Patent Application as Indicator of the Geography of Innovation
Activities: Problem and Perspectives
Xuan Li1 and Yogesh Pai2
1
2
Dr. Xuan Li, Coordinator, Innovation and Access to Knowledge Programme (IAKP), South Centre.
Mr. Yogesh Pai, Programme Assistant, Innovation and Access to Knowledge Programme, South Centre.
1
Abstract
This article argues that the WIPO Patent Report conclusion on changing geography of
innovation based on sharp rise of the number of patent filing in Northeast Asian with an
emphasis on China should be interpreted with caution. The drawback of such an
international comparison not only relates to how to interpret properly the figures on
patent filings and the “resident patent filings”, but also to high heterogeneity in the value
of patents. On the basis of detailed analyses in China and comparison of legal framework
in EU, US, Brazil and India, the study shows that hasty generalization on the changing
geography innovation patterns should be avoided. A full assessment requires further
econometric, classificatory, survey research and interdisciplinary interpretation. The way
forward is to develop a proper set of indicators to monitor the changes in innovation
capacities especially in the developing countries.
2
TABLE OF CONTENTS
I. Introduction: ........................................................................................................................................ 4
II. Literature Review: Patent Data as an Indicator of Innovation ........................................................... 5
III. Demystify the Chinese Patent Growth.............................................................................................. 7
3.1. Patent quantity ............................................................................................................................. 7
3.1.1. Three Categories of Patents................................................................................................... 7
3.1.2. Composition of Resident Patent Applications....................................................................... 8
3.2. Patent quality ............................................................................................................................. 10
3.2.1. Value added of Three Categories of Patents........................................................................ 10
3.2.2. Traditional vs High-tech Industries ..................................................................................... 10
3.2.3. Basic patents vs surrounding patents .................................................................................. 14
3.2.4. Process Patents vs Product Patents...................................................................................... 16
3.3. Summary .................................................................................................................................... 17
IV. Problems with Patent Application as Indicator................................................................................ 17
4.1. Problems arising out of differences in the Patent systems: ........................................................ 17
4.1.1 Subject Matter differences: .................................................................................................. 20
4.2.2 Difference in the design of the Patent System ..................................................................... 29
4.2. Patent quality varies due to different standards of examination................................................. 32
V Conclusion ..................................................................................................................................... 38
3
Patent Application as Indicator of the Geography of Innovation
Activities: Problems and Perspectives
I. Introduction:
The 2007 WIPO Patent Report highlights the changing geography of innovation with
highest patenting growth rates in North East Asia, particularly the sharp rise in patent
filings in China. From 2004 to 2005, there was steady growth in patent filings by
applicants in their country of residence (+6.6%), but patent filings by non-residents have
grown at a faster rate (+7.6%). During the same period, the most notable increases can be
seen at patent offices of emerging States. The patent office of China has the highest
growth rate for resident (+42.1%) and non-resident (+23.6%) filings.3 WIPO Patent
Report highlights that patent filings by residents increased by more than eight times in
China between 1995 and 2005. 4 Some conclusion of the report are based on the
assumption that patent application is a critical indicator of inventive activity and that
resident patent filings are a reliable proxy measure of underlying inventive activity in a
country.5
However, the correlation between the sharp rise in patent filings and the innovation
capacity is not so straightforward. 6 On the basis of detailed analyses, this paper
demonstrates that it is too early to affirm the changing geography of innovation, the full
assessment of which require further econometric, classificatory, survey research and
interdisciplinary interpretation. The way forward is to develop a proper set of indicators
to monitor the changes of innovation capacities especially in the developing countries.
This paper is structured as follows. Followed by a brief introduction, Section II will
provide a review of the literature using patent data as an innovation indicator. Section III
3
WIPO Patent Report, Statistics on Worldwide Patent Activities, WIPO,
http://www.wipo.int/ipstats/en/statistics/patents/pdf/patent_report_2007.pdf, p 5.
4
The WIPO report identifies the patenting activity of both residents and non residents. The definition of
resident patent applications is to mean those for which the first named applicant or assignee is a resident of
the state or region concerned. The non-resident patent applications are applicants outside the relevant State
or region. In the case of regional offices such as the European Patent Office, a resident is considered to be
an applicant from any of the member States of the regional patent convention. The USPTO (which still has
the fist to invent system) use the residence of the inventor rather than that of the applicant to classify
resident and non-resident filings.
5
A patent is an exclusive right to make, use, sell, or import an invention over a limited period of time
within the country where the application is made. Patents are granted for inventions which are novel,
inventive and have an industrial application. Due to the monopoly control over the technology, the patent
holder is in a position to set a higher-than-competitive price for the corresponding good or service, which
allows recovery of innovation investments. In return, the applicant must disclose the invention in the text of
the application, which is published 18 months after application. It should however be noted that it is not the
function of the patent law to serve as a source of data for innovation and hence considerable difficulties in
interpretation of patent data may occur.
6
It is generally accepted that patent counts themselves do not constitute a good measure of inventive
output. But the blunt use of patent statistics is continuing due to a lack of practical alternatives for
measuring innovative output. See generally, Dietmar Harhoff (et.al), “Citations, family size, Opposition
and the Value of Patents”, Research Policy 32 (2003), pp. 1343-1363.
4
will analyze the patent filings in China from both patenting quantity and quality
perspectives. Section IV analyzes the underlying sources that affect the proper
interpretation of patent application from a legal perspective. The conclusions are in
Section V.
II. Literature Review: Patent Data as an Indicator of Innovation
There has been a long tradition of using patent data to assess the features of innovative
activities.7 Patent documents usually include detailed information about the technical
features of the invention (e.g. claims, technical classification, citations, etc.), details on
inventors and applicants, and the history of the application (dates).8 The major advantage
of patents is that they are publicly available with rather long time series and provide
detailed technological information.9 The long time series make patents unique among
innovation indicators. Using patent data, it is possible for researchers to collect data in
highly disaggregated forms and to subject this to statistical analysis. In terms of costs, the
cost of processing patents data is lower than survey-based data.10
What can actually be measured with patent data? The literature review suggests that at
least six attributes of innovative activities could be evaluated through patent data.11 The
first attribute is the level of innovative activity. Patent applications are usually filed in the
early stage of research process (Griliches, 1990). Therefore the number of patent
applications can be viewed not only a measure of innovative output, but also an indicator
of the level of innovative activity itself (Popp, 2005). Cohen and al. (2000) indicate that
there is a mutual causation between R&D and patents, and that patenting tends to
stimulate R&D. Lanjouw and Mody found a strong positive correlation between patents
and R&D in alternative energy for the US.12
Secondly, the patent data can illustrate the types of innovation and technological
competencies of organizations. Actually, each patent provides a detailed description of
the innovation and is classified according to the International Patent Classification
(IPC)13, which divides the area of technology into a hierarchal structure with a range of
sections, classes, subclasses and groups. This system is efficient for the retrieval of patent
documents for establishing the novelty of an invention or determining the state of the art
in a particular area of technology. The description of the technology and the IPC codes
can be used to distinguish between different types of technological innovations according
to their degree of novelty (radical or incremental) and their technological field. Moreover,
patents are also a good indicator of the directions of research and of the technological
7
See generally, Bronwyn H. Hall, “Market Value and Patent Citations: A First Look”, NBER Paper [online]. Available
at: http://www.card.iastate.edu/research/stp/papers/hall-jaffe-trajtenberg.pdf
8
COMPENDIUM
OF
PATENT
http://www.oecd.org/dataoecd/60/24/8208325.pdf
STATISTICS
2005,
P
43,
OECD,
9
Manuel Trajtenberg, “A Penny for your Quotes: Patent Citations and the value of innovations”, 21(1) Rand Journal of
Economics, 172 (1990) p.185.
10
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT, June 16, 2007.
11
Ibid.
12
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT, June 16, 2007.
13
At least one classification code of the IPC is assigned to all patent documents by patent examiners.
5
competencies of organizations. (Breschi and al., 2003).
14
Third, the patent data can be sued to indicate technology strengths of nations. For
example, Marinova and McAleer (2003a, 2003b) analyses the technological position of
the top 12 foreign patenting countries/areas in the US in the area of nanotechnology using
4 technological strengths indicators based on patent data, which are: i) technological
specialization index, ii) patent share, iii) citation rate and iv) rate of assigned patents.15
The identified non-US countries/areas are Australia, Canada, France, Germany, Great
Britain, Italy, Japan, Korea, The Netherlands, Sweden, Switzerland, and Taiwan,
Fourth, patent data can be used to measure technology diffusion as patent data are
available from many different countries to track patterns of diffusion (Popp, 2005).
Because of the principle of territoriality, inventors must file patent applications in each
country to enjoy protection in that country. In Europe, inventors may choose to file an
application through the European Patent Office (EPO), rather than applying to national
patent offices individually. However, as EPO applications are more expensive, European
inventors typically first file a patent application in their home country, and then apply to
the EPO if they desire protection in multiple European countries. 16 Filing a patent
application in a given country is a signal that the inventor expects the invention to be
potentially profitable in that country. Thus, researchers can use these data on multiple
filings of patents to track diffusion of technology across countries (Lanjouw and Mody,
1996). 17
Fifth, patent data are the good source of innovation and network of innovators. From the
bibliographic data on a patent, researchers can gather the identity and home country of
the inventor and of the assignee (or the applicant). Such information enables researchers
to identify the sources of innovation in terms of patenting organizations. For a given
technology, or a given IPC section, it is then possible to calculate the share of patents
filed by private firms, universities and public laboratories. Some researchers focuses on
joint patent applications in order to study collaborations and network of innovators as
Yarime (2005)’s work on university-industry collaboration in the field of photocatalyst
technologies using patents as an indicator of the relationships between organizations in
the innovation process.18
Sixth, patent data can indicate technological spillovers and knowledge relatedness. There
have been various attempts to conceptualize relatedness among technological fields and
to find appropriate measures for knowledge spillovers. Various methodologies have been
proposed on the basis of patent data. The '
Yale matrix'(Scherer (1982) is constructed
based on the data from the Canadian Patent Office; Jaffe (1986, 1989) measures
technological relatedness among a sample of US firms by looking at the distribution of
14
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT, June 16, 2007.
15
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT, June 16, 2007.
16
These additional filings of the same patent application in different countries are known as patent
families (Popp, 2005).
17
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT, June 16, 2007.
18
Ibid.
6
their patents across technological fields19; Engelsman and van Raan (1991,1992) analyze
the co-occurrence of IPC codes assigned to patents to evaluate knowledge links and
spillovers; while Verspagen (1997) evaluates intersectoral technology spillovers by
distinguishing between the main classification IPC code and the supplementary codes.
Other methodologies use patent citations i.e. references to previous patents. According to
Jaffe and al. (1993), a reference to a previous patent indicates that the knowledge in the
latter patent is in some way useful for developing the new knowledge described in the
citing patent. For a given technology, the set of patents and the citations can be viewed as
a network of ideas and their relatedness. Accordingly, Verspagen (2005) use patent
citations to describe the main paths of knowledge flows in the field of fuel cells and to
map the technological trajectories underlying fuel cells development. Such a
methodology made it possible to capture the cumulativeness and the dynamic character of
innovation.20
However, the analyses based on patent data need to be treated with caution when
interpreting the geography of innovation activities. What an indicator reflects depends on
the underlying methodology used to construct the indicator.21 Without proper adjustment,
the information on patent filings as submitted by national intellectual property offices as
innovation indicators is inadequate or even biased that researchers should be aware of
particularly when undertaking international comparisons. In the next section, as a case
study, Chinese patenting will be examined in detail to show the features of patent
applications in China and how the use of patent data may result in misinterpretations.
