Do Patents Really Have Nothing to do With Innovation?


A guest blog – Doug Calhoun’s recent comments, here and here, on the potential fate of NZ IP law encouraged sticK to ask Doug to write more fully

As Stephen Joyce, the new minister both of science and innovation and economic development gets to grips with his new portfolios, he should be addressing the disconnect between the innovation policy and the patent policy of both the current National and the previous Labour led governments.

In mid-November 2011 the Ministry of Science and Innovation released a report entitled “Powering Innovation”. The link is here:

The third recommendation of that report was:

“Individual commercialisation units [of CRIs and Universities] should continue to develop or increase capability both through embedded skills and through networked activity, to deliver high quality screening of IP opportunities and increased good quality commercialisation deal flow nationally.”

The MSI terms of reference identified the “high value manufacturing and services sector” (HVMSS), to which the recommendations apply, as including:

“… biotechnology, processing, electronics and embedded systems, mechatronics and robotics, sensing and scanning devices, medical technologies, advanced materials and manufacturing technologies (including plastics), marine technology, pharmaceuticals, agritechnologies, digital technologies and information and communication technology (ICT)”

The disconnect is most graphically illustrated by clause 15 of the Patents Bill, which proposes to exclude the following technologies from being patented in New Zealand:

• Treatments of second medical indications in humans
• Methods of medical diagnosis practiced on humans, and
• Computer programs.

Medical technologies are becoming more and more focussed on genomics, proteomics and other emerging “omics” evolving from the ability to analyse the components of DNA. Inventions that are being made involve finding new uses for or better administration of known medicines through targeted diagnoses of patients according to genetic traits. And infometrics and diagnostic algorithms involving sophisticated software are indispensable tools integral to such inventions. Most of the other HVMSS technologies also incorporate software to make them work. Yet the Patents Bill would ban patents for many of these technologies.

How did we get to this?

Government policies for promoting innovation and for reforming patent law were developed in separate silos in a fiercely tribal public service culture.

Patent law reform was done in the Ministry of Economic Development (IP policy) silo. MED has been particularly vigilant in protecting its patch from any outside dissenters (for example, me). At the heart of the MED policy is the observation that about 90% of New Zealand patents are granted to foreigners. The benefits of these may flow overseas. Therefore, we should make it as difficult as possible within our international obligations to get a patent in New Zealand.

The main international treaty obligation MED have in mind is the TRIPS treaty. That treaty sets minimum standards of IP protection that member countries must provide. Article 27 of TRIPS requires countries to grant patents in all fields of technology with some exceptions. The medical treatment and diagnosis exceptions in the Patents Bill are permitted under TRIPS.

The exclusion of patents for computer programs came as a result of the proponents of open source software successfully playing a game of last tag. They stayed on the sidelines throughout the consultative process in the eight years before the bill was introduced and then ambushed the select committee with tales of US patent “thickets” and how they would be put out of business if software patents were permitted. (They did not mention that software related inventions had been able to be patented here since the 1990s and that they were still in business.) The select committee introduced the ban, in spite of the earlier MED recommendation and cabinet decision to the contrary. The controversy generated can be distilled from the submissions made on the proposed guidelines for determining what is to be excluded. The link is here:

The MED view of patent economics is a very narrow one focussed on protectionism. Rather than seeing patents as an incentive to invest in innovation involving the commercialising of inventions, MED advised the Commerce Select Committee:

“One consequence of the large number of New Zealand patents granted to overseas owners is that New Zealand may bear the potential costs imposed by these patents, but may not gain any benefit over and above what would have been gained if these patents had not been granted in New Zealand.”

The only evidence on which that analysis was based was the repeated observation that about 90% of New Zealand patents are granted to foreigners. The supposed consequence of that percentage is speculative – note the use of the word “may”.

