“Have you got a patent?” ask the Dragons in the Den when deciding who to finance. But if a young entrepreneur goes to the bank for funding, they may not get the same approach.
British businesses of all shapes and sizes spend over £60 billion a year creating assets which can be protected by patents, trade marks, design rights and copyright. But when they take these investments to their bank to ask for loan finance to grow, the response is usually that ‘IP doesn’t count’.
November‘s independent report “Banking on IP?” set out to understand – with banks and others – what can be done to use Intellectual Property in finance deals. This would release the investment and growth potential of IP for firms and for financial markets.
The report found reasons why IP is not recognised as an asset for lending:
- understanding firms’ IP assets, and value, seems complicated and costly; and
- IP value is seen as too uncertain to be covered by a reasonable risk premium – especially with the business risks of new markets
The combination of high costs and high risk is what makes banks see IP as an unsuitable asset against which loans can be made. After talking through the conclusions with a range of stakeholders, four key themes for action are starting to emerge:
1. Awareness Raising: There is still much to do to raise awareness in business – especially amongst smaller firms and those in the financial services industry – and to encourage understanding of IP as an asset.
2. Facilitating Dialogue: Even when businesses understand what IP they hold, there is scope for framing a better dialogue between business and financial services professionals. Businesses need to be able to articulate what they have, how it is secured and how it supports the future cash flow of the business. There is an appetite for tools and templates to help.
3. Confidence: To lend, the financial services industry needs confidence that the business will be able to repay the loan. Greater understanding and improved dialogue will help, but the report states that insurance also has an important role of play. Insurance models for IP can be used to underwrite loans, and effectively separate business risk from IP risk for lenders. This would make decisions at credit approval faster and lower cost. We’ve seen this model develop in the US.
4. IP Markets: Feedback tells us that the lack of mature markets for IP is a problem when trying to work out the value of an individual asset. The development of these markets, with better data to underpin them, would help build confidence.
We are grateful for the time and expertise that stakeholders have given so far. It is clear that the Government cannot do this on its own. In the next few weeks the IPO will be following up these themes with willing partners, and looking to prepare a response from Government with practical solutions for implementation.
Today’s post is brought to you by Michael Reda, Assistant Economist at the IPO.
Traffic congestion, intellectual property rights (IPRs) and my housemates’ tendency to use unfeasible quantities of water and electricity might seem unrelated, but they are all manifestations of the tragedy of the commons: an economic concept which shows up in all manner of places.
The tragedy of the commons is often described in the context of an 18th century village bordered by a grassy common, where the locals rely on the wool trade for their income. The more sheep a farmer is able to graze, the more wool the farmer can sell. If any farmer wants to use the common, noone has the right to charge them money or turn them away. But if the common is overused, it will be stripped bare and the village will be destitute. Since each farmer benefits from higher wool sales the more they graze their sheep, but only has to bear a fraction of the cost to the village (slightly less grass), the common is overgrazed and eventually depleted. Each farmer has made choices which are sensible on an individual level, but the collective outcome for the village is something which noone would rationally choose.
The upshot of this story is that when property rights aren’t allocated and goods are instead held in common, society as a whole sometimes loses out. Everyone has the incentive to appropriate as much as they can of the resource and privatise the benefits. And the opposite occurs with investment: if someone considered investing in the resource, (planting more grass or extending the common) they would very quickly realise that they must shoulder the full cost but will only be able to access a fraction of the benefits. The private and social costs of people’s choices are unbalanced. The result is that people take out too much and put in too little.
How does this relate to Intellectual Property (IP)?
There are two main ways in which the logic of the above example applies to IP. They are both what economists refer to as ‘market failures’: the first leads to too little investment and innovation, the second to too many restrictions on the knowledge needed as an input to innovation.
It takes time and money to produce an innovation or creative work. But with no IP protection, the benefits of this investment will be diffuse: think of it as extra land for the common. So in the same way as in the example above, the common resource (society’s knowledge and technology) doesn’t receive enough investment.
On the other hand, if the IP regime allows too many IP registrations, ideas which could feed in to greater innovations risk being appropriated for private gain. Since commonly held knowledge can be freely built upon by others, its enclosure carries a social cost which exceeds the fees and time paid by the applicant.
