World Intellectual Property Report 2011

Want to invest in the next big thing? It might be intellectual  property. According to the World Intellectual Property Report 2011, published by the United Nations, royalties and license fees for intellectual property outpaced economic growth in recent years. In fact, IP revenues reached… are you ready? $180 billion. That’s 667% growth since 1990 when it was $27 billion, and 6,428% growth since 1970 when it reached only $2.8 billion, although that comes out to a modest, but decent, rate of about 10% annually.

There are some other heartening things in the report. In the foreword to the report, WIPO Director General Francis Gurry makes four critical points:

  1. Firms are investing historically unprecedented amounts in the creation of intangible assets – new ideas, technologies, designs, brands, organizational know-how and business models.
  2. Innovation-driven growth is no longer the prerogative of high-income countries alone; the technological gap between richer and poorer countries is narrowing. Incremental and more local forms of innovation contribute to economic and social development, on a par with world-class technological inventions.
  3. The act of inventing new products or processes is increasingly international in nature and seen as more collaborative and open.
  4. Knowledge markets are central within this more fluid innovation process. Policymakers increasingly seek to ensure that knowledge is transferred from science to firms, thereby reinforcing the impact of public research. Moreover, ideas are being co-developed, exchanged and traded via new platforms and intermediaries.

This large growth has resulted in new, emerging markets dealing with IP such as brokerages for purchasing, selling, trading, and auctioning IP, consulting companies for managing IP, valuing IP, and supporting IP litigation, and software for analyzing, valuing, and comparing IP.

Patent reform: the big guys won, the little guys lost

On June 23, 2011 the US House of Representatives passed H.R. 1249, The Leahy-Smith America Invents Act,  to reform the US patent system. On September 8, 2011, the US Senate approved S.  23, The America Invents Act of 2011. On September 16, 2011, President Obama signed patent reform into law.

One of the key, and most controversial changes, is a shift in the patent priority rules from the “first-to-invent” system that has been in effect in the US since the beginning of patent law to the “first-to-file” system that is used in every other patent system in the world. A first-to-invent system means that the first person to invent something gets the patent. This seems fair. A first-to-file system grants a patent to the first person, or company, to pay the fees and file the patent. This, to me, seems un-American in that it rewards paperwork over innovation.

To those who believe there is no such thing as American exceptionalism—those who believe that there is no more innovation in the US than anywhere else—this change “harmonizes” our patent system with the rest of the world, making patent law fairly consistent from country to country.

If you’ve read my blog you know that I believe that there is more innovation in the United States than anywhere else on earth. Do we really need proof of this? But let’s take another look at this issue. Proponents claim that this change will have an insignificant effect, if any. Yet has anyone rigorously studied how this change will affect individual inventors and entrepreneurs in America? Until recently, the answer was no. But professors of law at the University of Pennsylvania, David S. Abrams and R . Polk Wagner, recently performed a detailed study.

You might wonder how they could perform such a study when the act does not require the “first-to-file” system to go into effect until March 2013? These professors already had a model. Canada switched from first-to-invent to first-to-file in 1985, giving them a significant amount of historical data. The results are interesting, and unfortunately not hopeful.

The chart below illustrates one of many interesting statistics in their study. The number of patents per year before the system changed was fairly constant at around 1,700 per month. A significant drop of over 40% occurred around the time that the system changed, to less than 1,000 per month and remained low.

Perhaps even more disconcerting is that Abrams and Wagner find that the fraction of patents going to individual inventors also decreased at the time of this change in Canadian patent law. So the number of patents decreased and the percentage of patents issued to individual inventors also decreased.

Abrams and Wagner summarize their findings in very blunt terms:

In the end, how much do individual inventors matter? That,
we think, is the critical question suggested by our study. To
date, most observers seem to have assumed that a shift to the
first-to-file rule, though a substantial change in US patent
law practice, would have little impact on who seeks and receives
patents. This is wrong. A change to the first-to-file rule in
the US should be expected to result in the reduction of individual
inventors’ share of patents. Thus, the cost savings yielded
by the change away from first-to-invent will not, we suggest,
be free.

Like any law, this patent reform act can be undone. However, it seems that many members of both parties support this change, probably because they do not fully understand the implications and because of pressure from large corporations that stand to gain from it. Perhaps a grass roots movement can rise up to pressure Congress to un-reform US patent law. Grass roots movements seem to be all the rage these days. So I still hold out some hope.