**Introductory Chapter: Intellectual Property Rights**

Sakthivel Lakshmana Prabu, Timmadonu Narasimman Kuppusami Suriyaprakash and Rathinasabapathy Thirumurugan

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.69359

## **1. Introduction**

Intellectual Property Rights are rights given to any particular person/organization for their new creations based on their minds for a certain period of time with an exclusive right over the use of their creation [1].

## **1.1. International Intellectual Property Regime**

In the nineteenth century, foundation for the International Intellectual Property Protection was created at various assemblies held in Vienna and Europe. In Paris Convention in the year 1883, Industrial Property Protection was created. Under the Industrial Property Protection, patents, trademarks and industrial designs are protected. Various countries became members of Paris Convention, subsequently special unions and arrangements were created which made the beginning of protection of international trademarks as well‐known marks internationally. Special unions and arrangements are created for the countries who are the members of Paris Convention. Madrid agreement is an agreement represented in Paris Convention with vital principles for the regulation of the trademarks. In Berne Convention in the year 1886, International Copyright Act was passed. Under International Copyright Act, literary and artistic works are protected.

In United Nations (UN) Conference, General Agreement on Tariffs and Trade (GATT) was conveyed on Trade and Employment. Due to failure, Governments created the International Trade Organization (ITO). GATT was formed in the year 1949 and lasted until 1993; subse‐ quently, it was replaced by the World Trade Organization in the year 1995 [2].

World Intellectual Property Organization (WIPO) was started in the year 1960 based on the rules and regulations of Paris Convention and Berne Convention. Later, World Intellectual

Property Organization (WIPO) was established in the year 1967 based on these conventions. World Trade Organization (WTO) was made in the year 1977. This organization becomes an important international organization for development and understanding of Intellectual Property Rights (IPR) [1].

The great discrepancy between the developed and developing countries related to inter‐ national market and multinational corporations, United Nations Conference on Trade and Development, was made. Later, in the year 1964, United Nations Conference on Trade and Development was established to make available an opportunity to discuss their problems related to economic development in the developing countries. Trading, investment and devel‐ oping the opportunities are the main aim of this organization in the developing countries and also support for their efforts towards the world economy as an equitable basis [3].

In the year 1960, world trade was initiated to expand dramatically. This dramatic expan‐ sion made the realization by various national governments to set rules/regulations and stan‐ dards to harmonize the national and regional regulations. In the year 1966, United Nations General Assembly established the United Nations Commission on International Trade Law (UNCITRAL). The main aim of the law is to promote the liberal harmonization and associa‐ tion of international trade law [4].

Generally, in various industries, IPR is made a part of their intentional preferences in the regular activities. Various corporations, in order to ensure their sustained growth, enhanced profits and leadership in the market they intended their project management system based on:


## **1.2. New dimensions and issues for resolution**

Recent exploration in the technology towards new dimension and path, IPR system helps to ensure and encourage new innovation and sharing the acquired knowledge during the inno‐ vation globally. Various IPR issues are:


## **1.3. IPR in developing countries**

Property Organization (WIPO) was established in the year 1967 based on these conventions. World Trade Organization (WTO) was made in the year 1977. This organization becomes an important international organization for development and understanding of Intellectual

The great discrepancy between the developed and developing countries related to inter‐ national market and multinational corporations, United Nations Conference on Trade and Development, was made. Later, in the year 1964, United Nations Conference on Trade and Development was established to make available an opportunity to discuss their problems related to economic development in the developing countries. Trading, investment and devel‐ oping the opportunities are the main aim of this organization in the developing countries and

In the year 1960, world trade was initiated to expand dramatically. This dramatic expan‐ sion made the realization by various national governments to set rules/regulations and stan‐ dards to harmonize the national and regional regulations. In the year 1966, United Nations General Assembly established the United Nations Commission on International Trade Law (UNCITRAL). The main aim of the law is to promote the liberal harmonization and associa‐

Generally, in various industries, IPR is made a part of their intentional preferences in the regular activities. Various corporations, in order to ensure their sustained growth, enhanced profits and leadership in the market they intended their project management system based

• Pooling of IPR as in the case of several companies who have formed patent pools of their

Recent exploration in the technology towards new dimension and path, IPR system helps to ensure and encourage new innovation and sharing the acquired knowledge during the inno‐

• Rights on traditional knowledge, prior art, material transfer agreement and bio‐prospecting

also support for their efforts towards the world economy as an equitable basis [3].

Property Rights (IPR) [1].

4 Intellectual Property Rights

tion of international trade law [4].

• Strategic management of IPR

• Optimized use of inter/intra knowledge base

DVD patents for mutual benefits [5]

vation globally. Various IPR issues are:

• Software and patents

**1.2. New dimensions and issues for resolution**

• External channels for knowledge and inventions as inputs • Internal expertise to manage research and collaborations

• Domain names and trademarks: Copyright in cyberspace

• Biotechnological inventions and moral issues and patents

• Clarity on knowledge ownership issues through mutually beneficial licenses

on:

IPR in developing countries is based on the potential significance and its intensity of the technological activity. Most of the developing countries followed TRIPS agreement for agri‐ cultural and cloth markets considering they can get the additional access in rich nation related to various technology transfers and innovations. The growth effects of IPR in different parts of the world in different time durations vary significantly, which affect the poor countries in the long term.

## **1.4. Impact of stronger IPR in developing countries**

When granting the monopoly rights for an innovation, organization can gain the following paybacks, they are:


#### *1.4.1. Category of intellectual property*

Based on the TRIPIS agreement, intellectual property is categorized into the following areas. They are:


## *1.4.1.1. Copyright and rights‐related copyright*

Copyright and rights‐related copyrights are the rights of authors for their artistic and literary work, which include books and other writings, musical compositions, paintings, sculpture, computer programs and films protected for a period of 50 years after the death of the author under this copyright.

Rights related to copyright is referred as neighbouring rights, which includes the rights of performers such as actors, musicians, singers, phonograms and broadcasting. Copyright and rights‐related copyright can encourage and reward for their creative work.

## *1.4.1.2. Industrial property*

Industrial property is categorized into two main areas:

## **1.** Protection of distinctive signs

The main aim of the protection of distinctive signs is to ensure the fair completion and protect consumers for various goods and services by making knowledgeable adoptions of its distinc‐ tive signs.

Protection of distinctive signs includes:


The main aim of this category is to protect their investment related to development of new techniques; its results subsequently provide incentives by means of finance research and activities related to development. The duration of the protection period is given for a fixed term; during the term, the inventor can facilitate the foreign investment directly in the form of technology, licensing and joint venture for the new innovation or creation or new technology development. Patents, industrial designs and trade secrets are protected under this category.

## **1.5. Categories of intellectual property**

### *1.5.1. Patents*

Patents are rights under Intellectual Property Rights related to an invention for which patent has been given by the Government/statute to the patentee in exchange of full disclosure of their invention either an individual or a company/organization. Patent has been given as exclusive right for a limited period to exclude others, from making, using, selling and importing the patented product or process producing that product. The patent rights are enjoyable without any insight to the invention place, field of technology and the products either imported or produced locally.

The main aim in IPR system other than encouraging the inventions is the application and pro‐ motion so as to develop the industries, subsequently that contributes to technological innova‐ tion, distribution and transfer of technology.

## *1.5.2. Copyright*

*1.4.1.1. Copyright and rights‐related copyright*

under this copyright.

6 Intellectual Property Rights

*1.4.1.2. Industrial property*

tive signs.

*1.5.1. Patents*

produced locally.

**1.** Protection of distinctive signs

Protection of distinctive signs includes:

**1.5. Categories of intellectual property**

Copyright and rights‐related copyrights are the rights of authors for their artistic and literary work, which include books and other writings, musical compositions, paintings, sculpture, computer programs and films protected for a period of 50 years after the death of the author

Rights related to copyright is referred as neighbouring rights, which includes the rights of performers such as actors, musicians, singers, phonograms and broadcasting. Copyright and

The main aim of the protection of distinctive signs is to ensure the fair completion and protect consumers for various goods and services by making knowledgeable adoptions of its distinc‐

(ii) Geographical indications—It is an identity for a goods or product having an essential characteristic attributable one originating from a geographical place of origin

The main aim of this category is to protect their investment related to development of new techniques; its results subsequently provide incentives by means of finance research and activities related to development. The duration of the protection period is given for a fixed term; during the term, the inventor can facilitate the foreign investment directly in the form of technology, licensing and joint venture for the new innovation or creation or new technology development. Patents, industrial designs and trade secrets are protected under this category.

Patents are rights under Intellectual Property Rights related to an invention for which patent has been given by the Government/statute to the patentee in exchange of full disclosure of their invention either an individual or a company/organization. Patent has been given as exclusive right for a limited period to exclude others, from making, using, selling and importing the patented product or process producing that product. The patent rights are enjoyable without any insight to the invention place, field of technology and the products either imported or

(i) Trademarks—distinguish the goods or services from other goods or services

**2.** Motivate innovation, design and the creation of new technology

rights‐related copyright can encourage and reward for their creative work.