A patent, for example, encourages people to add to the commons. Continuing with the analogy, in return they can fence off this ‘land’ for 20 years to exploit it personally, before it becomes commonly held. But since ideas can be used as intermediate steps to bigger ideas, their enclosure may stand in the way of other innovations. Innovation needs both incentives and freedom.
What can be done?
Over time, economists have suggested several potential solutions to the general problem (some more practical than others!). These solutions apply mostly to tangible goods or physical places. One is to divide up the resource and allocate property rights. Another is to tax in proportion to usage, although this is less efficient. The resource could also be administered by an authority with the power to regulate use. Finally, cultural rituals and implicit social threats are probably the oldest solution to this problem. These solutions all work by changing people’s behaviour (by aligning private and social interests).One of the greatest societal challenges is figuring out how to address the tragedy of the commons in a way which is equitable, sustainable and ultimately benefits us all. Going back to IP, the key is balance. The IPO’s task is to make the best use of theory and evidence to find the policies which defend both the freedom and the incentives to innovate.
A note from our Polish secondee, Zbigniew Wojciechowski December 16th, 2013 by Nicola Searle
Just before our holiday break, we have a guest post:
Allow me to introduce myself, my name is Zbigniew and I work in the Polish Ministry of Science and Higher Education. In November I was seconded to the Intellectual Property Office (IPO), in the Economics, Research & Evidence (ERE) Team for one month. My stay at the IPO was a result of Polish-British Secondment Programme for Regulatory Impact Assessment Teams. The main goal of the Programme is to familiarise Polish civil servants with the UK Government’s approach to Impact Assessments (IAs).
During my stay at the IPO I got involved in several projects looking at IP-backed finance and exceptions to copyright. Thanks to the support of the ERE team, I was able to gain an insight, within a month, of the most important features of IPO’s approach to pursuing evidence-based policy, in particular at the stage of preparing IAs.
An important part of my secondment was a three day visit to the Secretariat of Regulatory Policy Committee (RPC), an independent body responsible for scrutinising IAs in the UK. At RPC I participated in meetings and worked on case studies which gave me a better insight into the role of RPC in the better regulation agenda.
My secondment was also a great opportunity to learn more about the UK Civil Service and its organisational culture. At the beginning I found it difficult to work in open plan rooms, however after few days I got used to it and today I must concede that working in such an environment has many advantages. I can also say that I was really impressed at how open your administration is to stakeholders. It is one of many things Poland can learn from you!
Many thanks to my colleagues both in London and Newport IPO offices who were very supportive and always eager to answer my questions (even if the questions did not always make sense). I am truly convinced that the experience I have gathered here will be valuable in my career in the Polish Civil Service. I look forward to sharing my experience with colleagues at home.
Building (layer by layer!) on our previous post on 3D printing, today we are taking a look at some new work by our esteemed Patent Informatics colleagues. Their long-awaited report looking at patenting in 3D printing gives us a unique insight into what innovation is actually taking place.
The Patent Informatics team, IPO gurus in IP data, have analysed 9,000 patent records from 1980 to 2013. Having tackled the first challenge of identifying which patents should be in focus (“3D printing” is a broad term and its descriptor has changed over the years from rapid prototyping to additive manufacturing), the team sought out relevant data from journal sources and the trade mark register to build a complete picture of this complex technology area.
The research finds that, as the graph below shows, patenting linked to 3D printing has sky-rocketed in recent years with patenting hotspots emerging, in particular linked to healthcare including bone implants, medical devices and dental implants.
In this fast-growing technology area inevitably, the report opens up as many questions as it answers: as 3D printing grows, what will the next areas of growth be? How will customer use impact 3D printing patent activity? Is 3D printing “at the peak of the hype cycle” as the report mentions? What are the wider implications for our IP regime? Might there be trade-marking issues?
We would be interested in your views. How do you think 3D printing will affect IP?
Meanwhile, stay tuned for more exciting 3D printing news as we kick off more research projects examining all dimensions of this growing market.
