Foundation for Research Science & Technology
Protecting and Managing Intellectual Property:
Patenting Decisions of
Publicly Funded Research Providers
David Webber
Economics & Strategy Group
Final Report
25 August 2003
Economics & Strategy Group
Table of Contents
Executive Summary
4
Main Report
10
Section1: Background and Objectives for the Evaluation
1.1.
Background
1.2.
Evaluation Objectives
1.3.
Evaluation Process and Report Structure
1.4.
An Evaluation Framework
10
10
10
11
12
Section 2: Literature Review: A Summary of Relevant Issues and Experience
15
2.1.
2.2.
2.3.
2.4.
2.5.
15
15
16
16
17
Coverage of the Issues
Patenting Within Models of Innovation
Number and Quality of Patents
Patenting Behaviour
Institutional Factors
Section 3: IP Strategies and Patenting Decisions: Survey Results
18
3.1.
3.2.
18
19
The Survey Group
Key Results
Section 4: Emerging Themes
24
4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
4.7.
4.8.
4.9.
24
25
26
26
28
28
30
31
32
Provider Attitudes to Creating and Protecting IP
The Benefits of Patenting
Constraints on Patenting
Patenting Practices Amongst Research Providers
The Quality of Recent Provider Patents
Organisational Strategies for Commercialising IP
Interpreting Patent Statistics
FRST Funding and Assessment Policies
The IP Policy Environment
Section 5: Policy Implications
33
5.1.
5.2.
5.3.
5.4.
5.5.
5.6.
33
33
34
34
35
36
Patent Data and Innovation System Performance
Patent Statistics as an Indicator of Provider Capability and Performance
The Consortium Model for Research Funding
Funding and Incentives for Proof of Concept Investment
Raising the Awareness of Researchers on IP Issues
Organisational Structure and Governance
Bibliography
39
Attachments
A. Patenting: A Layperson’s Guide to Terms and Procedures
B. Survey Questionnaire
40
45
Final Report, 25 August 2003, page 2
Economics & Strategy Group
Acknowledgments
The author is grateful for the time and effort that was taken by the staff of the research organisations
and others who contributed to this evaluation. Particular acknowledgment is made of the contribution
of Don Killick of IRL in helping us to understand the real “nuts and bolts” of the patenting process.
The author also appreciates the advice and support of FRST staff, especially David Bartle in the
design and conduct of this evaluation and Peter Morten’s helpful comments on an initial draft. Special
acknowledgment is also made of the highly efficient assistance of Amanda Gilbertson in conducting
and analysing the survey of research providers and in preparing the layperson’s guide to patenting
terms and procedures (Attachment A).
Any errors and omissions of course remain the sole responsibility of the author.
David Webber
Economics & Strategy Group
Wellington
Final Report, 25 August 2003, page 3
Economics & Strategy Group
Protecting and Managing Intellectual Property:
Patenting Decisions of Publicly Funded Research Providers
Economics & Strategy Group
Executive Summary
Purpose of the study
This evaluation of patenting behaviour amongst research providers was undertaken at the
request of the Foundation for Research Science & Technology (FRST). The evaluation had
three main objectives:
1. to learn as much as possible about how research providers manage and commercialise
intellectual property (IP), especially patents;
2. to assess the implications of increasing numbers of patent applications by research
providers in recent years in terms of FRST’s monitoring and evaluation of innovation
data; and
3. to consider these two issues in terms of the effectiveness of government policies for
research funding with a view to improving the delivery of funding policies and hence the
performance of New Zealand’s innovation system.
Design of the Evaluation
The evaluation was based around a survey of 14 research providers: seven Crown
Research Institutes (CRIs), five universities and two industry research organisations. The
evaluation also comprised a brief review of domestic and international literature on IP
protection and management issues and interviews with staff from the research institutions
and others involved in IP management and protection in New Zealand.
Analysis and Presentation of Results
The main results of the survey are presented in this report. For reasons of confidentiality, the
comments and responses of providers have been summarised and are not attributed to the
respective organisations. Analysis of confidential data received from each organisation on its
patenting activities in recent years also underpins the findings and conclusions in this report.
Main Findings
The following main findings contribute to the “learning” objective of this evaluation:
1. Understanding of the importance of IP is improving
Research providers are developing a much-increased awareness of the potential value of IP
and the relative advantages of the various forms of IP protection. FRST’s requirements for
providers to have statements of organisational IP policy have helped sharpen this focus.
However, the quality of these IP policies is highly variable and in several cases they do not
Final Report, 25 August 2003, page 4
Economics & Strategy Group
provide an effective framework for IP management. This does not necessarily mean that IP
issues are poorly managed in these organisations, but their policy statements could be
easily and substantially improved, if only by referring to the better examples.
Understanding of the commercial importance of IP, and therefore protection issues, is still
quite limited in some organisations. Moreover, there is uncertainty, and some resistance,
around the protection of valuable IP as opposed to disseminating the fruits of research. A
“corporate approach” to IP ownership and protection is sometimes viewed as being in
conflict with the wider purposes of the organisation, especially for some universities and
faculties. These factors impede the creation and improved management of commercially
valuable IP.
2. There is broad understanding of the benefits of patenting
Research providers understand that it is what you do with a patent that matters. Responses
to the survey indicate that IP/commercial managers in these organisations perceive a wide
range of potential benefits from patents, both direct and indirect. On the whole however,
direct financial gains – for example from licensing - have been relatively small and only a few
providers have organisational structures and expertise needed to support a fully commercial
approach to the assessment, protection and commercial exploitation of patentable IP.
3. Most providers face significant constraints in pursuing patents
Research organisations face real constraints in pursuing patent protection, primarily in terms
of the financial costs and the demands on staff time. Also, smaller organisations have limited
(probably insufficient) expertise and knowledge in this area. A consequence of these factors
is that patent protection is not sought for a considerable amount of suitable and potentially
valuable IP in these organisations. The question of “organisational purpose” often arises as
a negative factor when assessing the cost-benefit trade-offs involved in patenting, especially
for universities.
4. “Patenting strategies” are well-developed in only a small number of organisations
Most providers pursue patents on an ad hoc basis – i.e. as various research programmes
generate potentially patentable IP. However, a small number of providers are taking a more
strategic approach. This mostly involves building “families” of patents around particular areas
of protected IP and expertise (technology platforms). The value of this approach is that it
enables the organisation to build stronger, more flexible and potentially more profitable
commercial positions with the private sector, including other research organisations. There is
a need to broaden the understanding of other providers within the innovation system of the
methods and advantages behind this approach, including how to apply it within their
respective fields.
Several providers note the difficulties they face in committing the time and resources to an
effective patenting strategy. This often requires a “champion” or at least a small number of
dedicated and commercially-oriented staff to lead the process. An effective patenting
strategy is also certain to involve foregoing publication opportunities for a considerable
period of time –something which may count against the organisation in terms of other
funding and staff performance criteria. New Zealand experience supports conclusions in the
Final Report, 25 August 2003, page 5
Economics & Strategy Group
Australian literature that “scale” is critical to the on-going capacity of the organisation to
design and pursue a patenting strategy.
5. Mixed quality of recent provider patents
Measured in terms of direct financial income, the quality of patents reported by the public
providers in this survey might be considered to be relatively “disappointing”. However, the
task of comparing the “quality” of patents arising from Government funding in recent years
with previous periods is fraught with difficulty.
A good proxy for this comparison is likely to be changes in the quality of decision-making
processes within the provider organisations. On this basis, the evaluation supports the
conclusion that most (but not all) providers are becoming savvier about protecting
commercially valuable IP and this should have positive implications for the quality of patent
decisions.
6. Many stumbling blocks on the road to commercialisation
Several providers have established comprehensive and sophisticated procedures for
managing their IP. However, the step from laboratory to market is invariably a difficult one
and most providers appear to lack adequate resources and expertise in this phase. For CRIs
in particular, relations with the private sector investors remain problematic. The private
sector’s desire for “clean ownership” of IP is often a major stumbling block in this regard.
Relations between private firms and publicly funded research providers in New Zealand are
sometimes adversely affected by conflicts over IP and this is impeding greater
commercialisation of research.
Some CRIs and universities have established, with mixed success so far, separate
commercial entities for protecting and managing IP and for finding and negotiating with
commercial partners. There is a need to disseminate information – from both local and
international sources – concerning “good practices” and success factors in these areas.
Scale, business expertise, financial resources and proximity to relevant and financially
capable private sector investors are key factors in setting up these units successfully.
The research organisations with effective commercialisation strategies tend to be those
whose governance structures and objectives are fully committed to the commercialisation of
research. There are unresolved ownership issues for the Government with regard to both
universities and CRIs on this issue.
7. Patenting data is mostly a poor indicator of innovation, capability and research
performance
Patent applications have increased amongst most publicly funded research providers in
recent years, though apart from two or three organisations the overall levels are still quite
low. However, the international literature and the data gathered in this evaluation suggest
that patent numbers should not be used to assess the effectiveness of research funding
policies. They should also not be used to assess the performance or capability of individual
researchers or organisations. This finding supports a conclusion from a parallel evaluation
conducted for FRST focusing on private sector IP protection and management decisions.
Final Report, 25 August 2003, page 6
Economics & Strategy Group
That study also concluded that patent numbers are easily over-stated as a measure of
innovation system performance.
There are a number of reasons why patent data provides a poor indicator for these
purposes. The key factors are the time lags, the highly uncertain commercial value of many
patents, a propensity for some researchers to “game” around patent applications in applying
for research funding and a tendency amongst some providers for FRST funding to be used
to build underlying capacity, rather than specific patentable IP.
The analysis also suggests that FRST should exercise considerable care and flexibility when
setting patent applications as a milestone for research accountability as this may
compromise a more effective commercialisation strategy.
8. FRST funding policies are generally on track
Although it can be difficult to isolate the specific impact of FRST policies and funding
decisions on the actions and achievements of providers, this evaluation finds support for
most of FRST’s current interventions. Recognition and awareness of IP management issues
and the importance of effective commercialisation strategies are major examples.
Concerns were expressed, however, that FRST’s consortium-based funding policies can
exacerbate IP ownership conflicts. More work is required to understand and help improve
commercial relationships between providers and the private sector, especially around IP
ownership and risk sharing. Much more dissemination of good practices in patenting and
commercialisation is also desirable.
Nonetheless, consideration needs to be given to alternative funding strategies that tackle the
IP ownership problems specifically arising from institutional and governance structures and
objectives. This study proposes a “self-selection” approach amongst research providers in
terms of IP ownership conditionality (see below).
9. The IP environment needs careful nurturing
No particular problems were cited with the broader legal environment for IP management in
New Zealand. However, a small number of providers noted the importance for New Zealand
firms in maintaining a low-cost, highly efficient and highly reputable patenting regime. They
argued that attempts to weaken this regime to accommodate selective commercial interests,
especially in the pharmaceuticals sector, should be strongly resisted.
Policy Implications and Recommendations
The above findings give rise to the following (summarised) policy implications and
recommendations in relation to the second and third main objectives of the study:
The ”patent monitoring and evaluation” objective:
1. Patent statistics must be used with considerable care when attempting to interpret
innovation and commercialisation trends. Specifically, this evaluation suggests that:
Final Report, 25 August 2003, page 7
Economics & Strategy Group

there is a general correlation between patent statistics and innovation over time,
but the relationship is complex, inconsistent and subject to significant time lags,

patenting behaviour differs frequently between CRIs and university researchers
(and private inventors), thereby providing an unreliable basis for comparisons or
common policy development,

as a result, information on numbers of patents should not be considered a reliable
basis on which to assess or report the impact of public funding policies on
innovation at an aggregate level,

