Is Asia surpassing Europe in innovation by 2015?

WIPO just published the statistics on patent filings 2007. “East Asia closes in on Europe in patent rankings”, writes FT this morning. At the same time Europe published its European Innovation Scoreboard 2007. On page 49 of that EU report it states: “One indicator of the rate of new product innovation is the number of patents.” Forget for the moment whether this is indeed true or not, so whether number of patents tell you something about innovation output. Asian countries surpass Europe in number of patent filings. What does this indicate is that Asian countries will surpass Europe by 2015 in innovation output if we were to take the number of patents and patent applications as a indicator.

We have always understood that Europe - and the Western world in general – have one thing in common over the Asian Tigers, most notably China: that we have a knowledge advantage, that our strengths is not in being the world’s cheapest manufacturing place (we lost that to China a while ago) but in providing intangible assets: knowledge. The idea is that we could compete on the world market with China’s low manufacturing price by letting them pay for our knowledge and the use of our intangible assets (e.g. patents). In order to sell their low costs products on the world market we would force China and other Asian manufacturers to take licenses under our patents to pay for our knowledge and thus making their products more expensive to market, thus “balancing” the price of Western companies and Chinese on the world market.

If this simple economics is true (blogger is just a simple country lawyer, so maybe I am wrong) what happens if that advantage we have over China and other Asian countries, evaporates? What if China and other Asian countries produce more patentable inventions then the West? Would our goal of competing against China and other powerful economic players fail?

European Research Discussion, IP input urgently needed

The European Research Area (ERA) was created at the EU Council, held in Lisbon in 2000 in the context of the Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process. It’s aim is (or, better, was) to make the EU "the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment by 2010". What have become of these ambitions? Europe’s knowledge based economies still lag behind the US and Japan. It is two years left until 2010. EU has not even left the starting point. It is not much of an overstatement to say that the Lisbon Agenda is largely a failure. Still the European Commission is not short on initiatives. Whether it helps?

In 2007 the Commission published a “Green Paper on ERA” to review “progress” and raise questions for debate. The Green Paper set out six “axes”:

1. high mobility of researchers between institutions and countries
2. world class research infrastructures
3. effective public-private co-operation and partnerships
4. knowledge-sharing between public research and industry, as well as with the public at large
5. coordination of research programs and definition of common priorities
6. opening of ERA to the world to address global challenges.

The “debate” on ERA took place between May and August 2007. The result of that debate - written contributions received in response to its Green Paper by European institutions, Member States - are now published.

Time for us to have a look what is being said about intellectual property in general and specifically on patents.

Do the results of the debate last year show a different approach towards IP? Or maybe a more common view on IP? Not quite. After all this is Europe. The result is as disappointing as the results of the Lisbon Agenda itself. See ipeg’s summary of IP positions in the ERA Green Paper, and the results of the “debate”. Not really surprising for those in the IP profession: IP raises eyebrows, concerns, question marks and no solutions or stimulus. It remains the EU stepchild of politicians and technology transfer professionals alike. Unlike the US where the Bay-Dohle Act made a huge difference in the way universities and publicly funded R&D institutions relate to intellectual property and patents, Europe lags behind in providing IP leadership and IP innovative thinking.

So we fund research institutions, we reach political agreement on a European Institute of Technology (EIT) to educate young scientists so as to compete with the US and Asia, but yet we fail to think about what the role of IP is in those initiatives? What do politicians expect when those young doctors, receiving their PhD’s at EIT and leave Europe to use their newly gained knowledge for the US anyway, or even China? Have we thought of maintaining access to the knowledge generated in Europe? Or are we waiting for the New Asian Tigers to let us pay for the intellectual property that we failed to secure, more interested in “sharing the knowledge to the public” than enjoying the fruits of our own knowledge society?

May we give the European Commission one advise? You recently decided to set up a “European Research Area Board” consisting of 22 members, “representing the scientific community, industry and civil society”, to advise on the progress on ERA. Would it not be a good idea to add an intellectual property thinker to contribute to this Board and promulgate the very important intellectual property aspects of knowledge dissemination? Someone who could liaise with IP professionals in the many EU institutions who do developed IP methodologies that mediate between a too “open source” type of knowledge management and proprietary models?

We have two years left to achieve some Lisbon goals. It’s time for real IP action now.

