Saturday, 28 June 2014

Balance of patents

Those of a mercantilist tendency will be interested in the balance of patents - the number of patents filed abroad from one's country with a view to keeping Johnny Foreigner in his place, minus those filed in one's own country by Johnny Foreigner, that might pose an inconvenience in one's home country.

Balance of patents = (Pout - Pin)/(Pout + Pin)

Pout = patent applications filed abroad
Pin = patent applications received from abroad

A crude narrative might be that:-
  • early in its development a country receives more patents than it files abroad: but it does not receive many because it is  not an interesting place to invest in;
  • as it develops, it receives more patents as it becomes a more attractive place to do business in; 
  • as it develops still further, it starts to generate more patents and its balance of patents improves.
Whether true or not, this is an interesting story.  

Different countries have different engagements with the rest of the world. Large countries tend to be more self sufficient, and smaller countries tend to trade more. As countries become wealthier they can more readily afford the luxury of filing abroad. A measure of a country's interest in the rest of the world is thus the number of foreign filings compared with the number of national filings made by applicants from that country.

Conversion ratio = Pout/Phome
where Phome = number of national filings by residents in that country

Thus for any country three numbers suffice to describe engagement of the patent system with the world:-
  • the number of patent filings by residents;
  • the number of patent filings by non-residents; 
  • the number of patent filings abroad.
It happens that such numbers are available from WIPO. The following graph shows calculated figures from 1997 to 2012 for USA, China, Japan, Korea, and for EPC countries as a block [treating all filings within Europe from EPC countries as being "domestic" [e.g. a German originating UK application counted as domestic and vice versa]]. 

The most telling squiggle is the change in balance of patents for Republic of Korea from a net importer to a net exporter of patents. The most interesting squiggle is the oscillation of the USA, showing its rapid response to economic conditions. The squiggle most indicative of a possible problem in the WIPO data is that of Japan which seems to show a random bump. Europe shows a remarkable outward looking behaviour.

The smallest seeming change is that of China. However, Chinese patent applications accounted for over a quarter of all patent applications in 2012 [~28%] and are increasing rapidly.

The increase in Chinese patent applications can be seen graphically below

Growth in Chinese patent filings [excludes utility models]
A ~40% per annum growth rate in domestic and foreign filings from Chinese companies swamps a ~6% per annum growth rate in patent filings into China.

The situation looks even more interesting when account is taken of utility models. The following shows the proportion of world utility models filed in various countries by nationals of those countries with "Others" being all other utility model filings.

Domestic utility model filings as percentage of world utility model filings

To a large extent, the utility model system is Chinese.

Looking to the total of utility models and patents, China accounted for nearly 45% of world filings in 2012.

Looked at on a GDP basis, China has ~19% of world GDP and ~45% of world patent and design filings in its territory. Is it over patented?

At the start of this post I mentioned the mercantilist desire to keep Johnny Foreigner in his place. Getting your domestic industry to file a lot of patents in your domestic market might be a way to keep Johnny Foreigner out of your home market. Does this explain the rapid growth in Chinese applications by Chinese applicants?

Lastly, to simply all of the above guff, it might be as well to plot countries or regions on a ternary plot. The following shows the above mentioned regions plotted as a time series. Where does your country sit and where is it going?

Patent filings - time series