Introduction  (Page 10/20)

Context of global r&D

Innovation, the exploitation of new ideas, is absolutely essential to safeguard and deliver high-quality jobs, successful businesses, and better products and services for our consumers, and new, more environmentally friendly processes.

The importance of innovation is highlighted in the UK Department of Trade and Industry (DTI) economics paper; Competing in the Global Economy: The Innovation Challenge . Despite there being no single indicator of national innovation performance it was found through a range of measures that the UK is lagging behind other advanced economies. The measures used examined patenting, business expenditure on R&D and other related indicators.

The difference in our innovation intensity is highlighted by [link] , showing a far higher number of employees working in R&D in the US and leading competitor countries. This combined with an ever-declining number engineering and science graduates has created a less innovative culture. However, compared to European competitors the Community and Innovation Study (CIS) statistics show a relatively large proportion of UK companies bringing new products or services to market or developing new process technologies (EU 2003).

[link] shows the level of expenditure in R&D of regions that are member of Organisation for Economic Co-operation and Development. Demonstrating the level at which the US spends in relation to R&D exceeds that of the EU with the UK included. Innovation is created through innovation systems, which are inherently linked to research and development. Understandably a key factor in measure of innovation is patents. Looking at patents is a good measure, however there are inherent and significant differences between the patenting systems of the US and UK which must be considered and addressed in order to understand how the systems are used.

Patenting in the us and uk

Intellectual property (IP) is a highly valuable asset. The accounting firm Duffs&Phelps estimates that on average 87 percent of company value in 2002 was in intangibles including IP. (Jarboe 2008)

Patents are the codification of research and development into a property right. They are a key step in protecting and subsequently realising the value of the company's R&D investment. Not all patents are equal, as can be clearly seen in blockbuster patents on drugs or fundamental electronics or computer inventions. Therefore, the number of patents alone is not a measure of value. There are several factors that determine value, including whether a company uses its patent portfolio to protect its business by litigation or generate income from licensing.

Furthermore it must be considered whether competitors respect a company's patents and avoiding them or designing around them, thereby allowing the patent holder to price its products without infringement of their rights. As a general rule a robust patent portfolio indicates a successful R&D program available for management to use to create value. Patents are being treated more like other types of property. They are licensed, sold and used as equity in joint ventures. Licensing is a substantial business with annual royalty revenue estimated at over $125 billion a year and growing. Most of this activity comes from licenses between corporations in the pharmaceutical/biotech, chemical and manufacturing industries (Cohen 2008).