Industrial property is categorized into two main areas:

Copyrights are rights under Intellectual Property Rights related to computer programs pro‐ tected under Berne Convention, which outline the literary works and databases protected for a period of not less than 50 years. This copyright covers rental rights and expands internation‐ ally. In public, the authors have the right to prohibit the commercial rental of their copyright works like computer programme and sound recording procedures. Films also have this copy‐ right as an exclusive right, where commercial rental has managed to be widespread. Under this copyright protection, reproduction of recording and broadcast of live performance are protected for performers.

## *1.5.3. Trademark*

Trademarks are rights under Intellectual Property Rights related to sign or any combination of sign for any goods or services to make a distinguishing mark. Any distinguishing mark can be made registration and the registered trade mark get protection for 10 years and it can be renewed every 10 years indefinitely. Under this trademark, compulsory license provision is not permitted.

## *1.5.4. Geographical indications*

Geographical indications are rights in the aspect of industrial property under Intellectual Property Rights related to geographical indication situated being the country or place or the origin of that product. The geographical indication products are originated from a specific geographical location, which has definite qualities and reputation for its quality due to its place of origin. Under this category, place name generally indicates where the product has been made as product identification. Consumers can be misled and make unfair completion by using the place name for the product, which has been made elsewhere or does not meet the specific quality or character for those particular products.

## *1.5.5. Industrial design*

Industrial designs are rights under Intellectual Property Rights related to any ornamental or aesthetic which have any three‐dimensional features such as the shape or surface of the article or any two‐dimensional features such as patterns, lines or colour.

Industrial design are rights that can be applied to a wide variety of products made from industry or handicraft which include watches, jewellery, fashion, other luxury items, house ware, furniture, electrical appliances, architectural structures, practical goods, textile designs to leisure items, such as toys and pet accessories.

## *1.5.6. Layout designs of integrated circuits*

Layout designs of integrated circuits are rights under Intellectual Property Rights related to interconnections of an integrated circuit or three‐dimensional disposition prepared for an integrated circuit intended for manufacture. Under this layout designs of integrated circuits right of reproduction, right of importation, sale and other distribution for commercial pur‐ poses are prevented.

## *1.5.7. Protection of undisclosed information*

Protection of undisclosed information is rights under Intellectual Property Right related to protection of information that is applied as trade secret, which has commercial value. The protection of undisclosed information cannot be considered or treated as a form of intellectual property. Protection of undisclosed information requires, that the information must have pre‐ vention to disclose, learnt or using the same by others without his or her permission/consent for commercial purpose.

### *1.5.8. Plant varieties*

Plant varieties are rights under Intellectual Property Rights related to the protection of new plant varieties. Plant variety protection is given to the breeders as an exclusive right for a limited period to the breeders to acknowledge the achievements of new plant varieties with the satisfaction of specific criteria. New plant variety is defined as a plant grouping within a single botanical taxon of the lowest known rank provided that the plant/herb should be new or novel, distinct, uniform, stable and have a satisfactory denomination [11–15].

## **1.6. Patents**

Patents are rights under Intellectual Property Rights related to an invention for which pat‐ ent has been given by the Government/statute to the patentee in exchange of full disclosure of their invention either an individual or a company/organization. Patent has been given as exclusive right for a limited period to exclude others from making, using, selling and importing the patented product or process producing that product. The patent rights are enjoyable without any insight to the invention place, field of technology and the products either imported or produced locally. Compulsory licensing is a condition made fairly liberal based on the concept of 'license of right' for patents related to drugs, pharmaceuticals and foods [12–20].

#### *1.6.1. Categories of patents*

Patents are categorized into following types:


## **1.7. Patentable invention**

An invention means 'a new product or process which involves an inventive step and able to be used in the industry' can be patentable under the Patent Act. In short, patentable invention should have technical nature and meet the basic common features:

**1.** Novelty

*1.5.6. Layout designs of integrated circuits*

*1.5.7. Protection of undisclosed information*

poses are prevented.

8 Intellectual Property Rights

for commercial purpose.

*1.5.8. Plant varieties*

**1.6. Patents**

foods [12–20].

*1.6.1. Categories of patents*

**1.** Ordinary patents **2.** Patents of addition

Patents are categorized into following types:

Layout designs of integrated circuits are rights under Intellectual Property Rights related to interconnections of an integrated circuit or three‐dimensional disposition prepared for an integrated circuit intended for manufacture. Under this layout designs of integrated circuits right of reproduction, right of importation, sale and other distribution for commercial pur‐

Protection of undisclosed information is rights under Intellectual Property Right related to protection of information that is applied as trade secret, which has commercial value. The protection of undisclosed information cannot be considered or treated as a form of intellectual property. Protection of undisclosed information requires, that the information must have pre‐ vention to disclose, learnt or using the same by others without his or her permission/consent

Plant varieties are rights under Intellectual Property Rights related to the protection of new plant varieties. Plant variety protection is given to the breeders as an exclusive right for a limited period to the breeders to acknowledge the achievements of new plant varieties with the satisfaction of specific criteria. New plant variety is defined as a plant grouping within a single botanical taxon of the lowest known rank provided that the plant/herb should be new

Patents are rights under Intellectual Property Rights related to an invention for which pat‐ ent has been given by the Government/statute to the patentee in exchange of full disclosure of their invention either an individual or a company/organization. Patent has been given as exclusive right for a limited period to exclude others from making, using, selling and importing the patented product or process producing that product. The patent rights are enjoyable without any insight to the invention place, field of technology and the products either imported or produced locally. Compulsory licensing is a condition made fairly liberal based on the concept of 'license of right' for patents related to drugs, pharmaceuticals and

or novel, distinct, uniform, stable and have a satisfactory denomination [11–15].


## **1.8. Novelty**

Under this basic feature, the patentable invention must be new by the original inventor at the time of invention, and it should not be known to the public or public domain or any part of the existing state of the art. Novelty of an invention is justified based on the comparison between his/her embodiment and the materials available in the public domain.

## **1.9. Utility**

The next basic feature of the patentable invention is utility. Under utility, the invention must be capable of having an industrial application to provide positive benefit to society. The indus‐ trial application under utility, need not to have any superior to existing products or processes, but it must secure the intended result even small degree of utility is sufficient.

#### **1.10. Inventive step/non‐obviousness**

The next basic feature of the patentable invention is inventive step/non‐obviousness.

An invention can be patented until it satisfies the non‐obviousness criteria, even an invention has novelty and utility. The non‐obvious clause is applicable to those who are skilled in that art [12, 13].

#### **1.11. Not‐patentable inventions**

The following are non‐patentable inventions within the meaning of the Patent Act:


#### **1.12. Inventions and discoveries**

The terms inventions and discoveries are two different applications. The term invention is new and useful solution, which is invented through practical analysis for some technical problems; whereas the term discovery is not the result of creation.

#### **1.13. Patent application**

To get patent protection for an invention, the inventor has to provide the specification in the patent application.

	- (a) Any person claiming to be the true and first inventor of the invention
	- (b) Any person being the assignee of the person claiming to be the true and first inven‐ tor in respect of the right to make such an application
	- (c) The legal representative of any deceased person who immediately before his death can be entitled to make such an application

## **1.14. Form of application**

• The mere discovery of any new use for a known substance or any unexpected property or just use of a known process, machine or apparatus unless such known process leads to a

• Treatment to patients for medicinal, surgical, curative, prophylactic purpose to render

• A literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever

• An invention which, in effect, is traditional knowledge or which is an aggregation or dupli‐

The terms inventions and discoveries are two different applications. The term invention is new and useful solution, which is invented through practical analysis for some technical

To get patent protection for an invention, the inventor has to provide the specification in the

(b) Any person being the assignee of the person claiming to be the true and first inven‐

(c) The legal representative of any deceased person who immediately before his death

**2.** An application under subsection can be made by any of the persons referred to therein

(a) Any person claiming to be the true and first inventor of the invention

cation of known properties of traditionally known component or components

• A mathematical or business method or a computer programme per se or algorithms

new product or employs at least one new reactant

• A method of agriculture or horticulture

them free of disease

10 Intellectual Property Rights

• A divulging of information

• Topography of integrated circuits

**1.12. Inventions and discoveries**

**1.13. Patent application**

patent application.

• Any product obtained in just mixing any two substances

• Plants, animals in whole or any part thereof other than microorganisms

including cinematographic works and television productions

• Atomic energy and prejudicial to the defence of India [12, 15]

problems; whereas the term discovery is not the result of creation.

**1.** A patent application can be made by any of the following persons.

tor in respect of the right to make such an application

can be entitled to make such an application

either alone or jointly with any other person [12, 15, 21].


## **1.15. Types of patent specification**

The specification of the patent application should meet the three fundamental principles:


## *1.15.1. Provisional specification*

Provisional application describes the nature of the invention or the process involved in the invention. Provisional application provides a fair indication of the art or the subject to which the invention relates if required with drawing and not necessary to include any claim of the inventions.

## *1.15.2. Complete specification*

The complete specification is an important document subsequently filed after the provisional specification in the patent application procedure. The complete specification should be writ‐ ten in detail with clarity if any drawing is required and disclosing the claim/claims in a best mode to protect their invention. The complete specification should be written in detail such a way that any person in the relevant field with the ordinary skill can be understand the inven‐ tion and its invention pertains [12, 13].