Facts, not assertions! On 13th September Ofcom hosted the joint Ofcom/Intellectual Property Office workshop on Standards for Good Evidence. Hosted by Charlotte Waelde (University of Exeter), the event emphasised the need for collaboration in defining research questions and the production of good evidence.
Justin Le Patourel of Ofcom provided an overview of the latest, and final, instalment of the Ofcom Online Copyright Infringement research. The comprehensive survey of over 20,000 people looks at the extent and reasoning of copyright infringement in six content types: music, TV, film, books, software, and video game. Funded by the IPO, managed by Ofcom, and produced by Kantar Media, the project provides a benchmark of online copyright infringement data for future studies. The latest instalment completes the picture for the whole year and is one of the largest studies of its type anywhere in the world.
- Infringement is an activity carried out by the minority, with 17% of all internet users accessing content illegally.
- The top 10% of infringers account for 74% of all infringed content (and make up just 2% of all internet users).
- Overall, infringers spend more on content than non-infringers (though this was driven by TV and music expenditure).
- 44% of all internet users were not confident in knowing what is and isn’t legal.
Liz Bales (Industry Trust for IP Awareness) presented research insights into who infringers are and how best to raise awareness with them. The ICM conducted study interviewed 2,720 individuals online in July and August 2013. The research enables greater understanding of the market environment and consumer behaviour towards infringement. Although smaller than the Ofcom Copyright Infringement Research, many of the findings were similar. There was recognition that those engaging in unofficial activity are the industry’s main customers and are also more likely to engage in authorised activity if the unofficial sources become unavailable.
The study also tracks the progress of the ‘Moments Worth Paying for Campaign’ – where education is used as a tool to inspire and inform people where they can access more content legally. Collaboration with production companies has enabled information to be embedded into film commercials such as Iron Man 3 and Despicable Me 2 showing content can be accessed by consumers above board (Both here).
Dennis Collopy (Hertfordshire University) provided an overview of Hertfordshire’s assessment of infringement research methodologies. The study, commissioned by the IPO, reviews the methodologies identifying the scale of infringement across the four main intellectual property rights: Copyright, Patents, Trade Marks and Design Rights. Key points included:
- To ensure research is of a standard to influence policy, transparency and disclosure of methodology are vital for credibility.
- A more collaborative approach between industry and government is needed.
- Publically available data can serve as a benchmark for industry and industry generated market intelligence should be collated.
Charlotte Waelde chaired a panel discussion on the IPOs Good Evidence Guide – panellists included Tony Clayton (IPO) and Tim Drye (Audiencenet). It was agreed that the IPO guide was not being followed in most cases and that there is often a lack of consistency in methodology and approach between research. Tony confirmed that the IPO will be amending the Good Evidence Guide, taking into account suggestions for improvement, including the addition of qualitative evidence to complement quantitative research. Tim emphasised the need for simple, straightforward and transparent research with industry disclosing their data wherever possible to bolster the credibility of research.
Charlotte Waelde provided closing remarks to the event by recapping on those themes recurred throughout the presentations. Participants emphasised the need for a collaborative approach between industry and government to construct an evidence base. The event concluded with further praise of the Ofcom Online Infringement research and hope that it will continue.
For the full write up of the event please follow this link.
Interested in working with the most productive Intellectual Property office economics and research team in the world? Come along to our “Research Open Day” in London tomorrow at our office in Abbey Orchard Street.
You will have the chance to meet members of our research and procurement team who will explain the tendering process and the finer details of our research requirements. We have a long history of working with researchers and will be more than happy to answer any questions that you might have.
Who are we?
The Economics, Research and Evidence (ERE) team are a small group of experts within the Intellectual Property Office (IPO) that work closely with policy leads to help build a better understanding of IP rights and how they operate within the UK economy. They identify and define specific questions and the answers their research generates provides evidence to inform policy decisions.
As well as stakeholders, lobbyists, end users and folk such as Andrew Gowers and Ian Hargreaves, it is often policy leaders within the Intellectual Property Office who identify key issues with policy and current legislation. Following the Hargreaves Review of Intellectual Property and Growth, the Intellectual Property Office (IPO) published its guidance on standards of evidence used in the development of policy.
