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September 16, 2014

Sovereign Patent Funds: Some Big Questions Remain

As part of our ongoing research project examining the governance of intellectual property, the DEEP Centre has released a research brief that examines the emergence and implications of sovereign patent funds (SPFs). These funds are government-backed entities mandated to acquire strategically valuable intellectual property resources in order to further national economic objectives.

You can download the research brief here. 

Building on our existing work, as well as new research conducted for this project, the paper strives to give policymakers in Canada and elsewhere a picture of what these new funds are, what they do, and some the potential implications of their activities.

While our paper provides a number of early-stage answers to these important questions, other puzzles remain unresolved. In this post, I’ll briefly highlight three enduring questions about the ongoing activities and implications of sovereign patent funds.   As sovereign patent funds continue to ramp up their activities – particularly their enforcement activities against firms in foreign countries – these questions will grow more important for policymakers and business-leaders alike.

Question #1: How Effective Will SPFs be in Achieving Their Goals Over the Longer-Term?

In our paper, I describe four categories of objectives embraced by established SPFs: 1) defending domestic firms; 2) offensive engagement through enforcement strategies; 3) service provision and 4) the protection and retention of national intellectual property assets. In each case, the paper points to existing funds which are currently working towards achieving these goals.

Despite some evidence of success, SPFs are a recent phenomenon. Prominent funds in jurisdictions such as South Korea, France, and Taiwan have only begun to appear since 2010. As a result, data which demonstrates the ability of SPFs to effectively defend domestic companies, monetize their patent portfolios, or prevent “IP flight” from within national borders over the long-run remains in short supply.

Moreover, while some SPFs embrace a high degree of transparency, others have chosen to avoid publicity, making it difficult to assess their actions and ability to achieve their stated objectives. This, in turn, complicates efforts to assess the effectiveness of the SPF model, or to compare the approach of relatively closed funds to more open and transparent SPFs.

While evidence of the efficacy of SPF strategies appears to be growing, we still need more data and case studies to develop a fuller understanding of the strengths and weaknesses of the SPF model. This is particularly true with respect to the relationship between SPFs and a country’s innovation ecosystem, and their ability to help small firms grow and compete in new markets.

Question #2: What are the Political Implications of SPFs?

SPFs are new actors not only in the domestic innovation ecosystem, but also in the realm of international trade and competition. It remains to be seen how countries such as the United States will respond to the emergence of SPFs elsewhere.

The position of the new bodies under existing international trade rules – not to mention in agreements currently under negotiation – also remains a grey area. As noted in our paper, some commentators argue that SPFs violate various aspects of existing international agreements. Others have suggested that future international trade agreements should target SPFs.

At the same time, claims against SPFs have not yet been considered by any judicial or quasi-judicial body and, as such, remain speculative at this stage. Experiences with similar debates centering on sovereign wealth funds, in which an initial moral panic about the intrusion of the state into private markets waned relatively quickly, could also suggest that international criticism of SPFs may decline or remain muted. Nevertheless, these questions point to a degree of policy uncertainty with respect to the future position of SPFs in relation to the international rules which govern trade and intellectual property.

Question #3: Will the SPF Model Spread?

Connected to both their relative effectiveness and international status, questions remain about the likelihood that the SPF model will spread beyond the small group of countries which have currently established funds.

Experience suggests that policy imitation and learning can be important drivers of national policy decisions regarding surrounding the economy and innovation. In this context, it remains to be seen whether the SPF model will be adapted and emulated elsewhere. Could SPFs be a useful tool for small countries, or less developed countries, to better compete globally and to develop a base in the high-value creative industries that are expected to be future drivers of future employment and growth? How can different funding formulas such as, for example, public-private partnerships in the creation of SPFs help to adapt these institutions to different national circumstances? As yet, the SPF model has not spread far enough to provide clear and definitive answers to these questions. Nevertheless, policymakers will increasingly have to grapple with the question of how to respond to existing SPFs, and how and whether to create their own funds domestically.

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