Background

The past two decades have seen a significant expansion of intellectual property rights (IPR) use. The increase in patenting in particular is an important feature of the contemporary innovation landscape.

IPRs have also become a highly active area of innovation policy. Policy objectives – such as those promoting software patents, SMEs innovativeness, innovation in the Service Sector, and patenting of academic research—have served to extend the range of patent applicants. In turn, the growth in the number of patent applications and the range of applicants has affected why the increasing range of economic actors use the patent system, for example to facilitate collaboration, to secure venture capital, to fulfill other funding requirements.

Growth in the number of patent applications and the range of applicants is expected to reflect growing innovative activity. Increasing innovation in turn is ultimately expected to contribute to headline growth in the economy. One component of the growth is the historic rise in the number of patent-applications in the period, which in part can be ascribed to the basic economic factors that will be reviewed below. Another component involves an increase in the range of applicants, which in part coincide with policy objectives such as those to encourage SME innovativeness¹or to promote patenting of academic research²

Such changes have potentially important implications for the innovation system and the wider economy. The patent system in particular plays a key, but sector specific, role in the institutional environment. It is central and increasingly important non-market element of what Metcalfe (2001) calls, " the extended division of labour in the accumulation and application of knowledge." It can act to focus and to coordinate formal innovation processes both among and between private and public organizations in the economy. But its role can extend further to facilitate the diffusion and the exploitation of new knowledge in the economy more widely, for example by laying the basis for research collaboration.

. A third is a set of changes in the patent-regime itself which may affect the way the enlarged set of economic actors utilize the system. In Norway the move to the regionalized European Patent Office, through accession to the European Patent Convention effective in 2008, represents one such transition which is expected to change patenting behavior among the largely small actors in this small open economy.

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1 A focus in chapters 2, 3, and 4.

2 The focus of chapter 5.

3 A focus in the chapter 1 and chapter 6.

0.1.1. Changes in the who and why of patent use

Changes in the use and the conditions for use of the intellectual property system can affect the orientation of knowledge accumulation, can condition the ways it is utilization and, thereby, can influence pathways for industrial development. The fact that the patent system is changing implies changing conditions for future patterns of knowledge accumulation. The extra instability this might generate suggests a set of potential challenges for a small open economy that is characterized by a large proportion of small firms. A range of public-policy initiatives have simultaneously been launched to encourage wider use of patents among these groups given they face acknowledged constraints. During the past two decades, changes in law and jurisprudence have led to substantial increases in patenting of software or processes involving genetic material; legal changes have been made in many jurisdictions to encourage increased patenting of university and public research organizations; regional schemes such as the European patent system have expanded to include more countries thus encouraging a greater degree of transnational patenting. In addition, a series of policy initiatives have promoted greater IPR awareness and use among smaller firms and the service sector in particular. The effects of such changes have mixed with other underlying tendencies, contributing together to shift the overall volume of patent applications, its orientation and the range of applicants grows.

In this environment, it is important to understand who is using the patent system, why, and to what effect. In terms of ‘why’, the literature has tended to assume that patenting addresses the appropriability problem. Most literature in the area has treated patenting overwhelmingly in terms of the ‘appropriability problem’, which assumes that a firm will not conduct R&D activity if it is unable to fully appropriate returns from this activity.⁴

One implication of the received view is that patenting activity will track R&D expenditure: if one unit of R&D activity leads to a given number of patents in one period, and patents are used to recoup R&D expenditure, then a similar number of patents per R&D dollar can be expected in the following period. And indeed there are other reasons—such as the cost of patenting and what qualifies for patent protection— to expect patenting to trend with R&D expenditure, other things being equal.

Recent work however has indicated that the broadening and deepening of patent rights during the Patenting is regarded as a major if imperfect method to help firms appropriate returns on R&D outlays. But at the same time, firms have been shown to rely much more on other modes of protection, such as lead-time vis-à-vis competitors (Levin et al., 1987, Arundel & Kabla, 1998) while rating other functions of the IPR system higher than pure appropriation of profits. (Cohen et al, 1997)

4 See discussion in chapter 1.

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period have tended to outpace R&D spending. (Hall & Ziedonis, 2001) Patenting has in short tended to outpace R&D expenditures. This has raised a variety of questions, including why firms increasingly patent especially if they believe other forms of protection outperform patenting in the first place.