The MED advice concluded:

“In developing patent legislation for New Zealand, the aim must be to maximise the benefits of the patent system to New Zealand. In light of the preceding discussion, there would seem to be no value to New Zealand in having a patent system that provides wide patent rights. This would probably have little effect on innovation in New Zealand or anywhere else, but would, because of the high proportion of overseas patents, potentially impose significant costs on New Zealand for little compensating benefit.”

“The best policy for New Zealand, given what is known about the workings of the patent system, would be to have the strictest criteria for granting a patent that are consistent with our international obligations, and apply these criteria as rigorously as possible.”

What was the nature or quantum of the “significant costs” was not identified.

The link to the briefing paper is here:

MED did commission a survey of patent users and an analysis of academic papers on the economic effects of patents – after the bill had been drafted and was about to be introduced into parliament. MED released the resulting report (the Uniservices Report) after the select committee had dealt with it. The link to the report is here:

The two main conclusions of the Uniservices Report were:

• while most people surveyed had heard of intellectual property, there was a very low understanding of how it worked or how to manage it, and
• technology transfer has an important role in advancing innovation and patents are the currency of technology transfer.

And the MED response?

“The views in this report do not represent the views of the Ministry of Economic Development. Should the Ministry decide to act upon any of the recommendations in the report, we will consult with stakeholders.”

The World Intellectual Property Organisation (WIPO) has a team of economists who have recently produced a 186 page analysis of the economic effects of IP (primarily patent) systems. The link is here:

The depth of analysis and large number of papers cited in the report shows that those economic effects are very much more complex than the MED view. There is growing investment in and internationalisation of science and innovation. IP is increasingly being treated as a tradeable end in itself, as well as a means to an end. There are emerging new collaborative mechanisms for trading IP and IP intermediaries for doing it. It echoes and expands upon the Uniservices Report conclusions: tech transfer is important for innovation and patents are its currency.

Among its conclusions are that the objective of any patent policy maker should be to achieve “quality” patents. By quality they mean that a patented invention is both novel and inventive, it is properly described and that the invention claimed is of the same breadth as the description. But the WIPO report also emphasises the importance of “appropriability” in promoting investment in innovation based on inventions.

The primary policy objective of MED in patent law reform has been to make patents as difficult as possible to get in New Zealand. One consequence of that policy is that any patent that is granted under the new law is more likely to be a quality patent. However the Patents Bills goes far beyond that and aims to have a chilling effect on seeking New Zealand patents – going so far as to ban patents for some HVMSS technologies. If the HVMSS technologies cannot be patented they are not going to be appropriable.

The MED policy does not take into account that New Zealand (or foreign) based innovators, seek patents in New Zealand to protect their investment in commercialising their innovations here. And at the same time, MSI is advocating that innovators, led by the CRIs and universities, should be doing exactly that.

Understanding patent law and developing policy is a bit like peeling an onion – there are a lot of layers to it. The respective ministers who have been in charge of patent law reform since 2000 – Laila Harre, Judith Tizard and Simon Power – have recognised this and largely followed the advice of the MED. None had any mandate to look into innovation policies – and science and innovation policy advisors had little incentive to look into patent policy. Any quantum tunnelling between their respective silos has been effectively stamped out.

The silo approach is perpetuated in the post 2011 election briefings to incoming ministers. Responsibility for patent policy rests with Craig Foss, the new minister of commerce. His briefing paper urges him to get on with the Patents Bill. (That bill has been awaiting a second reading since the end of March 2010.) The briefing for Stephen Joyce urges him to be the leader of interdepartmental promotion of innovation – but makes no mention of the role of patents in innovation.

It is time that government recognised that a patents regime has a role to play in innovation. That role is the granting of high quality patents and promoting innovation that embraces IP management as a key component.

And what can Mr Joyce do?

• He can amend the Patents Bill to get rid of the HVMSS technology exclusions
• He can commission a review of the Patents Bill with an aim to amending it to achieve a regime that grants quality patents but does not create chilling red tape in doing so
• He can promote IP policy that supports innovation within New Zealand and the development of excellence in the management of IP.