FRST should encourage providers to base their decisions to patent (or use other
methods of IP protection) on the basis of an optimal commercialisation strategy;
this necessarily implies that patent data will generally be an unreliable indicator on
which to base the assessment and comparison of research capabilities or the
commercial potential of individual research proposals.
2. Despite these problems, patent data should continue to be collected from providers as a
component of FRST’s monitoring and evaluation regime. Information on patenting
activity, in a form similar to that collected for this survey, could be requested annually
from research providers as a basis for identifying and discussing research
commercialisation strategies and opportunities.
3. In requesting and assessing this data, FRST should focus on qualitative, rather than
quantitative, analysis. The purpose of this monitoring should be to encourage good IP
management practice amongst providers rather than to monitor or assess performance.
This approach will require providers to also submit data and information on:

the strategic intent underpinning the decision to obtain patent protection,

the form in which the organisation expects to derive benefits from the patent, and

how the organisation proposes to manage the ownership arrangements relating to
the commercialisation of this IP.
The “innovation policy” objective:
4. The Foundation’s “consortium model” for research funding often generates potentially
important implications concerning IP ownership. Ownership arrangements (or just
expectations in some cases) are invariably “put to the test” during any follow-on
commercialisation of the IP. Further analysis of these issues should be undertaken to
ensure improved, and possibly more selective, application of the consortium model.
5. Public policies and organisations, including FRST, could do more to assist research
providers across the “proof of concept” stage in the commercialisation of research.
However, the issues here are complex and include financial, institutional and structure of
the economy constraints. The findings from this evaluation support a case for partial
funding of IP protection (especially patenting) costs amongst research providers, but only
in conjunction with a policy change which removes patents as a criterion in evaluating
research capability and/or the quality of funding proposals.
Final Report, 25 August 2003, page 8
Economics & Strategy Group
6. FRST could assist research organisations to improve the understanding and capabilities
of their staff with regard to successful patenting and commercialisation strategies.
Possible strategies include:

dissemination of good practice examples (e.g. licensing arrangements, restraint of
trade agreements, creative IP sharing arrangements, etc.),

support for IP management networks amongst providers,

defining conditions/opportunities for “strategic publication”,

risk assessment/management strategies for technology commercialisation,

pricing strategies for IP licensing, royalty splits etc.,

funding of IP management advisory support (similar to TechNet)
7. The duality of objectives for universities (teaching and research) and CRIs (research and
profitability) tends to dissipate innovation and commercialisation. There are few specific
actions that FRST can take on its own to encourage a stronger cultural and institutional
focus on innovation. However, the following two proposals should be considered:

For universities, the impending review of the PBRF should include consideration of
how this fund might be structured to contribute more effectively to the Government’s
IP management and commercialisation objectives, and

For CRIs, rather than trying to manage conflicting IP issues and policies on an
individual contract basis, FRST should consider the application of a “self-selecting”
approach. This would involve the creation of two separate funding mechanisms: one
for research leading to “unconditional” IP outputs and one leading to “public good” IP
outputs. CRIs would select which of the two funds they wish to contest for. Over time,
more commercially oriented CRIs would clearly opt for the former, thereby hastening
and strengthening the commercial nature and impact of their research. Other CRIs –
most probably those undertaking environmental and social research – would contest
for funds available under the public good category. Much of the current
“schizophrenia” would be avoided, while accountability for funding, including FRST’s
performance monitoring, would be simplified and strengthened.
Final Report, 25 August 2003, page 9
Economics & Strategy Group
Protecting and Managing Intellectual Property:
Patenting Decisions of Publicly Funded Research Providers
Economics & Strategy Group
Main Report
“We have a choice of using patent data cautiously
and learning what we can from them, or not using them
and learning nothing about what they alone can teach us.”
Jacob Schmookler (1960)
Section 1: Objectives and Framework for the Evaluation
1.1 Background
One of the main objectives of public investment in research and innovation is to increase the
quantity and value of intellectual property (IP) generated by providers. For this reason,
measures of codified IP are included amongst the range of performance measures
monitored by the Foundation for Research, Science and Technology (FRST). Patent
applications are a major component of this codified IP.
In 1996 constraints on public funding for research, science and technology, especially that
administered by FRST, were lifted to allow appropriable research. Possibly as a result, there
appears to have been a marked increase in recent years in the number of patent
applications sought by FRST-funded research institutions.1 However, it is unclear what this
increase in numbers means for the level, quality and sustainability of innovative activity and
for the impact of FRST funding decisions.
Since patent numbers are given some prominence in the Foundation’s performance
reporting, it is desirable to understand better what these numbers imply about IP creation
and protection. This evaluation has been commissioned by the Foundation in an attempt to
improve understanding and policies around these issues.
1.2 Evaluation Objectives
The terms of reference for this evaluation were developed around the following core
requirement:
Determine whether the recent increase in patent applications by
FRST-funded providers reflects a real and sustainable increase in the
level and quality of innovation, and associated intellectual property,
arising from Government funding.
Within this context, the evaluation was required to address the following questions:
1
In several cases, the percentage increases appear very high, though the actual numbers of patents or patent
applications by these institutions are still relatively small.
Final Report, 25 August 2003, page 10
Economics & Strategy Group

What are the key opportunities for providers in exploiting the value of intellectual
property developed from publicly funded research?

How might these opportunities be affected by incentives and structures within the
provider organisations and in their links to the business sector?

What are the key barriers, if any, to accelerating the development and
commercialisation of intellectual property amongst providers?

How can government funding, including FRST's policies and operations, be improved
to encourage this?

In view of the above, are patent application numbers a useful performance indicator
for FRST and how might this indicator be improved?

How can the findings and ideas from this study be communicated and discussed with
stakeholders in ways that may further support the development of the innovation
system?
These questions, and the findings and recommendations associated with them, have
therefore been organised under three broad objectives for this study:
1.
to learn as much as possible about how research providers manage and
commercialises intellectual property (IP), especially patents, within their
organisations;
2.
to assess the implications of increasing numbers of patent applications by research
providers in recent years in terms of FRST’s monitoring and evaluation of innovation
data; and
3.
to consider these two issues in terms of the effectiveness of government policies for
research funding with a view to improving, where possible, the delivery of funding
policies and hence the performance of New Zealand’s innovation system.
1.3 Evaluation Process and Report Structure
The approach taken to these objectives has involved several components:
i.
Initial discussions with FRST and other public sector officials working within the
Government’s general policy framework for innovation. These discussions focused
on agency experiences and perceptions of the role and value of patents in the
development and commercialisation of research.
ii.
A review of some local and international literature on the role and measurement of
patents – see Section 2 and Bibliography.
iii.
A survey of FRST-funded research providers – in particular Crown Research
Institutes (CRIs) and universities - focusing on IP protection and management,
patenting decisions and related commercialisation policies and activities – Section 3.
Final Report, 25 August 2003, page 11
Economics & Strategy Group
iv.
Follow-up interviews with a selection of FRST research providers on these issues.
v.
A synthesis - in Sections 4 and 5 - of the information and findings from these
activities.2
An initial proposal to include in the report several case studies of patent applications by
providers, as outcomes of publicly funded research, was subsequently modified. In its place,
the evaluation sought more detail on patenting decisions in the provider survey as well as
finding particular examples of patents that help to illustrate key IP strategies or other issues.
The terms and procedures associated with patent applications may be unfamiliar to many
readers. For this reason a “laypersons guide” to some of the more important steps is
provided in Attachment A. The guide does not, however, purport to explain all of the
processes or subtleties of acquiring a patent, nor the costs involved.
1.4 Evaluation Framework
With these objectives in mind, we have developed a “logical pathway”, or framework, for this
evaluation that assists in addressing the basic question: what do patent numbers say, if
anything, about the impact of the Government’s RS&T funding policies on IP creation and
management? The pathway (Figure 1) depicts eight main stages, starting from the logic that
underpins the Government’s policies and interventions in this area.
Key Assumptions
Figure 1 incorporates a number of assumptions that are not testable in the context of this
evaluation, but are taken as given for the purpose of this analysis:
i.
That Government funding agents, such as FRST, endeavour to implement and reflect
accurately the policy intentions of the Government in their specific funding decisions.
ii.
That these funding decisions support research and development that activities that,
in most cases at least, would not otherwise be undertaken by these research
providers (nor by other New Zealand-based providers), nor paid for by end-users.
iii.
That research providers are essentially “rational” in their patenting decisions – i.e.
that patents are sought where they are expected to facilitate or generate real gains
from the research, greater than the costs of patenting. (However, this assumption of
“rationality” does not exclude the possibility that some gaming behaviour may occur
in situations where Government funding agencies use numbers of patents as a
measure of the performance of research providers.)
iv.
That an increase in the number of patent applications, and/or in the commercial value
of patents held, does indeed reflect an increase in innovation with subsequent
economic benefits (including negligible negative externalities).3
2
This evaluation is expected to complement other work commissioned by FRST that focuses on the patent
decisions and activities amongst a sample group of private sector firms - i.e. recipients of public funding of
research under the TechNZ umbrella. See Hatfield (2003).
3 This is not a trivial issue. Some opponents of genetic modification, for example, believe that such innovative
research may eventually lower overall economic well-being.
Final Report, 25 August 2003, page 12
Economics & Strategy Group
v.
That most patents are only a starting point for subsequent innovations - the success
of which may depend on many other factors.
vi.
While recognising that policy and technological shifts may, over time, alter the
sectoral direction and balance of research and development funding – for example
towards bio-technology and micro-electronics industries - it is assumed that these
have not significantly affected the overall “propensity to patent” amongst NZ research
providers in recent years. (This may be a strong assumption. A similar caution
applies to the impacts of changes in the patent legislation or procedures, though the
evaluation has tried to pick up any such factors.)
Focus of this Evaluation
In terms of Figure 1, this evaluation focuses on stages 4, 5, and 6 of the framework, with an
expectation that the results will support ideas and conclusions that may contribute to stages
7 and 8. Within this, the thinking and actions of providers that take place within stages 4 and
5 of this framework are the main focus of the written survey of research providers and the
follow-up interviews. This involves consideration of issues affecting the relationship between
patenting and innovation such as:

the factors which determine the technical suitability of the invention/innovation output
for patent protection,

any cost or information barriers in the application and licensing procedures,

the expected life of the output, including the ease of inventing around the patent,

alternative strategies for maximising gains by maintaining commercial secrecy, etc.

