18th jun, 2011

Innovation barriers by regulation design

Last week I was discussing the gloomy patent numbers in the basic utilities area with a major water utility company in Denmark. I was wondering why patents in basic utilities are stagnating. During our talk it became obvious that one major problem is that innovation in the area is prevented by regulation design. My colleague told me that in one recent case he had been discussing the possibility for patent application and commercialization of a new invention. They ended up leaving the invention alone and just use it internally because they couldn’t see that the company as a publicly owned company was allowed to make money from the invention or even recover investments in patent applications. So no incentive what so ever for the companies daily solving new problems in spreading their knowledge through commercialization.

This is a major barrier to innovation.

In the water sector in Denmark new regulations has been implemented recently (Vandsektorloven). This regulation tightly governs the public water companies’ possibilities in both types of activities and cost levels. The companies are allowed to get revenue from commercialization of research to a certain degree. However all the costs in developing their innovations or IP has to come out of the same pocket that has to pay for maintaining the services the company offer. For the companies that I know of using 200.000 DKK or more for a patent is not an option.

On the other hand the sector is expected to be the next big innovation adventure for Denmark. Ant it could be…if not for the barriers preventing this. This is a prime example of how regulation designed for one thing – regulating public water companies – actually hinder the same companies in fulfilling an ambition of another part of the lawmakers.

How to solve this? Let the investments in immaterial assets be excluded from ordinary costs. This would let the water companies invest in innovation and create partnerships with technical consultants. The results could be spin-off companies kick starting the sectors growth.

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