## *1.15.3. Components of specification*

Components of the provisional and complete specifications are different. The components of the specification are given in **Table 1** [12, 15, 21].


**Table 1.** Components of provisional and complete specification.

### **1.16. Contents of specification**


Each complete specification must contain:


## **1.17. Procedure for obtaining patents**

## *1.17.1. Publication and examination of patent applications*

## *1.17.1.1. Publication*

Publication of the patent applications is the first process in the procedure for obtaining pat‐ ents. The publication of the patents includes date of application number, name and address of the applicant along with the abstract. Patent application will not be opened for public inspec‐ tion before publication. After the date of publication of the patent application, the applicant must give a written request in the prescribed format to the concerned authority to inspect the complete specification along with provisional and drawing (if any) and abstract.

## *1.17.1.2. Request for examination*

Patent application will not be examined until the request is made by the applicant in the prescribed format along with the prescribed fee within a specific time duration. If any appli‐ cant has not requested against the patent application within the prescribed time period, the abovementioned application will be treated as withdrawn and hereinafter the application cannot be revived.

#### *1.17.1.3. Examination*

**1.16. Contents of specification**

ter of the invention‐related information in title.

**Table 1.** Components of provisional and complete specification.

**Provisional specification Complete specification**

1. To get the priority date at the earliest and need not

2. When the invention is at the intangible stage, a lot of fine tuning has to be done in the subsequent application.

5. The format in the provisional specification:

**d.** How this invention solves the problems

**b.** Status of PRIOR ART, that is, what is already known

**e.** Description of the drawing (optional, if required)

contain any claims.

12 Intellectual Property Rights

**a.** Area of invention

to the industry

**c.** Problems with the prior art

ted in the part of the specification.

Each complete specification must contain:

**1.** Specifications, either provisional or complete, should sufficiently indicate the subject mat‐

3. The nature of invention is disclosed at the core of it. 3. The invention is disclosed in best manner, that is, if

4. It need not have detail related to the invention. 4. It needs to have detail related to the invention.

invention

**b.** Claims **c.** Drawings

1. This establishes the date of patent, if sealed.

5. Format as in provisional, but it also includes:

invention information is known.

**a.** Statement of invention

2. When the invention is ready to utilize in the market or

the invention has been given to a person skilled in the art can be able to perform without further clarification of the

**2.** If any subject matter in the form of drawing is made under the Patent Act, it should be submitted along with specification either provisional or complete wherever necessary. **3.** In any circumstance, if any model or sample exemplify the invention, it should be submit‐

**4.** If, in any particular case, the controller considers that an application should be further supplemented by a model or sample of anything illustrating the invention or alleged to constitute an invention, such model or sample as he may require shall be furnished, but

such model or sample shall not be deemed to form part of the specification.

• Explaining the scope of the invention for which the protection is claimed

• Provide the technical information about the invention in the abstract

• Express the performance of the invention and the claim protection in the best method

**5.** In complete specification, the claim or claims should be clear and concise to relate a single invention or a group of inventions linked so as to form a single inventive concept.

• Depict the invention, operation and its procedure in full detail

When a request is made by the applicant within the prescribed time, the application will be examined strictly based on the serial number of the request received in the prescribed format. After examination of the patent application, the objections/requirements are communicated to the applicant as First Examination Report (FER). Based on the objections/requirements of the patent application, applicant shall submit the reply within the specified period of time. No further extension will be given if the application for amendment is not received within a period of specified time. If any application meets the acceptance criteria, it will be notified to the concerned authority.

#### *1.17.1.4. Search for anticipation by previous publication and by prior claim*

When a patent application is examined by an examiner (whom the patent application is referred to), he/she will be responsible to investigate whether the invention, as far as claimed in any claim of the complete specification, has been anticipated by any publication before the date of filling of the complete specification by the applicant.

## *1.17.1.5. Opposition proceedings to grant of patents*


## *1.17.1.6. Grant of patents*


## *1.17.1.7. Grant of patents to be subjected to certain conditions*

The grants of patent to be subjected in certain conditions under the Patent Act are:


## *1.17.2. Rights of patentee*


## *1.17.3. Register of patents*

*1.17.1.5. Opposition proceedings to grant of patents*

ity in the prescribed format.

14 Intellectual Property Rights

*1.17.1.6. Grant of patents*

*1.17.2. Rights of patentee*

that process.

**1.** During publication of the patent application but before granting of patent, any interested person can oppose in writing against the grant of patent to the concerned authority.

**2.** At any time of patent grant, but before the expiry of a period, any interested person can represent and give notice of opposition against the grant of patent to the concerned author‐

**3.** If any notice of opposition is received by the concerned authority, they will notify the same to the patentee. The concerned authority will constitute a board namely Opposition Board having such officers. The notice of opposition along with the documents will be submitted to the Board for examination. Once examination is complete, the opposition board submits

**4.** On receipt of the recommendation from Opposition Board and from patentee, an opportunity will be given to the opponent to propose his/her opposition being heard. Based on the results, the concerned authority shall order either to maintain or to revise or to cancel the patent.

**2.** The concerned authority of patents shall publish the fact that the patent has been granted and thereupon the application, specification and other documents related thereto shall be

**1.** Any article, machine or apparatus in respect of which the patent is granted may be im‐ ported or made by on behalf of the Government for the purpose merely of its own use.

**3.** Any article, machine or apparatus in respect of which the patent is granted may be used by

**4.** Import of drugs by Government for hospital purpose or for distribution in any dispensary.

**1.** When a patent is granted for a product, an exclusive right to prevent third parties for mak‐ ing, using, offering for sale, selling or importing for those purpose that product.

**2.** When a patent is granted for a process, an exclusive right to prevent third parties for using, offering for sale, selling or importing for those purposes the product obtained directly by

their comments (recommendation) to the concerned authority for further process.

**1.** When the patent application is found to be in order, patent will be granted.

The grants of patent to be subjected in certain conditions under the Patent Act are:

open for public inspection on the grant of patent.

*1.17.1.7. Grant of patents to be subjected to certain conditions*

any person, for academic/education purpose.

**2.** For Government use in respect of which the patent is granted.

Particular of the patent will be entered in the register of patent; it includes the names, addresses of grantees of patents, notifications of assignments, transmissions of patents, licenses under patents, amendments, extension and revocations of patents.

## *1.17.4. Renewal fee*

In order to keep the patent in force, every year renewal fee is needed to be paid. Within the spe‐ cific time period, if the patent has not been issued, the renewal fees will be accumulated and paid immediately after the patent is sealed or within specific time period of its record in register of pat‐ ents. The patent will end and have no effect if the renewal is not paid within the prescribed time.

## *1.17.5. Restoration*

An application is to be filed to the appropriate office according to the jurisdiction within the specific time period for restoration of a patent that lapses due to non‐payment of renewal fees [12, 15, 21, 22].

## *1.17.6. Drafting of patent specification in patent application*

The principles of construction of details summarized as follows6 :

The general rules of construction of details in the patent specification are:


#### *1.17.7. Parts of the complete specification*

Each specification should have the following parts.


## *1.17.7.1. Title*

In drafting the complete specification, the first step is to define the scope of the invention or forming a mental picture of what is to be claimed. Converting the mental picture into suitable words is the second step. While framing the title, attention has been taken to incorporate the entire scenario about the invention.

## *1.17.7.2. Opening description of the invention*

The opening description of the complete specification provides more details about the inven‐ tion. Some of the applicant may prefer to draft the full set of claims first; in general, the main claim will be derived from the title of the invention, then the rest of the specification will be drafted followed by claims of the invention. Procedure for the invention to be carried out can be described in the opening description of the specification.

#### *1.17.7.3. Prior art references*

Relevant prior art references of the invention are provided subsequent to the opening descrip‐ tion. The prior art references provide the disclosed or known details of their invention. To increase the credibility of the invention; discuss the prior art reference/invention, its draw‐ backs individually and mention the advantages of invention related to the prior art invention.

#### *1.17.7.4. Objects of the invention*

The objects of the invention should be briefly stated. In general, the main object or essential object is mentioned in the invention, followed by additional objects of the invention either separately or subsequent to the essential object.

#### *1.17.7.5. Statement of invention*

If the application contains one or more collective claims, the applicant should provide sup‐ porting statement of the invention. The applicant is not incorporating any collective claims; then the applicant need not provide any statements of the invention.

#### *1.17.7.6. Detailed description of the invention*

In this section, the applicant should describe in detail about the information related to invention. The applicant should keep it in mind that the specification of the invention is not addressed to any general public or a layman but to a skilled person in the art. The patent will be invalid, if the description of the invention in the specification is not sufficient to allow a person having average skill in, and average knowledge of, the art to which the invention relates, to work the invention.

Description of the invention is assessed based on the two criteria:


The written description requirement is essentially a requirement that each claim should be fairly based on the disclosure.

## *1.17.7.6.1. How to make the specification*

The specification detail of the invention must facilitate the skilled person in the art to read, understand and to make the invention which is claimed in the specification.

### *1.17.7.6.2. How to use*

• Prior art description

16 Intellectual Property Rights

• Claims

*1.17.7.1. Title*

• Objects of the invention

• Statement of invention (optional)

entire scenario about the invention.