any policies, structures or incentives within the institution which may affect patenting
decisions

commercial relationships with private firms, investor partners, or potential licensees,
etc.

expectations of the relevant market potential of the output and hence the priority
locus for protection.
Steps 6 and 7 are primarily the focus of the data analysis (and possible later case studies
which may be conducted by FRST). As indicated in Figure 1, time lags may be an important
consideration in the degree to which the commercial value of a patent is assessable at any
given time. However, it is essential to establish not just changes in the number of patent
applications and the level of subsequent commercialisation, but whether these imply
economic gains in excess of the funding costs.
Step 8 ensures that the results of the evaluation and analysis feed back into the policy
design and implementation process. It is expected that this stage may involve some
collaborative work between the evaluation team, FRST staff, research providers and users.
Final Report, 25 August 2003, page 13
Economics & Strategy Group
Figure 1. A Logical Pathway for Assessing Patent Data
as a Measure of the Impact of Public Investment on Innovation
1. Key
Policy Objective
2. Funding
Decisions
Government seeks to
encourage innovation
and economic growth
through public funding of
RS&T
FRST allocates funding
to providers who
undertake research with
real economic and
commercial potential
8. Implications for
Design &
Implementation of
Funding Policies
Learning process
3. Research
Activities/Outputs
7. Impact
Assessment
Research providers apply FRST
funding to programmes that:
 would not otherwise have been
undertaken
 can and sometimes do result in
potentially valuable IP in the
form of fundamental discoveries
(inventions) or incremental
innovations
6. Analysis of Patent Data
Analysis of the extent to
which trends in patent
applications, patent
content and associated
commercial decisions
reflect real increases in
the economic value of
Government-funded
innovation
Valid attribution of patenting data to
public funding objectives requires:
 Reliable data on patent
applications of FRST providers
 Information on associated
commercial strategies/results
 Comparable time series data
4. Patenting Decisions
Providers seek to protect some
of this IP through patenting
taking into account:
 Technological suitability
 Cost/benefit assessments
 Institutional factors, incl.
commercial relationships for
research and development
 Optimal IP protection strategy
5. Type and Location
of Patent
Providers determine
location of patent(s) on:
 Location of expected
markets & competitors
 Type & level of
protection required
 Cost/complexity of
processes

