Australia is patently falling behind

While Australia is taking part in the global innovation and start-up boom, we're punching well below our weight in patent applications.

Australia is finally seeing a wave of tech start-up activity but so far this is not translating into patent applications.

For some reason the number of patents filed by Australians, per capita, has actually declined over the past decade. Globally it’s going through the roof, led by China.

And that’s at odds with what’s going on in this country in venture capital. Australia sat out the 1990s tech boom with an almost complete absence of ICT innovation, but not this time.

There is a new, more sustainable global boom in innovation and start-ups prompted, in part, by lower cost cloud computing, which is making processing cheaper. It is centred on Silicon Valley and New York in the US, as well as Israel.

It’s hard to get data on what’s happening in Australia, but anecdotally it’s clear that Sydney is very much part of the global boom. There is a boom in venture capital and start-ups here, and that’s now leading to dozens of small IPOs and backdoor listings on the ASX.

But Australia is punching well below its weight in patent applications.

According to the most recent data available from IP Australia (which is not very recent – 2012) there were 2,627 applications filed by Australians, or 114 per million people, down from 120 per million a decade ago.

More than 90 per cent of the patents filed in Australia are by foreign entities. In most countries it’s about 50 per cent, with the other half coming from locals. The number of patents globally is about 2 million, which is growing at 6 per cent a year. Chinas is now fling about 400 patents per million – four times the rate of Australia.

Paula Chavez, an American patent lawyer now working with Australian firm Wrays, says a lot of the problem lies in the cost of filing in Australia, which is much higher than in the US.

She says that a patent application in the US can cost around $2000-$3000; in Australia it’s at least $10,000. Also she says it’s harder and more expensive to sue in Australia to protect your IP, because the loser pays the legal costs of the winner (not the case in the US).

“There’s a lot of innovation going on in Australia, but not enough capture of the IP.

“That’s evidenced by Australia’s IP trade deficit,” says Chavez. “According to an IP Australia report, $4 billion was paid in 2013 to foreign patent owners for IP and only $748 million was received.”

So although Australia is beginning to participate in the worldwide start-up boom, it does not seem to be doing it in a way that allows the technology to be exported. If Australians don’t file patent applications both here and abroad, they’ll have nothing to sell apart from URLs and trade marks, which is not enough.

Ian Maxwell, an adjunct professor at RMIT University, recently wrote that Australia’s 20 largest corporations have just 3,400 patents between them. Thirteen of them have less than 20 in total.

“By comparison the 20 largest US listed companies hold many hundreds of thousands of patents and they collectively file over 20,000 patents year. Google alone owns 51,000 patents and IBM has a similar number.

“This discrepancy between Australian and US corporations is primarily due to the focus of large Australian companies on exploiting their “protected” share of the local market rather than exporting technology solutions.”

A report by the US Patent Board, published in the Wall Street Journal this week, makes it clear that stockmarket value tends to follow the number of patent filings.

There’s also a large trade in patents themselves. Google bought Motorola, with its 17,000 patents, for $12.5 billion, to protect its Android operating system. Last year Microsoft bought 800 patents from AOL for more than $1bn, and then sold 70 per cent of them to Facebook for $550 million.

The Senate Economic References Committee is currently running an inquiry into “Australia’s innovation system”, due to report by July 2015. None of its terms of reference specifically refers to patents and its 177 submissions does not seem to have included one from IP Australia. The inquiry seems to be mostly focused on Government funding of research and innovation.

Unless Australia’s approach to IP protection is improved, the lift in innovation and start-up activity won’t be sustained.