III. Demystify the Chinese Patent Growth
Sharp rise in patent filings in China serves as the basis for the conclusion of WIPO Patent
Report of changing geography of innovation. Two questions need to be addressed: does
the number of patent applications filed reflect the level of innovation capacity of a
country? And does the number of the applicants from their country of residence, in this
case, China, reflect the level of innovation capacity of the Chinese nationals? A third
equally important question is, does the same number of patents represent the same patent
quality and equivalent market power? This section will examine both factors behind the
patent quantity and patent quality respectively.
3.1. Patent quantity
3.1.1. Three Categories of Patents
Patents, in China, are classified into the following three categories, i.e., 1) Utility models,
which is new technical development related to the shape, the structure, or their
combination of a product, which is fit for practical use; 2) Design patents, which
concerns the visual design of objects; and 3) invention patents, which may be granted to
anyone who invents or discovers who invents or discovers any new and useful process,
machine, article of manufacture, or composition of matter, or any new and useful
improvement thereof. According to Chinese patent regime, no substantive patent
19
Each field corresponding to a collection of 12-digit IPC codes.
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT, June 16, 2007.
21
Compendium of Patent Statistics 2005, P 43, OECD, http://www.oecd.org/dataoecd/60/24/8208325.pdf
20
7
examinations are required for utility model and industrial design. It implies that no
technical threshold is needed for an applicant to be granted a “patent”. As such, the
number of patents filed in China and hence overall Chinese innovation capacity may be
overstated.22 A closer look at the composition of patents in 2005 and increase in patent
applications in China over the last five years demonstrated (Table 1) that: (a) utility
models and industrial designs , with a total of 302,937, have majority share in the total
number of patent applications of 476,264, i.e. 64.1%; b). All three categories of patents
experienced fast growth, of which industrial designs (163,371) grew at 47.4% compared
to 2004; utility models (139,566) grew at 23.7 and invention patents (173,327) grew at
32.2%. Therefore, the total numbers of utility models and industrial designs outweighed
the number of invention patents and the growth rate in industrial design is higher than
that of invention patents, so the sharp rise of patent filings in industrial design and utility
model does not represent a significant improvement in innovation capacity in China.
Table 1: Patent Applications by Categories of Patents, 1985-200523
Total
1985-2005
Accumulated
Total
2001
2002
2003
2004
2005
Total
Invention
Utility Model
Design
2761189
879025
1128501
753663
203573
19.3%
252631
24.1%
308487
22.1%
353807
14.7%
476264
34.6%
63204
22.1%
80232
26.9%
105318
31.3%
130133
23.6%
173327
33.2%
79722
15.8%
93139
16.8%
109115
17.2%
112825
3.4%
139566
23.7%
60647
21.0%
79260
30.7%
94054
18.7%
110849
17.9%
163371
47.4%
Source: 2005 SIPO Annual Report
3.1.2. Composition of Resident Patent Applications
The WIPO Patent Report identifies the patenting activity of both residents and non
22
While the WIPO Index of Patent Systems is a fair guide to study divergence in the patent system, it still remains an
incomplete guide for making global comparison. In case of China and some other developing countries, the Index
appears to be of no help since it does not contain information of patent systems existing in such countries. Moreover,
the index also fails to elaborate upon the different type of patent systems (Viz. Patents for Inventions, Design patents,
Utility
patents
etc)
For
details
see,
WIPO
Index
of
Patent
Systems,
available
at:
http://www.wipo.int/ipstats/en/resources/patent_systems.html
23
Chinese
State
Intellectual
http://www.sipo.gov.cn/sipo/gk/ndbg/2005NB/200605/P020060529505722385828.htm
Property,
8
residents. 24 The resident patent applications mean those for which the first named
applicant or assignee is a resident of the state or region concerned. The non-resident
patent applications are filed by applicants outside the relevant State or region. On this
basis, the pattern of changing geography of innovation is established as WIPO considers
resident patent filings a reliable proxy measure of underlying inventive activity in a
country.
However, the resident patent in China is not defined as the patent filed by the Chinese
nationals, but includes the patents filed by foreigners. This is because equity joint venture,
contractual joint venture and wholly foreign-owned enterprise are considered as domestic
enterprises, according to Chinese law. Accordingly, the patents filed by these foreign
owned enterprises are counted as domestic patents, for instance, a patent filed by LG
Electronics China Branch is counted as a Chinese domestic patent. In other words, the
connotation of resident patent under the Chinese law is much broader as the patents filed
by multinational corporations branches in China are considered as domestic patents. To
illustrate this, the total number of invention patents is 173,327 in 2005, among which,
46.1% were filed by foreigners outside of China (Figure 1). Among 93,485 domestic
patent applications, one third was filed by Chinese individual and two third filed by
enterprises. As a large number of patent applications filed by foreign companies’
branches in China are counted as domestic patents, the mixture of foreign and local
patent filings is misleading and hence affects the objective assessment of the real level of
the local inventiveness capacity in China.
Figure 1: The Composition of Patents in China
2005
Invention Patent
Foreign
173,327
93,485 (53.9%)
Domestic
79,842 (46.1%)
Individual
1/3
Joint ventures, wholly foreign
owned enterprises
Entreprises
1/2
2/3
State owned enterprises &
private Chinese enterprises
1/2
Source: 2005 SIPO Annual Report, compiled by the author
24
WIPO Patent Report 2007, pp. 13-16.
9
The above mentioned factors should be taken into consideration when assessing the
increasing trend of patent applications in China.
3.2. Patent quality
3.2.1. Value added of Three Categories of Patents
The values of three categories of patents differ substantially. The invention patents have
higher value added among the three categories of patents.25 From the composition of
Chinese patent applications, it can be seen that the resident patent applications are mostly
those for utility model and industrial design, the invention patents, though increasing in
numbers, represented 24.4% of the total in 2005. Non-resident patent applications are
mostly invention patents, representing 85.8% of the total patent applications by non
residents. In other words, the patents applications have higher value added with 84% of
invention patent applications, while every 100 patent applications filed by Chinese
enterprises and individuals, there were only 18 invention patents, the rest being utility
model and industrial design (see Table 2).
Table 2: Three Categories of Patent Applications Classified by Resident and
Non-Resident Applicants (2005)
Invention
Utility model
Industrial design
Total
Resident
93,485
138,085
151,587
383,157
Non-resident
79,842
1,481
11,784
93,107
Total
173327
139566
163371
476264
Source: 2005 SIPO Annual Report
3.2.2. Traditional V. High-tech Industries
It has since long been understood that the mere counting of patents at any level of
aggregation does not provide good value indicators.26 It is remarkable to note that the
intrinsic value of innovations varies significantly, either within the same field of
technology or among different fields, and hence single patent counts, which weigh all
patents equally, leads to skewed analysis of value attached to patents. The distribution of
patent applications in various technical sectors were as follows- based on IPC
applications in 2005: (1) the applications under A61K for medical, dental and toilet
purposes ranked the highest the fourteen times, with 80% filed by residents; the
25
Bronwyn H. Hall, “Market Value and Patent Citations: A First Look”, NBER Paper [online]. Available at:
http://www.card.iastate.edu/research/stp/papers/hall-jaffe-trajtenberg.pdf. The paper seeks to strengthen the foundation
for the use of patent and patent citation data, by exploring the extent to which firm’s stock market value is correlated
with their stocks of patents and patent citations. While the article does not specifically compare divergence between
patent systems, it does view patent for inventions as technological drivers’ evidencing that they form part of
technologically superior categories of innovations.
26
Manuel Trajtenberg, “A Penny for your Quotes: Patent Citations and the value of innovations”, 21(1) Rand Journal
of Economics, 172 (1990) p.173.
10
applications under G06F for electronic data processing ranked second, with nearly 50%
filed by residents; the applications under H04L for digital data transmission ranked third,
with more than 50% filed by residents. Applications under A61K and G06F have been
consistently ranked among the top three for 10 years. (2) The top 10 applications by
non-residents are: information storage (G11B), semi-conductor ware (H01L), optical
system or instruments (G02B), representing more than 65% of the total. Therefore, the
resident applications are concentrated in traditional industries while the non-resident
applications are concentrated in high-tech IT and communications technologies.
Table 3: Top Ten IPC Sub-Classes of Patent Applications, 2005
Invention sub-class quantity
Resident
Non-resident
sub-class quantity
sub-class Quantity
Invention
invention
1
A61K
12514
1
A61K
10047
1
G06F
4335
2
G06F
8455
2
G06F
4120
2
H01L
3728
3
H04L
6305
3
H04L
3364
3
H04L
2941
4
H01L
5428
4
H04Q
2007
4
H04N
2796
5
H04N
4498
5
H04N
1702
5
A61K
2467
6
H04Q
3145
6
H01L
1700
6
G11B
2141
7
G11B
2698
7
G01N
1526
7
C07D
1491
8
C07D
2497
8
A23L
1426
8
G02F
1441
9
G01N
2445
9
H04M
1394
9
G02B
1267
10
G02F
2286
10
C07C
1201
10
H04B
1248
Among the invention patent applications, the residents are dominant in the following
areas: traditional Chinese medicine with 98%; soft drinks with 96%, food products with
90%; Chinese language computer inputs method with 79%. The non-residents are
dominant in the high tech areas as follows: wireless transmission with 93%; mobile
communication with 91%; TV systems with 90%; semi-conductors with 85%; western
medicine with 69%; computer applications with 60%. It is clear that the patent
applications by non-residents are mostly in high end and high value added areas.
Currently, China relies on imports for its requirements of all civil airplanes, and most
high end medical equipment, semi-conductors, digital integrated circuits manufacturing
equipment and fiber optics. Many important equipment and manufacturing systems are
imported and multinationals control core technologies for up to 80% of petrochemical
equipment, 70% of digital controlled machine tools and advanced textile equipments,
50% of color TV and mobile phones.27 While China’s external trade volume ranked
number three in the world, its exports of the high tech products developed by
self-innovation represented only 2% of the total trade volume.28
27
28
SIPO Annual Report 2005
SIPO Annual Report 2005
11
In terms of Chinese invention patent, applications for 2005 from both home and foreign
inventors reveals that the top five sectors of technical innovation are: (1). Computers; (2).
Telephone and data transmission systems; (3). Natural products; (4). Fermentation
technology and (5). Computer peripherals: (Table 4 for details):
Table 4: Top five Patented Technologies, all applicants, 2005
Rank No.
1
2
3
4
5
Items
18649
12997
9146
5334
4838
Term
T01
W01
B04
D16
T04
Definition
Digital Computers
Telephone and Data Transmission Systems
Natural Products and Polymers
Fermentation Industry
Computer Peripheral Equipment
Comparing applications from home with foreign applicants in China shows substantial
differences. In 2005, Chinese inventors filed most applications in natural products closely
followed by digital computers (Table 5), whilst foreign applicants focused on digital
computers and telecoms patents (Table 6):29
Table 5: Top Five Patented Technologies (home applicants), 2005
Rank No.
