A globally interconnected innovation system
Innovation is increasingly global and cumulative across many leading technology fields. Value creation depends on tightly connected technological systems rather than stand-alone inventions. Telecommunications, digital platforms and advanced manufacturing are prominent examples. Products rely on multiple interlocking technologies, and firms often coordinate through technical standards and by licensing and trading bundles of IP.
Standard essential patents illustrate this dynamic. When a patented technology becomes embedded in an industry standard, it can become a critical input for a wide range of innovators. Many firms may need access to that technology to develop, produce and market their products.
In such settings, the economic challenge is not simply to protect inventions. It is to ensure that rights are calibrated to support coordination, licensing and diffusion across complex value chains.
Domestic reform and international spillovers
New research for IP Australia highlights both the importance and limits of domestic patent calibration.1 The study examined the impact of Australia’s Raising the Bar legislative reforms. These reforms narrowed the scope of patent protection available in Australia.2 Researchers at Motu Economic and Public Policy Research in New Zealand and EPFL (the Swiss Federal Institute of Technology) have examined the economic impacts. Based on their findings, the reforms increased technological competition and innovation building on patents granted in Australia. These responses were observed even beyond Australia’s borders – Australia’s domestic reforms appear to have had a moderate but discernible effect on technological trajectories outside Australia.
However, the effects were not uniform across technology areas.
Responses varied across technology types
Modular technologies: stronger follow-on effects
The effects were strongest for technologies that are more modular – where inventions generate value largely on their own.
Pharmaceuticals provide a clear example. Improvements often centre on discrete molecules or formulations that generate value independently of other inventions. In these settings, narrower and clearer patent scope can sharpen competitive incentives and stimulate follow-on innovation, because returns are closely tied to control over individual inventions.
Complex and interdependent technologies: more muted responses
In contrast, in more complex technology fields – where commercial value depends on multiple interdependent technologies – measured effects were smaller.
Mobile communications including smartphones are a clear example. For these technologies, innovation depends on coordination across complementary technologies (for example, wireless transmission and standards, semiconductors, operating systems and software). The value of any single improvement depends on compatibility within this broader stack. As a result, returns are distributed across multiple contributors, limiting the extent to which any one patent can capture value. Narrowing patent scope therefore has a weaker effect on follow-on innovation, as incentives are shaped less by exclusion over discrete inventions and more by participating in coordinated systems.
Implications for middle-power economies
Two implications follow.
First, patent policy cannot be viewed solely as a domestic lever. In globally connected industries, reforms can influence innovation dynamics beyond national borders.
Second, alignment matters in complex technologies. No single jurisdiction fully determines outcomes where innovation depends on standards, cross-licensing and global coordination. In such environments, consistency in patent system design helps shape investment incentives, competition dynamics and technological progress.
Together, this evidence reinforces a central theme: a well-calibrated IP system does more than protect rights. It operates as part of the economic infrastructure supporting innovation, diffusion and competitive dynamism in a highly interconnected global economy.
International cooperation and market access
Firms often need to protect inventions across multiple markets. The speed, predictability and consistency of IP examination outcomes can materially affect commercial decisions. Differences in patent standards, examination practices and timing across jurisdictions can increase uncertainty for businesses – delaying investment, complicating collaboration and raising the cost of bringing new technologies to market. International cooperation can reduce these frictions by improving alignment and information flow within the IP system.
For Australia, this has informed new approaches to cooperation with trusted international partners. Recent initiatives include a 2-year pilot program recognising the European Patent Office (EPO) as an International Searching Authority and International Preliminary Examining Authority, and a new ongoing mutual recognition arrangement with the Intellectual Property Office of Singapore (IPOS). In practice, these arrangements will give applicants an option to access international search and examination services from the EPO and IPOS (as well as the existing option of the Korean Ministry of IP) before patenting in Australia or other jurisdictions. For businesses, these arrangements are intended to deliver practical benefits.
- Early and high-quality information. Access to international search and examination from regional offices can provide early insight into the likely scope, strength and risks associated with an invention, supporting commercial and investment decisions.
- Reduced duplication and cost. Using trusted international search and examination services can reduce the need for applicants to repeat similar examination steps across jurisdictions. This has the potential to lower legal, administrative and translation costs for firms pursuing multi-market protection, and open access to discounts and fast track options provided by the EPO.
- Improved speed to market in regulated and fast-moving sectors. In industries where timing matters – such as health, clean energy and advanced manufacturing – earlier clarity on patent position can support faster regulatory engagement, partnering and commercialisation.
These benefits are of particular use to firms operating in global value chains, where production activities occur across multiple countries. For these firms, patents are used not only to exclude competitors, but to support collaboration, licensing and investment discussions across borders.
- Read our case study on the emerging global value chain for battery circularity technologies.
- Visit our website to access our economic research papers.
Endnotes
- K Higham, E Richardson and G de Rassenfosse, ‘Patent Pendency and Follow-on Innovation’, IP Australia Economics Research Paper Series, forthcoming.
- T Kollmann, A Palangkaraya, A Sarwar, E Webster, C Anglim and M Falk, ‘Raising the Bar reforms: Measuring the impact on relative patent scope’, IP Australia Economics Research Paper Series 14, 2024.