The government forks out for R&D, experts and market entry, so why won't it come to the party on IP protection? asks Simon Rowell, Partner, James & Wells

The Ministry of Science and Innovation (MSI) does good work for the New Zealand innovation ecosystem. MSI provides funding targeted at international market research, finding subject matter experts for R&D, innovative research and preparing for export market entry, among other things.

The funding usually matches the contribution of the recipient.

This is great for encouraging R&D and helping developed products get to market. But why doesn't MSI provide funding for establishing intellectual property1 protection?

I've asked officials at MSI this question and haven't yet heard a satisfactory answer. The concern appears to be that the ministry shouldn't be seen to be using public money to help establish a private asset for a commercial entity - and filing a patent2 creates an asset.

However, MSI is already helping private companies to create assets by funding R&D. The creation of knowledge for a company already confers private benefits on that company. The point of the funding is to help the company succeed, which presumably generates public benefits for the New Zealand economy by creating jobs and taxable revenue.

I have no problem with this funding - in fact I'd like us to do more of it. But we're missing a crucial piece of the puzzle, which is encouraging the funding recipient to protect the R&D created.

In the private world, funders like angels and venture capitalists require that their investments in technology companies are protected as best possible. If patents do not already exist in the company - and it is possible to patent the technology - then the angel or VC will almost always commit funds for that specific purpose. It's a no brainer - they don't want their investment eroded by competitors copying the technology.

The same principle should apply to MSI 'investments'. MSI is investing, on behalf of all New Zealand, in a company to ensure it creates innovation that gets to market. MSI should also contribute funding to ensure this public investment cannot be eroded by foreign competitors free riding on a company's R&D. This may mean filing patents. Otherwise we risk New Zealand being a great source of free innovation for the rest of the world to benefit from.

I'm not suggesting MSI should provide funding from filing to patent grant, in all countries. All that is required is for MSI to provide matching funding for filing a New Zealand provisional patent application3 - then an international Patent Cooperation Treaty (PCT4) application 12 months later, assuming the research and development remains promising and on track.

As I have explained in previous columns, the provisional application might cost around $5000 and the PCT application5 around $15,000. Armed with this type of initial protection, a New Zealand company can feel more comfortable talking to third parties about commercialisation6, will be more attractive to venture capital and has more flexibility and options for commercialisation strategies. This will only cost MSI $10,000 over and above the existing funding it provides the company.

Patent protection is particularly important where the company plans a licensing model as part of its commercialisation strategy. Without adequate patent protection, this simply won't be an option.

You might argue, as perhaps MSI would, that the company should fund its own patent protection. The problem is most companies in New Zealand have a poor or misguided view of the role and importance of patents in international commercial dealings7. I've attacked the naïve notion that patents are only worthwhile if you can afford to enforce them in earlier columns. My point is that MSI can play a positive role in encouraging patent protection by offering matching funding for at least the initial step. By not offering funding for patent protection, MSI makes an implicit statement that patents aren't worth funding.

Until New Zealand business is sophisticated enough to truly understand and value patents as a strategic tool, then I think MSI should provide matching funding for patents. It makes a far more compelling case for a cash-strapped New Zealand startup to patent their new technology if they only have to pay for half of the patent. Without this incentive I'm afraid too many companies will make the wrong decision, placing their technology and our investment through MSI in jeopardy.

Footnotes

1Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.
2A proprietary right in an invention which provides the owner with an exclusive right for up to 20 years to make, sell, use or import the invention. In exchange for this monopoly the patent is published so that others can see how the invention works and build on that knowledge. The patented invention may also be used by the public once the patent lapses.
3In most jurisdictions patent applications are subjected to an examination process to determine whether the subject matter is novel and inventive. The terms "application", "pending" or "patent application" are used to describe the status of the application up to grant.
4The Patent Co-operation Treaty is an international law treaty establishing a single procedure for filing a patent application in many countries. During the international phase of the application it is assessed for patentability by an international examiner and the application can be amended as a result. After the international phase is the national phase, in which applications are filed and examined in individual countries in which protection is required. Filing a PCT application delays the filing of multiple individual applications in many countries by up to 18 months. Not every country is a member of the PCT so you should always check with your IP advisor.
5Patent Co-operation Treaty is an international law treaty establishing a single procedure for filing a patent application in many countries. During the international phase of the application it is assessed for patentability by an international examiner and the application can be amended as a result. After the international phase is the national phase, in which applications are filed and examined in individual countries in which protection is required. Filing a PCT application delays the filing of multiple individual applications in many countries by up to 18 months. Not every country is a member of the PCT so you should always check with your IP advisor.
6Refers to the process of introducing a new product or service to the marketplace (whether in New Zealand or overseas). For the purposes of a patent application commercial working can include taking orders for a product or service (even if in confidence). It is important to understand that commercial working of an invention before a patent application is filed may invalidate that patent application (see validity below).
7Refers to the process of introducing a new product or service to the marketplace (whether in New Zealand or overseas). For the purposes of a patent application commercial working can include taking orders for a product or service (even if in confidence). It is important to understand that commercial working of an invention before a patent application is filed may invalidate that patent application (see validity below).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James and Wells is the 2010 New Zealand Law Awards winner of the Intellectual Property Law Award for excellence in client service.