1
2
3
4
5
Items
8196
6355
4718
3497
2976
Term
B04
T01
W01
D16
D13
Industry
Natural Products and Polymers
Digital Computers
Telephone and Data Transmission Systems
Fermentation Industry
Other Foods, Food treatment including additives
Table 6: Top Five Patented Technologies (Foreign applicants), 2005
Rank No.
1
2
3
4
5
Items
12985
8655
7207
6629
6336
Term
T01
W01
L03
W02
U11
Industry
Digital Computers
Telephone and Data Transmission Systems
Electro of conductors, etc
Broadcast, Radio & Line Transmission Systems
Semiconductors, Materials and Processes
Patent applications in the area of information recording
29
Bob Stembridge, Innovation trends in China, Thomson Scientific, KnowledgeLinkSM newsletter,
Thomson Scientific www.scientific.thomson.com/newsletter, May 2006
12
The technology for information recording has been developing very rapidly along with
the emergences of DVD as a new media for information and image recording different
from VTR in 1970s and CD in 1980s. This is a high tech product which combines the
laser, precision electronics, and data storage compression technologies. In recent years,
there are been more and more patent applications related to DVD. In 2005, there were
448 patent applications under G11B (information storage), among which 402 were filed
by non residents, or 89.7%. These non residents were mainly from Japan, Korea, USA,
France (in the descending order), with 278 applications filed by Japan, or 62.5% of the
total number of applications.30 There were only 46 applications by residents, mainly the
research institutes of Via Technologies Corp from Taiwan, Tsinghua University,
Shanghai Jiaotong University, and Shanghai Optical Precision Instrument Institute.
China has limited patents filed in high-technology, e.g., IT and internet technologies. This
technology has become increasingly easier to copy, edit and transact audio and video
works that made the protection of the intellectual creations more difficult. Accordingly,
the technologies to protect the audio video works have also developed rapidly as shown
in Figure 5 in terms of patent applications in this area. Starting very low in early 1970s,
the number of applications exploded in the recent years. 31 It can be seen from the
Figure 2 that most of patents in the area of audio and video works protection are filed by
non-residents.
Figure 2: Number of Applications (1972-2004)
30
31
SIPO Annual Report 2005
SIPO
Annual
Report
http://www.sipo.gov.cn/sipo/gk/ndbg/2005NB/200604/t20060424_96076.htm
2005,
13
Figure 3: Number of Applications by Countries and Regions
As shown in Figure 3, as of June 2005, the patents for audio and video related
technologies are controlled by Japan, the USA, Europe and Korea, with very few patents
held by Chinese.
3.2.3. Basic patents vs surrounding patents
Patent inventions can be classified into new and novel invention, composite invention
and improvement invention. Among these, the initial invention is fundamental. The
composite invention refers to the invention by integrating existing technologies to form a
new one while the improvement invention is a follow on invention on the basis of an
existing technology. There is substantial evidence to suggest that distributional value of
patents is highly skewed towards low end innovation (i.e. surrounding patents), with a
long and thin tail on the high value side.32 Currently, resident patent applications filed by
Chinese residents are mostly improvement inventions with few new and novel
inventions.33
For example, the hybrid cars that combines a conventional propulsion system with an
on-board rechargeable energy storage system to achieve better fuel economy than a
conventional vehicle have attracted interests from both world auto makers as well as
research institutes. Figure 4 shows the trend of the patent applications in this area
between 2003 and 2005 in China. In 2005, the number applications dropped compared to
the levels of 2003 and 2004. In 2003, there were over 100 known applications related to
hybrid cars, with a substantial number of applications in the area of core technologies of
hybrid cars power transmission and structural devices. In 2004, there were 96 known
applications, with a substantial number of applications concerning control methodologies.
In 2005, the number of applications was only 65, with reduced number of applications
concerning core technologies, but many applications are hybrid cars’ peripheral
technologies such as test platform of fuel cells, control calibrations etc. Figure 5 shows
the distribution of applicants by country. It can be seen that in recent years there were
many applications from Japan and USA, particularly from Toyota, Honda and Nissan, the
32
Manuel Trajtenberg, “A Penny for your Quotes: Patent Citations and the value of innovations”, 21(1) Rand Journal
of Economics, 172 (1990) p.173.
33
Promoting the Quality of Intellectual Property with Harmonious Growth in Patent Quality and Quantity,
April 23, 2007, Source
PRC Government Webportal
14
three car makers in Japan. However, in 2005, the resident applications increased
significantly, with 55% of the total. These resident applicants include more than 20
enterprises and research institutes including Tsinghua University, Shanghai Jiaotong
University, China First Auto Works Group, Shanghai Automotive Industry Corp
Research Institute. However, these applications were mainly peripheral technologies.
Figure 4: Applications Trend, 2003-2005
Figure 5: Applications Nation Distribution, 2005
To demonstrate the basic patents and surrounding patents, Table 7 shows the number and
contents of the patent applications filed by Toyata, Japan and Tsinghua University, China
in 2005. It can be seen from the table that the applications filed by Toyota were
concentrated in key areas of driving device and hybrid cars control systems; while
Tsinghua University’s applications were wide spread in several areas including core
technologies of hybrid power systems, power train controllers, but also Peripheral
systems such as control calibrations and test platforms. In the areas of hybrid cars, the
developed countries such as Japan and USA have taken a lead in their research and
controlled much of the core technologies, while China’s research works just taken off
with few comparative advantages in core technologies except in peripheral technologies.
Table 7: Applications comparisons between TOYOTA and Tsinghua University, 2005
Applicant
Toyata
Amount
8
Drive unit for HEV
Title
Control device for HEV equipped with transmission
Control system for HEV
Drive system and method for parallel HEV
Hybrid drive unit for vehicle
Tsinghua
6
Standardization method for HEV controller based on CCP
15
University
protocol
Shift control method without operation of clutch for parallel
HEV
Test and research system for fuel cell hybrid drive system
Multi-energy power unit assembly controller for HEV
Hybrid drive system for fuel cell vehicle
3.2.4. Process Patents vs Product Patents
At demonstrated earlier, the patent applications under A61K for the fourteenth for
medical, dental, toilet purposes ranked number one in all applications, of which 80% are
resident inventions. Traditional medicinal knowledge patents constitute the major
components under IPC-A61K. Given the inherent difficulties to determine the structure
of traditional medicinal knowledge, only ‘‘product-by- process’’ can apply, which has
limited market power.34 From 1985 to October 2005, a total of 31,435 patent applications
on traditional medicines were accepted by the SIPO and 7,985 patents on traditional
medicines were granted with a patent grant rate of 25.4%. From 1985 to 1992, the annual
patent applications on traditional medicine were only 107 on average. The number of
patent applications on traditional medicine went up from 312 in 1992 to 675 in 1993, and
continued the upward trend to 6,982 in 2005. From 1993 to 2005, the annual patent
applications on traditional medicine reached 2,534 on average.35
Product patents provide for absolute protection of the product, whereas process patents
provide protection in respect of the technology and method of manufacture. A process
patent system promotes a more competitive environment and a check on prices, as
compared with the monopoly system created through product patents.36 This form of
claim is known to confer ‘‘absolute product protection’’ because it carries no limitation,
either as to the process by which the compound is made or as to the end use to which the
compound may be put. The TMK-related pharmaceutical products that can be patented
include the following four types.37
The characteristics of TMK make it difficult to determine active components as precisely
and accurately as its counterpart MPK. As a consequence, TMK innovation can hardly be
described as a formula and the inventiveness can hardly be assessed by comparing the
chemical structures. As TMK has distinguished characteristics from chemical
34
“Novelty and Inventive Step: Obstacles to Traditional Knowledge Protection under Patent Regimes: a Case Study in
China”, European Intellectual Property Review (2007), volume 29, Issue 4, p. 134-149
35
This query is made through China Patent Abstract Database, China Patent Information Research System,
SIPO, searched by Main International Patent Classification (IPC) of A61K035 and A61K033, which are
relevant to traditional medicines.
36
Cecilia Oh, Patents and Monopoly Prices, Third World Network, [Online]. Available at:
http://www.twnside.org.sg/title/twr131b.htm
37
Zheng, 2005a; 2005b.
16
pharmaceutical products, different criteria need to be applied for determining the
differences between the prior art and the claims at issue. Accordingly, the herb
composition of inventiveness claimed, instead of formula, becomes decisive. It
substantially increases the difficulties of patent examination. The determination of the
difference between the prior art and the claims at issue is less objective because most
TMK is a mixture of many unknown substances. To mitigate the possible failure, Chinese
patent practice adopts the method of so-called product-by-process in the context of TMK
as TMK can be characterized by the process by which it is obtained and not by its
elements and structure.38 However, under ‘‘product-by- process’’ claims, protection is
only extended to a product obtained with the claimed process; the same product, if
obtained by another process, would not infringe on an existing claim.39 In terms of
coverage of protection, a ‘‘product-by-process’’ patent is significantly narrower than a
‘‘product patent’’. As chemical pharmaceutical products have long been protected under
the ‘‘product patent’’, which is the strongest form of patent protection, the effectiveness
of patent protection on TMK is questionable and incomparable.
3.3. Summary
The above analysis demonstrates that the conclusion of WIPO Patent Report 2007 in
terms of changing geography of innovation based on patenting growth rates in China is
not convincing. The issue not only relates to how to interpret correctly the figures on
patent filings, but also the question of quality of patent filings. In terms of patent quantity,
utility model and industrial designs are counted as patents in China. It significantly
enlarges the number of patents filed in China and hence overall Chinese innovation
capacity. As a result, the sharp rise of patent filings in industrial design and utility model
does not mean a significant improvement in innovation capacity there. In terms of patent
quality, a closer look at the distribution of patents filed by the Chinese nationals’ shows
that most of them belong to the two types of low value patents, which do not require
substantive patent examination. In addition, most patent filed by Chinese nationals are in
traditional industry which has less market value in comparison to a patent in
high-technology filed by foreigners. Few basic patents are filed by Chinese nationals that
prevail on surrounding patents in terms of market power. Likewise, most process patent
and product-by-process patents acquired by Chinese nationals have less monopoly power
comparing to product patent mostly held by foreigners. Therefore, the apparent sharp
increase in patent applications does not represent China’s real innovative capacity.
Accordingly, hasty generalizations on the changing geography innovation patterns should
be avoided when interpreting sharp rise in Chinese patent filing. In the next section, some
major problems relating to the use of patent application as proxy of measure inventive
activities will be identified with a comparison of relevant legal provisions in US, EU,
India and Brazil.
IV. Problems with Patent Application as Indicator
4.1. Problems arising out of differences in the Patent systems:
International comparisons based on patent applications are questionable due to the
different propensity to patent and the value of patents across countries. The
38
39
Zheng, 2005a; 2005b
Correa, 2000.
17
characteristics of national patent systems in terms of protectable subject matter,
substantive examination standards, scope of right, and the first-to-file vs the
first-to-invent system substantially influence the patent propensity. These differences in
patent regulations make it difficult to compare patent application counts across countries.
A patent is a territorial right and hence the grant of patent depends on patent law of the
individual country. While patent filing procedures across the nations have substantially
been harmonized due to Patent Cooperation Treaty, 40 there has been no substantial
harmonization of patent law standards other than what is prescribed by the common
minimum standards under the TRIPS Agreement.41 There are still areas of divergence in
patent laws of different countries and hence the resultant output in terms of filings and
grant may eventually vary.