*1.17.7.3. Prior art references*

*1.17.7.4. Objects of the invention*

*1.17.7.5. Statement of invention*

separately or subsequent to the essential object.

*1.17.7.6. Detailed description of the invention*

*1.17.7.2. Opening description of the invention*

be described in the opening description of the specification.

• Detailed description of the invention

In drafting the complete specification, the first step is to define the scope of the invention or forming a mental picture of what is to be claimed. Converting the mental picture into suitable words is the second step. While framing the title, attention has been taken to incorporate the

The opening description of the complete specification provides more details about the inven‐ tion. Some of the applicant may prefer to draft the full set of claims first; in general, the main claim will be derived from the title of the invention, then the rest of the specification will be drafted followed by claims of the invention. Procedure for the invention to be carried out can

Relevant prior art references of the invention are provided subsequent to the opening descrip‐ tion. The prior art references provide the disclosed or known details of their invention. To increase the credibility of the invention; discuss the prior art reference/invention, its draw‐ backs individually and mention the advantages of invention related to the prior art invention.

The objects of the invention should be briefly stated. In general, the main object or essential object is mentioned in the invention, followed by additional objects of the invention either

If the application contains one or more collective claims, the applicant should provide sup‐ porting statement of the invention. The applicant is not incorporating any collective claims;

In this section, the applicant should describe in detail about the information related to invention. The applicant should keep it in mind that the specification of the invention is not

then the applicant need not provide any statements of the invention.

The invention should have the utility and meet the scope of the invention claimed. In some field, there is no need to disclose specifically about the utility of a claimed product. If the invention claims other than pharmaceutical, there is no need to provide prior art compounds' comparative data.

## *1.17.7.6.3. Best mode*

The applicant should disclose the invention in best possible method in the specification. In short, three expressions are needed to be kept in mind by the applicant during the preparation of patent specification in the patent office. The three expressions are:


The procedure for carrying out the invention is best known by the inventor, it should be given in each description of the invention in the patent specification.

If any illustration or drawing directed to machines, articles of manufacture and certain processes are part of the invention, it should be included in the application. Dimensions or spatial relation‐ ships are needed to be included in the invention. Addition of tables, graphs and charts are advis‐ able for disclosing the patent invention in the application. If any tables, graphs, charts, figures and drawing are included in the application, it should be arranged serially. If any description is included in the specification, it should support each and every claim of the invention.

If the invention is related to mechanical device/apparatus, its connections or interconnections between the parts of the mechanical device and its function, the invention details need to be described clearly in the specification.

If the invention related to chemical process, the process details like starting materials, key process steps, its parameters, and the description of the end product details are need to be described clearly in the specification.

## *1.17.7.7. Claims*

The patent invention for which the patentee expect the exclusive right are should be clearly described in the claim or claims of the complete specification.

## *1.17.7.7.1. General philosophies in the interpretation of claims*


## *1.17.7.7.2. Function of claims*

The patent invention should be clearly defined in the claim. The main purpose of the claim is to define the scope of the subject matter that is to be protected under the patent. The claim of the patent should be drafted in such way that any competitor does not infringe the patent and the claim should be interpreted literally. The patent claims are not interpreted alone, instead it should be written in clear and concise manner in the description of the specification itself. Thus, the description of the specification not only provides the basis of the claim but also the claims are restricted with respect to the prior art.

## *1.17.7.7.3. Categories of claim*

In patent, the claims are broadly classified in two categories:


The patent invention related to chemical product, the claims can include chemical substance itself may be useful or itself may be used as intermediates for the production of other sub‐ stances/compounds. If the invention related to chemical process, the claims can include process of synthesis, isolation, purification and extraction of chemical substances, testing and assay methods, subsequently its medicinal use. In general, different types of claims can be included in the specification of the patent application, but it should provide the useful protection for the main claim.

## *1.17.7.7.4. Independent and dependent claims*

Independent and dependent claims are two types of claims. Either independent/dependent claim or both can be included in the specification of the patent application. Claim can be included as independent claim in the specification; it is just a form of shorthand to avoid writ‐ ing out an entire definition many times over. If the claim can be included as true dependent claim in the specification, all the limitations need to be considered.

## *1.17.7.7.5. Number of claims*

If the invention is related to mechanical device/apparatus, its connections or interconnections between the parts of the mechanical device and its function, the invention details need to be

If the invention related to chemical process, the process details like starting materials, key process steps, its parameters, and the description of the end product details are need to be

The patent invention for which the patentee expect the exclusive right are should be clearly

• Whatever unclaimed in an invention may be interpreted as a matter of law not owned by

• Extrinsic evidence by means of expert testimony may be adduced, if the meaning of a term of art in the claims is disputed, but the decision in a question of law is to be made by the court.

The patent invention should be clearly defined in the claim. The main purpose of the claim is to define the scope of the subject matter that is to be protected under the patent. The claim of the patent should be drafted in such way that any competitor does not infringe the patent and the claim should be interpreted literally. The patent claims are not interpreted alone, instead it should be written in clear and concise manner in the description of the specification itself. Thus, the description of the specification not only provides the basis of the claim but also the

**1.** Product patent which includes any mechanical device, a machine, an electronic circuit, any

The patent invention related to chemical product, the claims can include chemical substance itself may be useful or itself may be used as intermediates for the production of other sub‐ stances/compounds. If the invention related to chemical process, the claims can include

**2.** Process patent which includes any method of making, using or testing procedures.

• Claims are always a question of law and it should be mentioned unambiguously.

described clearly in the specification.

described clearly in the specification.

described in the claim or claims of the complete specification.

*1.17.7.7.1. General philosophies in the interpretation of claims*

• Factors, if any, in the claims should be considered.

claims are restricted with respect to the prior art.

In patent, the claims are broadly classified in two categories:

chemical compound and chemical formulation.

*1.17.7.7. Claims*

18 Intellectual Property Rights

the inventor!

*1.17.7.7.2. Function of claims*

*1.17.7.7.3. Categories of claim*

Number of claims depends upon the invention. Normally in the patent specification, the main claim corresponds to the patent invention. If any specification of the patent application con‐ tains large number of claims, it will be discouraged in several patent offices. Additional fees are to be paid for the claims in excess of a particular number.

## *1.17.7.7.6. Form of claims*

The meaning of claims in the specification must be definite, precise, clear and understandable by any skilled reader. Wording such as 'preferably' or 'for example' should not be included in part of the claims. In describing the claims, avoid internal codes or names, or trademarks without a generic description. Consistent language and vocabulary are to be used throughout the specification and in the description of claims. General abbreviation terms can be used in the specification of the patent application. If the invention utilizes different components, precautions need to be taken while describing the claims and specifying the essential compo‐ nents related to the invention.

#### *1.17.7.7.7. The scope of the claims*

Every patent practitioner has responsibility to protect his/her client and to provide best pos‐ sible protection for their inventions. In general, claims of the invention should be too broad rather than too narrow. Taking into consideration the known prior art references, technical fea‐ sibility and its limitations, the claims of the invention should be broadly written in the specifica‐ tion. Therefore, statements of claims are the serious active part of the specification of any patent application, and it should be expressed in legal term about the invention that is to be protected.

The statements of the claims are not necessary to be limited to a claim. Based on the common idea, more than one can be included in the specification of the patent application. The speci‐ fication may contain any number of claims, but the entire claim must focus towards only one invention that is to be protected. In an invention claiming various features independent of one another, applicant may file different patent application for each feature separately.

## **1.18. Length of text**

Length of the patent specification should be kept as short as possible with sufficient disclosed information about the invention that is to be protected. The reason to keep the specification text content as short as possible is the cost to be paid towards the length of the text of the specification content. In general, if the specification is written very clearly in concise aspects, it is likely to give an enforceable patent to the invention [12, 15, 21–28].

## **2. Conclusion**

To achieve economic, social and technological advancement, IPR is the only key element to protect the ideas, stimulate the innovation, design and help the creation of technol‐ ogy. Various types are IPR are designed to provide benefit in the aspects of sharing the developed knowledge as a new invention leads to give a wealth creation. This IPR can facilitate the transfer the invention as technology transfer in the form of licensing through any joint ventures. The main purpose of IPR is to give protection for their investment as incentives and also to encourage further developments in their research. Among the vari‐ ous IPR system, patent are rights related to an invention given by the Government/statute in exchange of full disclosure of their invention by the patentee. Invention for which the patentee expect exclusive right, it should be clearly described in the patent application as specification. Specification is a statement constructed based on the knowledge acquired during the invention and the prior art information with the drawbacks, it should clearly define the invention as claim or claims in best possible method by applicant to get exclu‐ sive rights. The claims in the specification must be expressed legally; the invention as defi‐ nite, precise, clear and understandable by any skilled reader and any competitor does not infringe the invention. The main purpose of the claim is to protect the subject matter that is to be protected under the patent. Number of claims depends upon the invention, and the length of the specification should be kept as short as possible to reduce the processing charge of the patent application.