In recent years the team has worked with academia and industry to help develop the economic evidence base and forge relationships in the intellectual property research community, nationally and internationally. The IPO research programme proposed for 2013 /14 builds on this work.
The research we commission is independent and doesn’t necessarily reflect the views of the IPO. This means we publish a wide variety of work from different disciplines and research organisations. A peer review process provides us with an indication of how well the research is likely to be received by all interested parties and provides direction for further research in this area.
Want to know more? Please contact our research team.
September saw IPO host a conference on patent use alongside Brunel University at the Big Innovation Centre in London. The event was attended by academics and representatives of patent offices from around the world along with legal practitioners and industry IP users.
The conference presented findings from the Survey of Innovation and Patent Use that IPO had part funded with the Economic & Social Research Council, but there was certainly more brain food on offer.
It was a day of two halves
- The morning session concentrated on surveys around the use of patents
- The afternoon session focused on the use of patents in innovation.
Time was devoted between presentations for global stars in patent research and industry IP users to put their minds towards various pressing questions such as:
- The legitimate non-use of patents rather than simply blocking competitors;
- Measuring the social cost of un-commercialised patents;
- What is the structure of the UK market for technology transfer in the UK;
- The usefulness of IP brokers;
- The lack of price discovery and transparency in IP markets;
- The pros & cons of technology licensing at various stages in the patenting timeline.
It would be unfair on the various presenters (and me) to attempt to sum up their research in a blog so I shall simply provide links to the presentations and offer highlights from the presentation or discussion.
“Use and non-use of patents in the US and Japan” – John Walsh (Georgia Tech University, USA). Findings include a 60% level of commercialisation for triadic patents; applications filed for protection in the US, Japan and at the EPO.
“The economic use of EPO patents: evidence from the Patval surveys” - Salvatore Torrisi (University of Bologna, Italy). It appears that it is not easy to identify a public policy that would stimulate growth and reduce the transaction costs in the market for technology.
“Innovation and Patent Use: Findings from the SIPU survey” – Ashish Arora, Suma Athreye and Can Huang. Developed a new measure of ‘propensity to patent’ taking into account whether a firm is genuinely innovative.
“Do Patents Shield Disclosure or Assure Exclusivity When Transacting Technology?” - Beth Webster (Intellectual Property Research Institute of Australia). The increased ability to fully disclose an idea after patenting may not help in the trading of technology.
“Buyer Behavior in Markets for Technologies” – Ayfer Ali (Universidad Carlos III, Madrid). An exploration of the licensing of medical technologies and the possible reasons for an apparent lack of demand.
“Deals Not Done: Sources of Failure in the Market for Ideas” – Iain Cockburn (Boston University). Highlighted the reasons why technology deals fail at various stages in the licensing process.
“Imperfect Information, Patent Publication, and the Market for Ideas” – Deepak Hegde (New York University, USA). Earlier disclosure through 18 month publication shortened the time for licensing of patent applications not licensed until after allowance after the change in the US law (American Inventor’s Protection Act 1999).
The panel sessions sparked a lively debate. Highlights of the cerebral discussion were:
- Non-practising entities, known as patent trolls (a topic which will inevitably jump out from under the bridge). Is this really a new phenomenon? And does anything need to be done about it? Examples were given of the early days of the railroads and the behaviour of an owner of patents covering braking systems.
- Does measuring the value of IP licensing deals reflect technology transfer or is this distorted by profit shifting for tax purposes?
- Discussions on the use of the Patent Box as an incentive to renew patents which would otherwise have little value.
- The difficulty for companies to find technologies they want to license because of the haphazard availability of information and high search costs.
Hopefully this gives you a flavour of the day’s activities, which I’m certain was considered a success by all those who took part. I encourage you to follow the links above for a more in-depth look at the great work which was presented.
2.5 Millionth Patent! A guest post from John Alty, our Chief Executive September 16th, 2013 by Nicola Searle
Today’s post comes from our Chief Executive, John Alty, who writes on a patent milestone:
This week the Intellectual Property Office published patent no. GB2,500,000.