The Paris Convention in 1883 laid down the genesis of international harmonization of
patent laws and related procedures.42 The national treatment clause, the priority in filings
clause, working requirements, compulsory licenses etc, are the outcome of Paris
Convention. However, this was based on common minimum standards and was non
binding in nature.43 It allowed countries to follow different standards based on the
domestic and contextual economic needs. Since than various countries have followed
unique set of criteria for grant of patent rights, prominently, the grant or non grant of
product patents in case of drugs and chemicals, first to file and first to invent, compulsory
license provisions, local working requirements, subject matter discrimination, rights
granted etc. Hence, traditionally it is seen that patent system was tailored to the needs of
the particular countries and law as an instrument was used to cater the unique design of
patent system.
The historical territorial nature of patents is thus central to the use of patent information
and statistics, either via filings or grant. This highlights that issue arising out of legal
interpretations and structure can have significant bearing on the construction of patent
statistics for the purpose of determining the degree and nature of innovation. Although
the TRIPS Agreement, through its Article 27, has largely changed this position, there are
still bright possibilities of differences in the national patent regimes.44 More importantly,
TRIPS does not require member countries to stick at the common minimum standards
and hence TRIPS plus standards and obligations are perfectly compatible with the
harmonization process initiated by it. In other words, even after TRIPS, there are
possibilities that further harmonization and tightening of patent obligations may accrue.
40
See, Patent Cooperation Treaty (1970), which allows filing of a single application along with the
national application. Available at: http://www.wipo.int/pct/en/texts/articles/atoc.htm (herein after, PCT).
While the single PCT application designating various countries streamlines the procedure of filing, the
grant of patent on such an application is the sole jurisdiction of the National Patent Offices worldwide. The
World Intellectual Property Organization administers the PCT.
41
See, Agreement on Trade Related Aspects of Intellectual Property Rights (1994). Available at:
http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm (Herein after TRIPS).
42
See, Paris Convention for the Protection of Industrial Property (1883), as revised latest by 1979.
Available at: http://www.wipo.int/export/sites/www/treaties/en/ip/paris/pdf/trtdocs_wo020.pdf (Herein after,
Paris Convention).
43
See, Paris Convention, Article 2, 3, 4 and 5.
44
See, TRIPS Article 27, which leaves sufficient flexibility for member countries to design laws
concerning patentable subject matter based on the tri-step criterion of novelty, utility and inventive step.
18
The discussions on Substantive Patent Law Treaty45 and the recently concluded bilateral
and Free Trade Agreements are testimony to these. 46 The differences in national
standards may also accrue to the validation or quashing of certain legal interpretation of
member countries’ patent law by the World Trade Organization (WTO) - Dispute
Settlement Body (DSB).47 Thus there is a profound possibility of differences that can
occur due to legal vacuum in certain areas of patent acquisition and grant.
The TRIPS Agreement does not obligate and differentiate between member countries
based on the design of the patent system. While it mandates member countries to provide
for patents based on patent law thresholds, the design to patent law depends on the
individual preferences on member countries. For example, TRIPS does not speak about
the status of utility patents. There is also a possibility of protection of plant varieties
either through patents, sui-generis or a combination of both. These varied options of
subject-matter protection calls for a remarkable difference in interpreting patent statistics
for the purpose of understanding geography of innovation. While the WIPO Patent
Report, 2007, does acknowledge that there can be differences in the national patent
systems arising out of legal and administrative differences, the report does not go further
to suggest the methodology adopted.48 Moreover, without concrete evidence suggesting
the methodology, it appears that it is too early for the WIPO Report to conclude Carte
Blanche about the changing geography of innovation.49 The following sections will
detail on the various differences arising out of such unique problems concerning
45
See, Draft Substantive Patent Law Treaty (As updated until the 11th session of the Standing Committee
on law of Patents-SCP), Available at: http://www.wipo.int/patent-law/en/harmonization.htm (herein after
SPLT). The SPLT discussion at the WIPO is centered on the harmonization of substantive legal provisions
responsible for the grant of patents in WIPO member countries. Very prominently, the draft SPLT has
defined the patent law threshold of novelty, utility and inventive step (non-obviousness) and hence there is
still lack of consensus over that issue. Hence the draft SPLT as far as it affects the interpretation of patent
statistics is only a possibility which can arise in future, where some countries could opt to remain outside
its framework. Hence the problem is only conceptual at this level.
46
See for example, US-Peru Free Trade agreement concluded on 7th December 2005, available at:
http://www.ustr.gov/assets/Trade_Agreements/Bilateral/Peru_TPA/Final_Texts/asset_upload_file392_9546.
pdf . The US-Peru FTA has dedicated a chapter on IPRs. Incase of patents, even while certain provisions of
TRIPS have been reaffirmed, obligations for instance to provide “plant patents” is a TRIPS plus standard.
TRIPS left the member countries to decide on protection of plant varieties either through patents,
sui-generis or a combination of both. Hence such additional obligations have inherent capacity to expand
the availability of patents among countries.
47
See for example WTO DS 50 (India-US Patents) where India was asked to put in place a legal
mechanism for filing of patent applications under the “mailbox” and for provision of “exclusive marketing
rights”
as
obligated
under
TRIPS.
Available
at:
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds79_e.htm Also see WTO DS 170 (Canada-Patent
term), where pursuant to TRIPS obligations Canada was required to protect patents in force on 1-1-1996 in
accordance with the TRIPS mandate. Canada was also not allowed to have a 17 year patent period instead
of 20 years (based on the argument of average pendency period) as it would violate the mandate under
TRIPS. Thus the Dispute Settlement Body of the WTO has been remarkable in designing the legal
interpretation of member countries’ patent law provisions, interalia, which has a potential to determine the
availability and grant of patents (even while issue of patentable subject matter issue is not discussed by the
WTO- DSB as yet) in those member countries.
48
WIPO Patent Report, 2007, p.VI
WIPO Patent Report, 2007, p. VI The Report states that “Improvements in patent indicators are the subject of
ongoing studies by WIPO and other organizations working in the field of patent statistics.”
49
19
availability and grant of patents and its consequence on the interpretation of patent
statistics for the purpose of understanding the geography of innovation.
4.1.1 Subject Matter differences:
Patentable subject matter constitutes one of the most important factors that determine the
eligibility of patents. Patent eligibility is different from patentability. While patentability
determines whether a particular invention is patentable based on the patent law threshold
criterion of novelty, utility and inventive step, patent eligibility determines whether a
particular subject matter is able to be protected under patent laws.
a. The Position under TRIPS:
The TRIPS Agreement set the minimum standards on IPR acquisition and enforcement.
The Agreement is unique from the Paris Convention, as it went beyond the connotations
of “territorial grants” based on national standards as traditionally understood. While
TRIPS does not lead to an issue of a world patent, it streamlines and categorizes the basis
and legal provisions for the issue of patents by member countries. Even considering the
fact that all sovereign nations are not party to the WTO, substantial number of developed,
developing and the LDCs are party to the Agreement and hence it makes rationale to
examine the issue of differences in patent laws from the point of view of TRIPS.50 So
TRIPS is a good starting point for understanding this difference. In this context, Article
27 is crucial in determining the availability of patents for inventions. Article 27 reads:
Patentable Subject Matter
1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for
any inventions, whether products or processes, in all fields of technology,
provided that they are new, involve an inventive step and are capable of
industrial application.51 Subject to paragraph 4 of Article 65, paragraph 8 of
Article 70 and paragraph 3 of this Article, patents shall be available and patent
rights enjoyable without discrimination as to the place of invention, the field of
technology and whether products are imported or locally produced.
2. Members may exclude from patentability inventions, the prevention within
their territory of the commercial exploitation of which is necessary to protect
ordre public or morality, including to protect human, animal or plant life or
health or to avoid serious prejudice to the environment, provided that such
exclusion is not made merely because the exploitation is prohibited by their law.
3. Members may also exclude from patentability:
(a) diagnostic, therapeutic and surgical methods for the treatment of humans
or animals;
(b) plants and animals other than micro-organisms, and essentially biological
processes for the production of plants or animals other than non-biological and
50
As of 27th July 2007, there were 151 members to the WTO.
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
51
(Footnote in original) For the purposes of this Article, the terms “inventive step” and “capable of
industrial application” may be deemed by a Member to be synonymous with the terms “non-obvious” and
“useful” respectively.
20
microbiological processes. However, Members shall provide for the protection
of plant varieties either by patents or by an effective sui generis system or by
any combination thereof. The provisions of this subparagraph shall be reviewed
four years after the date of entry into force of the WTO Agreement.
Article 27.1 mandates that patents shall be available for any inventions, whether
products or processes, which means that member countries cannot discriminate on the
subject matter on the basis on the invention being either a product or a process. But
the word invention is not defined. This does not however mean that it gives blanket
flexibility for countries to determine what can be invention. The word “invention”
here is understood in the sense of technological inventions, reaffirmed by the use of
phrases “all fields of technology”. This leads to a fundamental difficulty in
determining whether non-technological information can be treated as a patentable
subject matter. Most of the confusion in the area of software patents is due to basic
non-clarity on what can or should constitute innovation. Thus this is a first instance in
which TRIPS leaves open the space for member countries to deicide.
While narrow exclusions are allowed, TRIPS provides that patents shall be available
and patent rights enjoyable without discrimination as to the place of invention, the
field of technology and whether products are imported or locally produced. Here, the
provision goes beyond specifying exclusions, i.e. this part of the provision talks about
non-discrimination on the basis on non-local working, field of technology, and also
talks about the importation right. This is a vaguely structured provision in as much as
what could amount to “discrimination” in relation to the parameters is open for valid
debate. Even while, the Canada-US Patent Term case does define discrimination, its
relationship within article 27 is very unclear, especially where it tries to make a
distinction between discrimination and differentiation. 52 Hence this also leaves
sufficient scope for differences in grant of patents among different countries.
Article 27.2 uses the word “may”, which is a non-mandatory provision, thereby
leaving scope for non application of the provision by different member countries.
Thus commercial exploitation of patents is necessary to protect ordre public or
morality, including to protect human, animal or plant life or health or to avoid serious
prejudice to the environment, may form part of the patenting scheme. Here members
have certain flexibility in defining situations that are covered within the meaning of
ordere public or morality which depend upon their own conceptions of public
values.53 This again calls for sufficient gaps among member countries in relation to
grant or non grant of a patent.
Article 27.3 again uses the word “may”, thus making it non obligatory for member
countries to use the exclusionary provisions. Moreover, the word “micro-organism”
is also not defined, which only gives scope for member countries to include certain
variety of micro-organisms, with clear technological distinction, to be within the
patenting frame work. In other words, members may opt for a narrow patent
eligibility framework, confining micro-organisms to only those that have been
52
See WTO DS 170 (Canada-Patent term). Also See: UNCTAD-ICTSD, “Resource Book on TRIPS and
Development”, p. 374.
53
UNCTAD-ICTSD, “Resource Book on TRIPS and Development”, p. 379.