## **Author details**

Sakthivel Lakshmana Prabu1 \*, Timmadonu Narasimman Kuppusami Suriyaprakash2 and Rathinasabapathy Thirumurugan3

\*Address all correspondence to: slaxmanvel@gmail.com

1 Department of Pharmaceutical Technology, Bharathidasan Institute of Technology, Anna University, Tiruchirappalli, India

2 Department of Pharmaceutics, Al Shifa College of Pharmacy, Perinthalmanna, Kerala, India

3 College of Agriculture and Life Sciences, Kannapolis, NC, USA

## **References**

**1.18. Length of text**

20 Intellectual Property Rights

**2. Conclusion**

charge of the patent application.

Sakthivel Lakshmana Prabu1

Rathinasabapathy Thirumurugan3

University, Tiruchirappalli, India

\*Address all correspondence to: slaxmanvel@gmail.com

3 College of Agriculture and Life Sciences, Kannapolis, NC, USA

**Author details**

Length of the patent specification should be kept as short as possible with sufficient disclosed information about the invention that is to be protected. The reason to keep the specification text content as short as possible is the cost to be paid towards the length of the text of the specification content. In general, if the specification is written very clearly in concise aspects,

To achieve economic, social and technological advancement, IPR is the only key element to protect the ideas, stimulate the innovation, design and help the creation of technol‐ ogy. Various types are IPR are designed to provide benefit in the aspects of sharing the developed knowledge as a new invention leads to give a wealth creation. This IPR can facilitate the transfer the invention as technology transfer in the form of licensing through any joint ventures. The main purpose of IPR is to give protection for their investment as incentives and also to encourage further developments in their research. Among the vari‐ ous IPR system, patent are rights related to an invention given by the Government/statute in exchange of full disclosure of their invention by the patentee. Invention for which the patentee expect exclusive right, it should be clearly described in the patent application as specification. Specification is a statement constructed based on the knowledge acquired during the invention and the prior art information with the drawbacks, it should clearly define the invention as claim or claims in best possible method by applicant to get exclu‐ sive rights. The claims in the specification must be expressed legally; the invention as defi‐ nite, precise, clear and understandable by any skilled reader and any competitor does not infringe the invention. The main purpose of the claim is to protect the subject matter that is to be protected under the patent. Number of claims depends upon the invention, and the length of the specification should be kept as short as possible to reduce the processing

\*, Timmadonu Narasimman Kuppusami Suriyaprakash2

1 Department of Pharmaceutical Technology, Bharathidasan Institute of Technology, Anna

2 Department of Pharmaceutics, Al Shifa College of Pharmacy, Perinthalmanna, Kerala, India

and

it is likely to give an enforceable patent to the invention [12, 15, 21–28].


## **Patenting in the Pharmaceutical Industry**

## Risa Kumazawa

[18] Das JK. In: Intellectual Property Rights. 1st ed. Kolkata: Kamal Law House; 2008

1988.1st ed. New Delhi: Blackstone Press Ltd; 1990

ual‐of‐patent‐office‐practice\_and‐procedure.pdf

from: http://www.tbp.org/pubs/features/f02kelly.pdf

Journal of Pharma Research. 2010;Jun–Dec:71‐78

University Press; 2003

22 Intellectual Property Rights

International; 2002

india/ [Accessed: 7 January 2017]

Patent Information. 2000;**22**:167‐175

York: Oxford University Press; 2005

Property Rights. 2009;**13**:307‐316

[19] Gerald D, Taylor RD. In: Blackstone's Guide to the Copyright, Designs and Patents Act

[20] Ann M, Ricketson S. In: Universities and Intellectual property. 1st ed. New York: Oxford

[21] Available from: https://www.intepat.com/blog/patent/restoration‐lapsed‐patents‐renewal‐

[22] http://www.ipindia.nic.in/writereaddata/Portal/IPOGuidelinesManuals/1\_28\_1\_man‐

[23] Ganguli P. Intellectual Property Rights. Imperatives for the knowledge industry. World

[24] de Carvalho NP. In: The TRIPS Regime of Patents rights. London; Kluwer Law

[25] Philip WG. In: Patents for Chemicals, Pharmaceuticals and Biotechnology. 4th ed. New

[26] Gupta MS. Sufficiency of disclosure in patent specification. Journal of Intellectual

[27] Kelly PD. Drafting a patent application. The Bent of Tau Beta Pi. 2002; 17‐23. Available

[28] Lakshmana Prabu S, Suriyapraksh TNK. Drafting of patent specification. International

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/68102

## **Abstract**

The chapter investigates the returns to R&D expenditures on patenting in the pharma‐ ceutical industry, using a panel data of 32 countries. Due to the unique situation in the industry that come from the patent being the new drug and additional clinical trials which must be conducted for safety and efficacy, the pharmaceutical industry is analyzed alone. The results indicated that for pharmaceutical patent applications with the United States Patent and Trademark Office (USPTO), the European Patent Office (EPO) and the triadic family consisting of USPTO, EPO and the Japan Patent Office (JPO), pharmaceuti‐ cal R&D expenditures had no impact coming from European countries. However, for the six non-European countries in the dataset (Australia, South Korea, Mexico, Romania, Singapore and Taiwan), the R&D always had statistically significant effects on all three patent applications in the industry. The results were more pronounced when the United States and Japan were also included. While China, Brazil and India were excluded due to missing pharmaceutical R&D data, it is hypothesized that the effect of these countries would have made the results stronger.

**Keywords:** pharmaceutical patents, pharmaceutical R&D, innovation

## **1. Introduction**

Innovation has played a crucial role in channeling the economic growth of countries. Economists have long established a positive link between research and development (R&D) expenditures and innovation, as measured by patenting activity [1]. This has been done at the micro level, across firms [2] and at the macro level, across developed and developing countries with different levels of patent protection and legal systems [3–6] and domestic and foreign flows due to foreign direct investment and the presence of foreign affiliates [7–10]. One of the shortcomings of macro studies is that all industries were lumped together despite the hetero‐ geneous nature of patenting and R&D expenditures across industries. With industry-specific

© 2017 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

data available across countries over time, it is possible to study just one industry—namely the pharmaceutical industry which has been considered to be the most successful in attracting private R&D for innovation [11, 12].

A patent gives "exclusive right for a product or process that provides a new way of doing something, or that offers a new technical solution to a problem" [13]. However, patenting in the pharmaceutical industry is quite unlike other industries because the patent is the product itself (a new drug) which is the result of costly R&D and extensive clinical testing [14].1 For such expensive endeavors, it is not surprising that this is a market that contin‐ ues to serve primarily Organization for Economic Co-Operation and Development (OECD) countries, in particular, the United States. In 2015, 48.7% of the world pharmaceutical sales occurred in the US market, whereas 22.2% and 8.1% occurred in European and Japanese markets, respectively [16].

**Tables 1** and **2** shows time-averaged pharmaceutical patent applications from OECD and non-OECD countries, using OECD's Patent Database. The columns represent the filing office (United States Patent and Trademark Office (USPTO), European Patent Office (EPO) and the triadic families, which include one or more shared applications with Japan Patent Office (JPO), USPTO and EPO. The numbers highlight the vast differences across OECD and non-OECD countries. For almost every country, USPTO filings outnumber the other two filing types. The United States is the unambiguous leader in pharmaceutical patenting, followed by Japan and Germany.

Despite the smaller numbers for non-OECD countries, **Figure 1a**–**c** show the relative importance of pharmaceutical patents over time. Each data point represents the average ratio of pharmaceutical patents to total patents in each year across OECD countries and non-OECD countries. They range from 5 to 25%, for USPTO, EPO and triadic families. While the ratio is always higher for OECD countries for triadic family patent applications, the ratios for both EPO and USPTO applications are higher for non-OECD countries from the mid‐2000s, indicating the growing relative importance of pharmaceutical patents of non-OECD countries.

For ensuring efficacy of the drugs and safety of consumers, government regulations make expensive clinical trials necessary in this industry as the drugs cannot be marketed with‐ out approval. In the United States, the Food and Drug Administration (FDA) enforces these regulations. Clinical trials effectively shorten the lives of the patents by several years. To demonstrate efficacy, the clinical trial durations must match the expected survival duration of patients [22]. Patents, on average, delay competition from the entry of generic drugs for approximately 10–14 years in the United States [11]. However, the drug can easily be rep‐ licated after patent expiration when generic drugs can be manufactured cheaply without additional investments in R&D or costs associated with clinical trials [11, 14]. This floods the market with competitors. For this reason, proponents of pharmaceutical patents argue that exclusivity through patent protection is crucial to recovering the enormous costs and making profits from the invention of new drugs.

