Time to get my IP lawyer geek on. I ran across an article a couple days ago on VOX EU, a great site for econ/trade policy issues. The topic here is innovation, specifically patents as an indicator of innovation. Great subject for China, since the government here decided a number of years ago that building an "Innovation Society" was fundamental to the country's development plan. As I've written many times on this blog, the question of how to realize that goal is actually very hard to answer. Most folks will say that you need to spend a lot of money on education and R&D and then the innovation will follow, but it's not that easy. Therefore finding metrics that can be used to track such policies are invaluable – this article reveals what some of the difficulties are. Here's the intro:
Scholars studying innovation generally consider patents an imperfect indicator of research efforts. Mansfield (1986) and Griliches (1990), amongst others, underlined that not all inventions are patentable – and not all patentable inventions are patented. In addition, a patentable invention can be protected with one, several, or a large set of overlapping patents, and this “propensity to patent” greatly differs across industries and types of firms. Moreover, patenting is shifting from the traditional use of protecting one’s own innovations to new strategic uses (Guellec et al., 2007), further complicating interpretation of patent measures. These complexities cast doubt on the relevance of patent-based indicators for the measurement of innovation performance. Yet they are commonly used by international organisations to rank countries’ relative innovation performance.
Anyone who is in the IP biz, or for that matter anyone that has picked up China Daily and scanned the headlines, knows the importance the gov't here places on "keeping score" in the IP arena. How many trademarks and patents were filed, how many civil suits, how many CDs were steamrolled, etc. But there is a lot more going on here, and the numbers do not tell us a lot of valuable information related to patent filing strategy, relative scope of patent protection, etc. Note that this article, which is not China specific, does not mention perhaps the most misleading problem with aggregate patent stats in China – the value of an invention patent vs. a design or utility model patent, and the huge number of "junk" patents in the latter two categories.
OK, moving on. Remember that we are looking for some way to make these stats useful, or to find other metrics to guide "Innovation Society" policy. Here's the thesis:
In fact, two components characterize the relationship between patents and research and development (R&D): a “productivity” effect (the number of inventions generated by each researcher) and a “propensity” effect (the extent to which an invention is protected with one or several patents). In a recent paper (de Rassenfosse and van Pottelsberghe, 2008), we present empirical evidence suggesting that patent-based indicators also measure the productivity of research, if one accurately measures patenting activity and accounts for the role of several policy tools.
In other words, there are several factors that could help us to look beyond these aggregate patent numbers, R&D spending, and so on, and develop some conclusions about the relative success of Innovation Society policies, which hopefully can then lead to some better policy choices.
Ignoring some of the methodology in the paper (this post is boring enough as it is) and getting right to the heart of things: the authors focused on the number of scientific researchers in a country and the numbers of a certain kind of patent filing (I'll leave out that discussion as well as it relates to patent filing procedures). There is a direct relationship between the number of researchers and the number of patents filed, as you can imagine. So why do some countries vary from "the norm" significantly, and for some reason do not end up with a certain number of patent filings given the number of people engaged in research? Two factors have a bearing on this: research productivity and propensity to patent.
Research productivity is all about the relationship between a country's education and science & technology spending and how many patents are filed. The authors identified three factors that can boost research productivity:
1. The higher the human capital index is (or the more educated a country is), the more productive its research efforts are. In other words, countries with a more educated population have more priority filings per researcher. In this respect, Finland, Sweden and Austria score the highest, whereas India, China and Turkey score the lowest.
2. The number of scientific publications per researcher, an indicator of research quality, also has a positive impact on the observed number of patents. Switzerland, Italy and the Netherlands have the highest performances, while China, Russia, and Japan lag behind.
3. Gross expenditures on R&D per researcher are an additional determinant of the productivity of research. It seems that better equipped – or better-paid – researchers are more productive in terms of patent filings. Italian, Dutch and Swiss researchers have the highest relative expenditures, contrasting with Russian, Polish and Slovakian researchers.
No huge surprises here. I would like to see some numbers on per-researcher spending in China. I suspect that this is relatively low, particularly for researchers at public universities, but one would have to take into account total per capita costs, not just notoriously low items such as salaries.
The authors also noted three indicators of propensity to patent, factors that make it more likely that a given innovation will ultimately be patented:
1. Patenting fees are a significant determinant of the demand for patents: a reduction of about 10% in patenting fees would result in an increase in patent filings of 3 to 5%.
2. Stronger patent rights, such as better enforcement mechanisms, a lower number of restrictions or more patentable subject matters stimulate inventors to file more patent applications.
3. A country’s industrial structure also matters. For the same level of aggregate R&D intensity, specialization in the computer or the instrument industry leads to proportionally more patent filings.
In the case of China, #1 is not much of an issue compared to filing costs in other jurisdictions. The second factor has been debated endlessly, of course, and is arguably one of the most significant motivating factors behind government efforts to set up and implement China's modern IP legal framework, flawed though it is.
OK, long post. Any conclusions? A couple of easy ones:
1. This is more evidence that these aggregate patent filing numbers should not be taken too seriously. We already knew that, I suppose, but now we know why.
2. We should be reminded on a regular basis of the link between a country's IP enforcement framework and innovation. The gov't here talks about it all the time, and this represents a real policy choice.
3. Industrial concentration and specialization can make a difference. This is one of the government's justifications for a robust industrial policy. Although this can take the form of local protectionism, there is possibly a lot more going on with certain policies than merely the desire to assist local companies.
All three of these conclusions have political implications. The aggregate numbers are used by the Chinese government to show the world that it is serious about IP enforcement. Numbers are easy, so these are emphasized much more than they should be. The danger is that they become completely disregarded by the public.
The final conclusion involves foreign political influences and public perception of China's IP legal framework, a favorite topic of this blog. The West does not take kindly to industrial policy, which is anathema to the Washington Consensus. Insofar that industrial policy can be justified as a way to strengthen domestic innovation and, to some degree, help to bolster the case for a robust IP framework, it should be supported and not feared by laissez faire types.
OK, you've been more than patient. Enough law/policy wonkery.