21
genetically modified, when compared to broader patent eligibility framework as
followed in developed country jurisdictions. This interpretation is quite possible
owing to the non-existence of definition to the word ‘invention’.54
b. Difference in Patentable subject matter: A review of US, EU and Brazil and
the Indian legal provisions which concern the grant of patents:
Four patent regimes are analyzed to illustrate how different interpretation can be
possible, leading to divergence in grant of patents, with a comparison among two
developed patent regimes and two developing patent regimes in respect of four vital
areas namely, definition of invention, definition of field of technology, definition of
patent law thresholds and disclosure requirements. Table 8 presents presence or
absence of legal moulds that form the genesis of divergence of patent laws. A
miscellaneous section deals with additional provisions which can have significant
divergence, while its compatibility with TRIPS remains unaddressed.
Table 8: A Comparison of US, EU, Brazil and the Indian legal provisions concerning
the grant of patents
United States55
(National)
Definitio
n
of
Invention
EU56
Brazil58
India59
(Region
al)57
(National)
(National)
35 USC 100 (a) Not
defines the term defined
“invention”
by the
statute.
35 U.S.C. 101
Not defined by
the statute.
Section
2(j)
defines
“invention
”.
-Not defined by
the statute-
-not defined by
the statute-
-not
defined by
the
Inventions
patentable
Definitio
n of field
of
54
55
-not
defined
by the
See: UNCTAD-ICTSD, “Resource Book on TRIPS and Development”, p. 392.
See 35 U.S.C. Available at: http://www.uspto.gov/web/offices/pac/mpep/consolidated_laws.pdf
See, European Patent Convention (1973), (Hereinafter the EPC [1973]). Available at:
http://documents.epo.org/projects/babylon/eponet.nsf/0/b8be2484d06e90dec1257258003c8a3c/$FILE/epc_
2006_e-bookmarks.pdf
57
The European Patent office was established under the EPC 1973 and grants patent based on provisions
of the convention. However, the enforcement of the patent is left to National courts. Hence even while a
patent by the EPO may be valid, there can be some difference while enforcing them nationally due to some
lack of harmonized patent laws. By virtue of Article 2(2) of the EPC (1973), The European patent shall, in
each of the Contracting States for which it is granted, have the effect of and be subject to the same
conditions as a national patent granted by that State, unless otherwise provided in this Convention. This
confusion over jurisdiction issue illustrates how different jurisdictions may react to the grant. In certain
situations, a patent grant by the EPO may be invalidated by the national laws of EPC member countries.
See, Gretchen Ann Bender, Clash of the Titans: The Territoriality of Patent Law vs. The European Union,
40 IDEA 49 (2000). Available at: http://www.idea.piercelaw.edu/articles/40/40_1/2.Bender.pdf
58
See, Brazilian Industrial Property Law: Law No 9.279, of May 14, 1996. Effective as of May 15, 1997.
59
See, Patent Act, 1970 (as amended in 2005). Available at: http://ipindia.nic.in/ipr/patent/patents.htm
56
22
Technolo
gy
Definitio
n
of
patent
law
threshold
s
(i.e.
novelty,
utility
and
inventive
step)
Other
Exclusion
s
from
patent
eligibility
Disclosur
e
of
invention
statute-
statute-
35 USC 102
defines
conditions for
patentability;
novelty and loss
to
right
to
patent.
Article
52 (1)
prescrib
es
the
legal
threshol
d.
35 USC 103
defines
conditions for
patentability;
non-obvious
subject matter.
Article
54, 56
and 57
defines
novelty,
inventiv
e
step
and
industria
l
applicati
on
in
relation
to
an
inventio
n
-No
specific
statutory
exclusions-
Article
52(2) (3)
and (4)
lists the
exclusio
ns from
patent
eligibilit
y.
Article
10
provides a list
of items that
not considered
as inventions.
Article
83
defines
the
standard
of
disclosu
re need
for the
Article 24 and
25 defines the
standard
of
disclosure in
relation to an
invention.
35 U.S.C. 112
defines
the
content of the
Specification
which should be
accompanied
with a patent
application.
Article
8
prescribes the
legal threshold.
Section
2(1)(ja)
defines
Article 11 defines “inventive
step”.
the novelty in
relation
to Section 2
inventions.
(1)
(ac)
defines
Article 13 defines
when an invention the term
shall be deemed to capable of
involve inventive “industrial
applicatio
activity.
n”.
Article 15 defines
the
industrial Section
application
in 2(l)
relation
to defines
Inventions
and the term
“new
utility models.
invention”
.
Article
18
provides
for
non patentable
inventions and
Utility models.
Section 3
defines
what are
not
inventions
within the
meaning
of the Act
are.
Section
10(4) lays
down the
standard
of
disclosure
in relation
to
a
patentable
23
grant of
Europea
n patent
Miscellan
eous
35 U.S.C. 104 deals
with
Invention
-made abroad.
35 U.S.C. 105 deals
with Inventions in
outer space.
invention.
--
Section 4
provides
that
inventions
related to
atomic
energy are
not
patentable
c. Analysis of the Differences of Patent eligibility:
In the United States, patents are granted for all inventions which form part of any of the
four categories mentioned in 35 U.S.C. 101. A patentable invention must be (either
product or processes) machine, manufacture, or composition of matter, or any new and
useful improvement thereof. This gives enough space to include “anything under the sun
made by man” to be patented.60 The patent philosophy in US is extremely market
oriented and the markets largely rely on a patent based framework.61 While “filed of
technology” is not defined by the statute, an analogy can be drawn from the four
categories available for patenting inventions. Thus some degree of technicality is
expected to encompass all the four categories.
The patent eligibility issue of inventions especially in the area of software and
biotechnology has been under heavy debate since long in the United States. The blurring
distinction between invention and discovery of patentable inventions in United States has
led to widespread patenting activities, unlike in other jurisdictions which specifically rely
on certain exclusions. The Courts in the US have larger role in defining the limits of
patentability and hence the patent eligibility criterion is structured by the US Federal
Circuits (exclusively responsible for patent disputes) and the US Supreme Court. The
case of Diamond v. Chakrabarthy,62 Diamond v. Diehr,63 In re Alappat,64 State Street
Bank v. Signature Financial Corp., 65 AT&T v. Excel Communications Inc, 66 have
fashioned the patent eligibility criterion for various type of subject matter in United States.
Since US patent code does not specifically exclude or include subject matter based on
field of technology it was been quite possible for the USPTO and the Courts to draw
expansive interpretation, especially in the case of biotechnology, 67 software,68 internet
60
See, Diamond v. Chakrabarthy, 447 U.S. 303 (1980).
A Brief History of the Patent Law of the United States. Available at:
http://www.ladas.com/Patents/USPatentHistory.html
62
See, Diamond v. Chakrabarthy, 447 U.S. 303 (1980).
63
See, Diamond v. Diehr, 450 U.S. 175 (1981).
64
See, In re Alappat , 31 USPQ2d 1545
65
State Street Bank v. Signature Financial Corp. 149 F.3d 1368 (Fed. Cir. Jul. 23, 1998).
66
AT&T v. Excel Communications Inc. 50 USPQ 2d 1447.
67
See, for example Patentable Subject Matter, Ladas and Parry LLP. Available at:
http://www.ladas.com/Patents/Biotechnology/USPharmPatentLaw/USPhar03.html. Also see, the MPEP
briefing
of
the
United
States
Patent
and
Trademark
office.
Available
at:
61
24
and business method related patents, 69 even while US Supreme Court in its prior
decisions has identified a narrow category of exclusions. This is unlike other patent
jurisdictions where patent eligibility is prescribed by the statute in itself. The lack of
proper statutory definition for defining patent eligibility criterion and the freehand given
to the courts has created a conducive environment for higher degree of patenting in the
United States.70
The disclosure standard in the US, which is a criterion for a valid grant of patent, is also
unique in nature. While best mode disclosure is one of the indicia of proper disclosure,
the requirement is marred with loose exception wherein 35 USC 112(6) provides that “an
element in a claim for a combination may be expressed as a means or step for performing
a specified function without the recital of structure, material, or acts in support thereof,
and such claim shall be construed to cover the corresponding structure, material, or acts
described in the specification and equivalents thereof.” This “means plus function” clause
is crucial in determining what is disclosed in a patent application. Hence lower standard
of disclosure can ensure easy grant of patent thus leading to higher propensity to patent.
On the other side of the Atlantic, the European Patent Convention provides for a list of
exclusions. Article 52(2) of the EPC lists certain items which shall not be regarded as
inventions for the purpose of patent eligibility. They basically relate to discoveries,
scientific theories and mathematical methods; aesthetic creations; schemes, rules and
methods for performing mental acts, playing games or doing business, and programs for
computers; presentations of information. However, 52(3) limits such exclusions mentioned
earlier are limited only to the extent to which a European patent application or European
patent relates to such subject-matter or activities as such. This “as such” terminology has
been used by the EPO and the Technical Board of the EPO to deliver judgments based on
the pulse of time. Article 52 (4), unlike in the US, provides for exclusion of inventions from
patentability which relate to methods for treatment of the human or animal body by surgery
or therapy and diagnostic methods practised on the human or animal body. This exclusion
is based on the criterion of lack to industrial application.
Even the courts, especially the EPO Technical Board of Appeals has been quite active in
rendering decisions which has expanded the scope of patentability in the EU. Most
prominently, the Vicom case,71 Havard onco mouse case,72 Plant genetic Systems case73
and the Pension benefit scheme case74 have largely shaped the EU law in the area of
software, biotechnology, plant patents and Business methods and internet related patents.
However, the EPO uses the technical character of invention test to determine whether the
http://www.uspto.gov/web/offices/pac/mpep/documents/2100_2105.htm
68
Software PatentLlaw: EU and US Compared 2003 Duke L. & Tech. Rev. 0006. Available
http://www.law.duke.edu/journals/dltr/articles/2003dltr0006.html
69
See, Robert R. Stoll, Business Method Patents: A US Perspective, Available
http://www.wipo.int/edocs/mdocs/ecommerce/en/wipo_ec_conf_01/wipo_ec_conf_01_spk_3a.pdf
70
Pamela Samuelsson, Legally Speaking: Why Reform the US Patent System. Available
http://people.ischool.berkeley.edu/~pam/papers/cacm%20patent%20reform.pdf
71
Vicom Systems, Appeals Board of the European Patent Office. case number T0208/84 available
http://legal.european-patent-office.org/dg3/biblio/t840208ep1.htm
72
HARVARD/Onco-mouse (T19/90), [1990] E.P.O.R. 501
73
Case T 356/93 [1995] OJ EPO 545.
74
Case T 0931/95 Available at: http://legal.european-patent-office.org/dg3/biblio/t950931eu1.htm
at:
at:
at:
at:
25
invention is within the EPC. This largely settles the field of technology position, which is
undefined by the EPC.
In Brazil, Article 10 of the Brazilian Intellectual Property Law (1996) provides for an
exhaustive list of items which are not considered to be inventions or utility models. They
basically relate to discoveries, scientific theories and mathematical methods; purely
abstract concepts; schemes, plans, principles or methods of a commercial, accounting,
financial, educational, publishing, lottery or fiscal nature; literary, architectural, artistic
and scientific works or any aesthetic creation; Computer programs per se; presentation of
information; rules of games; operating or surgical techniques and therapeutic or
diagnostic methods, for use on the human or animal body; and natural living beings, in
whole or in part, and biological material, including the genome of germ plasma of any
natural living being, when found in nature or isolated there from, and natural biological
processes. These broad exclusions are significant in determining the nature and extent of
innovation that form part of the patent scheme in Brazil. While there have been no
significant cases which could interpret the provisions of section 10, it is for sure that
certain exclusions may involve issues of TRIPS compatibility. But the fact that these
provisions remain unchallenged since its inception in 1996, it can safely be concluded
that there is larger consensus over whether or not such exclusions should form part of the
patenting scheme.
