The backlog in patent processing could impose £7.6 billion (about USD$11.3 billion) in annual expenses on the global economy within the next five years if nothing is done to fix it, according to a new economics study from the United Kingdom released this morning before directors of several top global intellectual property offices.

But if a system of work-sharing between different national patent offices that saves 25 percent of the load is put into place instead, the global economy could be saving an annual £6 billion (the current exchange rate is approximately 1 £GBP : 1.5 $USD) over the same time period, said Paula Ramada of economic consulting group London Economics, presenting the study.

The report, Patent Backlogs and Mutual Recognition, was commissioned by the UK Intellectual Property Office and written by London Economics. It is available here [pdf].

The global innovation community and patent offices “must work together to tackle the worldwide patent backlog and the economic harm it is causing,” said recently appointed United States Patent and Trademark Office head David Kappos.

Substantive harmonisation of the international patent system and work-sharing are both “critical to this solution and the USPTO is fully committed to these goals,” Kappos said.

Alison Brimelow, the outgoing president of the European Patent Office, was more skeptical.

“Substantive harmonisation is a horse that is being flogged even though it is thrice dead,” she said. While adding she would watch with “hope and fascination” from her upcoming retirement, Brimelow predicted the only problem likely to be solved by such efforts is the “economic crisis in the airline industry as we all fly in and out of Geneva hoping to solve the problem.”

On work-sharing, she said “I’d like to know how that 25 percent figure can actually be achieved.”

Developing countries have for years resisted substantive patent harmonisation. Discussions at the World Intellectual Property Organization (WIPO) on the topic in 2005 resulted in a breakdown of a diplomatic conference, or high-level negotiation (IPW, WIPO, 6 March 2005).

The £7.6 Billion Problem

The patent backlog, said Ramada, has grown between 28 and 58 percent from 2000 to 2007 in the world’s three biggest patent offices – the US Patent and Trademark Office, the European Patent Office, and the Japan Patent Office. The report’s calculations were made with data from these offices.

The traditional response to a backlog is to hire more patent examiners, “but this is not working,” said David Lammy, UK minister of state for higher education and intellectual property.

Much of the backlog has been caused by the globalisation of applications, said Ramada. The study says one-third of patent applications are filed in more than one office, said Lammy, suggesting there is much duplication. So patent offices should “work smarter,” sharing to “reduce duplication and therefore reduce backlogs,” he said.

A backlog reduces the value of valid patent applications and incentivises strategic behaviour such as the submission of patent applications on things which are not truly innovative, because having a patent pending confers a market advantage, said Ramada. Backlogs create uncertainty within an industry, confer temporary monopoly power to non-patentable applications, and can distort incentives to innovate. These problems have a cost.

The cost is high enough it has caused leading small and medium-sized enterprises to decide that continuous innovation, rather than applying for a patent, is the best solution to staying ahead of competition, said John Cridland of the Confederation of British Industry.

London Economics’ estimations predicted an increase in patent pendency of slightly more than one year within the next five years if nothing changes, said Ramada. Currently, the wait time is a little over three years.

That fourth year is predicted to cost, annually: £6 billion in lost revenue due to reduced incentives to innovate, £359 million in lost revenue from the additional non-patentable patent applications, and £1.2 billion in lost revenue from the quasi-monopoly power of these non-patentable innovations while their patent is pending, according to the report.

The £6 billion figure derives from estimating an additional year of pendency will reduce application filing by 8-11 percent in key industries due to reduced innovation incentives, or by about 5,700 applications, according to the report (page 63). Multiplying 5,700 by the percent of applications granted and the average value of a granted patent yields the estimate. More details of the calculations are available in the report.

If work-sharing programmes could reduce redundancy between patent offices and save 25 percent of the shared workload, pendency times could be reduced by 9 months in the next five years, Ramada said. Using similar calculation techniques, the London Economics report estimates this could then save £6 billion annually.

Cooperation?

“About 50 percent of patent applications seen in the US come from overseas,” said Kappos, adding that cooperation between the US and the UK should be a particular priority. The two IP offices today announced a plan to more effectively share work.

One possible way that cooperation can happen is through operational integration, harmonisation of the technical and practical working methods used by patent offices, Brimelow said. Operational integration is generally seen as less controversial than substantive patent harmonisation, though many are still wary.

The so-called “IP5” – the USPTO, EPO, and JPO along with the Korean Intellectual Property Office and the State Intellectual Property Office of China – have already begun work in this area (IPW, IP Burble, 8 December 2009). Brimelow added she thought the 5 would “be 7 before long.”

Brimelow said that use of WIPO’s Patent Cooperation Treaty is necessary. Kappos agreed, saying other efforts to share work are “complementary to” the PCT. Some observers have suggested that efforts at the national and regional level might undermine the international treaty, which eases processing of an application from one country in other countries.

Also speaking at the event was Koichi Minami, the deputy commissioner of the Japan Patent Office, who gave details of how the JPO is trying to reduce its backlog.