Time lag issues
Final Report, 25 August 2003, page 14
Economics & Strategy Group
Section 2: Literature Review – A Summary of Relevant Issues and Experience
2.1 Coverage of the Issues
A reasonably comprehensive review of the literature on patents was conducted by Basberg
(1987). Unfortunately, there is little recent work, as comprehensive as this, that better
incorporates the more recent development of the software and biotechnology research
industries.
Basberg divided the literature into three main categories:
1. literature dealing with the legislation and functioning of the patents system
2. literature dealing with the rationale of the system, and
3. literature dealing with patents as technical information, including the use of patent
statistics as a technology indicator.
The latter category is clearly of most interest to this study. Within this category, however,
Basberg identifies three broad groups:
i.
the “core” field comprising research dealing mainly with the relationship between
technological change - as measured by patent statistics - and economic
development,
ii.
research which examines patent data as an indicator of the international transfer of
technology, and
iii.
studies involving the analysis of the innovation process itself in order to assess and
evaluate the output of research activity.
All three of these topic areas are of relevance to this evaluation. However, the first and third
groups are of particular interest. With regard to the third group – the innovation process –
FRST has already commissioned work that goes some way to understanding and explaining
the innovation process in New Zealand – see Webber (2000), Morten (2001). Accordingly,
this brief review of the literature has concentrated on the core field involving the relationship
between patents and technological change. This seems to deal most directly with the central
issue underlying this evaluation: is the Government getting value for money from publiclyfunded research and what else could it do to assist that goal?
2.2 Patenting Within Models of Innovation
Many discussions in the literature of the relationship between patents and innovation are
founded on models in which the basic innovative process comprises an identifiable set of
stages: research, invention and development, innovation, production and diffusion. Patent
applications tend to occur late in the second stage of invention and/or development.
Clearly, not all innovation occurs through this traditional “staged” process. Particularly in
recent years, the validity of this description would seem to have been challenged by the
increasing sophistication of some technologies (i.e. many more, often smaller, technical
advances), the shorter length of time between invention, development and marketing
Final Report, 25 August 2003, page 15
Economics & Strategy Group
(including replication by competitors) and the generally shorter “shelf life” of many
innovations (as a result of both supply and demand factors).
2.3 Number and Quality of Patents
However, even in the above, traditional, model of the innovation process, patents may cover
only a small subset of the total research and development activity. Many inventions and
innovations are not patented, and not all inventions that are patented are commercially
valuable. In Figure 2 below, we have expanded slightly Basberg’s summary of the literature
in terms of these interconnections:
Fig. 2
Inventions
Copyright
Innovations
Patents
(not all from inventions)
PVRs etc.
The number and quality of patents are therefore closely related issues. Analysis conducted
within the Foundation on patent applications in New Zealand tends to confirm that there are
a large number of patent applications made by “backyard inventors” that have limited
relationship to commercial research or current market applications. Moreover, international
experience indicates that the proportion of inventions being patented appears to have
decreased during the twentieth century. Some very important inventions that went on to
major commercial success were never patented (e.g. penicillin).
Even where good time series data exists, numbers of patents may not necessarily imply
anything about the value of the underlying research or, therefore, about trends in the
associated process of innovation. Time lags often further complicate the assessment of
patent data.
2.4 Patenting Behaviour
The relevant international literature – of which a significant part is cited in Basberg –
discusses the many factors affecting the decision to patent (or to extend a patent). Some of
these factors – such as complexity of process, cost-benefit considerations, secrecy strategy,
avoidability of the patent (i.e. inventing around it), choice of jurisdiction, etc – are directly
relevant to this evaluation. However, while the literature acknowledges the potential
Final Report, 25 August 2003, page 16
Economics & Strategy Group
importance of these factors, it is inconclusive on their overall impact. The decision to patent,
or not patent, a particular invention or research outcome seems highly dependent on a range
of circumstances. In recent years, the speed with which markets can render an invention or
technology obsolescent has become a much more significant factor in the decision.
2.5 Institutional Factors
The literature on patenting tends to view institutional factors in terms of the differences
between industries and countries. Patent policies differ across industries, though not in any
easily predictable way. However, size of firm is argued to play a clear role in the patenting
decision; historically, at least, smaller firms tended to use patenting more frequently
(Schmookler, 1975). At least during the mid-twentieth century, small firms also seemed to
use a higher proportion of their patents for commercial purposes compared to larger firms.
Differences in patent legislation – between countries and within countries over time – may
also affect the quality of conclusions derived only from trends in patent numbers. This
problem includes consideration of the level and duration that a “patent applied for” status
may convey over time and under different jurisdictions.
There is a broad conclusion that, for any country, patents registered in the US may therefore
provide a more reliable measure over time of a country’s linkage between patents and
technology development. The fact that higher profitability may be associated with the US
market also suggests that this measure may better capture “higher value” patents.
The increasing importance of government-funded research and development in the second
half of the twentieth century is considered to have reduced the importance of patenting by
reducing the need for ground-breaking private research. Analysis of the patent data should
therefore consider trends in patent numbers arising from both public and private research
over time.
There appears to be very little discussion of the impacts of institutional relationships between
research providers and private firms on patenting. Similarly, there appears to be a dearth of
research on the incentives to patent amongst scientific staff within public research
institutions. Moreover, these incentives may well differ significantly between pure research
organisations and university research environments.
Not surprisingly, Basberg’s review of the patent literature concludes that there are “a number
of problems connected to the use of patent statistics as a technology indicator” (1987.
p.138). Great care must therefore be exercised in the interpretation of data. All the more so
as the increasing rate of technology change over the last 15 years may well have further
complicated the links between patents and innovation.
Final Report, 25 August 2003, page 17
Economics & Strategy Group
Section 3: IP Strategies and Patenting Decisions: Survey Results
For the purposes of this Evaluation, a formal survey was conducted across a selected group
of FRST-funded research providers. The survey focused on IP strategies and patenting
decisions, but also requested from each provider rather more detailed patent information
than the Foundation normally requests as apart of its monitoring of performance indicators.
A copy of the survey questionnaire is attached as Attachment 2.
3.1 The Survey Group
A total of 14 institutions were surveyed. The main criteria for the selection of these
institutions were:
i.
Recipients, current or recent, of significant levels of funding from FRST for research
and innovation;
ii.
Reporting to FRST of some degree of patenting, or other IP protection, activity in
recent years; and
iii.
Significant generators (actual or potential) of IP within New Zealand’s innovation
system.
These were divided into two groups of 7 institutions each for analytical purposes: Group A –
CRIs, and Group B - Universities and Other Research Organisations (Figure 3). All 14
institutions responded to the survey.4
Figure 3: Institutions Surveyed
Group A:
Crown Research Institutes
1
Ag Research Ltd
Group B:
Universities and
Other Research Organisations
University of Auckland
2
Crop and Food Research Ltd
University of Canterbury
3
Forest Research Institute
University of Otago
4
University of Waikato
5
Inst. of Geological and Nuclear
Sciences
Hort Research Ltd
6
Industrial Research Limited
Fonterra Ltd
7
National Institute of Water &
Atmospheric Research Ltd
Wool Research Organisation of NZ
University of Wellington
In several cases, responses were made on behalf of the above institutions by their
commercial arms or subsidiaries – e.g. Celentis (Ag Research), Uniservices (University of
Auckland) and Vic Link (Victoria University of Wellington).
4
Presentation of these results is structured to protect the confidentially of individual responses, as assured by the
Foundation.
Final Report, 25 August 2003, page 18
Economics & Strategy Group
3.2 Key Results
A summary presentation of the survey responses is provided in the following table. Within
this summary equal weight has been given to all responses, irrespective of institutional size
or level of IP creation or protection activity.
(i) IP Policies
Group A Responses
Group B Responses
1(a) and 1(b)
Institutional IP Policies
All organisations in this group
have written “IP Policy” or “IP
Strategy” documents. Some exist
in “draft” form and are undergoing revision.
The content and level of detail
vary, but most include a definition
of IP, ownership issues and some
discussion of how the
organisation proposes to manage
the commercialisation of its IP.
2. IP Policy
development in recent
years
Most IP policies have only been
developed in the last 3-5 years.
Several are under-going revision
aimed at strengthening their
commercial focus.
All organisations in this group, except
one, have written IP Policy or IP
Strategy documents. The status of
some of these documents – in terms
of formal ratification by governing
boards – is unclear.
Most focus on ownership issues –
including in some cases the different
treatment of IP for academic staff
and graduate students.
Most documents are relatively light
on the details of IP management
procedures or objectives. However,
there are two important exceptions
where commercialisation strategies
are well developed.
Most IP policies in this group are
seen as requiring some degree of
revision and expansion - and/or
formal ratification - to become more
operationally relevant.
(ii) IP Protection and Patenting Decisions
3. Importance of IP
Protection
- uncodified
- NZ provisional
- PCT applications
- National patents
- Copyright
- Reg Design / TMs
- PVRs
- Other
Group averages: (1-7 scale)
Group averages: (1-7 scale)
6.7 = very important
5.4 = important
5.4 = important
5.7 = important
4.6 = important
3.4 = less important
3.2 = important only to some
n/a
4.7 = important
4.9 = important
5.6 = important
6.6 = very important
4.3 = important
3.6 = less important
1.3 = not important
n/a
Patent applications lodged both
in NZ and in other jurisdictions
are ranked the most important
form of codified IP. However, the
importance of non-codified IP is
rated as high or even higher by
all Group A respondents.
Patent applications lodged in foreign
jurisdictions are clearly ranked the
most important form of codified IP.
Non-codified IP is important to Group
B, but significantly less so compared
to Group A.
Final Report, 25 August 2003, page 19
Economics & Strategy Group
4. Trends in Patent
Applications arising
from FRST funding
-
cf June 2001
cf last 5 years
5. Income / benefits
from holding patents
via:
4 Similar, 2 Higher, (1 N/a)
6 Higher, (1 N/a)
Clearly rising trend
Clearly rising trend
(One institute declined to answer
this question)
5 yes, 1 no
5 yes, 1 no
5 yes, 1 no
6 yes
5 yes, 1 no
6 yes, 1 no
5 yes, 2 no
6 yes, 1 n/a
5 yes, 2 no
7 yes
Perceived benefits are widely
spread across various objectives
Perceived benefits are widely spread
across various objectives
6. Other Benefits
Staff performance measure
Negotiating chip with investors
Portfolio of patents may help to
establish a technology “platform”
for commercial development
and/or/ partnerships
Building commercial activities
Attracting partners
Equity contribution to partnerships
Motivational tool for R&D staff
Strategic business asset
Marketing and promotional tool
7a. Direct income from
patents (licensing,
sale, royalties)
Highly variable results from $0 to
several $ million p.a. in some
cases
Significant income also from
royalties on PVRs in recent years
Mostly small in this group, but two
important exceptions involving
several $ million of income in recent
years
8. Comments on
benefits and problems
of patenting in other
national jurisdictions
Cost is an important
consideration, but it is the
complexity (including time lags
and lack of consistency in
interpretations) which is cited as
the key problem.
Cost and complexity were uniformly
cited as major considerations. Patent
attorneys are regarded as essential,
but provide no guarantee of
satisfactory outcomes.
9. Constraints on
patenting
Group averages (1-7 scale)
Group averages (1-7 scale)
5.7 = very significant constraint
5.3 = significant constraint
3.7 = modest constraint
4.6 = significant constraint
4.7 = significant constraint
5.0 = significant constraint
4.6 = significant constraint
2.1 = not a constraint (excepts.)
4.6 = significant constraint
4.7 = significant constraint (excepts.)
-
licensing
sale of patents
research funds
related products
reputation
2 Similar, 5 Higher
7 Higher
- direct financial
costs
- staff time + nonfinancial costs
- tech. non-suitability
- loss of secrecy
- p/s partnership
needs & issues
Final Report, 25 August 2003, page 20
Economics & Strategy Group
10. Collaboration with
NZ private sector as
contribution to
patents/commercial
activities of those firms
11. Collaboration with
foreign private sector
as a contribution to
patents/commercial
activities of those firms
12. Impacts of FRST
funding on
collaboration with NZ
private sector, leading
to patents and/or
commercialisation
Group average (1-7 scale)
Group average (1-7 scale)
4.4 = significant contribution
5.7 = very significant contribution
Group average (1-7 scale)
Group average (1-7 scale)
2.9 = minor contribution (but
significant for two institutes)
3.6 = modest contribution
Group average (1-7 scale)
Group average (1-7 scale)
4.4 = significant contribution
3.7 = modest contribution overall (but
highly significant for 1 organisation)
(iii) Future Planning
For questions 13 and 14, the majority of participants’ responses are cited below. Not all
comments are included and some have been summarised and reworded slightly so as to be
representative of a common view. However, the views presented are not necessarily
consistent and are in no particular order.
13. Comments and suggestions for improving IP policies and linkages to innovation
Group A Responses
1. Ownership of IP is a critical issue. Joint ownership of IP is very difficult to manage.
Should aim for “benefit sharing”.
2. Clarification is required of the “public good / benefit to NZ” objectives in managing and
commercialising IP.
3. Govt. funding policies can divert efforts away from best commercial options.
4. More funding required for pre-commercialisation phase.
5. Publication criteria often work against best commercial strategy. Patent applications
could be used more as “proof of delivery”.
6. Patenting of “research tools” may effectively cut off innovation by others.
7. Research funding for innovation does not necessarily promote IP.
8. Proving the IP value involves work that may not advance the research against FRSTagreed milestones or required outputs.
9. Research funding should be able to be diverted into this area of proving the IP.
10. CRIs require freedom and flexibility in terms of the IP-sharing arrangements they may
enter into with the private sector.
11. The Government’s policy framework for CRIs is forcing them to become “schizophrenic
beasts in the delivery of government outcomes”. The direction to become risk-taking,
entrepreneurial institutions is at odds with conservative central controls (CCMAU). The
Crown Entities Bill may exacerbate this.
12. CRIs want to be seen as a “legitimate business partner” in terms of IP ownership with the
private sector, especially in the TBG scheme. This would facilitate post-TBG investment
and participation by the CRIs.
Final Report, 25 August 2003, page 21
Economics & Strategy Group
13. Frequent contestable bidding processes stifle innovation, especially for research that
falls outside “pre-determined” bounds. New contestability of NSOF will be negative for
innovation.
14. CRIs simply lack the resources to fulfil their commercialisation potential.
Group B Responses
1. Consortia funding policy is positive, but finding second end-user with adequate
resources to commit to the project can be a problem.
2. Recent amendments to the Patents Act to allow “spring-boarding” of patents may have
undermined international perceptions of the strength of the regulatory environment for IP
protection in NZ.
3. CRI model means that some FRST funding of CRIs has been used to compete against
NZ research and private sector interests
4. “Clean” ownership is required for most effective commercialisation of IP. Some CRIs
don’t understand this.
5. New “pre-seed” funding facility is expected to be very beneficial in filling the gap between
the science lab and the commercial entity. NZ firms are too risk-adverse.
6. Filing of NZ provisional patents is important – must remain a cheap and efficient process.
7. Current legislation requiring ministerial approval for universities to set up their own
technology start-up companies is outdated and obstructing investment in IP.
8. Research funding needs to include provision for IP protection costs.
9. Performance based research funding needs to balance the “publish or perish” incentive
with an equally strong “innovate and patent” message.
10. Consortia model may act against commercialisation of new IP, if IP sharing is required. A
fee-for-service basis may be a far more effective means of securing collaboration. FRST
funding policies are too rigid on this issue and militate against successful exploitation of
IP. In some cases, fewer players may be better.
11. Conflicting performance measurement signals for university academic researchers can,
and have, spoiled potentially fruitful development of IP.
12. There are inadequate numbers of “technology transfer professionals” in NZ and training
is difficult to obtain. No professional body. Expertise must be sourced offshore.
Government assistance in this area is important.
13. PBRF provides incentives for academics to publish, at expense of patenting.
14. FRST policies are not unreasonable, but seem to assume that commercialisation of IP is
a much more direct, speedier and predictable process than the reality.
15. Expecting serious innovation to occur as a by-product of teaching in universities is very
naïve. If Government wants innovation to have higher priority, it should say so and fund
accordingly.
16. There is a simple lack of adequately resourced (medium-sized) private sector partners in
the NZ economy.
17. Innovation in some NZ universities is “at international levels”. What is needed is new
funding to prove concepts at pre-commercialisation stage, similar to TechNZ funding for
private companies – i.e. an equal footing.
Final Report, 25 August 2003, page 22
Economics & Strategy Group
14. Further Comments on IP Protection
Group A Responses
1. Great care must be exercised in the interpretation of patent data, particularly in terms of
any relationship to innovation.
2. Support the objectives of this survey, particularly the need to more carefully assess the
performance measurement implications of patent numbers. IP management appropriate
to the technology is the key.
3. IP protection only makes sense in the context of a specific business strategy.
4. Best place for innovation is in private firms. Universities should concentrate on providing
the individuals with the knowledge and skills to take up these positions.
Group B Responses
1. The IT (including software) industry protects IP largely through copyright and therefore
falls outside the scope of this (patent–focused) survey. However, it is a significant source
of commercial activity for some NZ research providers.
2. The AUTM (Association of University Technology Managers) is a valuable source of
technology transfer experience in North America.
Final Report, 25 August 2003, page 23
Economics & Strategy Group
Section 4: Emerging Themes and Lessons
The main findings from this work are cited and discussed in this section. They contribute
directly to the “learning” objectives of this evaluation.
4.1 Provider Attitudes to Creating and Protecting IP
Responses to this evaluation support the view that research providers are developing a
much-increased awareness of the potential value of IP and of the relative advantages of
various forms of IP protection. To some extent, this trend is reflected in an increasing
number of patent applications, though considerable care is needed in the interpretation of
this data (see Section 4.6 below).
Clearly, the IP held or generated by providers comes in many forms – as ideas, processes,
techniques, products, compounds, etc. Not all of this IP can be codified, and only a relatively
proportion may be best protected through patent applications. At present, many providers
acknowledge that they are unsure of the commercial potential of the IP they hold and
therefore whether patenting, or some other form of protection, is necessary, viable or
potentially profitable. The overall level of understanding of the issues and options around IP
protection remains quite limited within many research organisations, with in-depth expertise
on patenting in particular residing possibly in only one or two staff members. It is often a
challenge for these specialists to pro-actively influence the research staff in their
organisation towards greater commercialisation, especially at the initial, research design,
stage.
This asymmetry - between the location of IP creation and the expertise in valuing, managing
and commercialising it – creates stresses within these organisations. In the case of both
CRIs and universities there are often important differences between the needs and
objectives of research staff and of those of the “commercial managers” appointed to identify
and generate income opportunities. In some cases, these difficulties may have been
lessened by the establishment of separate organisational mechanisms or entities at armslength from the research activity to manage the commercialisation process. However, even
here, differences in objectives are still evident to some degree. It is apparent that the
Government’s objectives and requirements for rigorous commercialisation of IP do not
always sit comfortably with the traditional scientific research roles and procedures of most
CRIs or with the other academic/teaching functions of universities.
Public policies may contribute to these difficulties around the relative priority of
commercialising IP. For example, aspects of the legislative framework, funding
arrangements and the Government’s balance sheet expectations of CRIs are not entirely
clear or consistent on this issue, though perhaps a little less so than in previous years.
Similarly, the performance assessment criteria for university teaching staff do not provide
clear messages concerning the merits of commercialising research. In fact,
commercialisation of research may conflict with other university funding criteria and teaching
priorities.
The problem becomes most acute for public providers at the point when substantial
investment is required – either research time and/or money (usually both) – to bring
potentially valuable IP through the pre-commercialisation stage to a point of real interest to
potential investors. However, this is not just a funding issue. It raises deeper questions
Final Report, 25 August 2003, page 24
Economics & Strategy Group
concerning management’s views of priorities in the role, objectives and capabilities of these
research organisations in achieving benefits for New Zealand.
This evaluation involved limited coverage of private sector research organisations. However,
it indicates that these organisations do not encounter these problems to anywhere near the
same degree in aligning research funding, resources, staff motivation and the commercial
management of research outputs.
4.2 The Benefits of Patenting
The evidence from this evaluation broadly supports the conclusion in Grossman (2002) that
“…it is clear that merely having a patent is no guarantee of financial reward. It’s how you
exploit the patent that matters.”
Specific benefits identified amongst the surveyed providers include:

The benefits derived from patenting vary considerably according to the type or “class”, of
the patent involved – e.g. “base” patents (a fundamental technology/invention), patents
that form part of a wider family or portfolio of protected expertise, speculative (preemptive) patents, etc.

On the evidence from this evaluation, it is often very difficult to assess (ex ante) or
measure (ex post) the financial benefits of actual patents. The principal value to the
organisation may be indirect – i.e. the degree to which the patent contributes to the
organisation’s wider research and commercialisation strategies.

Direct revenues from patents (licensing and sales) have mostly proved quite small for NZ
providers in recent years. Cost-benefit can seldom be measured or supported on this
basis.5

Some providers see the value of a patent as dependent largely on the degree to which it
contributes to a portfolio of patents underpinning and protecting a “technology platform”.
This can be defined as an area of knowledge, expertise and innovation that, hopefully,
will have significant flow-on commercial benefits through related processes products, or
potential future applications.

The indirect benefits of patents, including the technology platform concept, may be
considerable in terms of the organisation’s reputation and credibility, specific commercial
or research contracts, or as a bargaining chip in cross-licensing or joint venture
negotiations.

Although the domestic market revenue opportunities may be small or relatively
unimportant in income terms, a “home country” patent can add credibility in the eyes of
potential commercial partner or licensee.

Initial patent application establishes a “date of first filing” which may be legally important
for subsequent patenting protection decisions or challenges.
5
The international literature suggests that, for universities, even in a best-case scenario research
commercialisation may only contribute 3-5% of total university revenues.
Final Report, 25 August 2003, page 25
Economics & Strategy Group

Time lags in the patenting process may give the organisation an opportunity (window of
time) to further develop the science and/or associated commercial strategy.

Patents, irrespective of value, may simply help attract or secure subsequent public or
private research funding.
4.3 Constraints on Patenting
A lot of potentially valuable IP, suitable for patent protection, is not patented by NZ research
organisations. The main reasons cited were:

A lack of commercial expertise in the organisation may mean that the commercial value
of the IP is significantly underestimated.

Protecting the commercial potential of the IP may be outside or peripheral to the brief of
the originator or the objectives of the organisation.

Any “decision to patent” will usually require a significant investment of staff time – to be
offset against very uncertain benefits in many cases.

There can be major difficulties in determining what has already been patented – for
example in the bio-technology area - and whether the “new” process etc. will infringe, be
challenged etc.

Complexity, and the associated legal fees and costs, of patent applications tend to
increase exponentially in foreign jurisdictions.

The on-going financial costs of (multiple) patent renewal may be unattractive relative to
their perceived value.

Costs (time and money) in legal defence of a patent may be beyond the resources of the
organisation – even though the costs of defence may be justified by the potential value of
the patent.
On the whole, however, providers maintain an open and positive view of patenting as a key
form of IP protection.
4.4 Patenting Practices Amongst Research Providers
Providers’ increasing awareness of the commercial potential of IP is leading, with
considerable lags in some cases, to improved strategies for managing and protecting these
assets. A small number of providers are well out in front in terms of developing and
implementing more sophisticated IP protection strategies, particularly with regard to
patenting.
Although there is no single or “ideal” strategy in the approach taken by providers to
patenting, some of the key elements, or “good practices”, emerging from this evaluation are:

A major decision is often required “up-front” regarding the degree to which the benefits of
patenting may be offset by the loss of commercial secrecy. For many inventions or
Final Report, 25 August 2003, page 26
Economics & Strategy Group
discoveries, the market characteristics and potential of the IP, and hence the appropriate
path to market, may suggest an alternative form of IP protection.

There is invariably a major trade-off to be considered between patenting and other forms
of managing the IP, especially publication. Publication usually implies positive, shortterm gains (reputational and possibly financial) for the research individual(s). These
gains may extend to the organisation in some cases. However, publication invariably
jeopardises an alternative strategy for IP protection, such as patenting, from which the
longer-term commercial gains may be uncertain, but potentially greater. How
successfully the organisation handles this trade-off appears to depend largely on clarity
in the organisation’s purpose and objectives, its ability to assess commercial opportunity,
its knowledge of patenting processes and its supporting staff reward and remuneration
policies.

Filing a patent application in New Zealand is invariably the first-best strategy for
acquiring patent protection, irrespective of the longer-term market or IP protection
possibilities. New Zealand is generally regarded as a relatively efficient and low cost
starting place for patent protection, providing time and scope for entry into an
international patenting process – see Annex A.

A provisional patent provides a period of time during which an astute organisation may
develop improved specification, for inclusion in subsequent patenting documents
(provided no publication has occurred). This is sometimes referred to as “ring-fencing”.
However, there are also strong arguments for “getting it right”, as far as possible, at the
provisional filing stage.

The complexities of patenting strategy, procedures and regulations make the use of a
patent attorney highly advisable, even where there may be no real intention to seek
protection beyond the provisional stage.

An effective patenting strategy usually involves a substantial investment of time and
capital. The net benefits of patenting need to be carefully considered, especially where
the major gains to the organisation are indirect, or long-term, or dependent on
subsequent research and investment capabilities.

“Successful” patenting strategies are usually just one part of a well-defined strategy for
commercialisation.

Applying for a patent can be a long and intensive process and usually benefits from
having one or two “champions” within the organisation to manage it through. This may or
may not be a member of the original research team.

As noted above, patents may be used within a strategy to develop a comparative or
competitive advantage around a particular process, product or expertise (technology
platform).

A patent must be ”robust” to be valuable. The suitability of patenting as a form of IP
protection varies across different products and fields of technology, due in part to the
ease of copying or replication. For example, the chemical composition of foodstuffs
(recipes) may be better protected simply by being kept secret (e.g. Coca-Cola).
Final Report, 25 August 2003, page 27
Economics & Strategy Group

The decision on “where” to patent is often critical, invariably with a trade-off to be made
between the benefits of extensive international coverage and cost.6
4.5 The Quality of Recent Provider Patents
Confidentiality provisions prevent the discussion of the individual patents of research
providers as submitted to FRST for this evaluation. Nonetheless, there are some general
conclusions that can be drawn in terms of “quality” and commercial potential. (Quality, in this
instance, is broadly defined to mean the extent to which the patent will have real income
benefits to the organisation and/or the extent to which it contributes to an overall portfolio of
IP that represents innovative strength and potential commercial value.)
As noted elsewhere in this report, a considerable proportion of provider patenting is
“speculative” in the sense that the value of the IP is not clearly known at the time of the first
decision to patent. For public providers, whether the patent realises a significant commercial
return often depends on further research work around the patent, the opportunity to crosslicense, the robustness of the patent, and ability of the organisation to effectively manage
any subsequent commercialisation process. By comparison, private sector providers face
similar uncertainties, but overall they appear to have a more (“market-disciplined”) sense of
the purpose and value of a patent.
Measured in terms of direct financial income, the quality of patents reported by the public
providers in this survey might be considered to be relatively “disappointing”. However, this
conclusion must be tempered by three important considerations:

the primary strategic purpose of the patent may not involve direct income,

time lags mean that the value of patents applied for and reported during the last three
years may still be highly uncertain, and

the probability of new research producing highly lucrative “base” patents seems to be
declining worldwide as knowledge and information become more widely and rapidly
distributed and as markets and commercial opportunities are subject to much more
intensive analysis.
The task of comparing the “quality” of patents arising from Government funding in recent
years with previous periods is therefore fraught with difficulty. However a good proxy for this
comparison is likely to be changes in the quality of decision-making processes within the
provider organisations. On this basis, the evaluation certainly supports the conclusion that
most (but not all) providers are becoming much savvier about protecting their IP and this
should have positive implications for the quality of patent decisions.
4.6 Organisational Strategies for Commercialising IP
The patenting behaviour and decisions of research providers is dependent on their overall
attitudes and strategies with regard to IP protection. Some of the key drivers in this area as
cited by participants were as follows:
6
US patents assigned to NZ entities have increased six fold since 1995 (20-120). However, the data does not
indicate which of these entities are public providers. Source: G. Slim, Industry NZ, pers. comm.
Final Report, 25 August 2003, page 28
Economics & Strategy Group

Several research organisations referred to their IP protection decision-making process
as involving - implicitly or explicitly - a “decision-tree” approach. The component
“branches” of these decision trees are generally held as confidential within each
organisation, but essentially involve costs/benefit assessments amongst the alternative
forms of protection and paths to commercialisation.

IP protection (including patent applications) can significantly delay the commercialisation
process. For providers whose work may be relatively “close to market” – e.g. improved
crops, pest controls, animal vaccinations etc. these delays may reduce their competitive
advantage. It may also demand a lot of (less interesting) work for the research teams
involved. For these reasons, a lot of the best commercial science coming from NZ
providers is not patented.