The Patenting Paradox

Tomorrow, Monday February 11, Arnaud Gasnier, receives his PhD at Technical University Delft (TU Delft) for a study on efficient patent management ("The Patenting Paradox") . Gasnier’s study shows that despite a dramatic increase in the number of patents filed each year, the majority of those patents are not actively used. This behavior is called the “Patenting Paradox”. Why does it exist? What are its effects? How can this paradox be solved? This study addresses these issues. It provides models to better understand the complexity of patent management; and tools to help the firm navigate in the competitive environment. Current practices are illustrated with pertinent patent information. This study also presents the results from a survey among more than 1,100 patent users, which explains the roots of the paradox in the firm.

Many companies, R&D institutes and universities in Europe have no IP management nor strategy in place to manage the patents in such a way that it creates value to their organizations. The value of a firm’s IP can be in its economic or financial importance (contribution to finance R&D efforts) or strategic means (obtaining cross licenses of third parties) or defensive purposes (freedom to operate).

The study proposes the use of game-based interventions to improve patent management (awareness, collaboration, strategy). A very interesting and welcome contribution to IP management in a undervalued area of academic research in Europe.

for an ipeg presentation of the different IP management issues, see "Patents and Strategic IPR Management"

Do Not Blame Patent Trolls

In our January 1 blog, we wondered “Will 2008 bring the same troll trend in Europe?”. Well it’s no surprise that it does. A yet relatively unknown NPE (Non Practicing Entity, or otherwise called "patent troll") an IP exploitation company called “IP-Com”, backed by private equity funds, sued Nokia for infringement of 8 patent families at the patent court in Mannheim (Germany) this week. IP-Com by doing so, threatens Nokia’s financials in its core business, mobile phones. IP-Com demands significant license fees. Nokia, in a common Pavlov reaction, rejected all allegations arguing that the NPEs patents are invalid.

So trolls or NPEs have now reached Germany as well. With the separation of infringement and validity procedure the German court system may be particularly suitable for such claims and litigations by exploitation companies backed by funds. As we set out in our blog on January 1, this clearly marks a new trend in European patent enforcement, where NPEs will soon crawl over European industry to assert patents to create value out of IP positions. We expect this phenomenon to increase dramatically in 2008.

In cases like this there are likely two options. Either the NPE, in this case IP-Com, asserts patents resulting from their own innovative efforts, or, as is more likely, the patents have been acquired from third parties with an eye to assert them against industries like Nokia to create license income. According to press publications the latter is the case, as IP-Com is said to have bought the patents from Bosch. Does this make a difference? It does.

If the patents are the result of own innovative R&D output, asserting them against alleged infringers who use these intangible assets in their own products in order to recoup investments in own R&D in no way differs from any patent assertion strategy as we know them. If however is these patents have been bought from a third party with the purpose of enforcing it against companies using the patented technology is exposes a flaw in existing IP strategies of major European companies. Or, at best, the uncovering of unused potentials in existing IP portfolios of those companies. Obviously these patents have been bought by a party that decided to make value of patents where the seller did not see it, or where the patents did not represent core business anymore, or, alternatively, where the seller decided that doing it themselves would be out of their (financial or organizational) reach. The price the buyer (IP-Com) was willing to pay (having made the analysis that they would be in a better position to make even more money of those patents, backed by investors, than the original owner) reflects the potential and true value of the patents.

This is what we will increasingly see happening. A lot of companies are sitting on IP that is not subject to active value creating strategies, but rather used as defensive (and passive) “freedom-to-operate” thinking. One can hardly blame parties for looking to find “Rembrandts in the attic” and come up with a viable value extracting enforcement strategy for pursuing financial rewards from intangible assets, where the original owners did not.

So, is this reason for European companies to grumble? If you read the commentaries and listen to the comments made in boardrooms of many companies, they certainly do. We would argue that this is not the way this phenomenon should be addressed. Rather than complaining, companies should more actively seek active strategies to extract value out of their own patent portfolios, or- depending on where they stand at the equation – hire expertise to pursue a more active IP strategy. Whether that is to engage arm’s length companies to license out their non used IP, or buy defensive IP positions on the market before NPEs doing just that. The point we would like to make is: get rid of that grinded and often wrong idea that patents are just to create freedom to operate.

This will in turn requires a much more active debate about the need to get a more transparent IP market. As there is no real and open “market” for IP - in the economic sense - where buyers and sellers can meet supply and demand, based on generally accepted value propositions, the call for improvement of the market conditions for IP will increase. The actions by NPEs will therefore have two positive outcomes. Firstly companies are forced to critically evaluate and reform their IP strategies and secondly, there will be a innovative push to create new market mechanisms for IP to be more easily change hands.