# **IV  Advancing the Global Frontier:  Patenting in East Asia**

Just as R&D expenditure provides a partial measure of the resources devoted to innovation, so patents and patent citations provide a valuable though partial view of an economy’s innovation outputs. The view is partial because patents – at least in theory - focus only on those innovations that advance the frontier of global knowledge. They give an inventor a temporary legal monopoly over the exploitation of the invention in question, being a device to address some of the problems deriving from the non-excludability or non-appropriability characteristics of knowledge. To receive this temporary monopoly (in itself a costly economic distortion), an invention must typically satisfy requirements of novelty and non-obviousness, which require innovations to make a substantial advance over existing knowledge.<sup>25</sup> Most innovation in developing countries however involves adoption and adaptation of existing knowledge, mostly derived from abroad, a topic studied in Section II above. Nevertheless, patentable innovations are of growing importance in East Asia, where several advanced economies now patent at around the same rate as advanced economies. This section looks at patenting in East Asia, using (in common with many studies in this area) patents granted by the US Patent and Trademark Office (USPTO).<sup>26</sup> It then considers factors determining patenting, the technology areas in which East Asian patenting is concentrated, and the quality of patenting in the region. Finally, we use patent citations to study flows of knowledge within East Asia and between East Asia and the rest of the world.

## **_Patenting in East Asia_**

The number of patents granted to East Asian economies averaged some 12108 per year in 2000-04, more than five times the number a decade earlier, in 1990-04. (Table 6). Over the same period the number of patents registered by selected Latin American countries increased from 173 to 368. Table 6 also shows patents relative to population (patents per 100,000 people). In the early 1990s the number of patents per 100,000 people in East Asia – 0.14 – was 2-3 times levels in Latin America and Emerging Europe. By 2000-04, East Asian patents per capita had risen to 0.72, some 6-9 times levels in the other two regions. The vast majority of these patents are 25 Note the the OECD’s definition of innovation in Footnote 2 above. Scotchmer (2004) provides a non-technical primer of intellectual property law. Issues and pitfalls in the use of patents as innovation indicators are discussed in Hall et al (2001), Jaffe and Trajtenberg (2002) and Jaffe and Lerner (2004). Firms may also make a strategic choice to protect inventions by other means, for example secrecy, lead times, first mover advantages like moving down the learning curve, and provision of sales and manufacturing services that complement the innovation. Levin et al (1987) and Cohen, Nelson and Walsh (2002) document the importance for US firms of these other methods. 26 This discussion draws on the NBER Patent Citation Database <u>(http://www.nber.org/patent/, described in Hall,</u> Jaffe and Trajtenberg, 2001), updated through 2002 by Bronwyn Hall (http://emlab.berkely.edu/users/bhhall/index.html) and through 2004 by Albert Hu. (Hu, 2006). The use of US patents may be justified by the fact that creators of commercially valuable inventions have a strong incentive to take out a patent in the US,, given its position as the largest market in the world. Close to 50 percent of patents granted by the USPTO in 2000-04 were to foreigners. Nevertheless, there is a large home bias in patenting (inventors are more likely to patent in their home jurisdiction than elsewhere) and inventors in different economies may also face different incentives to patent in the US (for example depending on the level of exports to the US). These factors, could introduce biases that need to be adjusted for. We concentrate on patents and patent citations for seven East Asian economies: China, Hong Kong, Korea, Malaysia, Philippines, Singapore, Taiwan (China) and Thailand, together with two of their largest economic partners, the United States and Japan.

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