<sup>1</sup> In fact, it was estimated that the out-of-pocket cost per drug was \$1395 million, and the capitalized R&D cost per drug was \$2558 million in 2013 dollars [15].


data available across countries over time, it is possible to study just one industry—namely the pharmaceutical industry which has been considered to be the most successful in attracting

A patent gives "exclusive right for a product or process that provides a new way of doing something, or that offers a new technical solution to a problem" [13]. However, patenting in the pharmaceutical industry is quite unlike other industries because the patent is the product itself (a new drug) which is the result of costly R&D and extensive clinical testing

 For such expensive endeavors, it is not surprising that this is a market that contin‐ ues to serve primarily Organization for Economic Co-Operation and Development (OECD) countries, in particular, the United States. In 2015, 48.7% of the world pharmaceutical sales occurred in the US market, whereas 22.2% and 8.1% occurred in European and Japanese

**Tables 1** and **2** shows time-averaged pharmaceutical patent applications from OECD and non-OECD countries, using OECD's Patent Database. The columns represent the filing office (United States Patent and Trademark Office (USPTO), European Patent Office (EPO) and the triadic families, which include one or more shared applications with Japan Patent Office (JPO), USPTO and EPO. The numbers highlight the vast differences across OECD and non-OECD countries. For almost every country, USPTO filings outnumber the other two filing types. The United States is the unambiguous leader in pharmaceutical patenting, followed by

Despite the smaller numbers for non-OECD countries, **Figure 1a**–**c** show the relative importance of pharmaceutical patents over time. Each data point represents the average ratio of pharmaceutical patents to total patents in each year across OECD countries and non-OECD countries. They range from 5 to 25%, for USPTO, EPO and triadic families. While the ratio is always higher for OECD countries for triadic family patent applications, the ratios for both EPO and USPTO applications are higher for non-OECD countries from the mid‐2000s, indicating the growing relative importance of pharmaceutical patents of

For ensuring efficacy of the drugs and safety of consumers, government regulations make expensive clinical trials necessary in this industry as the drugs cannot be marketed with‐ out approval. In the United States, the Food and Drug Administration (FDA) enforces these regulations. Clinical trials effectively shorten the lives of the patents by several years. To demonstrate efficacy, the clinical trial durations must match the expected survival duration of patients [22]. Patents, on average, delay competition from the entry of generic drugs for approximately 10–14 years in the United States [11]. However, the drug can easily be rep‐ licated after patent expiration when generic drugs can be manufactured cheaply without additional investments in R&D or costs associated with clinical trials [11, 14]. This floods the market with competitors. For this reason, proponents of pharmaceutical patents argue that exclusivity through patent protection is crucial to recovering the enormous costs and making

In fact, it was estimated that the out-of-pocket cost per drug was \$1395 million, and the capitalized R&D cost per drug

private R&D for innovation [11, 12].

24 Intellectual Property Rights

markets, respectively [16].

Japan and Germany.

non-OECD countries.

1

profits from the invention of new drugs.

was \$2558 million in 2013 dollars [15].

[14].1

**Table 1.** Average pharmaceutical patent applications in OECD countries by filing office.



**Table 2.** Average pharmaceutical patent applications in non-OECD countries by filing office.

2 There was one less year of available data for patent applications to USPTO.

**Country Triadic patents** 

26 Intellectual Property Rights

Democratic People's Republic of

Korea

**(1999–2012)**

Algeria 0.04 0.20 0.14 Andorra 0.01 0.08 0.01 Argentina 2.89 8.55 15.57 Armenia 0.02 0.21 0.33 Belarus 0.11 0.38 0.40 Bermuda 0.12 0.11 0.34 Bosnia & Herzegovina 0.02 0.18 0.13 Brazil 7.75 18.73 26.81 Bulgaria 0.22 1.54 1.10 Cayman Islands 0.04 0.11 0.23 China 84.53 122.24 180.99 Colombia 0.68 1.06 2.67 Costa Rica 0.02 0.35 0.21 Croatia 5.31 8.56 9.79 Cuba 5.72 8.41 9.73 Cyprus 0.37 1.01 0.90 Djibouti 0.00 0.00 0.04 Ecuador 0.02 0.53 0.48 Egypt 0.35 1.17 2.47 El Salvador 0.00 0.00 0.08 Georgia 0.44 0.72 0.86 Guatemala 0.05 0.00 0.03 Hong Kong (China) 2.84 11.33 19.03 India 70.55 160.64 241.89 Indonesia 0.43 0.82 0.90 Iran 0.27 0.57 2.12 Jamaica 0.02 0.02 0.69 Jordan 0.51 3.11 1.85 Kazakhstan 0.18 0.37 0.21 Kenya 0.12 0.45 1.14

**EPO patents (1999–2012)**

0.02 0.10 0.07

Kuwait 0.02 0.08 1.33 Lebanon 0.16 0.34 0.72 Liechtenstein 2.83 4.27 3.13 Lithuania 0.14 0.75 0.67

**USPTO patents (1999–2011)2**

**Figure 1.** (a) Pharmaceutical patents/total patents to triadic families (USPTO, EPO and JPO). (b) Pharmaceutical patents/ total patents to USPTO. (c) Pharmaceutical patents/total patents to EPO.

In this book chapter, I investigate the relationship between R&D expenditures and patents in the pharmaceutical industry alone using panel data estimations. The differences between pat‐ ent applications to the EPO, USPTO and triadic families (EPO, USPTO and JPO) are compared for groups of countries. This research makes a contribution to the literature that explores R&D expenditures with patenting at the macrolevel but separating out the pharmaceutical industry which is quite different from other industries. The chapter continues as follows. After a crossdisciplinary literature review in various areas, I provide the economic model to be estimated. The chapter concludes after a discussion of the empirical results and conclusions.

## **2. Literature review**

Below, a review of the literature is provided in three key areas: (1) the international patenting system; (2) how pharmaceutical patenting and R&D differ from those of other industries; and (3) results from previous studies on innovation relating R&D to patents.

## **2.1. International patenting system**

The Paris Convention of 1883 established the International Union for the Protection of Industrial Property in 1884. This was an important development in international patenting that ensured equal treatment of inventors, regardless of Convention country of origin [10, 12]. Furthermore, the Convention "priority date" entitles the patent applicant the right to claim the filing date of the first application as an effective filing date for corresponding applicants in other Convention countries within a given time frame, which for patents is a year.

The establishment of the European Patent Convention (EPC)<sup>3</sup> in 1977 allowed a single pat‐ ent application to be filed for European countries, at the newly created European Patent Office (EPO). The approved applications were validated by other member countries which meant that this was essentially a system of filing a "bundle" of national patents. The Patent Cooperation Treaty (PCT) was soon established in 1985. This treaty allowed nationals or resi‐ dents of 145 contracting signatory countries to file a single international application at their local patent office [10]. A standardized application (one language and one fee) and a single search by an International Search Authority (ISA) reduced costs for filing. In fact, 87% of PCT applications go to one of the patent offices in the United States (USPTO), Europe (EPO) or Japan (JPO) [12].

## **2.2. Pharmaceutical R&D expenditures and patents**

In this book chapter, I investigate the relationship between R&D expenditures and patents in the pharmaceutical industry alone using panel data estimations. The differences between pat‐ ent applications to the EPO, USPTO and triadic families (EPO, USPTO and JPO) are compared for groups of countries. This research makes a contribution to the literature that explores R&D

**Figure 1.** (a) Pharmaceutical patents/total patents to triadic families (USPTO, EPO and JPO). (b) Pharmaceutical patents/

total patents to USPTO. (c) Pharmaceutical patents/total patents to EPO.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

OECD Countries Non-OECD Countries

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

OECD Countries Non-OECD Countries

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

OECD Countries Non-OECD Countries

0 0.05 0.1 0.15 0.2 0.25 0.3

(a)

28 Intellectual Property Rights

0

0

0.05

0.1

0.15

0.2

(c)

0.05

0.1

0.15

0.2

0.25

(b)

As mentioned earlier, the pharmaceutical industry has been and still is an industry that largely serves developed countries. The disproportionate location of R&D activity has been noted in the literature. In 2002, an overwhelming 82% of the world's R&D expenditures by global pharmaceutical companies occurred in the United States alone due the lack of price controls that enabled them to exploit market power [14] which was more difficult to do elsewhere, including Europe. By 2010, this figure was down to 57% [18] due to growing cross‐country

<sup>3</sup> As of June 2012, there are 38 contracting states to the EPC, also known as the members of the EPO. They are Albania, Austria, Belgium, Bulgaria, Croatia, Cyprus Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hun‐ gary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey and the United Kingdom).Bosnia and Herzegovina, and Montenegro are extension states to the EPC.

subsidiary‐headquarter relationships of these global companies that impacted the innovation and manufacturing locations. The U.S. dominance in R&D investments lasted for about a decade from 1995 until 2005 [16]. In recent years, in light of fiscal austerity, European coun‐ tries have faced increasing competition from emerging economies, such as Brazil, China and India [14, 16], who have proven to be important and a growing non-OECD research base for the pharmaceutical industry.

R&D expenditures, in general, only represent tiny fractions of the Gross Domestic Product for most countries. While the average R&D expenditures-to-Gross Domestic Product ratio of OECD countries reported in the World Bank's World Development Indicators (WDI) in 2013 is seemingly low at 2.4%, its "R&D intensity" as measured by R&D expenditures over total sales is the highest across 41 industries at 14.4% [16].

Pharmaceutical patents differ from other technology-based industrial patents as the formula is disclosed publicly in exchange for patent protection (Lehman, 2003). In other words, a new drug cannot be kept a secret until right before marketing of the product. Furthermore, because the patent equals the new product, which is relatively cheap to manufacture, patent protec‐ tion becomes the only way to receive exclusivity on the market to reap the returns from R&D. In the United States, to obtain approval by the FDA for a new drug, the pharmaceutical com‐ pany has to file a New Drug Application (NDA) to demonstrate safety and efficacy data from clinical trials [17]. On the other hand, to obtain approval for a generic drug, an Abbreviated New Drug Application (ANDA) is filed, which does not require clinical testing. Instead, the data from the NDA can be used. This additional layer of regulation makes it almost unlikely that a new drug can be developed without patents. No other industry operates in quite the same manner.

