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PPI’s Trade Fact of the Week: World patenting has quadrupled since the conclusion of the WTO’s TRIPs agreement

• October 5, 2022
• Ed Gresser

FACT: World patenting has quadrupled since the conclusion of the WTO’s TRIPs agreement.

THE NUMBERS: Research and development spending as share of world GDP –

2018-2020 3-year average:        2.39%
1996-1998 3-year average:        1.97%

*  World Bank database

WHAT THEY MEAN:

The 164 WTO members, having agreed in June on a five-year waiver of patent rules for COVID-19 vaccine production, are discussing a next question: should a similar waiver apply to a wider array of “therapeutics and diagnostics”? Their self-imposed decision point for this is December 17th.  As this date approaches, some background on the WTO’s intellectual property rules, their aims, and their possible effects:

Per the U.S. Constitution, the core goal of intellectual property laws is “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S. laws on these topics date to the 1790s; international IP agreements and treaties, to 1883 for patents and 1887 for copyright. The WTO’s 73-article IP agreement, known as the “Agreement on Trade-Related Aspects of Intellectual Property Rights” or “TRIPs,” dates to 1995 and requires WTO members to adopt baseline IP patent, copyright, and trademark laws, enforcement procedures, and so on.  Subsequent decisions provide exemptions for patenting rules for least-developed countries, and note that TRIPS rules do not prevent WTO members from acting on public health emergencies. Two data points on the intervening 28 years:

Research and Development: R&D spending, according to a World Bank database, averaged 1.97% of world GDP* in the mid-1990s.  Between 2018 and 2020, R&D averaged 2.39% of world GDP. In practical terms, this now means about $2.5 trillion per year. Had the 1.97% figure remained constant, therefore, world governments, businesses, and universities would be spending about $400 billion less per year on science. By income group, high-income country R&D spending has risen from 2.3% of GDP to 2.8%. Low- and middle-income country spending has grown a bit faster, from 0.65% of GDP in 2000 (the first year in the World Bank’s database) to an average of 1.6% in 2018-2020. Based on the estimates in the table, about half of low-middle income country R&D spending growth was in China, and half in other countries.

Patenting: More research does seem to have meant more new inventions, or at least more patent awards. The World Intellectual Property Organization in Geneva reported 943,000 applications for patents around the world in 1994, 2.0 million applications in 2010, and nearly 3.3 million in 2020. The rise in actual patent grants has been faster, up four-fold from 450,000 patent awards in 1994 to 1.6 million in 2020: mRNA vaccines, touch-sensitive glass for smartphones, disposable satellite-launch rockets, biodegradable garbage bags, etc.

What to make of this? Causality is obviously hard to determine, and to some extent R&D investment likely rises with national wealth as well as responding to IP incentives. But the post-TRIPS world does appear to be one in which, as the Constitution’s references to incentives for useful Arts and Sciences” hoped, investment in science has grown (and grown especially rapidly in developing countries) and new inventions have cropped up.

Turning back to the WTO and its next steps, the June waiver for COVID vaccines is a highly specific one, and consistent with the existing 2005 “Declaration on TRIPS and Health,” on action during public health emergencies.  No country so far, however, appears to have used this waiver (and the U.N.’s voluntary Medicine Patent Pool has arranged voluntary production licenses for 14 COVID medicines and therapies). This seems to indicate that the major challenges in raising vaccination rates are related to logistics and delivery to patients in low-income countries rather than to IP rules. “Diagnostics and therapeutics” are less specific terms, suggesting that a waiver for these products could apply to a variety of multipurpose medical devices and medicines yet to be invented. The data on R&D and patenting, meanwhile, suggest that the TRIPs agreement has at least contributed to a long-term upturn in scientific research and invention, a public good well worth preserving; which makes this next decision one that raises some systemic questions.

* The World Bank reports R&D spending at 2.33% of GDP in 2019, and 2.63% in 2020. We’re using a recent average on the assumption that the large one-year jump in 2020 was not an actual R&D increase but a COVID-related anomaly, reflecting less a jump in actual R&D than the temporary GDP effect of closing restaurants, hotels, construction sites, etc. for public health reasons.

FURTHER READING

TRIPS: 

The World Trade Organization’s TRIPS page, with links to the agreement text, the 2005 Declaration on TRIPS and Health, and other matters.

… and the waiver for Covid-19 vaccine explained, with a link to text.

Medicines and COVID vaccination:

Tracking vaccinations by country and income level, ourworldindata.org reports 4.74 billion people fully vaccinated as of the WTO’s June Ministerial, and 4.95 billion now.

Alternate approach: The WTO waiver authorizes “compulsory licensing” of medicines. The UN’s Medicine Patent pool, based on voluntary licensing agreements with companies, government science agencies, and nonprofits, now covers 14 COVID-19 vaccinations and treatments.

Research and Development:

The National Science Foundation reports on R&D spending among the top 8 R&D countries (U.S., China, Japan, Germany, U.K., France, Korea, India). At 3.5% of GDP, the U.S. is the world’s fourth-most R&D intensive economy; Israel is first at 5.4%, followed by Korea.

The World Bank has figures worldwide, by country, and by country categories (“low- and middle-income”, “Latin America and the Caribbean”, “Arab states”, and so on).

Patenting:

The World Intellectual Property Organization — WIPO, which continues to oversee the descendants of the 1883 Paris Convention on patenting — maintains a database which tallies patent applications and grants worldwide. The trend for grants post-1994:

2020:        1,592,000
2010:           914,200
2000:           517,600
1994:           405,355

And direct to WIPO’s database.

And for comparison, the U.S. Patent and Trademark Office’s tallies of patent awards by year and origin. They count 388,000 patent grants in 2020, including 183,000 to U.S.-based applicants, and 205,000 to applicants abroad. Over a quarter of the foreign grants, 53,770, went to Japanese applicants. PTO’s tables.

A sample: A Corning fiber-optic cable patent, granted in 2001 and expiring last May.

IP Income:

According to the Bureau of Economic Analysis, revenue from overseas use of U.S. inventions (including trade secrets as well as patents) was $56.4 billion in 2021, or about two-fifths of $125 billion in total U.S. overseas IP revenue. This is about equal to the U.S. export figures for automobiles or of microchips. Worldwide, WTO’s figures on IP revenue show a global total of $470 billion in 2020, with the U.S. accounting for $144 billion or 31%. The EU was next at $90 billion, followed by Japan at $43 billion.  By way of comparison, in 2020 top manufacturing exporter China had 19.7% of world manufacturing exports; the U.S. led in energy and agriculture, with respectively 8.6% and 9.4%. The WTO data here.

And the Bureau of Economic Analysis’ services database has U.S. IP receipts and payments, by country and type.