In many cases, the step from laboratory to market involves considerable development
costs that can be closely related to protection issues. As many providers do not yet have
the expertise or resources for this development phase, the best route for some
potentially valuable science is to bring in private interests to assess and pursue the
commercial potential and hence the preferred protection arrangements. Once again, no
specific patent activity may be attributable to the provider.

Patents are essentially a “right to practice”. Securing a robust patent may therefore only
be a relatively small step towards realising the commercial value of IP. Research
providers cite as a major stumbling block to this next phase the relative absence of
medium-to-large ($50-500m turnover) New Zealand firms with the resources and risktaking capacity to carry through with an international patenting and commercialisation
strategy.7 The largest NZ firms tend to have their own research capacity and/or
commercial strategies that may not involve further development or manufacture in New
Zealand.

Involving outside private interests at this point may leave the organisation vulnerable to
loss of IP and/or in a weakened position in commercial negotiations. It is the difficulties
involved in finding and working with suitable commercial partners that have led some
CRIs and universities to create specific commercial entities for investigating and
exploiting the commercial potential of their IP. At this stage, these entities mostly take
the research outputs (IP) of the organisation as a starting point for the assessment of
commercial opportunities, rather than directing initial research into commercially
profitable areas. However, they expect this to become a more iterative process over
time.
Private Sector Relationships
Commercial relationships between research organisations (who have generated IP) and
private firms who may wish to develop and commercialise it are often problematic.

Providers say that firms underestimate the time and costs of the research activity and
may deliberately undervalue it to reduce risk. Firms consistently complain that providers,
CRIs especially, overvalue their IP and underestimate the development costs. Providers
also complain that the terms offered by venture capital firms are frequently “unfair” and
7
This observation may well be valid. Previous FRST analyses show that there may be less than a dozen
predominantly New Zealand-owned firms in this category in the manufacturing sector.
Final Report, 25 August 2003, page 29
Economics & Strategy Group
“unrealistic”. Difficulties for the provider in producing in sufficient quantity - e.g. a new
chemical compound – may also deter investment.

In this environment, joint ownership of IP can be the least satisfactory approach. Public
funding for research that promotes joint ownership of IP is therefore often seen as a
complicating factor.

In some situations, licensing of IP may be an optimal approach that suits all parties.
However, good licensing agreements need to address: sub-licensing rights; percentage
and definition of sales on which license fees are to be calculated (incl. any sub-licensed
sales), global coverage of the license, license expiry provisions and performance criteria.

Some research organisations cite the potential for more effective partnerships with
foreign private sector firms. However, this raises issues concerning the broad “benefit to
New Zealand” objective of publicly funded research, especially since foreign firms often
require further developmental work to be conducted off-shore.

Steps by some universities to establish specific entities for managing the
commercialisation of their IP have so far met with varying success. The evidence from
this evaluation supports Australian research that suggests that scale (including quality
and quantity of researchers), commercialisation expertise and high level commitment are
critical success factors. Others include: proximity to relevant potential investors and
manufacturers, attitudes (university and departmental) to exploiting commercial
opportunities, relationship building skills, and access to investment capital.8

Despite these difficulties, providers generally prefer business partnerships in some form
to the licensing or sale of potentially valuable IP to companies in which they have no
equity or other form of commercial interest.

Remuneration arrangements for staff have an important bearing on the success of
providers in commercialising IP. Although a confidential matter in individual cases, CRIs
mostly endeavour to share financial benefits across research staff, with generally
satisfactory results. Universities mostly follow a one-third remuneration principle – i.e.
one-third each (after costs) for the researcher, department and university – but report
more difficulties in this area as a result of both calculation and equity issues.
4.7 Interpreting Patent Statistics

Patent data submitted by providers for this evaluation indicate long lead times between
most research funding decisions and any resulting patents. In most cases, patents have
arisen from funding initiatives originating more than three years previously.9 These lags
greatly limit the information value of patent data in terms the merits of researcher’s
current proposal or the effectiveness of very recent funding decisions.

Data on patent applications, including the supporting information providers supply to
FRST, do not provide a reliable indication of the merits of the invention, much less its
The Australian study notes the importance of having designated commercialisation managers - “idea finders”
and “idea developers” - within individual university departments for encouraging and spotting commercially
relevant research – see Australian Centre for Innovation (2002).
9 One CRI, for example, notes that the US patents granted to it in the last three years apply to R&D carried out
between the 1993/94 and 1997/98 financial years.
8
Final Report, 25 August 2003, page 30
Economics & Strategy Group
commercial value or potential.

For these reasons, patent data – even in the more detailed form requested for this
evaluation – does not provide an adequate basis for cost-benefit assessment of public
funded research. (Whether they can provide a better basis than published papers is an
empirical issue – i.e. this must be judged on a case-by-case basis.)

Patent statistics can, however, indicate the direction and degree to which an organisation
may be building a research capability with future commercial potential.

Patents, as an indicator of research output, are more applicable to organisations
undertaking appropriable research. Organisations undertaking (possibly equally
meritorious) research that has a stronger “public good” content are likely to have much
less use for, or expertise in, patent protection.

Similarly, appropriable research in different sectors often may entail very different
approaches to patenting and IP protection. For New Zealand, these differences are
especially strong across industrial process technologies, biotechnology and computer
software. Valid comparisons, in terms of research quality or commercial potential, are
almost impossible.
4.8 FRST Funding and Assessment Policies
Responses to this evaluation indicate that there are difficulties for most providers in
separating the impacts of FRST funding from other funding sources with regard to the
development and protection of IP. Nonetheless, the following points emerged:

The FRST requirement for research providers to have an IP policy or plan has been
helpful in many cases for “kick starting” an internal thinking process on IP issues and IP
management.

The mechanisms and conditionality associated with FRST funding are generally effective
in encouraging research providers to identify the IP content in their research and to work
more closely with the New Zealand private sector in commercialising it.

FRST policies may encourage providers to hold on to patents and, in some cases, to set
up spin-off companies rather than to seek more effective partnerships with the private
sector. There are some criticisms in this respect that the “consortium” model of research
funding/cooperation may be over-emphasised and at odds with providing “clean IP” - to
the detriment of both researchers and private investors.

Some CRIs see FRST funding as most important in terms of building the underlying
capability or technology platforms of their organisation. For this reason, patent statistics
may bear little relation to the effectiveness of that funding – at least in the short to
medium term.

Some researchers acknowledge that the promise to deliver patents in return for FRST
funding may not be consistent with the best IP protection or commercialisation strategy.
In other words, patent statistics reflect some degree of “gaming” around funding
opportunities.
Final Report, 25 August 2003, page 31
Economics & Strategy Group

There is considerable debate in the international literature – and between different
national jurisdictions – on the extent to patent protection may actually stifle innovation.
This debate is especially current on the issue of IP protection for software - see
Grossman (2002). The debate also exists in New Zealand – especially where the
commercial objectives of CRIs encourage partnerships with foreign companies, thereby
depriving local industry of the IP potential.

Given the observations in Section 4.6, some providers argue that FRST funding policies
may attach too much weight to the patent credentials (or lack of them) of an individual
scientist, or group, thereby undervaluing the role and resources of the research
organisation as a whole and its strategic intent.

The FRST emphasis on research credentials in the form of published papers is seen as
deterring some providers from patenting (and therefore possibly from exploiting
commercialisation opportunities).
4.9 The IP Policy Environment
This evaluation did not address Government policies for encouraging and protecting IP
beyond the mandate and activities of the Foundation. However, in the course of literature
reviews and interviews, the following points were raised:

A good domestic regime for awarding patents adds credibility to the reputation and IP
assets of New Zealand firms and research organisations internationally. At present, New
Zealand patent law and regulations are rated highly, but this rating may be under threat.
Efforts to improve access for generic pharmaceutical products, for instance, were cited
as potentially weakening the overall standards of patent protection.

Patent protection and trade policy may be intertwined. There is an increasing tendency
to file patent applications in the quickest and easiest jurisdiction (in some cases, the US)
then use international treaties and trade agreements (rather than patents granted in
other national jurisdictions) to enforce it – the so-called “lowest common denominator
position”.

A recent study by the New Zealand Institute of Economic Research (2001) concludes
that changes to IP policy may have very uncertain (positive or negative) impacts on
economic welfare. The outcomes from these changes tend to be very product and sector
specific. The implication, perhaps echoing the pharmaceutical products example above,
is that proposed changes to IP policy should be very carefully appraised.