Again, Article 18 of the Brazilian patent law provides for inventions not patentable based
on well defined parameters of public morality, good customs, public security, order and
health; substances, matter, mixtures, elements or products of any kind, as well as the
modification of their physical-chemical properties and the respective processes of
obtaining or modification thereof, when resulting from the transformation of the atomic
nucleus; and living beings, in whole or in part, except transgenic micro-organisms
meeting the three patentability requirements. With such a definition in place, it is quite
possible to argue that certain categories of gene patents are excluded by the Brazilian law,
especially when read in conjunction with Article 10 (IX). In case of software patents, the
Brazilian law excludes computer program per se, which gives sufficient space for
excluding intrinsic patentability of software but to include combinational claims with
hardware.75 However, there is no specific exclusion in case of business method patents.
They can be interpreted to exclude if Article 10(I) and (II) are read together. However, a
business method along with computer software (non per se) can still be patented in Brazil.
This brings Brazil closer to the EU position where such types of combinational claims are
allowed, provided they possess technical character. Thus the filing and grant of business
method and biotechnological patent may vary in accordance with the provisions of
Brazilian Patent laws.
It appears that the Brazilian law through its Article 24 and 25 does not require best mode
disclosure in each and every case. Thus without disclosing the best mode, it facilitates
easy filing and makes the patent system more attractive to applicants. The use of the
words “…to carry it out and to indicate, when applicable, the best mode of execution…”
reaffirm that there is certain divergence in the Brazilian patent law with regards to
75
Inventions involving the use of computer software may be patentable provided they are of technical
character (new and utilizable by industry). For example, if computer software is used to control a machine,
a patent may be available for the machine. (Brazil Law #9279 (May 14, 1996), effective May 15, 1997).
26
disclosure of inventions.
In India, section 3 excludes certain subject matter from the patentability scheme. These
can at times be interpreted to go beyond the TRIPS exclusionary framework and hence
questions on TRIPS compatibility are yet to be analyzed and answered. Domestically, for
example, section 3(d) of the Indian Patent Act, 1970 was challenged in India, but was
held constitutionally valid. 76 However, this does not answer the issue of TRIPS
compatibility. The sub section77 excludes certain innovations which are incremental or
minor by bringing in a higher inventive step criterion for examination. This substantially
excludes patents for inventions which are in the nature of modifications. There are also
few other areas which are excluded from patentability or are not considered to be
inventions for the purpose of patent law. They prominently include, exclusions based on
ordere public and morality, prejudice to health and environment, discovery of any living
and non living substance occurring in nature, plants and animals in whole or in part
(except micro organisms), essentially biological process, seeds, plant varieties,
mathematical and business methods, computer programme per se, algorithms,
presentation of information, subject matter that is covered under copyright, traditional
knowledge (excluding value additions) done to it which are more than mere admixture of
things.78
There is also another problem identified in defining inventive step criterion, wherein it
expressly provides for economic significance of an innovation leading to patentability.
Here, economic contribution subsides the technical contribution criterion and thus lowers
the inventive step threshold. This when read in conjunction with section 3 exclusions may
give a contrary meaning. Thus, at the core of the patent law subject matter availability in
India lays the important exclusions, which can substantially shape the issue of patent
availability in India. For example, business method and certain category of software and
internet related patents are excluded from the patentability framework. Further, it is
unclear as to how the current Indian patent law subject matter excludability provisions
would withstand the WTO-DSB interpretation of TRIPS Agreement.79 On the disclosure
front, the standard appears to be higher when compared to other jurisdictions. It includes
three important requirements, namely, full and particular description of the invention and
its operation or use and the method by which it is to be performed; disclosure of the best
method of performing the invention which is known to the applicant and for which he is
entitled to claim protection; and ending with a claim or claims defining the scope of the
76
Novartis
A.G
v.
Union
of
India
and
http://www.lawyerscollective.org/%5Eamtc/current_issues/Judgement.pdf
others.
Available
at:
77
Section 3(d) reads: The mere discovery of a new form of a known substance which does not result in the
enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a
known substance or of the mere use of a known process, machine or apparatus unless such known process results in a
new product or employs atleast one new reactant.
Explanation: For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pureform,
particle size isomers, mixtures of isomers, complexes, combinations and other derivatives of known
substance shall be considered to be the same substance, unless they differ significantly in properties with
regard to efficacy.
78
79
Section 3 of the Indian Patent Act, 1970.
Novartis
A.G
v.
Union
of
India
and
http://www.lawyerscollective.org/%5Eamtc/current_issues/Judgement.pdf
others.
Available
at:
27
invention for which protection is claimed. 80
As shown in Table 9, software (including internet and business method) patents and
biotech patents can be used as an example to show how exclusions can affect patent grant
numbers and thus provide a different picture of innovation.
Table 9: Exclusions in Software and Biotechnology Patents
US
EU
Brazil
India
Intrinsic
patentability of
software
is
allowed.
Business
method
and
internet related
patents
are
allowed.
Software
patents
are
allowed
provided they
make
a
technical
contribution and
possess
technical
character (strict
criterion than
US). Business
method patents
are
allowed
when claimed in
combination
with software.
Computer
program per se is
not allowed, thus
allowing partial
patentability.
Business methods
are
not
specifically
excluded.
Computer
program per se
is
excluded
along
with
algorithms.
Hence certain
applied
technologies
lacking
inventive step
are excluded.
Business
method patents
are
clearly
excluded.
All
biotech
Biotechnology related patents
are
allowed
patents
provided they
satisfy a higher
utility criterion.
Plant
(expressing the
genotype) and
animals
are
included within
biotech patents.
Not specifically
excluded by the
EPC law. The
Board’s
interpretation
allows plant and
animal
patentability.
Living beings in
whole or in part
except
micro
organisms
excluded. Natural
living beings, in
whole or in part,
and
biological
material,
including
the
genome of germ
plasma of any
natural
living
being,
when
found in nature
or isolated there
from, and natural
biological
Excludes plants
and animals but
includes micro
organisms. The
criterion
of
patent
law
threshold
is
higher
and
certain micro
organisms may
be excluded.
Software and
Business
method
patents
80
Section 10(4) of the Patent Act, 1970.
28
processes
excluded.
are
The above table represents varying degrees of patentability in two prominent areas of
technology. It proves that minor distinction in national patent laws can have major
influence on availability of patents for ascertaining the figures on grant. While the WIPO
and the OECD 81 do highlight these differences in their work on patent statistics as
indicators, they do not seem to have incorporated those exclusions in their respective
publications.
4.2.2 Difference in the design of the Patent System
The design of the patent system is left to individual countries provided they are in
consonance with the minimum standards as prescribed under the TRIPS Agreement. The
problem that eventually occurs in case of patent statistics is that sometimes, utility patents
may be included within the general patent system and thus overestimate the technical
innovative capacity and confuse the geography of innovation. While the WIPO patent
report validly makes such a point, it goes no further in excluding them for analysis in the
report.82 The methodology used in the report is not suggestive of the interpretation that
utility patents have been excluded for all purposes while collecting statistics on patents.
In some cases incremental inventions, which should indeed form part of the utility
models may have been included in standard patent for invention statistics.
Thus for instance TRIPS allows three important flexibilities in design of the Patent
system:
• TRIPS Agreement does not obligate member countries to have a Utility models
for protecting minor innovations and hence countries may either have a utility
model or refrain from having it.83 TRIPS only requires a standard patent system
which takes care of inventions based on three threshold criterion.
• TRIPS states that plants varieties can either be protected through patents, Sui
generis or both. Thus countries are free to provide plant patents, exclusive plant
variety protection through a sui generis law or provide a combination of both.84
The last among the three models is not popular and is not used by any of the
patent regimes across the world. Thus plants and plant varieties are protected
either through patents or sui generis plant variety legislations.
• While TRIPS has dedicated two important sections on protection of industrial
designs85, it does not specify whether they can form part of the patents scheme
similar to the standard patent for inventions scheme. Thus countries are free to
enact specific patent like legislations, or separate industrial design legislations. In
case of patent like legislation, there is always a possibility to count them with
81
See
generally,
Compendium
of
Patent
Statistics
2005,
http://www.oecd.org/dataoecd/60/24/8208325.pdf
82
See,
WIPO
Patent
Report,
2007.
Available
http://www.wipo.int/freepublications/en/patents/931/wipo_pub_931.pdf
83
See Article 27 of TRIPS Agreement and also the preamble where categories of IP are specified.
84
See, Article 27.3 (b) of TRIPS Agreement.
85
See Article 25 and 26 of TRIPS Agreement.
OECD,
at:
29
standard patents for inventions statistics and hence may give an incorrect picture
of innovation geography.
Table 10 provides an overview of divergence in patent in inventions and utility models
across the world. The WIPO IP statistics work has been commendable in this area and
hence this table (only for EU and US) is largely based on sources from WIPO.86
Table 10: Utility Models, Plant Variety and Designs in the Definition of Patents
Utility Models
Plant
Variety
Protection
Design Patents
US
EU
Brazil
India
NO
NO
YES
NO
(not to be confused
with “utility patents”
which are
synonymous to
patents for
inventions)
(Allowed in few
countries based
on
national
legislations, but
not harmonized
by EU law)
YES
YES
YES
YES
NO
NO
NO
(both utility patents
and an exclusive
plant patent act is in
place provided they
satisfy the different
criterion required
under different laws)
YES
The concept of “utility patents” in US is similar to standard patent for inventions model
followed in different countries.87 Since the US does not provide for utility models, the
decrease in patent quality is an issue closely related. Commentators have suggested that a
law which could provide utility models could substantially avoid the proposal for recent
patent reforms in US.88 It is seen that lack of utility models is a reason for lowering of
the US patent law threshold requirements. This conclusively proves that many patents
which are of incremental value and minor inventions may inadvertently form part of the
“utility patents” scheme. The same is the case with India which only provides for a
standard patents for invention model and not the utility model.89 In some European
countries, it is possible to register a utility model. Creations that are new and differ
essentially from the known art can be registered as utility models. Utility model rights in
86
See
WIPO
index
of
Patent
http://www.wipo.int/ipstats/en/resources/patent_systems.html
87
See, 35 USC dealing with “utility patents”.
Systems.
Available
at:
88
Kevin E. Noonan, Could Creating a US “Utility Model” Patent fulfill the “Need” for Patent Law Reform? Available
at: http://patentdocs.typepad.com/patent_docs/2007/05/could_creating_.html
89
Patent Act, 1970 as amended in 1999, 2002 and 2005. The act only deals with patents for inventions.
30
the European countries that offer this type of protection, are namely, Austria, Denmark,
Finland, Germany, Hungary, Poland, Portugal, Russia, and Spain. 90 However, such a
model is not available at the EU level. An unsuccessful harmonizing attempt91 proves it
sufficiently that the EPO had to lower the inventive step criterion for providing patents
which have minor and incremental value. These have led to large number of patents being
issued. Brazil follows it own utility model apart from the patent for inventions model.92
The exception applicable incase of Patent for inventions model is equally made applicable
for utility models also. However, the criterion of inventive step in case of utility models is
quite low when compared to the criterion of patents for invention.
