Patents play a vital role in innovation and economic performance. Between 1992 and 2002, the average number of patent submissions filed in Europe, Japan, and the United States increased by close to 41% (Arora et al. 147). The escalating use of patents to protect inventions by private research organizations is closely linked to recent development in innovation processes, the economy and patent management. In the course of time, scientific and technological progresses have given birth to new waves of innovation, particularly in Information Technology and biotechnology. Additionally, the innovation processes have reduced their dependency on individual firms and become more dependent on interactions among global networks of players mostly in the private sector. Over the years, shifts in the legal and regulatory framework of patent regimes have given rise to more extensive domains of patentable stuff and increased the value of the patents (Caenegem 60).
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Patenting experienced an enormous surge in the last decade. During this period, 850,000 patent applications were filed in Europe, Japan and the United States compared to 600,000 submitted ten years earlier. There is no doubt that these figures mirror the growing importance of patents in sustaining research and development in the private sector. Throughout the world, private and public researches increasingly use patents to guard their inventions, and nurturing this trend has been the objective of patent policy in many countries around the globe. There is no doubt that the patent system has played a significant role in the area of research and development. This paper discusses the role played by the patent system in sustaining research and development in the private sector (Caenegem 64).
Although there are many reasons why individuals and organizations patent their innovations, the most basic one is the harmful effect that failing to do so can have on innovations. Since the middle of the 20th century, economists have detected some level of laxity on the part of industries when it comes to investing in research projects in the society. According to economists, this is due to the reduced economic benefits that industries deduce from these innovations. Since nearly all innovations are open to modifications, there is a possibility that they might end up benefiting the innovators’ competitor if there is no legal right put in place to protect the innovation. Additionally, economists warn that such ‘intangibles’ as innovations are commonly known could be susceptible to imitations if legal rights are not set up to protect them from manipulation. What this means is that without a patent system, a competitor might commandeer the innovation of an innovator from a different part of the world and pass it as his own (Rimmer 6).
In simple terms, failing to protect organisations from the possibility of someone else developing on their innovation makes them lose their motivation to engage in any form of research and development of new products. In cases where the innovation fails to generate enough capital, the organisation might not only fail to finance the R&D but it may also be forced to wind up its operations. The patent system motivates researchers to come up with inventions that are beneficial to the society. This is achieved through a set of official privileges accorded to writers, inventions and brand holders to determine whether and how their innovation works and how the novelties are utilised (Rimmer 8).
In fact, studies done in the past on this subject show that the strengthening of patent rights leads to an increase in R&D and innovation. In one such study carried out by Arora et al. (2001), it was established that patents played a significant role in promoting R&D in major organizations that dealt in health products. Devoid of an effective patent system, the authors established that effective R&D would decrease by almost 30% in the United States (Arora et al. 148). Guellec and Pottelsberghe (2007) also established analogous correlations between R&D and product patenting in Europe. The studies have also established a strong link between the patent system, scientific presentation, economic development, and the stimulus of invention (Guellec and Pottelsberghe 48).
At an instinctive level, brand patenting has been linked to sustained investment in novelty. According to the results of a survey carried out in the United Kingdom, patents were found to promote innovation for the simple reason that customers expect organisations to keep on delivering on their promise in a society where technological advancement and reaction keep on changing. The report also points out that the patent system helps organisations to align their domestic investments visibly in the area of R&D, modernisation, produce excellence, and customer consideration (Arora et al. 151).
Apart from acting as motivation for organisations to carry out more R&D, the patent system can also serve as an essential springboard for new organisations to acquire admittance to grants from financiers such as the business enterprise entrepreneurs. Once a new organisation reaches a particular level of expansion, the virtue of it handing its research and development into a patent system is a pointer of good management and signals that the organisation has delineated and stamped out a marketplace position for itself. This provides motivation for financiers to provide venture capital funding and this without doubt impacts positively on R&D (Guellec & Pottelsberghe 55).