Internationally, governments are moving towards policies that not only invest the
ownership of IP from publicly funded research in the research organisation (as does
FRST) but also accompany these rights with responsibilities that require the organisation
to undertake “effective identification, protection, management and commercialisation of
the invention.”10
10
Australian Centre for Innovation (2003) p. 92.
Final Report, 25 August 2003, page 32
Economics & Strategy Group
Section 5: Policy Issues, Implications and Avenues for Further Work
The evaluation responses and findings described in Sections 3 and 4 above raise a number
of policy issues and implications. However, they are not necessarily consistent and in some
cases, may simply point to areas requiring a more detailed level of analysis than is possible
here. These policy implications have been separated into the following areas, though there is
a degree of overlap in some cases.
5.1 Patent Data and Innovation System Performance
From the data collected, there is little doubt that several research providers are taking a
more pro-active approach to IP developing and managing their IP This is reflected in their
data on protection of IP in the form of patent applications. Numbers of patents have risen
over recent years and their importance as a component in providers’ strategies for
commercialisation of IP is increasing.
Most providers acknowledge that FRST policies and funding have played a useful part in
raising consciousness of the value and need for proper management of their IP. However, it
is another matter altogether to conclude that public funding has generated the increase in
patent application numbers directly, or that the direct financial gains to these organisations
from these patents exceed the public funding costs over any given period. The findings from
this survey do not support the use of patent data for this kind of assessment.
This conclusion tends to support the finding from the parallel TechNZ evaluation of private
sector IP protection and management that “patents may be over-emphasised as a measure
of innovation system performance”.11 In Section 4.5, it was pointed out how the collection
and use of patent statistics could be improved in this regard.
5.2 Patent Statistics as an Indicator of Provider Capability and Performance
The evaluation findings suggest that FRST would be unwise to use patent data as a
component in its assessment of the merits, much less the relative merits, of research
proposals. There are three main arguments for this conclusion:
i.
the information conveyed by patent numbers and locations is much too unreliable for
this purpose - both in quantitative and qualitative terms;
ii.
two of the organisations interviewed suggested that the inclusion of patent data in
performance and/or proposal assessment procedures stimulates a degree of
“gaming” around funding criteria; and
iii.
the use of patent protection wholly - or even partly - for research funding objectives
may cut off other, more effective, forms of IP protection and/or waste scarce
manpower and financial resources.
The evaluation also suggests that FRST should discuss carefully with researchers the
inclusion of patent applications as a research milestone or output. Although this can be
useful, it should remain prepared to adjust these requirements where it might compromise
the optimal commercialisation strategy.
11
Hadfield, (2003).
Final Report, 25 August 2003, page 33
Economics & Strategy Group
These proposals do not alter the fact that patent data provides information that is helpful to
an overall assessment of the impact of public funding on innovation. It would therefore be
reasonable, and more effective, for FRST to request from all providers an annual update of
patent data, in similar format to that requested for this evaluation – see Attachment 1. Once
a standardised format has been determined, this would be a relatively small task for most
providers.
Using a relatively simple assessment framework, that information could then be reviewed
annually, in conjunction with other measures, to assess overall progress towards the
Government’s innovation and commercialisation objectives. However, it would not be used
to assess individual, organisational or research project performance.
In this context, the Foundation should look more closely at the relationship between some of
its other provider accountability criteria, especially peer-reviewed publications, and the
potential impact on organisations’ optimal commercialisation strategies.
5.3 The Consortium Model for Research Funding
Responses to this evaluation have highlighted the importance of having “clean IP” as the
basis for productive relationships between researchers and investors. Several major
research providers and firms consider that the Foundation’s current consortium model for
research funding may sometimes work against this requirement. Although most consortia
are formed “pre-IP”, the consortia arrangements entered into at this point can have a crucial
bearing on IP ownership issues/disputes further down the track.
The strength of evidence on issue is not sufficient to require a major re-think of the
consortium principle. Besides, the arguments for using public funding to draw research
organisations and investors closer together at the research formulation stage have been
tested and found valid in a range of applications. However, the concerns elicited during this
evaluation suggest that further work is needed on arrangements relating to the ownership of
the IP that results from these projects. (New Zealand is not alone on this point: a recent
Australian study12 has also called for “clear guidelines for the negotiation of IP ownership in
cases where more than one institution is involved.”)
There may, for example, be some inconsistency between Government policies which seek,
on one hand, to encourage research organisations (especially CRIs) to generate corporate
revenues and, on the other hand, to stimulate private sector collaboration and investment.
The fact that universities seem to have fewer conflicts with the private sector in this area of
IP ownership (perhaps because there commercialisation/income incentives are less) also
suggests that the Government’s current ownership objectives for CRIs are problematic.
5.4 Funding and Incentives for “Proof of Concept” Investment
The evaluation has highlighted the problems many research providers face in taking their
most promising research outputs through to commercial investment. The principal difficulty –
12
Australian Centre for Innovation (2002), p ix.
Final Report, 25 August 2003, page 34
Economics & Strategy Group
though not the only one - appears to be in obtaining the resources necessary to “prove the
concept” (also referred to as the “exemplification stage”).13
The difficulties encountered by providers are attributable in part to the small number of
private sector firms or investors - with the resources and/or willingness to absorb risk – that
are prepared to step in once the initial research phase is complete. Australia faces the same
problem, despite having a considerably larger commercial sector.14
A recent Government initiative in the form of a “pre-seed” fund is intended to address this
issue to some degree. However, the problem is not just funding – it is also a question of the
role of the research institution in carrying the project forward, vis a vis its other research and
academic objectives. In other words, the gap to be addressed here may be both financial
and institutional.
The question was raised during this evaluation of the benefit of public financial assistance for
meeting IP protection costs, possibly as a component in a proof of concept funding facility.
However, funding for this purpose might raise as many problems as it solved if it diverted
time and other resources to the protection of commercially unpromising IP.
5.5 Raising the Awareness of Researchers on IP Issues
Both CRIs and universities note that staff understanding of the value and importance of IP,
including managing IP for the benefit of the organisation, are improving. However, there is
still some way to go in ensuring that the commercial potential of IP is addressed adequately
at an early stage in determining research projects. This problem is sometimes reflected in
research staff talking up the commercial potential of a research project, rather than
designing the project to meet a commercial need or opportunity. There is also quite limited
expertise and knowledge within some organisations with regard to patenting issues and
processes. Four suggestions are made for raising awareness on these issues:
i.
For the most part, research providers are undertaking an internal educational
process with staff regarding the potential value and management of IP. More support
at the national level for these networks – perhaps in the form of funding forums and
collaboration around sector-specific IP management – could support these efforts for
changing the culture and attitudes within research organisations.
ii.
Clearly, not all successful research requires, or starts from, a commercial objective.
However, fruitful programmes of research can be determined in part by the degree to
which they may anticipate new or emerging commercial trends.15 FRST could
increase the incentives for proposals that reflect or anticipate newly emerging
commercial trends, as opposed to those that are developed out of existing research
programmes and interests.
To do this successfully – i.e. to avoid simply a “picking winners” approach would
require research providers to demonstrate “unexplored market potential” as one of
the funding criteria. FRST might also consider working more closely with TENZ on
The fact that many inventions or discoveries stall at this point has also led to it being called the “valley of
death” -see Foundation for Research Science & Technology (2003).
14 Australian Centre for Innovation (2002), p vii. and FASTS (1998)
15 An example from this evaluation is research into the propagation of “healthy” fruits and vegetables as opposed
to just existing patterns of supply and demand.
13
Final Report, 25 August 2003, page 35
Economics & Strategy Group
identifying appropriate research opportunities on this basis.
iii.
While it is probably appropriate for research providers to develop their own sources
of patent advice and legal support, a nationally-funded workshop on the advantages,
constraints, procedures and strategies for patent protection could well assist some of
the less expert business development and research staff.16
iv.
The design and implementation of the Performance Based Research Fund for
universities is about to be reviewed. FRST and Tertiary Education Commission
(TEC) need to work closely to ensure that this funding mechanism supports the
Government’s IP management objectives (as well as staff performance objectives).
5.6 Organisational Structures and Governance
This evaluation did not specifically address structural or governance issues with research
organisations as a factor in commercialisation decisions. Nonetheless, it was evident that
both CRIs and universities, each in their own way, face very significant institutional
constraints in this area.
Universities
For universities, the major difficulties identified arose from:
i.
the performance evaluation of university staff – in which patenting and
commercialisation of research are still given relatively low weighting;
ii.
the demand on staff time and resources in conflict with other academic (research and
teaching) objectives;
iii.
oversights, inconsistencies and inadequacies in most university charter provisions for
managing IP; and
iv.
staff remuneration arrangements for commercialisation income.
It is evident that most universities are only just beginning to address issues surrounding the
management and commercialisation of IP in a well-organised way. This process still appears
hampered, however, by an unresolved ambiguity in the role of universities: teaching versus
research. The commercialisation of research adds another dimension to this tension
because of the additional staff time, investment and profit motivation that it demands.
Responses to this evaluation suggest that the establishment of a commercial entity with
responsibility for managing and exploiting a university’s IP is probably the right way to go.
However, progress has so far been quite limited in this area, due in part to less-thanenthusiastic support for these activities within the governance of several universities. If the
Government wishes to see universities take a more commercially-oriented approach to
research activities, it will need to drive this objective, including support for these centres,
through its tertiary education policies. It is not possible for research funding organisations,
such as FRST, to seek an increased level of research commercialisation which is not equally
16
For possible topics, see OECD (2001).
Final Report, 25 August 2003, page 36
Economics & Strategy Group
well supported by education policies, performance funding, or university governance
policies.
Crown Research Institutes
For CRIs, significant difficulties occur around the trade-off between sound commercial
decision-making - which often implies a corporatist (income maximising) approach to IP
ownership and management - and the institutes’ traditional public good science objectives.
Several CRIs appear to be working through these issues to achieve IP ownership and
management arrangements that suit each particular circumstance. The role of the
Foundation in this regard should be to encourage this process, perhaps through greater
dissemination of “good practice”, using both national and international examples (OECD.
2002).
Nonetheless, public policies impose two (related) constraints on CRIs that militate against
more effective commercialisation of IP arising from publicly funded research:
i.
The Government continues to require CRIs to meet dual and sometimes
contradictory objectives with regard to financial returns (through CCMAU) and
dissemination of knowledge and information (through funding agencies).17 A
practical impact of these two policy objectives is that CRIs prefer ownership
arrangements for IP that may be less conducive to partnerships with the New
Zealand private sector. As a result, innovation - and the profitability of some CRIs are lower than they might otherwise be.
ii.
Government funding policies tend to treat all CRIs as “Crown companies” operating
in very similar research environments. In practice, however, they are increasingly
separated into commercial and public good science research organisations. One
policy mix does not fit both categories equally well. As a result, innovation is lower
than it might otherwise be.
There are no easy or obvious solutions to these problems that have not been canvassed at
great length already in recent years. Despite this, the problem warrants continuing analysis
and discussion.
The issues involved here extend well beyond the appropriability of research and the
management and protection of IP. Nonetheless, shifts in the innovation environment and
economic structure since CRIs were established in 1991 have exposed weaknesses in the
current framework relating to the Government’s ownership and funding of CRIs. Problems in