0.1.2. Patent Paradox

This forms the basis of a famous ‘patent paradox’: many surveys have shown that managers do not consider patents as an important mean to secure profits of their innovations, but at the same time firms continue to invest in patents portfolios—and in some cases they increase this activity. Several conjectures have been forwarded to explain this gap. One explanation is that there is no longer a one-to-one relationship between the propensity to patent and its value in recouping R&D outlays.

Scherer (2001) posited, from a demand perspective, that patent applications began to take on something of the valor of lottery tickets in the US during in the lead up to the dot-com bubble.

Consistent with lottery psychology, the higher the number of patent applications, the greater became the propensity to patent. Such a ‘probabilistic’ dimension of patents tended to be encouraged rather than discouraged by the supply side, i.e. the US patent office and court system.

(Lemley & Shapiro, 2005) This coincided with an administrative climate that in attitude and practice reflected a ‘pro-patent era’. (Jaffe, 2000; Jaffe & Lerner, 2004; Merrill et al 2004) This tendency is first and foremost associated with changes in the US system (not least the set-up and the disposition of the court system) but extends to trends in the international IPR system, including WTO rules and the regionalization of the patent system which is expected to affect patent use.

However other factors also came together during the same timeframe to heighten demand for patents. Granstrand (1999) posits a general increase in the propensity to patent due to a range of technological and competitive factors, such as the increasing internationalization of markets.

Changes in technological systems have also been associated with the rise in patenting. Kortum and Lerner (1999) find evidence that the rise of patents corresponds with an increase in the volume of patentable technologies. Such a shift is associated with the emergence of new technologies (e.g.

biotech and nanotech) and the reputed shift towards a ‘knowledge economy’ in which economic goods (especially ICT related ones) include a higher proportion of knowledge intensive input. Other changes associated with technological markets include shortening product cycles and the increase ease in specific markets (e.g. chemicals and pharmaceuticals and ICT) to imitate innovations also played a role. Torrisi et al. (2006) show that software patents account for a rising share of total patents in European Patents.

The increase in patenting has also been posited to involve changing modes of innovation. A greater focus on patent strategies is expected to be reflected in the rising numbers of patents. A number of

more pro-active modes of patenting have emerged (including strategic use of continuations of earlier applications, above) which contribute to the overall rise in the number of applications. (Graham and Mowery, 2004). Changes in the way research is carried out might also impact on changing patterns of patent use. Brouwer & Kleinknecht (1999) show that firms engaged in R&D collaborations tend to patent more.⁵

In short, the growth and reorientation of patenting during the period is attributed to a comprehensive set of changes in technology, in markets, in strategic factors, and in the administration of the patent system. If patenting continues to rise while R&D managers report that it is not very important in appropriating profits from innovation, this may also be because actors are using the patent system for other reasons (such as collaboration). Another possibility is that a wider set of economic actors (such as the service sector and smaller firms) than those addressed in the surveys and that these have become more active in the patenting: the changing patterns of patenting might reflect the contribution of these actors as sources of invention and innovation more generally.

Other factors that are thought to influence patenting include pro-cyclical effects of the buoyant economic conjuncture starting in the 1990s.

0.1.3. An empirical shadow

There have thus been changes in use of the patent system and conditions of use that in part have coincided with policy objectives to promote patent use into new areas at the level of what is patented and by whom. In terms of what is patented, the advent of software patents and gene patents constitute significant adaptations of patentability requirements. In terms of who patents, policymakers have as noted encouraged patenting of university research as well as have promoted increase patenting among small and medium-sized enterprises (SMEs) and service sector enterprises.

The combination of changing patterns of IPR use and of public policy initiatives that are designed to adapt conditions of IPR use, serves to raise the question of whether/how IPR use is changing. One way to examine this question would be to look at the way different actors use the patent system and whether the usage changes through time. However, this line of inquiry has been stifled by the general inability to identify important aspects of the patent applicant in the patent-data itself.

There are noted measurement problems associated both with what patent-data reveals (e.g.

