; it would also be desirable toconduct an additional survey of tangible fixed assets andtotal assets to analyze the relationship to performance; (3)in regard to the potential for analyses linked to otherstatistics, particular caution is required concerning
differences in the definitions of survey items, and it
would be desirable to standardize survey items anddefinitions with other statistics to increase the potential
for analysis; and (4) in terms of minor improvements tosurvey items, the mixed use of statistics on a calendar
year basis and statistics on a fiscal year basis renders
analysis difficult; the definitions of research anddevelopment expenditure and research staff differ fromthose used in other statistics; and when asking aboutgroup companies, the survey should ask separate
questions about whether the company has a parent
company and whether it has any subsidiaries. In light of
this, adding survey items and improving the questionnaire
would be desirable from the perspective of gaining acomprehensive understanding of IP activities, improving
the accuracy of the survey, and analyzing the results inconjunction with other surveys. However, adding survey
items could potentially have an adverse impact on the
response rate or the accuracy of responses. Moreover,revisions to the definitions of survey items would notnecessarily be desirable from the perspective of thecontinuity of the survey. We would recommend caution in
addressing these issues.
(Koichiro ONISHI, Yoichiro NISHIMURA)(Researcher: Mitsutoshi SHINOZAKI)4 ●IIP Bulletin 2016 Vol.25