managing IP effectively are simply one of several symptoms of this policy dilemma.
In recent years, FRST has endeavoured to address the problems created for IP
management by this framework through selective application of varying IP provisions in its
research contracts, with appropriate monitoring. This approach is becoming more and more
difficult to sustain as the IP management issues generated by this evaluation indicate.
Ideally, Government needs to address the conflicts in its CRI ownership objectives through a
comprehensive review of their structures and governance.
17
An agricultural industry leader recently described the research policy environment surrounding CRIs as
“confused” and “resulting in signals that lead the research institutes to become schizophrenic”. (Source:
Agriculture research in NZ ‘confused’, The Dominion Post, 02 July 2003, p. C5.)
Final Report, 25 August 2003, page 37
Economics & Strategy Group
Short of this full-scale review, however, one option for reducing these problems would
involve FRST simply reversing one of the key principles underpinning its funding
relationships with CRIs. Instead of treating all CRIs equally for contestable funding purposes,
with contract-by-contract negotiation and differentiation of IP management issues, FRST
could require CRIs to choose the category of IP management to which they wish to be
assigned for funding purposes. Category A CRIs, for example, could receive funding that
imposed no restrictions whatever on IP ownership, management and use. Category B CRIs
would accept that the IP arising from FRST funding would be entirely placed within the public
domain.18 Category A funding could include (partial) financing of IP protection costs.
Under this arrangement, CRIs would therefore be required quickly to self-select into two
groups: intently commercial research organisations and “public good” research
organisations.19 20 Innovation – in its various forms- would be encouraged and the
frustrations caused by the current ambivalent policies and objectives would be significantly
diminished.
The details of this proposal have not been worked through as part of this evaluation.
However, putting this option on the table is seen as part of a process for addressing the
needed improvement in the management of publicly funded IP.
18
A very limited degree of cross-funding applications might be permissible, at least in the initial transition phase.
These categories would not be limited to CRIs; other research organisations would also need to align
themselves with a funding category.
20 The patenting statistics of CRIs suggest that this strongly commercial / non-commercial separation already
exists.
19
Final Report, 25 August 2003, page 38
Economics & Strategy Group
Bibliography
ARC (2000) Inventing Our Future – The link between Australian patenting and basic science,
Australian Research Council, CSIRO, Canberra
Audretsch, D.B. et al. (2002) The Economics of Science and Technology, Journal of
Technology Transfer, 27, pp 155-203
Australian Centre for Innovation, Higher Education Group (2002) Best Practice Processes
for University Research Commercialisation, Department of Science & Training, Canberra
Australian Centre for Innovation, Higher Education Group (2002) Analysis of the Legal
Framework for Patent Ownership in Publicly Funded Research Institutions, Commonwealth
Government, Department of Science & Training, Canberra
Basberg, B. (1987) Patents and the measurement of technological change: A survey of the
literature, in Research Policy 16 pp. 131-141, North Holland
FASTS (1998) Impediments to Commercialisation, Research Commercialisation Forum,
DISR, Canberra
Foundation for Research, Science & Technology (2003), A Discussion Paper on the Scope
of the Foundation’s Funding, Wellington
Griliches, Z. (1990) Patent Statistics as Economic indicators: A Survey, Journal of Economic
Literature, Vol. XXVII (December) pp. 1661-1707
Grossman, W.M. (2002), Stolen code, New Scientist, 28 September
Hadfield, A. (2003) TBG Intellectual Property Evaluation, Foundation for Research Science
& Technology, Wellington, March/April (draft report)
Morten, P. (2001) National Benefit Principles for the Foundation for RS&T, a discussion
paper, FRST, Wellington, April 2001
Morten, P. (2002) The Foundation’s Intellectual Property Policy, Foundation for Research
Science & Technology, Wellington 14 May
New Zealand Institute of Economic Research (03/2003), Intellectual property rights, Update,
OECD (2001) Workshop on the Management of Intellectual Property Rights from Public
Research, Issues Paper, DSTI/STP/TIP (2000a)11
OECD (2002) Benchmarking Industry-Science Relationships, Paris
Schmookler, J. (1975) Innovation in business, in E. Dale (ed.) Readings in management,
New York
Tullett, A. et al. (2003) Enterprising Intellectual Property, Ministry of Economic Development,
Wellington, June
Webber, D. (2000) Investing in Innovation: Overcoming the Barriers, paper prepared for the
Foundation for Research, Science & Technology, Wellington, September
Final Report, 25 August 2003, page 39
Economics & Strategy Group
Attachment A
Patenting: A Layperson’s Guide to Terms and Procedures
1. What is a New Zealand Patent?
Patent
A New Zealand patent is the monopoly right giving exclusive use
of an invention for up to 20 years. A patent can be bought, sold,
transferred or licensed.
Criteria to
qualify for a
patent
An invention must meet the following criteria in order to qualify for
a patent:
It must:
 Be industrially applicable
 Contain an innovative step and be “non-obvious”
 Be new or novel.
It cannot be:
 already known
 two or more products or processes put together with no
new or improved effect
 already used, displayed or made available in New
Zealand
 described in any public document.
Examples of what can be patented:
 a new product
 a new process of manufacturing
 an improvement to an existing product or process
 a new method or process relating to the testing or control
of an existing manufacturing process
 new chemical compounds or compositions
 biotechnological matter
 electrical devices and circuits
 a second pharmaceutical use for a known chemical
compound or composition
 computer technology
What can be
patented?
2. Patenting in New Zealand - A National Application21
IPONZ
Priority Date
21
Intellectual Property Office of New Zealand. The Government
organisation responsible for the granting of patents.
An application received by IPONZ or the Companies Office
(either a Provisional Application or Complete Specification) is
dated. The filing date is recognised as the Priority Date and this
defines the date from which patent protection is effective.
Reference: Patent Protection. Intellectual Property Office of New Zealand, www.iponz.govt.nz
Final Report, 25 August 2003, page 40
Economics & Strategy Group
Provisional
Application
A Provisional Application is a preliminary action to filing a
complete specification and allows the applicant time to work on
the development and/or finance and market the invention. The
provisional application contains a broad description of the
invention and is mostly used to help protect the invention from
being patented by others. A provisional application is not
examined by IPONZ so a search need not be conducted for
similar inventions.
Complete
Specification
If the applicant has a Provisional Application and the applicant
wishes to keep the Priority Date, they must provide further details
of the invention by filing a Complete Specification within 12
months. Once submitted, IPONZ examines the Complete
specification to see whether others have already applied for or
received a patent for the invention. The Complete specification is
a more detailed description of the invention and should contain
enough technical detail for others to carry out the invention or put
it into effect. The complete specification must have one or more
“claims” which will define the monopoly for which the patent is
granted.
Although most applicants apply for a Provisional Application first,
it is possible to apply for a Complete Specification without this
step.
If a Provisional Application is not followed by a Complete
Specification within 12 months it will be considered by IPONZ to
be abandoned.
Patent Pending
IPONZ provides applicants with a unique number once a
Provisional Application or Complete Specification is made. This
number can be used to indicate that there is a patent pending.
Examination
Report
As part of the analysis of the Complete Specification, IPONZ may
ask the applicant for further information or to meet certain
conditions. These requests are called an Examination Report.
Notice of
Acceptance
Once the Complete Specification has been examined and met
the criteria the applicant will receive a Notice of Acceptance. The
patent is then published and IPONZ provides summary details of
patents in its journal.
Letters Patent
Once the summary details of a patent are provided to the public
they have three months in which to oppose the application. If
there is no opposition the applicant receives a Letters Patent (the
official notice of the registration of the patent).
Duration of
patent
New Zealand patents last for 20 years from the date IPONZ
receives the Complete Specification. Applicants are required to
pay renewal fees in years 4, 7, 10 and 13 in order to retain this
period of protection.
Final Report, 25 August 2003, page 41
Economics & Strategy Group
3. Protecting an invention internationally – International Application22
WIPO
World Intellectual Property Organisation (WIPO).
How is a patent
protected
internationally?
There are two ways to protect an invention overseas: either apply
directly to the overseas country of interest, or use the Patent Cooperation Treaty (PCT). Both systems allow the applicant to
claim Convention priority.
Patent Cooperation
Treaty (PCT)
The Patent Co-operation Treaty or PCT is an agreement between
countries that they will co-operate in order to ease the process of
applying for patents in a number of countries around the world.
The system is administered by the World Intellectual Property
Organisation (WIPO) and by IPONZ within New Zealand.
PCT System
An applicant can submit one application under the PCT system in
New Zealand (the International application) and then nominate
or ‘designate’ as many other countries that are covered by the
PCT as they choose (at a cost). By making one International
application they can simultaneously seek protection for the
invention in each of the countries designated. Each individual
country will then examine the application but the applicant does
not need to apply separately in each country.
For a patent to be granted, all PCT applications must go through
the National Phase (see below).
International
application and
fees
To complete the International Application, work is completed by
three authorities (and three separate sets of fees are paid). In
New Zealand, IPONZ get a transmittal fee for their co-ordination
of the process; the search fee goes to an International Searching
Authority and the international fee to WIPO.
International
Search Report
The aim of the international search is to identify any ‘prior art’ or
written material which will assist a searcher in determining
whether or not the invention is new. The results of the
international search indicates the ‘novelty’ or otherwise of the
invention and can help evaluate the chances of getting a patent in
the countries nominated in the international application.
International Searching Authorities complete the search and write
the report, which is provided to the applicant and WIPO.
International
Searching
Authorities
WIPO appoints International Searching Authorities. These
include: IP Australia (the Australian Intellectual Property Office),
the European Patent Office and the United States Patent and
TradeMark Office.
22
Reference: International Patent Protection. Intellectual Property Office of New Zealand, www.iponz.govt.nz
Final Report, 25 August 2003, page 42
Economics & Strategy Group
Convention
Priority
If the applicant has made a previous application e.g. a National
Application (for example with IPONZ) a regional application (for
example with the European Patent Office) or an International
Application (PCT) and are making an application for the same
invention they can claim Convention Priority. This means they
are entitled to keep the date of that original application for the
new application, provided they apply within twelve months of
making the original application.
Publishing of
Applications
Unless an applicant withdraws from the PCT process (e.g. after
an unfavourable International Search Report) applications are
published by WIPO 18 months after the application date.
Information includes the following: a summary page with the
international classification number of the invention, the abstract, a
description of the invention, and the claims made.
After the search
and the
publishing –
then what?
After the details of the invention have been published, the
International application can proceed in one of two ways. The
applicant can either ask to have an International Preliminary
Examination of the application before it proceeds to the
individual countries nominated
or
decide the International application can proceed straight to
examination in the individual nominated countries (the National
phase).
International
Preliminary
Examination
International Preliminary Examining Authorities (IPEA) undertake
International Preliminary Examinations and provide the applicant
with an opinion on whether the invention seems suitable for a
patent to be granted.
Whilst the international examination report is persuasive, it is not
binding on any country and the granting of a patent remains the
responsibility of the individual countries not of the IPEA. A report
allows the applicant to make amendments to their application or
to make submissions in favour of the application remaining the
same and proceeding as it stands.
International
Preliminary
Examining
Authority
(IPEA)
All IPEAs are appointed by WIPO and they include: IP Australia
(the Australian Intellectual Property Office), the European Patent
Office and the United States Patent and TradeMark Office.
Final Report, 25 August 2003, page 43
Economics & Strategy Group
The National
Phase
The applicant can choose for their application to go straight to the
National Phase, before or after it has had an International
Preliminary Examination. At this point the application is
examined under the rules of the countries nominated and the
applicant will need to deal directly with the relevant Offices in
those countries. Requirements are generally strict and failure to
comply with these requirements within the prescribed time limits
often means the application will be considered abandoned and it
will lapse. However it is acceptable for an application to continue
in some countries whilst allowing it to lapse in others.
Applications cannot move into the National phase before 20
months after the priority or international application date (30
months if it has had an International Preliminary Examination).
This 20 or 30 month delay before entering the ‘national phase’
can be useful if the applicant wishes to investigate their chances
of getting a patent or investigate the commercial possibilities of
the invention.
For a patent to be granted, all PCT applications must go through
the National Phase.
Final Report, 25 August 2003, page 44