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In fact, recent studies have demonstrated that patent systems in companies, which are in their early stages impacts positively on the timing and the total worth of venture funding received, and increases its possibility of catching the attention of high-flying investment financiers. A survey carried out on venture capitalist seeking biotechnology companies in the United Kingdom and Germany found that organisations patenting activities were consistent when it came to the issue of financing. According to the findings of the study, owning at least one documented patent submission decreased the period to the first capitalist financing by close to 60% (Arora et al. 155). This shows that the patent system is indeed an important instrument when it comes to overcoming the problems of start-ups since it aids in market access and provides the much-needed motivation for R&D by private developers.
The biological sciences are capitulating a remarkable selection of inventions, which consist of the manipulation, and utilisation of genes and genetic rudiments, and the level of patenting in this area has surged in recent years. Patents have materialised as the most crucial form of intellectual property protection for a large section of the biotechnology industry in particular the biopharmaceutical segment (Guellec & Pottelsberghe 57).
Indeed, patent protection for biotechnology innovations has been around for more than 20 years now. With each passing year, thousands of biotechnology patents are granted around the globe, giving rise to the booming development of new products, services, and tools in fields as varied as farming, pharmaceuticals, ecological cleaning, and industrial products and procedures. Ever since the 1980 case in the US Supreme Court pitting Diamond vs. Chakrabarty on the patentability of a Genetically Modified Organism (GMO), the number of inventions involving life forms have continued to rise in the United States and elsewhere in the world after the ruling of that particular case (Rimmer 11). With the passage of time, court rulings, legislation, bilateral trade accords and assessment procedures at the major patent offices have established the patentability of technology based invention. Over the years, the categories of patentable biotechnology innovations has enlarged to incorporate genes, gene fragments and genetic based tools and diagnostics, genetically altered plants and animals, and a horde of inventions resulting from the revolutions in genomics, proteomics, and conduit engineering.
By looking at the trends in biotechnology patenting, it is obvious that all of them show some special distinctiveness. To begin with, there has been a quick rise in patent grants. In the decade preceding the 20th century, the number of patents issued in biotechnology rose by almost 15% each year, compared with a 5% increase in the general patents (Arora et al. 157). Additionally, the share of American organisations granted patents is much higher in this area than in other sectors of the economy. There has also been a trend showing that start-up companies own most of the biotechnology patents compared to large established pharmaceuticals. This shows that the patent system has motivated new entrants in the private sector to initiate R&D in the biotechnology sector since they know that their firms are protected by the patent system (Guellec & Pottelsberghe 60).
The reason why there has been a sharp rise in biotechnology innovations can be attributed to studies showing that pharmaceutical companies place a high value on patents for protecting intellectual property than organisations in any other sector. In the biotechnology sector where innovation expenses are very high, regulatory approval significantly increases time-to-market, and a small amount of R&D projects give rise to marketed drugs, patents are seen as an important factor in safeguarding competitive advantage. Patents are also crucial to new businesses and college spin-offs in the biomedical sector since both depend on protected intellectual property as their main advantage in raising capital for research and development (Gallini 87).
For a long time, the patentability of software-related innovations has been a subject of contention. However, the recent years has seen software become patentable in most jurisdictions and this has significantly raised the number of software patents. Following lenient patentability trends, software patents have gone up in recent years in America. Various estimates show that the number of patented software grew from 5,000 per year in 1990 to almost 20,000 by the turn of the 20th century (Rimmer 15).
There is no doubt that the growth experienced in software reflects both amplified innovative activity and changes in patenting behaviours. Over the past decade, R&D spending by software and ICT firms has grown rapidly. In fact, Microsoft’s R&D expenditure alone grew from $270 million in 1991 to $4.4 billion by the beginning of the 21st century (Arora et al. 160). Majority of ICT firms have also indicated that they are generating more inventions than they did 10 years ago. However, the patenting strategies employed by these firms have also changed over the years. Majority of ICT firms indicate that they currently patent technologies, which they could not have done so just ten years ago even if that kind of technology was patentable back then. It is no secret that software and ICT firms perceive patents as a crucial bargaining chip in negotiating amalgamations with other firms and as a means of producing extra revenue through licensing. There is no doubt, therefore, that the introduction of patenting in the software and ICT sector has increased R&D in this area (Rimmer 18).