In case of Plant Variety protection, each country has special legislations. US has the Plant
Variety Protection Act of 1970 (PVPA), 7 U.S.C. §§ 2321-2582. The PVPA gives
breeders up to 25 years of exclusive control over new, distinct, uniform, and stable
sexually reproduced or tuber propagated plant varieties. The PVPA should not be
confused with plant patent provided under the Plant Patent Act, 1930, which are limited
to asexually reproduced plants (not including tuber propagated plants). Another problem
identified in this context is the availability of patents for plants through the standard
patent for inventions model. After J.E.M AG Supply, Inc., v. Pioneer Hi Bred
International, Inc.,93 it is now possible to get a patent over plants by satisfying the
criterion there under. In this case in 2001, the Supreme Court held that Utility patents
may be issued for plants under 35 U.S.C. 101 despite distinct protections available under
the Plant Variety Protection Act and the Plant Patent Act. Thus there is a possibility of
including inventions concerning plants within the patent for invention framework or the
“utility patent” framework in US. This has wider implications of statistics concerning
patents as it covers plant variety inventions which still remain outside the scope of patent
laws in some other countries. In Brazil Decree No. 2366, PVP Gazette 89, published in
September 2000, enacts regulations under law No. 9,456 of April 25, 1997, on plant
variety protection and rules on the National Plant Varieties Protection Service (SNPC), and
introduces other measures. This is a sui generis legislation passed to satisfy the TRIPS
obligation. But the Brazilian Patent for invention law does not exclude plant from patents.
Section 10 and 18 of the Brazilian law are not clear in this regard, as they do not
specifically use the term plant or plant varieties. However, the words “Living beings, in
whole or in part” as appearing in section 18 and “Natural living beings” as appearing in
section 10 and section 18 can be interpreted to partly exclude certain type of claims over
plant varieties. In India, the position is little dicey considering that fact there is a
possibility of including certain plant related inventions within the Patent for Invention
model. This possibility is due to the expanding connotation which can be possibly given
to the word micro organism. 94 Certain plant varieties, which have distinct micro
organisms and which satisfy the patent law threshold can be within the patent framework,
even while plant varieties as excluded. Here the claims can be structured to exclude plant
90
See, Uma Suthersanen, Utility Models and Innovation in Developing Countries, UNCTAD Publication
(2006). Available at: http://www.unctad.org/en/docs/iteipc20066_en.pdf
91
See, Ladas And Parry LLP. EU withdrawal of Proposed Directive on the Law of Utility Models.
Available at: http://www.ladas.com/BULLETINS/2006/20060500/EUUtilityModelLawUnification.shtml
92
93
94
Brazilian Industrial Property Law, Law Nº 9.279, of May 14, 1996
534 U.S. 124
Section 3(j) of the Indian Patent Act, 1970.
31
varieties, but the main micro organisms that give unique characteristics, distinctiveness,
novelty and stability to the plant can be covered for infringement purposes. Thus there is
a possibility of certain plant inventions coming to the patentability framework. There is a
also a sui generis law known as Plant Variety Protection and Farmers’ Rights Act, 2001 in
place.95 This should in fact take care of plant related inventions, but as discussed above
contrary situations could be quite possible under the Indian plant variety or plant
protection models. Under the EU, the protection of new plant varieties is a result of the
procedures currently in force in Member States and of the procedures of Regulation No.
2100/94 (EC) on Community Plant Variety Rights (CPVR), which are generally based on
the International Convention for the Protection of New Varieties of Plants (UPOV
Convention).96 The new community-wide system exists alongside national systems as an
alternative. It is not possible to hold Community and national plant variety rights
simultaneously for the same variety. Furthermore, the CPVR cannot coexist with a patent.
If a CPVR is granted in relation to a variety for which a national right or patent has already
been granted, the national right or patent is suspended for the duration of the CPVR.97 This
suggests that Patents that have become redundant due to superseding of the CPVR must be
deducted for all practical purposes of statistics. Hence such patents must be avoided out of
the filing or granted statistics for the purpose of knowing the geography of innovation.
The Design patents system is very unique in the US where it forms part of a parallel
patent scheme. Chapter 16 provides patent protection for designs wherein it states that
whoever invents any new, original, and ornamental design for an article of manufacture
may obtain a patent. 98 This allows ornamental designs to get within the patent
framework, which can be considered as a count. To the contrary the EU has the system of
Community designs became operational in 2003. A single registration ensures protection
across all Member States. The legal basis is provided by the Regulation on Community
designs (No 6/2002). The detailed rules for applications and procedures for registration
are contained in Commission Regulation (EC) no. 2245/2002. The Regulation on
Community designs also provides for an unregistered design right lasting for three years
after a design is made available to the public. This is intended for industries which
produce a large number of designs with a relatively short market life. Thus in EU designs
have a separate category of protection and thus do not form part of the patent count.
The Brazilian consolidated IP law in Title II provides for registration of Industrial
designs.99 The same is the position in India, but both these countries do not provide for
unregistered designs.100
4.2. Patent quality varies due to different standards of examination
Another drawback of international comparison based national patent counts lies in the
high heterogeneity in the value of patents. The value of a patent can be approximately
defined as the contribution of the invention it protects to the economy: either in
95
Act 53 of 2001.
See
EC
Council
resolution.
http://europa.eu.int/eur-lex/en/consleg/pdf/1994/en_1994R2100_do_001.pdf
97
Ibid.
98
35 U.S.C. 171
96
99
100
Available
at:
Brazilian Industrial Property Law, Law Nº 9.279, of May 14, 1996
The Industrial Designs Act, 2000 does not provide for right of unregistered design.
32
technological terms (novelty and fertility of the invention), or in economic terms (return
to the patentee). There is broad recognition that the value distribution of patents is
skewed: a few patents have large value, whereas many have very low value.101 Hence the
significance of patent counts is limited, as they put on equal footing, patents of very
different values.102
As TRIPS leaves considerable flexibility to national patent regimes to adopt patent law
threshold, there can be different patterns of examination adopted by different patent
offices. In fact patent offices in different countries have issued Manuals’ on Patent
Examination and Procedure which guides the patent office of respective countries over
grant of patents. In this section we shall examine a general trend in granting patents by
lowering the patent threshold requirements of novelty, utility and inventive step. These
trends have been examined in the light of FTC Report 103and NAS Report 104in the US.
An universalisation of these standards is also occurring widely. In other words,
developing countries are increasingly stepping into the shoes of developed countries with
reference to the standard setting. we would now take a first hand review of the legal
provisions concerning patent law thresholds and the possibility of granting low quality
patents in developing countries as well. We also examine the Manual of Patent Practice
and Procedures and see how different standards of patent examination can lead to
different nature of grant in developed and developing countries.
The surge in patenting as fallout of the US Federal Circuit Courts’ decisions opening up for
more liberal patenting framework could not prove anything more than the unexplainable
rise in the grant of ‘questionable patents’.
The threat drawn by the USPTO appears clearly in the 2003 FTC Report on Patents and
Competition, where in it states:105
“…failure to strike the appropriate balance between competition and patent
law and policy can harm innovation. For example, if patent law were to allow
patents on “obvious” inventions, it could thwart competition that might have
developed based on the obvious technology”.
It defines a questionable patent as “one that is likely invalid or contains claims that are
likely overly broad.” The main points that the Report conveys is as follows: 1)
Questionable patents can deter or raise the cost of innovation; 2) in industries with
incremental innovation, questionable patents can increase “defensive patenting” and
licensing complications; 3) suggests Post grant review of patents and challenges at the
USPTO rather than the Courts; 4) tighten the legal standards used to evaluate whether a
101
Manuel Trajtenberg, “A Penny for your Quotes: Patent Citations and the value of innovations”, 21(1) Rand Journal
of Economics, 172 (1990) p.173.
102
Vanessa Oltra and René Kemp, Patents as a measure for eco-innovation, University of Bordeaux and
UNU-MERIT,
June
16,
2007.
H:\Coordinator-Since
Aug
16\Research\Innovation
indicator\literature\Patents as a measure for eco-innovation-OltraKemp-2007.doc
103
See FTC Report, To Promote Innovation: The Proper Balance of Competition and Patent Law and
Policy. (2003). Available at: http://www.ftc.gov/os/2003/10/innovationrpt.pdf (Herein after US-FTC, 2003)
104
National Academies, USA, Report on A Patent system for 21st Century (2004). Available at:
http://www.nap.edu/html/patentsystem/ (Herein After NAS Report)
105
US-FTC, 2003, Chapter 1, p.9.
33
patent is “obvious”;106 5) consider possible harm to competition along with other possible
benefits and costs before extending patentable subject matter; 6) policy oriented
interpretation of the patent laws by the courts in as much as it is necessary for maintaining
a proper balance between patent and competition laws; 7) amend the PTO rules to include
it’s 21st century strategic plan.
The Committee on Intellectual Property Rights in the Knowledge-Based Economy
(Report of the National Research Council of the National Academies) is a Report on
similar lines.107 In fact the report has drawn attention to the deteriorating patent quality and
has suggested reinvigoration of the non-obviousness standard. It States:108
“There are several reasons to suspect that more issued patents are deviating from
previous or at least desirable standards of utility, novelty, and especially non-obviousness
and that this problem is more pronounced in fast-moving areas of technology newly subject
to patenting than in established, less rapidly changing fields.”
The statement is self explanatory. The committee also remarked that that high acceptance
rates, especially if increasing over time relative to comparable rates in other industrialized
countries would be reason to look more closely at examination quality.109 The report also
talks about the rate of approval at the USPTO and states that there are reasons to be
concerned about both the courts’ interpretations of the substantive patent standards,
particularly non-obviousness, and the USPTO’s application of the standards in
examination, especially in emerging technologies, where fairly broad patents may be
granted early on, and fewer but narrower patents are granted as the field matures, more
prior art becomes available, and examiners become more familiar with it. But the report
cautions that such trends in giving space for the evolutionary process of innovation must be
corrected before it is too late to take measures.
Prior use which can lead to lack of novelty is restricted only to use within the country.110
This is very unique to the US law, as TRIPS has not defined novelty, which leaves
enough leeway for any favorable standard to be set. This naturally leads higher degree of
patent filing and grant, especially in the area of traditional knowledge and use of genetic
resources, since many uses (which have not been known through publication) of such
knowledge have been used outside the USA.111 This is one instance of difference based
on difference in defining prior art for the purpose of novelty. Inventive Step, popularly
the synonym for “non-obviousness” in USA lays down a standard wherein the differences
between the subject matter sought to be patented and the prior art are such that the subject
matter as a whole would have been obvious at the time the invention was made to a
person having ordinary skill in the art to which said subject matter pertains.112 This
definition has been open for several interpretations by the courts in United States and has
been tightened or loosened by different points in time. One such recent example, where
106
US-FTC, 2003, Chapter IV, p. 19
NAS Report.
108
NAS Report p. 51.
109
NAS Report p. 54.
110
35 USC 102 (a).
111
See, Vandana Shiva, “US Patent System Legalizes Theft and Bio-Piracy”, The Hindu, July 28th 1999.
