Reward for invention

Inventor remuneration laws are needed to increase the number of patents filed in the country, writes Balwant Rawat, the head of IP at Mercedes-Benz Research and Development India

Intellectual property rights (IPR) play an important role in fostering the economic growth of a nation by encouraging innovation, increasing productivity and competitiveness, attracting foreign investment, facilitating technology transfer, and so on. Patents, one of the prominent forms of IPR, are closely associated with technological and scientific progress. Patents are owned, monetised and managed by corporations and institutions.

However, behind every patent there is the hard work and ingenuity of a human inventor, be they employees, students, researchers or teachers. Therefore, it is logical to assume that to increase the number of patents in Indian institutions, inventors must be encouraged, incentivised and recognised. This article provides insights into how the inventor remuneration laws, present in various countries, have increased IPR awareness and participation from inventors, positively influencing the quantity, quality and value of patent filings from the domestic sector in respective countries. Statistical evidence is provided from China and South Korea where the inventor remuneration laws have made a positive difference regarding the aforementioned patent metrics.

The state of patent filings

On 25 September 2014, the federal government announced its “Make in India” initiative to build India into a global manufacturing hub. Two years later, the National Intellectual Property Rights (IPR) Policy 2016 was announced and adopted as a vision document to raise awareness and stimulate IPR generation. These measures, along with other related initiatives, have had some positive impact on the increase in patent filings at the Indian Patent Office. India also improved its ranking in the Global Innovation Index to enter the top 40 most innovative countries.

However, there are many related areas in which India needs to catch up. The country is still far behind in the number of patent applications filed, compared with major countries. As per a World Intellectual Property Organisation (WIPO) 2022 report on IP statistics, Indian resident filings in 2021 were 26,267, a mere 1.8% of resident patent filings compared to China; 10% compared to the US; 11.6% compared to Japan, and 13.9% compared to South Korea (see Fig 1).

The filings in India are still dominated by foreign entities, whereas resident filings, especially those by micro, small and medium enterprises (MSMEs) are consistently on the low side (less than 10%), as per figures from the Indian Patent Office (see Fig 2)

The low filing rate is a cause of concern, as MSMEs contribute close to 30% of India’s GDP. Further, the commercialisation rate of patents has been way below 20% in recent years. The impact of a low domestic filing rate and low commercialisation level can also be seen in the growing net deficit (balance of payments) for the use of intellectual property in India (see Fig 4).

Considering the size of our working-age population, there is huge scope to improve IP awareness, motivate, incentivise and grow India’s inventor base and patent filings. One such policy mechanism present in many countries is a specific law to recognise the right to remuneration for employee inventors of organisations and institutions.

Impact of remuneration laws

Typically, for patents filed by corporations, the company owns the economic rights, while the contributing employee inventors have only moral rights to be named in the patent applications. An inventor remuneration law would give employee inventors the right to receive fair compensation for their inventions that are patented and monetised by their employers. This provision would also reward innovation and foster a culture of patenting among employees.

The remuneration can be at various stages of the patent life cycle, e.g. on filing, grant, commercialisation, licensing and sale of patents. Examples of countries that recognise inventors’ rights to remuneration include 14 European countries (Germany, Denmark, Finland, Norway, Poland, the UK, Netherlands, France, Italy, Austria, Portugal, Spain, Hungary and Russia) as well as six Asian countries (Japan, China, South Korea, Malaysia, Vietnam and Sri Lanka).

India, however, does not have a specific law governing the remuneration of inventors in case of service inventions. Therefore, the service inventions are guided by provisions of general contract laws and/or company-specific policies. There was a legislative attempt by the federal government in 2008 to introduce remuneration provision for patents filed by public-funded universities, but the bill did not pass.

In September 2021, KPMG India in co-operation with the Indian IPR Foundation conducted a survey of more than 150 participants including companies, universities and research institutes based in India. A vast majority (more than 78%) of respondents favoured a law to be passed to create an equitable compensation strategy by all organisations.

Some survey respondents felt the law could create a compliance burden so the survey recommended the law be simple to implement and easy for organisations to comply with.

There have been several studies conducted on the impact of economic incentives on the number and commercial value of inventions generated. For example, a study published in the RAND Journal of Economics in 2008 using panel data for 102 US universities concluded that those that give higher royalty shares to academic scientists generate more inventions and higher licence income, controlling for other factors including university size, quality, research funding and technology licensing inputs.

