The latest patent filing data released by the European Patent Office (EPO) shows a slight dip in the overall number of patent applications filed in 2020. While the COVID-19 pandemic has undoubtedly had some impact, closer analysis of the data reveals some anomalies that are harder to explain.
According to the Patent Index 2020 report, the total number of patent applications received by the EPO in 2020 was 180,250, slightly down from 181,532 in the previous year – a fall of 0.7%. While it is clear from this that demand for patent protection has remained strong overall, some significant variations are evident by country of origin and technology sector.
In particular, the data shows that European patent applications originating in China and South Korea increased sharply in 2020, despite the pandemic – rising by 9.9% and 9.2% respectively. Meanwhile, applications from the US, Germany and Japan – the top three filing nations – were down. The UK filed 6.8% fewer European patent applications in 2020 compared to the previous year, but can we say why?
Behind the numbers
While it’s difficult to give a definitive answer, there are a number of possible explanations for the discrepancies in global demand for European patent protection recorded by the EPO.
First, the high level of government support for R&D activity in China, as it shifts to become an innovation economy, makes it a special case. This goes some way to explaining the strong growth in patent applications from this country in the past year. This cultural shift is reflected also in the Middle East, with Saudi Arabia and the United Arab Emirates increasing filings by 34% and 65% respectively.
Second, greater awareness and understanding of the impact of viruses such as COVID-19 in places like China and South Korea may have enabled these countries to manage the impact of the pandemic better than some other economic regions.
The EPO has speculated that the longer-term effects of the pandemic on patenting activity are not yet clear and are likely to emerge over time.
Innovation impact
However, with many global economies forecasting strong GDP growth in 2021 and 2022, the road to recovery for some markets is already underway and continued investment in innovation will be an important part of that. As the EPO president Antonio Campinos rightly said, to make the most of any rebound, a strong IP system is vital, acting as the “motor of recovery”.
As most European IP firms will have observed, 2020 has been an extremely challenging time for many innovation-led businesses, especially those located in Western countries, which lacked the first-hand experience of managing the SARS outbreak in 2002 to 2004.
When the COVID-19 pandemic hit and the first UK national lockdown was announced in Spring 2020, innovative businesses in many sectors of industry were forced to take difficult decisions to shut down operations and furlough staff to protect cashflow. For those serving the hardest-hit markets such as transportation, R&D programmes were put on hold as demand for passenger services and OEM componentry plummeted.
However, the pandemic has had a disparate effect on industry sectors. While some R&D teams were forced to halt activity completely, others were able to adapt their way of working by adopting a distributed R&D model, allowing outsourced innovators to work together remotely. In certain sectors of industry, such as biotech, pharmaceuticals and medical technologies, distributed R&D has become the ‘new normal’, allowing innovations to reach the marketplace without ever entering a lab.
The EPO’s data reflects some of these sectoral variations. The biggest growth in European patent applications in 2020 was evident in the pharmaceutical and biotech sectors, increasing by 10.2% and 6.3% respectively. Medical technology generated the most patent filings overall, re-taking the top spot from digital communications, which led the field in 2019. The biggest fall in European patent applications came from the transport sector, most notably aerospace and defence.
UK focus
Zooming in on the UK, the data reveals that here too biotech businesses were responsible for the biggest growth in European patent applications in 2020 – up 19.4% to 344. In the UK, the sectors responsible for most European patent applications were computer technology, medical technology and biotech. However, some significant falls in applications were noted in fields including transport, chemical engineering and digital communication.
Despite the 2020 data revealing a 6.8% fall in the number of European patent applications originating in the UK, recent economic growth forecasts from the Office for Budget Responsibility, provide some cause for optimism. With the UK economy expected to grow by 4% this year and 7.3% in 2022, investment in R&D should begin to increase and a rebound in demand for European patents seems likely.
The EPO’s table of top filing nations is a useful overview of where most of the demand for European patent applications is coming from. The leading nations are the US, Germany and Japan, with China and South Korea gaining ground quickly, and the UK languishing in ninth position, behind countries such as France, Switzerland and the Netherlands. A further list of top 10 European regions (based on the number of patent applications each generates) puts London in seventh position, although six of the other nine are in Germany.
While on the surface this is not a great outcome for the UK, there are cultural and structural differences in the domestic economy which could account for this. By comparison with other industrialised nations, including some of our close European neighbours, the UK economy has a strong reputation for blue-sky thinking, but lacks manufacturing bandwidth. In the UK, the most exciting ideas tend to emanate from university research departments, before being developed and mass-produced elsewhere. There are also cultural differences in terms of attitudes to entrepreneurialism, which are much stronger in countries such as the US and Canada.
Roadmap for recovery
The COVID-19 crisis has forced industry leaders and policymakers in many countries to re-assess the importance of investing in home-grown innovation and manufacturing capabilities. In the UK, the vital role played by the University of Oxford and AstraZeneca in developing a vaccine to protect against COVID-19, and get it to market quickly, has been recognised globally. There are also many examples of SME manufacturers innovating to help meet a surge in global demand for personal protective equipment, hand sanitiser and testing kits.
With so much focus on innovation, it is difficult to imagine that attitudes and behaviours will return to pre-pandemic norms. It seems far more likely that businesses will view sustained investment in innovation as an inherent part of their roadmap to recovery, and that governments will incentivise and reward them for taking this approach.
In the UK, Chancellor Rishi Sunak has recently announced plans to increase corporation tax as the government looks for ways to start paying for the pandemic. While this is not going to instil business leaders with confidence, it does make existing fiscal incentives for investment in innovation, such as R&D tax relief and the Patent Box, look all the more attractive. In a post-Brexit world, much more could be done to encourage wider take-up of Patent Box tax relief in particular, by reducing the complexity of the eligibility criteria and calculations, which remain a barrier to many SMEs. Greater awareness of the tax relief available would also help to promote innovation at a critical time.
While the immediate future remains uncertain, it must be hoped that the pandemic will leave a positive legacy for businesses in the UK and elsewhere. As well as kickstarting a resurgence in entrepreneurial risk taking, it could encourage the public and private sectors to work even more closely together to build on domestic R&D capabilities and create stronger and more resilient economies.
Karl Barnfather is the UK-based chairman of European intellectual property firm Withers and Rogers.