Furthermore, it has been argued that not all drugs being developed reach the patent phase as pharmaceutical companies periodically discard ones that are considered to be unpatentable [11]. Legally speaking, the "novelty and non-obvious" requirements of patenting challenge especially inventions in the pharmaceutical industry because patents are not granted if the ideas for the inventions are not new.

## **2.3. Previous research on the relationship between patents and R&D**

Economists have studied whether or not patents are successful in encouraging innovation in both theoretical and empirical research [12]. Among the empirical studies, both micro and macro approaches were taken. At the micro level, the relationship between R&D expenditures and patents was investigated for a cross section of firms. It t was found that the two were almost proportional across firm above a threshold size [2].

At the macro level, strong intellectual property rights positively impacted economic growth through R&D and physical capital accumulation [5] and R&D intensity [6] for a cross section of countries over time. While legal differences were found to be insignificant determinants of patenting to and from the UK [3], strong patent protection positively impacted patenting for a sample of OECD countries [4]. In a later analysis, stronger patent protection was found to attract foreign technology which led to further domestic innovation [7].

The role of international flows of R&D was recognized in more recent studies. Between 2002 and 2005, North America was the source of fifty percent of R&D Foreign Direct Investment (FDI), with destination R&D affiliates in developing countries such as China and India [9]. Among Japanese multinational firms, there was a high degree of substitutability of domestic and foreign R&D [19]. The sources of R&D expenditures (foreign or domestic) had differential impacts for domestic and foreign patenting [10].

## **3. Empirical estimation and data**

subsidiary‐headquarter relationships of these global companies that impacted the innovation and manufacturing locations. The U.S. dominance in R&D investments lasted for about a decade from 1995 until 2005 [16]. In recent years, in light of fiscal austerity, European coun‐ tries have faced increasing competition from emerging economies, such as Brazil, China and India [14, 16], who have proven to be important and a growing non-OECD research base for

R&D expenditures, in general, only represent tiny fractions of the Gross Domestic Product for most countries. While the average R&D expenditures-to-Gross Domestic Product ratio of OECD countries reported in the World Bank's World Development Indicators (WDI) in 2013 is seemingly low at 2.4%, its "R&D intensity" as measured by R&D expenditures over total

Pharmaceutical patents differ from other technology-based industrial patents as the formula is disclosed publicly in exchange for patent protection (Lehman, 2003). In other words, a new drug cannot be kept a secret until right before marketing of the product. Furthermore, because the patent equals the new product, which is relatively cheap to manufacture, patent protec‐ tion becomes the only way to receive exclusivity on the market to reap the returns from R&D. In the United States, to obtain approval by the FDA for a new drug, the pharmaceutical com‐ pany has to file a New Drug Application (NDA) to demonstrate safety and efficacy data from clinical trials [17]. On the other hand, to obtain approval for a generic drug, an Abbreviated New Drug Application (ANDA) is filed, which does not require clinical testing. Instead, the data from the NDA can be used. This additional layer of regulation makes it almost unlikely that a new drug can be developed without patents. No other industry operates in quite the

Furthermore, it has been argued that not all drugs being developed reach the patent phase as pharmaceutical companies periodically discard ones that are considered to be unpatentable [11]. Legally speaking, the "novelty and non-obvious" requirements of patenting challenge especially inventions in the pharmaceutical industry because patents are not granted if the

Economists have studied whether or not patents are successful in encouraging innovation in both theoretical and empirical research [12]. Among the empirical studies, both micro and macro approaches were taken. At the micro level, the relationship between R&D expenditures and patents was investigated for a cross section of firms. It t was found that the two were

At the macro level, strong intellectual property rights positively impacted economic growth through R&D and physical capital accumulation [5] and R&D intensity [6] for a cross section of countries over time. While legal differences were found to be insignificant determinants of patenting to and from the UK [3], strong patent protection positively impacted patenting for a sample of OECD countries [4]. In a later analysis, stronger patent protection was found to

**2.3. Previous research on the relationship between patents and R&D**

attract foreign technology which led to further domestic innovation [7].

almost proportional across firm above a threshold size [2].

the pharmaceutical industry.

30 Intellectual Property Rights

same manner.

ideas for the inventions are not new.

sales is the highest across 41 industries at 14.4% [16].

The relationship between patents and R&D with persistence, shown in Eq. (1), was intro‐ duced in the literature [20]:

$$P\_{\boldsymbol{\upbeta}} = k \left[ \boldsymbol{R}\_{\boldsymbol{\upbeta}} + (1 - \boldsymbol{\upbeta}) \boldsymbol{R}\_{\boldsymbol{\upbeta}-1}^{\boldsymbol{\upbeta}} + \dots \boldsymbol{\upmu}\_{\boldsymbol{\upbeta}} \right] + \boldsymbol{\varepsilon}\_{\boldsymbol{\upbeta}} \tag{1}$$

where *P*ijt denotes patents and *R*ijt denotes R&D expenditures, both, of j residents in location i at time t. *μ*ij denotes the time‐invariant heterogeneity (fixed-effect or random-effect). It is the country-specific propensity of resident j to patent in location i which takes into account differences in institutions, patent laws, geography and other characteristics which do not change over time. *ε*ijt is the idiosyncratic error term. R&D depreciates exponentially at the rate of *β*.

The empirical equation can be derived as a dynamic panel model shown in Eq. (2) as demon‐ strated elsewhere [10].

$$P\_{\parallel t} = \Theta\_i \pi\_i + \beta \ln R\_{\parallel t} + \gamma \left. P\_{\parallel t-1} + \mu\_{\parallel t} + \nu\_{\parallel t} \right. \tag{2}$$

The term *τ*<sup>t</sup> denotes the time effects and *ν*ijt denotes the new idiosyncratic error term. The lagged dependent variable, *P*ijt−1, on the right side of the equation violates one of the assump‐ tions of the traditional panel model. Equation (2) is best estimated using the Arellano-Bond general method of moments (GMM) model [21]. First differencing of variables will sweep out the heterogeneity, *μ*ij, and the model uses first-differenced time effects and lagged pat‐ ents as instruments. The choice of one lag is to simply reduce the number of potential instruments.

Pharmaceutical patent application data to EPO, USPTO and triadic families were collected for 100 countries of inventors' residence for every year (the priority date) from 1997 to 2012 using OECD's Patent Database. The data consisted of most developed countries and about half of non-OECD countries. These seemed to correspond to countries that had posi‐ tive patents in at least 1 year, as shown in the time‐averaged **Tables 1** and **2**. This did not pose potential issues as the pharmaceutical industry primarily deals with OECD coun‐ tries. Furthermore, the non-OECD countries of growing importance, China, Brazil and India, were included.

However, there were significant problems finding corresponding R&D data especially for the pharmaceutical industry for the same time period. this issue was documented for a pre‐ vious study on all industries aggregated at the national level [10]. OECD's Patent Database reported business enterprise R&D expenditure data4 by industry (ISIC rev.3.1 classification). It was more common to find aggregated R&D (all industries combined or for broader industry groups) than to find data on just the pharmaceutical industry. While these particular pharma‐ ceutical R&D data were potentially available for a longer period spanning 1987–2014, almost every country had missing data in numerous years which were often consecutive. The aver‐ age years of data for each country were too short to estimate a dynamic panel model with reliable instruments. Hence, I estimated a non-dynamic panel equation without the lagged patent variable, as shown in Eq. (3).

$$P\_{\psi} = \partial\_{\iota} \tau\_{\iota} + \beta \ln R\_{\psi} + \mu\_{\iota \flat} + \upsilon\_{\psi} \tag{3}$$

The assumption of *γ* = 0 from Eq. (2) implies that a past patent application does not impact a current patent application. This does not seem to be an unreasonable assumption in the pharmaceutical industry because generic drugs do not require patents. However, the larger problem of R&D data had to do with the fact that non-OECD countries were reduced to 3 countries even though OECD countries were reduced to 29 countries. In addition, these three countries were Singapore, Taiwan and Romania, not China, Brazil and India, which were all dropped due to missing pharmaceutical R&D data. While these would potentially impact the non-OECD country estimates, I proceeded anyway because they would repre‐ sent the lower bound of the estimates for non-OECD because the three omitted countries would have had larger effects than the three included.

Both patent and R&D data are divided by the population size (in millions) to control for country size and to state them in per capita terms [10]. Total population data from the World Development Indicators (WDI) were collected for all countries in all years, with the excep‐ tion of Taiwan. Taiwan's population data for all years were compiled from Penn World Tables. I estimated Eq. (3) for EPO patent applications, USPTO patent applications as well as the triad family applications (EPO, USPTO and JPO). Results are presented in the next section.

## **4. Results**

The results of EPO patent applications are presented for various groupings of the countries in **Table 3**. It should be noted that columns (3), (5) and (7) may be potentially larger if the three non-OECD countries of growing importance, China, Brazil and India, were to be included. Fixed-effect models are reported with the Hausman specification tests for reject‐ ing the random-effect models. The results do not show the expected "home advantage" of EPC countries,5 that the impact of R&D is the highest on EPO patent applications for this group of countries. Rather, the result is a surprising advantage of the non-EPC countries that filed patent applications to EPO. Because a panel regression cannot be run on just

<sup>4</sup> The total reported was supplemented with other government and national funds as well as funds from abroad. The funds from abroad were included to reflect the fact that R&D of foreign affiliates have become important in the multina‐ tional firms represented in the pharmaceutical industry.