It is for a collaboration between Liverpool John Moores University and MedePad to produce wireless sensors able to monitor a patients’ vital signs, such as their heart rate, blood oxygen levels and temperature. This is done without having to hook them up to a machine. The sensors are both invisible and undetectable to the wearer and a person’s readings are transmitted in real time to devices located many metres away.
This new technology demonstrates the importance of collaboration and the wealth of knowledge transfer taking place between our world class Universities and UK companies.
To some the GB 2.5m may seem like an arbitrary point to mark, but it gives good insight into how the use of intellectual property has influenced the social and economic development of the UK for centuries.
The industrial revolution of the late 18th century was synonymous with the explosion of British innovation. This period saw the number of patents exceed 1000. James Watt’s patent of 1769 (913/1769) led to performance improvements of the steam engine, which in turn helped the Cornish tin industry establish itself as a world leader.
In 1775, Richard Arkwright took out his patent for a new carding engine which, combined with water power and semi-skilled labour, saw the mass production of yarn and the creation of the first ’production line’ more than 100 years before Henry Ford and his ‘Model T’ assembly line. The link between IP and growth was clear even in the 18th century.
Official numbering of patents did not start until 1852 when the Patent Office was also established. This overhaul of the system gave numbers to the 14,359 patents granted across the previous 400 years.
The increased pace of industrialisation saw the 200,000th patent granted in 1895. This period also saw the granting of a number of patents for well-known and much loved devices such as the ‘little nipper’ (13277/1899) or flatbed mousetrap in 1900 and Meccano (587/1901) in 1901.
In 1902 the British patent system was expanded to include a novelty search of an invention before a patent was granted. This increased workload for the then Patent Office and it added 190 examiners to the 70 who already worked there.
1915 saw the 500,000th patent granted. In the same year, Captain Stephen Coxon’s patent for an ‘improved Entrenching Tool’ a type of shovel (5956/1915) was published. This played a vital and often life saving role in the trenches of the First World War.
The post-war period saw many inventions claiming to be the ‘most important’. A strong contender for this title was published in 1924 with as ‘a system of transmitting views, portraits and scenes by telegraphy or wireless telegraphy.’ (GB222604). This was the birth of the television.
However, technological developments have not always kept pace with the demands of society. In July 1966 England celebrated their famous World Cup win over Germany. Some say the Germans would have benefitted from the advent of goal line technology with England’s often disputed third goal. Only a week before, German firm AGFA had a patent published for an integrated camera with built in flash. This may not have helped them at Wembley that day, but was part of the relentless march to perfect the high speed cameras that form part of today’s technology.
The internet age has seen the numbers of patents published rocket in recent years. UK based firms such as ARM and Dyson continue to lead the world in innovative technology that has seen the value of intangible assets overtake that of tangible ones. To cope with this demand, we have 225 patent examiners carrying out extensive novelty and inventiveness searches on over 22,000 applications a year. Our customers say that the IPO is widely regarded as one of the best IP Offices in the world.
We are the 12th largest patent office in terms of patent filings according to WIPO figures. We are the first patent office to achieve ISO accreditation for patent-granting process – recently re-confirmed.
These achievements are certainly something to be proud of.
I’m personally very proud of this 2.5m milestone for the inventors and our world class rights granting office. I look forward to reaching GB3m – although it may be a few years off yet.
- John Alty, Chief Executive and Comptroller General
How can you use a copyright work when the rights-holder cannot be found? This is the issue with so called orphan works. Orphan works are works covered by copyright, but where a rights-holder is either not known or cannot be found. This means permission to use the orphan work (which could be anything from a photo or a poem to an audiovisual work) cannot be obtained – so the work cannot be reproduced lawfully, for example for use in an exhibition, book or television documentary. It can seem like a no-win situation for both the absent rights owner and the potential licensee.
The Hargreaves Review of Intellectual Property and Growth identified orphan works as the ‘starkest failure of the copyright framework to adapt’. In response to the Review, the Government announced it would legislate to enable orphan works usage.