Another study published in Research Policy 2013 conducted among Japanese firms found that revenue-based compensation plans led to an increase in the number of highly cited patents, especially in smaller firms. This study concluded that monetary incentives based on patent performance were effective in enhancing the motivation of employee inventors.

Comparison to China, South Korea

To assess the relative impact of inventor remuneration laws, this section analyses the various data points for India and its neighbours, China and South Korea, which have both enacted or overhauled such laws in the past decade (China in 2008 and 2010, and South Korea in 2001 and 2013).

IP awareness, inventor participation and R&D productivity. Fig 5 illustrates the growing level of patent awareness among the researcher community as measured by the ratio of total patents filed, and divided by the total number of researchers in the country.

A sharp growth in patent filings per researcher is clear seen in China from 2008-2009, when the inventor remuneration law was introduced in that country. With the huge number of researchers (2.2 million and growing), this improved productivity rate has contributed to a larger number of additional patents filed.

Previously, although article 16 of China’s Patent Law in the 2000 amendment stipulated that employees shall be paid “reasonable remuneration” for their inventions if used by their employer, most companies in the country did not compensate their employees for work-related inventions, due to a lack of guidance on what constitutes “reasonable remuneration”.

However, significant changes were made in the third amendment to the Patent Law in 2008, and China’s State Council added several provisions related to article 16 of the Patent Law to the law’s implementing rules. These provisions established a mandatory standard for companies to pay remuneration to inventors.

South Korea and India have a similar number of researchers in R&D (about 450,000). However, the patents per researcher ratio in India is low (0.14) compared to that of South Korea (0.5). The introduction of patent remuneration laws can provide impetus and a growth spurt to the low productivity rate in India, as it has done in China.

The domestic patent filing rate has been increasing in China, especially after inventor remuneration laws were introduced in 2008-2009. Residents of China and South Korea contribute to a major share of total patent filings (90% and 78%, respectively). In the case of India, domestic patent filing only rose above 40% in 2020-21.

Boosting domestic patent filing activity – SMEs. Fig 3 shows the percentage share of SMEs in domestic patent filings for India and South Korea. SMEs are one of the major contributors to domestic filings in South Korea, contributing more than 33% in 2021, which is a clear increase in patent contribution compared to 25% in 2014. In China, the number of patents filed by SMEs has increased significantly in the past 10 years, reaching 2.28 million, or 68.4%, in 2020, from 15.8% in 2010, after inventor remuneration laws were introduced. In India, the SME sector has not contributed much to domestic filings consistently below 10%.

Boosting commercialisation rate of patents. As discussed, the percentage of commercialised patents in India stands at less than 20%. In contrast, South Korea and China have performed better over the years. For South Korea, the commercialisation rate of domestic patents was 38.9% in 2010. In China, the commercialisation rate for patents has quickly increased, with about 36.7% patents commercialised in 2022.

Boosting balance of payments for use of IP. Fig 6 shows a comparative analysis of the total payments of charges for the use of IP for China, India and South Korea. This indicator is important as it captures the licensing revenue that the IPRs in the country receive from organisations in other countries.

South Korea has a relatively higher share, with more than USD7 billion received in 2019. The payments received from IP in China rapidly increased from 2016 to 2020, growing by about eight times after inventor remuneration laws were strengthened. In comparison to China and South Korea, India has shown very little growth in the past 10 years.

Recommendations for India

With India being one of the fastest growing economies in the world, a strong focus on science and technology offers huge potential for innovation and patenting. However, India is lagging behind in many patent indicators, such as the number of patent filings, participation by resident and SME sectors, commercialisation rate, etc.

Inventor remuneration laws can provide impetus to the large scientific, research and professional community to contribute towards the next phase of patent growth in India. It can be concluded from the comparative patent data analysis in the article that the positive impact of such laws in countries like China and South Korea has been impressive.

Indian policymakers can take steps to initiate discussions with stakeholders (industry leaders, legal fraternity, patent office, government authorities, etc.) to learn from the experience of other countries where these laws are already in place. This will enable them to customise the implementation to suit Indian sensibilities.

If implemented correctly, IP remuneration laws have the potential to motivate Indian inventors and boost the number and quality of patent filings, leading to IP that could help to establish India as the next superpower in innovation and patents.