Intellectual property battleground

Intellectual property (IP) is the battle ground for the future of advanced manufacturing. IP is the term covering such areas as patents, knowledge, designs, trade marks, circuit layout rights in products and designs and proprietary information. In short, IP is something that goes to the heart of advanced manufacturing which seeks to create niche products. Knowledge is now at the centre of wealth creation and intellectual capital has replaced physical capital and tangible items such as bricks, mortar, stores and offices. It is all part of the intangible assets that take up an ever-increasing part of a company’s balance sheet. It is also an area that is rapidly changing and confronting organisations today.

First, the significance of IP and intangible assets in today’s economy cannot be understated. A 2007 US study, Intellectual Property - Intensive Manufacturing in the United States by Robert Shapiro and Nam Pham found that the market value of US companies was now based on intangibles. Share of value from intangibles had risen from about 25 per cent in 1984 to about 64 per cent in 2005, a remarkable increase in just decades.

There are two key IP challenges facing companies today and both of them boil down to one central point. Intellectual property is an investment. Taking out an international patent and enforcement costs money.

One challenge is the cost of obtaining international patents. One of the common misconceptions is that all one has to do patent the product here to be protected from imitation. The reality is one has to patent the product in every location where it will be sold. If it is to be marketed in the United States, it will need to be patented there. If it is to be sold in Portugal, a patent will need to be taken out in that market and in Japan if the product is to be sold there. The only place where a broad patent can be taken out is in Munich for the European market. This can be cumbersome and costly. Patent attorneys and translators cost money. It is also nuanced as different countries have different standards and laws vary across jurisdictions. Companies here can pay $500,000 for international patents.

The World Intellectual Property Organisation (WIPO), the body that oversees the protection of intellectual property and one of the 16 specialised agencies of the United Nations set up in 1967 to encourage creative activity and to promote the protection of intellectual property throughout the world, has been seeking to streamline the rules. However, politics often gets in the way. The level of standards vary around the world with many regarding America as having the lowest level of standards and many accusing the United States of bullying behaviour.

Australian born Francis Gurry, the director-general of WIPO, says we need a differentiated IP system to accommodate different countries. In an interview with Asiaone Business magazine, he said what was needed was a balanced system that allowed appropriate rewards but ensured sufficient diffusion.

Gurry says that China is likely to become the world powerhouse for intellectual property. China has the world’s third largest patent office and over one million patent applications are filed in China every year. Gurry recently told The Australian: “China's strength in intellectual property was apparent from the differential impact the global financial crisis had had on international patent applications. International patent applications coming out of the United States are down by 14 per cent. But from China, they are up by 20  per cent.”

Gurry predicts that the global financial crisis will accelerate the rise of China, and other economies such as Japan and South Korea. For Australia’s advanced manufacturers, it’s a clear indication of where the future lies.

Dr Beth Webster, an economist and Director of the Intellectual Property Research Institute of Australia (IPRIA) at the University of Melbourne believes we might still be 10 years off from having a world patent.

“There is resistance,’’ Webster says. “It is bound up with a lot of political issues about developed and developing countries and to have a world patent, you’ve got to get everyone to agree to have the same law and the same regulations and the same wording. It’s fraught with politics because every country is saying we want sovereignty in our own country and one of the reasons for that is that they can help their law so that it favours their researchers at the expense of international researchers so there is a little bit of wiggle room there.”

Another crunch issue is enforcement. A patent is basically a temporary monopoly right which allows the issuer to charge prices above marginal costs to allow the entity to recoup the costs to repay the costs of investment. This is a market where there are high fixed costs and comparatively low unit costs. Unless the idea can be protected from copying, no one will invest in it because it would not pay and unless the patent can be enforced, it means nothing. Enforcement matters because an IP owner will not be able to license, cross-license, sell their IP rights or enter into joint ventures if there is no confidence that the IP right confers exclusivity to brands, idea or creation. That value is created simply because people believe it can be enforced.

A recent study by the Intellectual Property Research Institute of Australia surveyed more than 3,700 Australian inventors. It found that allegedly illegal copying had occurred for 28 per cent of inventions that were the subject of a patent application between 1986 and 2005. In half these cases, a letter alleging infringement was issued and that letter successfully stopped the alleged infringing behaviour 40 per cent of the time.