As we’ve noted previously in IPO Facto blog posts, good policy begins with good evidence. So the IPO began its work by developing an orphan works evidence base. It commissioned two independent research reports published on 2nd July 2013:
Copyright and the Regulation of Orphan Works – A Comparative Review of Seven Jurisdictions and a Rights Clearance Simulation (Bournemouth University) and Orphan Works in the UK and Overseas (PACEC).
Copyright and the Regulation of Orphan Works provides a Legal Review (examining how the US, Hungary, Denmark, the EU, Canada, India and Japan have dealt with, or are planning to deal with, the orphan works problem) and a Rights Clearance Simulation (intended to generate new data about the costs of using orphan works, by asking representatives of the seven jurisdictions what licence fees they would set in six potentially real-world scenarios).
So what were the main findings of the research?
A central licensing authority is the most common solution: Using a central licensing authority is the most popular approach to dealing with orphan works – taken by Canada, India and Japan. Extended collective licensing is an approach taken by Denmark. The US has proposed various methods of dealing with orphan works, but does not have any orphan works legislation in force.
Support for introduction of an orphan works system: The PACEC report found most UK and foreign organisations supported the introduction of an orphan works system. There were only a small number of UK organisations that did not support a scheme of a relatively small sample size of 47 organisations (26 domestic organisations and 21 foreign organisations).
Lack of a standard price for licensing orphan works: Tariffs varied widely, with the only consistent finding being commercial licence fees tend to exceed non-commercial ones – as one would probably expect. Prices are set by central authorities in countries that have a central licensing system, on a case-by-case basis, and by collecting societies in Denmark.
Benefits and costs of an orphan works system: The UK organisations interviewed in the PACEC report stated the main benefits were an increase in supply of material that could be used and reductions in risk. The main costs identified were that the system could be too complex and cumbersome and the process to identify orphan works and issue licences could take too long. The research also suggests that if an orphan works system is too complex and costly, it will not be used.
You can find further information on the Government’s plans for an orphan works licensing scheme (and also on voluntary extended licensing) through the factsheet here.
The evidence base on the impact of intellectual property is contentious with reports from different perspectives published – almost tit for tat. An uninformed neutral might feel the idea is to attack another’s research and to win an argument rather necessarily adding to or improving the evidence. So the big question…. How can we move away from this to a more constructive and collaborative approach to build evidence that we can all use; which is robust and where the methodologies at least can be open to scrutiny; and which makes best use of all our scarce resources.
Following the Hargreaves Review of Intellectual Property and Growth, the Intellectual Property Office (IPO) published its guidance on standards of evidence used in the development of policy.
This guidance set out criteria and rationale for identifying the forms of evidence the IPO aspired to and what it would expect in return. The criteria are that it should be clear, verifiable and able to be peer reviewed. This has now been in circulation for 2 years. Experience and feedback tells us that whilst the general thrust of the document is correct, the IPO needs to take a wider view of what should be taken into account. Not just hard economics and figures, but social research and case studies. What else could / should the IPO consider given the general criteria that has been set? What is missing?
Many small businesses and trade associations struggle to gather data, especially in a fast moving and dynamic business environment. How can they be supported to deliver and collect evidence? These are important areas for Government to understand and the IPO needs to reaffirm its flexibility in assessing evidence of all kinds. But it is important that the focus of this debate is not fixated on the evidence we already have. IPO wants to build partnerships, to help develop methodologies and data sets that people can share and build upon. It should be an objective for us all to develop an evidence base that is robust, clear, verifiable and open to scrutiny where possible. With business, IPO recognises that this isn’t always possible due to commercial reasons.
This is why the IPO has been working with Ofcom to deliver a workshop to look at current research methods and to hear from industry, academia and the user community about how partnerships can be built; how robust and open methodologies can be shared; to consider the strengths of collaborative working to build an evidence base that we can all contribute to, and use. It also has to ‘speak’ to policymakers, not just economists.
The workshop is on 13th September and there is limited space to attend. However, that doesn’t mean you can’t feed in your views and suggestions. You can reply to this blog post and any views / comments / suggestions will be fed into the debate on the day. A non-attributable summary of the discussions from the workshop will be published shortly after the event, alongside a revised version of the good evidence for policy guide. This is your opportunity to influence our thinking, so please contribute to the discussion.