Basberg, 1984; Griliches, 1990; Archibugi & Pianta, 1992; Iversen, 1998) and with what surveys reveal about patent use (e.g. Levin et al, 1987; Cohen et al., 1987) not least in the face of cross-country differences. (Smith, 2001) Griliches (1990) observes that, ‘patent statistics loom as a mirage of wonderful plentitude and objectivity in a desert of data on technical and scientific progress.’ This is a

5 As is corroborated in chapter 6 on collaboration and patenting. See also chapter 1.

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mirage in part because of the variable quality of patent-data and in part due to limitations in the information it includes. Limitations in traditional measurements have left a range of theoretical and policy concerns in something of an empirical shadow.

Emerging approaches

In terms of understanding shifts in where innovation takes place, one important limitation is that the patent include only an inkling of who is involved (i.e. the names and addresses of applicants and inventors). The shadow masks what the increase of IPR use says about changing innovation patterns.

This makes it difficult to analyze the role of different types of economic actors in the long term relationship between patenting and industrial change; and it makes it difficult to analyze how systemic shocks (e.g. the bursting of the dot-com bubble in 2001, introduction of new legislation or reorientation of the patent system; specific policy measures to encourage research collaboration, patenting among university researchers, etc) may affect these different actors differently.

However, several approaches are now coming into currency that can successfully address some of these limitations. One set of approaches systematically seeks to increase information about the

‘who’ in the central question ‘who patents what and why’. The micro-level technique of individual-linked IPR data serves to link the applicant(s) of a given patent with information from other databases. The link between firm-level data and patent data involves a laborious and mistake-prone procedure. In the interest of some simplification, the early applications of the technique tended to retain some of the same sampling bias of surveys (such as Levin et al, 1987) that it was trying to improve upon: the most painstaking of the early studies based on matched patent-data (Bound et al, 1990) for example found itself constrained to manufacturing firms and ‘successful’ ‘small firms’.

Notwithstanding, it can be used identify the organization’s size, industrial activity, as well as performance measures (such as turnover): it can also be used to provide measures of ‘market structure’ by identifying the total number of companies in a given sector. More recent work has taken advantage of increasingly available patent and company data as well as vastly improved data processing power. The technique however is still laborious and mistake-prone: Magerman et al., 2006 illustrates the difficulty of achieving a certain level of accuracy in such a link. There is currently a set of concerted efforts in the US, Japan and Europe to provide the basis for firm-linked patent data with finance or accountancy data. (e.g. Thoma et al, 2009) In these large datasets, limitations persist.

The link with accountancy data provides a very rich basis for analysis. (for one application, see Martinsson, Lööf, Iversen, 2009) However, it constrains the focus to listed and, by implication, established companies. Other companies, such as start-ups, the majority of small firms, and public oriented research institutions are excluded.

This tends to preclude the ability to accurately study the full universe of economic actors. The exclusion of the larger universe of economic agents may serve to increase the signal over the noise of small and inconsequential patents, for example if the object of study is the relationship between R&D and patenting. In other scenarios, censoring the data towards the larger and more established quadrant of the firm-population may be less welcome. One area of study that it makes difficult is the relationship between IPRs and small firms. Approaches have had to compensate in order to include more complete datasets. Webster and Jensen (2004), for example, achieve better coverage in their study of Australian SMEs and patents, trademarks, and design. However they are left to estimate firm-size by the age of the firm, due to data-constraints. The quality of the firm-level data is important to the coverage and to the granularity of the data. A series of studies have emerged from the Nordic countries based on full-count data from government registries. These official data, which are linked to tax registries, are kept up-to-date and provide reliable figures for employment and turnover. Iversen (2003) studied the use of trademarks and patents by Norwegian SMEs during the 1990s. Kaiser and Schneider (2004) constructed a similar database for Denmark that subsequently led to work on outcomes of examination processes. (Schneider, 2007) In a pan-Nordic study, Iversen et al (2009) provided a comparison of SME patenting in these five countries based on the unique database resources. (see also chapter 4 below)

A similar technique—again provided conditions of anonymity are upheld— may also be useful to study certain types of inventors: a chief example here is to study the patenting activity of public research organizations researchers. A third technique can help to improve the explanatory power of surveys is to create panels over successive iterations or waves of a survey. In general, these approaches are able to provide unique new perspectives on how different types of firms approach and use the IPR system differently over time. They can provide a better picture of current sources of invention.