Good luck minister.

~ Doug Calhoun
IP Mentor
Serial Stirrer

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About sticknz

sticK is by Peter Kerr, a writer for hire. I have a broad science and technology background and interest, with an original degree in agricultural science. My writing speciality is making the complex understandable. I am available for outside consultancy work, and for general discussions of converting a good idea into something positive
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4 Responses to Do Patents Really Have Nothing to do With Innovation?

  1. Pingback: Community Scoop » Do patents really have nothing to do with innovation?

  2. For IP to have any real value it needs to be international and it needs to be commercialised. A NZ patent by itself is practically worthless given that the size of the market here is so small. Assuming that high value exports are the ultimate aim the patents that matter are those in the key markets. The US Patent Office for example will make its own mind up about any application. Any prior patents in NZ are unlikely to affect their view so are practically irrelevant.

    Any patent is just a drain on costs unless it creates or maintains some commercial value. It would be great if our research institutes and universities could get over their need to collect useless patents, which they seem to see as some kind of proxy for commercialisation. Patents are by no means irrelevant but they are only a small part of the commercialisation process and not the difficult part.

  3. Doug Calhoun says:

    Hans van der Voorn

    Thank you for your comments.

    “For IP to have any real value it needs to be international and it needs to be commercialised.”

    “Assuming that high value exports are the ultimate aim the patents that matter are those in the key markets.”

    “Any patent is just a drain on costs unless it creates or maintains some commercial value.”

    I agree with each of those sentiments – they were a part of the advice I used to give to clients during my career as a patent attorney/lawyer.

    But innovation also involves attracting foreign knowledge and investment in innovation into New Zealand. One example was the innovation of butchering meat in meat packing plants in NZ and shipping meat packs overseas ready for display of chilled meat in supermarkets. This was made possible by controlled atmosphere packaging. The packaging was supplied by Cryovac (an American company) from their two plants in Porirua and Hamilton. The technology was protected by a number of New Zealand patents – the company considered those patents to be important to getting a return their investment in their plants in New Zealand.

    Everyone likes to boast about how refrigeration led to the export of frozen meat carcases in 1882. But the meat packaging technology innovation a century later allowed more value to be added in New Zealand meat packing plants rather than in the country where the meat was exported to – and chilled meat gets a higher premium. And foreign owned New Zealand patents featured in attracting the innovation.

    “It would be great if our research institutes and universities could get over their need to collect useless patents, which they seem to see as some kind of proxy for commercialisation.”

    I think it is the economists who look at patents as a measure of innovation who regard patents as a proxy for commercialisation.

    The concern, which I share, is to get value out of patents. The CRI taskforce and the Powering Innovation report encouraged this to happen – but did not say how.

    One answer may lie in the emerging markets for patent intermediaries. The second chapter of the WIPO report I mention in my post gives a good introduction.

    Another reference of interest is at the link:

    http://www.opencanada.org/features/ip/

    That chronicles the saga of Nortel Networks, a Canadian offshoot of Bell Canada, that crashed and burned after the dot com collapse. But its receivers (and creditors) were pleasantly surprised to find that their patent portfolio attracted a bidding war that ended with the “winners” paying a multi-billion dollar sum.

    More recently, Alcatel Lucent signed a deal with RPX Corp to form a licensing syndicate to license its 29,000 patent portfolio. It expects to receive an extra $1 billion in licensing fees this year. The link to the story is:

    http://www.iam-magazine.com/Blog/Detail.aspx?g=1e0e400c-810d-4040-97f2-bba448d75f01

    The sums may be hype, but the business model – monetising patent portfolios – is a business opportunity that should not be ignored.

    The problem does not lie in the accumulation of useless patents – it lies in finding someone to use them and managing the portfolio so as to achieve the maximum benefit.

    Cheers,

    Doug

  4. Pingback: Gene patent debate in Australia – into injury time? | sticK – science, technology, innovation & commercialisation KNOWLEDGE

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