Available at: http://www.organicconsumers.org/Patent/uspatsys.cfm
112
35 USC 103 (a).
107
34
the court slightly tightened the non-obviousness standard113 makes it clear that there
cannot be a single set of inventive step criterion fixed in case of all technologies. The
decision in a way fundamentally reasserts that Artcile 27.1 of the TRIPS Agreement has
lee ways for establishing a criterion on inventive step by member countries. The clause
also states that patentability shall not be negatived by the manner in which the invention
was made. This is also a unique exemption which can be used to lower the inventive step
standard. It is possible to argue that an invention, which lacks sufficient intellectual labor,
may still form part of the patenting scheme. Further the phrase “person having ordinary
skill in the art” (PHOSITA) is left undefined. The PHOSITA test may depend on the how
one defines the art (i.e. the area of technology) and the level of skill of such person. In
KSR International Co. v. Teleflex Inc. (Et Al.), Justice Kennedy remarked that “A person
of ordinary skill is also a person of ordinary creativity, not an automaton”.114 This
slightly unsettles the USPTO position, which grants patents to inventions based on the
low level application of the PHOSITA test. Infact, the USPTO has come up with new
guidelines in October 2007, based on the Supreme Courts decision in KSR. The
guidelines offer a more restrictive approach and has slighlty tightened the non-oviousness
standards for examination of patents. The utility standard in the US is also unique incase
of patenting biotech inventions, which suggests that standards may vary based on the
nature of technology.115
However, the damage done by the USPTO in the recent years and the subsequent FTC
and NAS reports are testimony of America’ s deteriorating patent law standards.These
conclusions on grant of questionable patents in United States are staggering developments
which needs greater attention from lawmakers and innovation economists alike. In fact, the
recent patent law reform legislation is step in this direction.116 The problem in associating
technological innovation with such low quality patents indeed questions the sanctity of the
innovation and patent links. This is just an example to prove that higher count of patent
does not have any link to higher degree of innovation. This conceptual understanding can
be understood in the context of WIPO report suggesting changing geography of
innovation. Such presumption of patent- innovation link thus stands challenged. The EU,
through the EPC states that novelty for an invention shall be considered to be new if it does
not form part of the state of the art.117 The state of art comprises everything made available
to the public by means of a written or oral description, by use, or in any other way, before
113
See, KSR International Co. v. Teleflex Inc. (Et Al.), 550 U.S. ___ (2007). Available at:
http://www.supremecourtus.gov/opinions/06pdf/04-1350.pdf
114
See, 550 U.S. ___ (2007).
115
Georgios I Zekos, Utility and Biotechnology Patenting, [2006] 5 Web JCLI. Available at:
http://webjcli.ncl.ac.uk/2006/issue5/zekos5.html
116
Patent Reform Act of 2007. It should be noted that this particular piece of reform legislation was
introduced by Congressman Lamar Smith of Texas in the United States House of Representatives. On July
19th 2007, the US Senate Judiciary Committee approved the Bill and soon the full Senate of the US
Congress will approve the Bill to be enacted as a law. The Bill shall be called as the “Patent Reform Act of
2007” and proposes to amend various sections of title 35 of United States Code (dealing with patent laws).
The amendments are in response to concerns raised by the technology sector, basically the software
industry, over costly infringement law suits and proper examination of patent law thresholds incase of
software, business methods and internet related patents. Post grant review is the focus of the Bill, which
was mainly in response to rise in issue of questionable patents by the USPTO.
117
Article 54 (1)
35
the date of filing of the European patent application. 118 While prior use and prior
publication is sufficient to kill novelty, inventive step requires that the invention should be
non obvious to a person skilled in the art in comparison to prevailing state of art.119 These
magic words have given sufficient scope for wider interpretation which has subsequently
allowed the EPO to grant patents by lowering the inventive step criterion.120 An invention
is considered to have industrial application if it can be made of used in any kind of industry,
including agriculture.121 The loose interpretation on the utility concept has allowed minor
software innovation fixed on a tangible medium of instruction to be patentable.122
Now, the issue of universalization, or extension of such questionable patent activity can be
seen in the light of deteriorating standards of patent law thresholds in Brazil and India. The
history of the patent law criterion has always been territorial, but for the recent extension
through TRIPS. Even while, the TRIPS does not define the patent law thresholds of
novelty, utility and inventive step, there has been a conscious effort by legislators and
Patent Offices and sometimes even the Courts to bring down the general level of inventive
step. The situation in India and Brazil clearly brings out this agony. In India, section 2 (1)
(j) has defined ‘invention’ to mean products or processes that qualify the tri-test of novelty,
industrial application and inventive step. These qualification requirements, even though
independent are in fact interdependent, where each has to inherently qualify along with the
other. Such an interpretation is highly consistent with the object of patent laws, so that a
patent is not issued by merely qualifying one criterion by looking purely from subject
matter perspective, while searching for other qualifications in some other part of the
invention. It is possible to interpret them together in the light of necessities presented by
section 3 type of exclusions.123 Section 2 (1) (l) defines “new invention” to mean “any
invention or technology which has not been anticipated by publication in any document or
used in the country or elsewhere in the world before the date of filing of patent application
with complete specification, i.e., the subject matter has not fallen in public domain or that
it does not form part of the state of art;”.
Section 2(1) (ja) defines “inventive step” to mean “a feature of an invention that involves
technical advance as compared to the existing knowledge or having economic significance
or both and that makes the invention not obvious to a person skilled in the art;”. The
general level of inventive step prior to the new definition of inventive step has been quite
high as reflected in the Indian supreme courts decision in Bishwanath Prasad Radhey
Shyam v Hindustan Metal Industries124 In the light of this high degree of non-obviousness
standard followed in the India the narrow approach adopted by the recent changes in
definition of inventive step is a set back, especially considering that TRIPS has allowed
118
Article 54 (2)
Article 56.
120
Dietmar Harhoff, Patents in Europe and the European Patent System, Panel on Lisbon Agenda on
Economics of Innovation and Patents on knowledge related Process. European Patent
121
Article 57.
122
Kahin, B. (2003) ‘Through the lens of intangibles: What patents on software and services reveal about
the system’, Paper presented at Proceedings of the OECD, Paris, 28th-29th August 2003, 209-225.
Available at: http://www.si.umich.edu/~kahin/Lens.doc
123
Gopalakrishnan N. S. (2004) ‘Intellectual Property Laws’, Annual Survey of Indian Law, 40, 389-404.
124
Bishwanath Prasad Radhey Shyam v Hindustan Metal Industries, PTC (Suppl.) (1) 731 (SC).
119
36
this flexibility. However, even with such loose wordings, it is possible to interpret a higher
threshold.
This approach in fact is explicitly imbibed in the Indian Patent Act’s definition of inventive
step under section 2(1) (j) inasmuch as it states that “a feature of an invention that involves
technical advance as compared to the existing knowledge”. It means that a feature of an
invention is the one in which valid subject matter resides and therefore this valid subject
matter must then be judged in the light of prior art to see whether there is any technical
advance made by it to the existing knowledge. The Supreme Court of India has also
endorsed such a high degree of inventive step.125 It is hence quite clear that the “technical
advance” must reside in that part of an invention that makes computer program
implemented inventions pass the filter of valid subject matter. The commercial success test
that is alternatively employed in the definition needs some serious consideration at this
juncture. The definition states that, by “having economic significance” the invention can
manage to muster support for passing the test of inventive step. Moreover, the concern is
that while both test (the one of technical advance and that of commercial/economic
significance) together can be accepted, the invention that passes only the latter, can within
the definition also be granted a valid patent. Basically, the parameters that govern this test
are also vague because a commercial success or economic significance cannot be the same
as “technical advance”. 126The commercial success has come under serious debate and
needs to be fully abandoned to avoid reaching any wrong conclusions over the celebrated
high inventive step criterion followed in India.
Further, the inventive step must be such that it makes invention not obvious to a person
skilled in the art. Who is this person skilled in the art is not defined by the Act. In this
situation there can be an ordinary person skilled in the art or a person of highly imaginative
and inventive temperament. There is a need for greater coherence to properly determine the
field and the character that this person skill in the art must possess.
Section 2(ac) defines utility in terms of ‘capable of industrial application’. It states
“‘capable of industrial application’, in relation to an invention, means that the invention is
capable of being made or used in an industry”. Such a utility criteria is not a synonym of
practical utility, to easily mean what is applied. If utility were to mean only practical
application rather than inventive application, every invention that has some positive
change would pass the threshold easily; this would sound a death knell to the industry, as
patents would be judged for minor utilities hence enhancing questionable patent activities.
Thus utility must necessarily be above mere practical application.
The above analysis reveals that only those inventions that possess very high degree of
patent law thresholds should indeed form part of the patent scheme. But the guidelines of
the Indian Patent office suggest otherwise. The draft Manual of Patent Practice and
Procedure was issued by the Indian Patent Office in Mid 2005.127 Since then, the draft has
been kept open for suggestions. Logistically, the guidelines are important in the sense that
the Act cannot be expected to explain in greater detail the nuances to be followed,
125
126
Bishwanath Prasad Radhey Shyam v Hindustan Metal Industries, PTC (Suppl.) (1) 731 (SC).
Merges, R. P. (1988) ‘Commercial Success and Patent Standards: Economic Perspectives on
Innovation’, California Law Review, 76, 805-876.
127
Indian Patent Office, Manual of the Patent Practice and Procedure, 2005, p.143
37
especially in knowing the type of claim format which could be allowed for each type of
patenting activity. Thus they are in the nature of more avid logistic concerns but have the
potential of blurring definitional requirements and standards prescribed under the Act. And
hence they may be important in understand what type of grants are allowed and disallowed.
This sufficiently suggests that different countries may follow different procedure in their
patent offices which can lead to denial or grant of a patent right. It has implications on
understanding the geography of innovation if successful patent count does indeed point to
it. Hence, patent counts must consider the above nuances while ascertaining the geography
of innovation, especially in the developing countries.
V
Conclusion
This article argues that the WIPO Patent Report conclusion on changing geography of
innovation based on sharp rise of the number of patent filings in Northeast Asian with an
emphasis on China should be interpreted with caution. The drawback of such an
international comparison not only relates to how to interpret properly the figures on
patent filings and the “resident patent filings” given the diversified patent law setting
across countries, but also to high heterogeneity in the value of patents. A detailed analysis
on China patent applications from patent quantity and patent quality perspectives
illustrates that the apparent sharp increase in patent applications does not represent
China’s real innovative capacity. Beyond the example of China and with illustration of
how difference in administrating and interpretation of patent filings can lead to
misinterpretation, this article identifies the sources of misinterpretation by comparing US,
EU, Brazil and India patent legislation and regimes. On the one hand, the characteristics
of national patent systems in terms of protectable subject matter, substantive examination
standards, scope of right, and the first-to-file vs the first-to-invent system strongly
influence the patent propensity which make it difficult to compare patent application
counts across countries. On the other hand, the value distribution of patents is highly
skewed as a few patents have large value, whereas many have very low value. Therefore,
the significance of patent counts is limited, as they put on equal footing patents of very
different values. To facilitate appropriate policy responses, developing countries should
be cautious in reading the WIPO interpretation of the counts on patent filings.
Furthermore, it is necessary to make efforts to develop a proper set of indicators system
to monitor the changes of innovation capacities in each and every place, especially in the
developing countries.
38