<sup>5</sup> As mentioned earlier, all EPC and EPO memberships are the same


Notes: (1) Standard errors in parentheses below coefficients.

(2) Statistical significance at 1% (\*\*\*), 5% (\*\*) and 10% (\*).

reported business enterprise R&D expenditure data4

would have had larger effects than the three included.

As mentioned earlier, all EPC and EPO memberships are the same

tional firms represented in the pharmaceutical industry.

patent variable, as shown in Eq. (3).

32 Intellectual Property Rights

section.

**4. Results**

EPC countries,5

5

4

It was more common to find aggregated R&D (all industries combined or for broader industry groups) than to find data on just the pharmaceutical industry. While these particular pharma‐ ceutical R&D data were potentially available for a longer period spanning 1987–2014, almost every country had missing data in numerous years which were often consecutive. The aver‐ age years of data for each country were too short to estimate a dynamic panel model with reliable instruments. Hence, I estimated a non-dynamic panel equation without the lagged

 *Pijt* = *θ<sup>t</sup> τ<sup>t</sup>* + *β* ln *Rijt* + *μij* + *υijt* (3) The assumption of *γ* = 0 from Eq. (2) implies that a past patent application does not impact a current patent application. This does not seem to be an unreasonable assumption in the pharmaceutical industry because generic drugs do not require patents. However, the larger problem of R&D data had to do with the fact that non-OECD countries were reduced to 3 countries even though OECD countries were reduced to 29 countries. In addition, these three countries were Singapore, Taiwan and Romania, not China, Brazil and India, which were all dropped due to missing pharmaceutical R&D data. While these would potentially impact the non-OECD country estimates, I proceeded anyway because they would repre‐ sent the lower bound of the estimates for non-OECD because the three omitted countries

Both patent and R&D data are divided by the population size (in millions) to control for country size and to state them in per capita terms [10]. Total population data from the World Development Indicators (WDI) were collected for all countries in all years, with the excep‐ tion of Taiwan. Taiwan's population data for all years were compiled from Penn World Tables. I estimated Eq. (3) for EPO patent applications, USPTO patent applications as well as the triad family applications (EPO, USPTO and JPO). Results are presented in the next

The results of EPO patent applications are presented for various groupings of the countries in **Table 3**. It should be noted that columns (3), (5) and (7) may be potentially larger if the three non-OECD countries of growing importance, China, Brazil and India, were to be included. Fixed-effect models are reported with the Hausman specification tests for reject‐ ing the random-effect models. The results do not show the expected "home advantage" of

group of countries. Rather, the result is a surprising advantage of the non-EPC countries that filed patent applications to EPO. Because a panel regression cannot be run on just

The total reported was supplemented with other government and national funds as well as funds from abroad. The funds from abroad were included to reflect the fact that R&D of foreign affiliates have become important in the multina‐

that the impact of R&D is the highest on EPO patent applications for this

by industry (ISIC rev.3.1 classification).

**Table 3.** Regression results for EPO patent applications.

the United States, the differences between columns (4) and (6) and between columns (5) and (7) are used to demonstrate the effect of including/excluding United States and Japan. Since there are only three non-OECD countries in column (3), it is difficult to discern if the non-significance of the slope is simply due to a small cross section of countries represented or not.

The results of USPTO patent applications for the same grouping of countries are pre‐ sented in **Table 4**. The results in columns (5) and (7) show a "home country advantage," this time, for the United States. Compared to the same columns in the previous table, the returns to R&D for USPTO patent applications are more than double those for EPO applications. Interestingly, the even columns, which present more robust results from having most OECD countries, are the columns that show no effect of R&D on patenting with USPTO.

The results of triadic family patent applications are presented for the same grouping of countries in **Table 5**. As suggested by the smaller number of this type of application for every country in **Tables 1** and **2**, the effects are statistically insignificant, except for columns (5) and (7). The results

<sup>6</sup> Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of Korea, Mexico, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States, Romania, Singapore, Taiwan.


Notes: (1) Standard errors in parentheses below coefficients.

(2) Statistical significance at 1% (\*\*\*), 5% (\*\*) and 10% (\*).

**Table 4.** Regression results for USPTO patent applications.


Notes: (1) Standard errors in parentheses below coefficients.

(2) Statistical significance at 1% (\*\*\*), 5% (\*\*) and 10% (\*).

**Table 5.** Regression results for triadic family patent applications.

are comparable to those in **Table 4** pointing to the importance of countries other than the United States, Japan and European countries.

While not reported, to demonstrate robustness of the results in the pharmaceutical industry, I ran comparable regressions for the aggregate of all industries. The effects of total R&D on total patents followed the same pattern as the results in **Tables 3** to **5** except the effects were almost always larger. This suggests that the returns to pharmaceutical R&D on pharmaceuti‐ cal patents are not as lucrative as the returns to R&D in all other industries. This may stem from having additional hurdles in the form of clinical trials or from having companies drop potentially unpatentable drugs during the development phase.

## **5. Conclusions**

This chapter investigated the returns to R&D for patenting applications to EPO, USPTO and the triadic family (EPO, USPTO and JPO) in the pharmaceutical industry. The lack of industry- specific R&D data hampered the results of this study in the form of having inad‐ equate number of non-OECD countries. However, it is noteworthy that pharmaceutical R&D has no impact on USPTO, EPO and triadic family applications, coming from European (EPC) countries. The 6 non-European countries (Australia, South Korea, Mexico, Romania, Singapore and Taiwan) always showed positive and statistically significant results. This was unexpected because the three countries of growing importance (China, Brazil and India) were dropped from the analyses due to missing pharmaceutical R&D data. It is hypothesized that the inclusion of these three countries would have made the impact even stronger. The addi‐ tion of the United States and Japan always made these coefficients larger. With better data availability in the future, this will be important for studying how much non-OECD countries are impacting the pharmaceutical industry. Other implications are that perhaps, the returns to R&D on patenting in pharmaceuticals will have much stronger effects on specific drugs for chronic diseases such as cancer and heart disease which will likely generate larger revenues. Future research may rely on micro firm-level data.

## **Author details**

**All countries OECD** 

Notes: (1) Standard errors in parentheses below coefficients. (2) Statistical significance at 1% (\*\*\*), 5% (\*\*) and 10% (\*).

**Table 4.** Regression results for USPTO patent applications.

(0.33)

(5.72)

)

Notes: (1) Standard errors in parentheses below coefficients. (2) Statistical significance at 1% (\*\*\*), 5% (\*\*) and 10% (\*).

**Table 5.** Regression results for triadic family patent applications.

ln(R&D) 0.44

**(1)**

(0.97)

(16.72)

ln(R&D) 1.92\*\*

34 Intellectual Property Rights

Constant −25.49

Number of observations

Number of countries

Average number of years

Hausman specification test (χ<sup>2</sup> )

**All countries**

**(2) OECD countries**

1.93 (1.26)

−26.80 (21.64) **(3) Non‐OECD countries**

0.67 (0.62)

−7.57 (9.21) **(4)**

1.08 (1.22)

−12.05 (21.04)

210 180 30 152 58 141 69

32 29 3 26 6 24 8

6.6 6.2 10.0 5.8 9.7 5.9 8.6

10.35 7.18 2.04 13.13 2.89 20.52\*\* 7.80

**EPC countries, US and Japan**

**(5) Non‐EPC countries, US and Japan**

3.86\*\* (1.97)

−57.08 (33.09) **(6) EPC countries**

1.11 (1.26)

−11.56 (21.62) **(7) Non‐EPC countries**

4.11\*\* (1.79)

−62.89 (30.32)

Constant −4.02

Number observations

years

Hausman specification test (χ<sup>2</sup>

Average number of

**countries**

0.25 (0.44)

−0.65 (7.85) **Non‐OECD countries**

Year controls Yes Yes Yes Yes Yes Yes Yes Overall R2 0.35 0.35 0.53 0.28 0.46 0.28 0.34

> 0.45 (0.50)

> −6.36 (8.33)

Number of countries 32 29 3 26 6 24 8

Year controls Yes Yes Yes Yes Yes Yes Yes Overall R2 0.31 0.20 0.45 0.03 0.49 0.02 0.46

**EPC countries, US and Japan**

0.01 (0.44)

3.02 (7.68)

215 184 31 155 60 143 72

6.7 6.3 10.3 6.0 10.0 6.0 9.0

5.72 7.89 6.11\*\* 0.11 0.20 4.10 3.31\*

**Non‐EPC countries, US and Japan**

1.41\*\*\* (0.53)

−18.73 (8.18)

**EPC countries**

0.07 (0.45)

3.52 (7.84) **Non‐EPC countries**

1.65\*\*\* (0.49)

−22.67 (7.76)

#### Risa Kumazawa

Address all correspondence to: kumazawar@duq.edu Duquesne University, Pittsburgh, Pennsylvania, USA

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**Section 2**
