Why don’t Irish companies patent more?

Why don’t Irish companies patent more?

This is a perennial question particularly amongst policy makers and politicians. It is rather uncontroversial that we need to have strong industries to support a vibrant, internationally competitive economy. Technology companies obviously form a significant part of the industry base that Ireland requires to provide the wealth required to maintain and grow our standard of living. Indeed there are many state incentives in place to support the development of this sector.

Our analysis consistently shows, however, that patenting by Irish domiciled applicants is primarily driven by subsidiaries or head quarters of foreign multinationals in the first place and state-funded research performing organisations (primarily universities) in the second place. There are very few indigenous Irish companies with strong portfolios and an enormous “long tail” of local companies with insignificant portfolios. The problem with this view of the “national patent portfolio” is that although the gross numbers look OK, the R&D activity which feeds into the foreign multinational portfolios by and large takes place outside of Ireland and is more a reflection of tax optimisation than a vibrant wealth-generating domestic technology sector. Secondly the university portfolios do not reflect underlying wealth generating economic activities but are a consequence of state subsidised R&D and patenting. Technology transfer from the third level is insignificant in relation to the amounts spent on patenting meaning that the investment in this part of the portfolio by the state will never generate a return.

So why don’t indigenous Irish companies feature in the national portfolio?

In my view there is only one answer: Size. We do not have enough large indigenous companies with sufficient revenues and R&D budgets to merit the costs of patenting.

Patenting is expensive. From filing to grant a US patent costs in the region of $30,000 in attorney and official fees. Therefore a company needs to have a certain scale in order to maintain a portfolio.

What is that scale?

Well according to Larry M Goldstein, in  his book “Patent Portfolios: Quality, Creation, and Cost” a typical technology firm spends approximately 10% of its revenues on R&D and a reasonable patenting budget is 1% of the R&D budget. Putting these figures together means a technology company must have revenues of more than $30 million to justify the costs of patenting. Of course a well architected portfolio requires depth and consistent coverage over time and so annual revenues north of $100 million are needed for a company to generate a patent portfolio with significance in its sector.

And of course the costs of patenting are incurred outside of Ireland since the Irish market is tiny for most technology companies and certainly for the ones that wish to achieve revenues greater than $30 million. The largest market in the world is the USA which means the costs of patenting are generally completely outside of the control of any Irish intervention since they rely primarily on the fees of the US Patent and Trademark Office and the professional fees of US patent attorneys.

The challenge, therefore, is for Ireland to generate technology companies with annual revenues greater than $30 million rather than to focus on patent filings per se. This requires focusing effort on identifying companies that have made significant technology advances and supporting them to scale internationally as quickly as possible rather than trying to subsidise the costs of patenting for everyone.

 

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