Indeed, changes in patenting and licensing behavior have also brought about numerous changes in innovation processes in the private sector. Over the last ten years, the significance of innovation as a motivator of competitive advantage in various economies has been on the rise. Unlike in the past, innovation has also become more global with small and medium-sized enterprises (SMEs) playing a progressively more significant role. These changes have undoubtedly contributed to more mutual innovation processes that involve a larger number of more varied players and inter-linkages among them. Growing levels of business patenting have undoubtedly helped inventors to enjoy the returns from their ventures and enabled collaboration through market-based exchanges of knowledge (Gallini 90).
Today, firms in varied industry sectors see innovation and R&D as a tool of enhancing their competitive advantage. Between 1990 and 2000, R&D in the private sector rose by $124 billion signifying 0.17 of GDP. Much of this growth was motivated by high-technology development and software sectors, in particular the ICT and pharmaceutical sectors. It is not surprising, therefore, that these are the sectors that saw the most rapid increase in patenting registrations (Arora et al. 160).
There is no doubt that stronger patent rights enhance R&D in the private sector especially in developing countries. An efficient patent system is believed to not only draw foreign investors but it can also magnetise sophisticated knowledge products, tools and service trade-in that can help in uplifting the knowledge base of private firms in third world countries. This is derived from the fact that the strength of a country’s patent system is directly linked with increased goods and service imports. Such imports no doubt incorporate tangible materials like tools, machinery and equipments for carrying out R&D. According to economists, this provides organizations with a source of information overflow with which to carry out R&D in various sectors (Gallini 92).
When a firm owns patent rights, investors are assured that the company is secure and thus they feel secure putting their money into the firm. The use of patenting to encourage investors is not only important to developed organisations keen on safeguarding their worth, invention and repute but its also important for start-up firms seeking to create a safe tributary of savings and invention. Contrary to popular belief, patent rights do not need to be under lock and key, but can be used in an active manner by firms in various ways to launch new and money-making markets, goods and services. Therefore, patented products can act as a source of income for the organisation (Gallini 95).
There is no doubt that the patent system plays a significant role in sustaining research and development in the private sector. Customers and the community gain from patenting through the numerous ranges of goods and services in nearly every sector of the economy where products have been developed based on patent safeguarding. In fact, some of the most imperative needs in the society rely considerably on the patent system for inventive solutions. The patent system not only aids in the provision of better pointers between vendors and consumers so customers can be better informed on what they are receiving but it also helps in cushioning customers from compromised quality and even hazardous generics. Over the years, patents have been linked with increased innovation in various sectors of the economy. Once a product has been patented, the innovator would feel comfortable in conducting R&D on the innovation since there is an assurance of maximum financial gain and the chances of a competing party commandeering on their innovation are significantly reduced.
Arora, Ashish, Fosfuri, Andrea, & Gambardella, Alfonso. Markets for Technology: The Economics of Innovation and Corporate Strategy. Cambridge: MIT Press, 2001. 147-169. Print.
Caenegem, William. Intellectual Property Law and Innovation. London: Cambridge University Press, 2007. 60-90. Print.
Gallini, Nancy. “The Economics of Patents: Lessons from Recent US Patent Reform”, Journal of Economic Perspectives, 16.2 (2002): 90-100. Print.
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Guellec, Dominique & Pottelsberghe, Bruno. The Economics of the European Patent System. IP Policy for Innovation and Competition. London: Oxford University Press, 2007. 46-60. Print.
Rimmer, Mathew. Intellectual Property and Biotechnology: Biological Inventions. Cheltenham: Edward Elgar Publishing, 2008. 5-18. Print.