Tracing the origins of new ventures in Ukraine’s intellectual property landscape
by Dr. Tetiana Kosten
As a technological latecomer, Ukraine's innovation tends to be more incremental than disruptive. Before the war, Ukraine had a small but vibrant tech sector, particularly in cybersecurity, agritech and fintech. While digital innovations have become increasingly noticeable, technological innovations founded on scientific discoveries or tangible engineering innovations remain largely untapped. Despite a strong legacy of highly skilled scientists and engineers the lack of private and public funding has hindered the translation of R&D into the country's startup economy. Intellectual property, including that created with public funds, is missing an enabling ecosystem for science-to-industry innovation transfer. As Europe leads the wave of deep tech innovations, Ukraine's EU accession will not only provide strategic guidance for reforms but also broadens access to resources to advance technological frontiers.
This report exploits several sources of data and employs empirical approaches to explore Intellectual Property Rights (IPR) activities in Ukraine before and during the war. To venture some hypotheses on future development, we adopt a more business-oriented viewpoint focusing on patents that present the highest economic and investment potential. We delve into the importance of a particular output for innovation – translation of technological inventions into new ventures, with the sole purpose of advancing Ukraine's economy in the coming decades.
IPR activity declined amid the war but surpasses many EU countries in absolute patent numbers
An invention is defined as a new technical solution to a technical problem. An invention patent is a set of exclusive rights granted for both methods and products that meet the standards of novelty, non-obviousness, and industrial applicability. A patent allows the holder to commercially exploit and profit from the invention on an exclusive basis for a term of up to 20 years. Often, inventions have no immediate economic significance, and their value begins to materialize when applied to a useful problem as a functional product.
The Ukrainian National Office for Intellectual Property and Innovations (UANIPIO), the National Intellectual Property Authority State Organization, reports a drop in the number of granted patents by a CAGR of 19% between 2020 and 20231 Fig 1. The absolute number of patent applications has dropped by only 3% and is primarily attributed to a 10% decline in applications from residents Fig 2. Before the war, the ratio between resident to non-resident patents was more balanced, similar to the patterns observed in middle- to high-income countries. In 2023, the share of resident patents decreased to 37%. Statistic for Q1 2024 shows no major signs of recovery in patent activity to the pre-war levels.
Utility models have traditionally been a more common legal instrument for protecting innovations in Ukraine, significantly exceeding patenting activity before the pandemic and the outbreak of war. Even so, registrations have dropped at a CAGR of -25% during the analyzed period, the absolute numbers remain high. Unlike patents that protect technologies with a relatively high degree of inventiveness, utility models protect inventions that involve small functional improvements or adaptations of existing products such as devices and tools, particularly in the mechanical, optical, and electronic fields. Utility model registrations do not require a substantive examination to establish novelty and offer protection for up to 10 years, valid exclusively in the local market.
The high number of utility models likely indicates that research often stops before a research result is mature enough to be the base for commercially-oriented innovation. Due to limited resources to conduct highly innovative R&D, utility models can still be beneficial for universities seeking to advance their technological capabilities. Acting as catalysts for enhanced innovation they played a role in the industrial development of in Germany, Japan, South Korea, and India during key phases of their economic growth.
Ukraine remains an important destination for non-residents seeking to expand the market for their inventions through patents
In 2023, 65% of all patents were filed by non-residents. Top three countries—the US, Switzerland, and Germany—reported only minor changes in filings, except for the UK, which saw a significant increase of approximately 26% since 2020 Fig 2. Several countries with fewer applications experienced notable increases in the number of filings, such as the Republic of Korea (43% CAGR, reaching 93 applications in 2023), Sweden (33% CAGR, 47 applications), and the Netherlands (10% CAGR, 52 applications).
Since there is no universal patent, the rationale for filing a patent in Ukraine is based on strategic and economic considerations, often involving a classic cost-benefit analysis. In relation to the benefits, patents not only prevent third parties from copying and manufacturing the invention but from commercializing and importing it. Firms typically seek patent protection in countries where they anticipate favourable returns on their investment. In today’s global market, a product may be designed in one country, manufactured in another or multiple locations, and commercialized worldwide. Ukraine, with its high population and dependence on import presents a sizable sales market. Not surprisingly, the chemistry sector - including pharmaceuticals - accounts for 55% of non-resident applications, driven by the high concentration of agriculture and evolving portfolios of local pharmaceutical companies.
Additionally, a local patent provides the patent holder with the opportunity to profit from transferring patented technology through licensing arrangements. However, the royalties achievable through licensing in Ukraine might currently be too low due to the country's limited manufacturing base. On the other hand, the costs associated with patenting remain moderate, and the risk of imitation is low due to insufficient industrial capability.
The National Innovation Strategy 2030 sets out vision for technology transfer to the commercial sector
In 2021, before the war, Ukraine granted more patents for inventions than many other EU countries. A high IP activity level was achieved through the inclusion of patent filings in the ranking and funding of public research institutions and evaluation of career progression of researchers2. When compared to its European peers, it is striking that, despite a reasonably solid foundation in IP, Ukraine lags behind in converting innovations into economic outcomes such as GDP growth Fig 3. This can be partly attributed to the fact that the number of granted patents may overstate their significance, as the majority might not hold real economic or technological value, and those with potential remain unexploited. While patent exploitation through start-ups and spin-offs is increasing, the government needs to enhance policy instruments to incentivize research commercialization.
It is instructive to note that, until recently, technology transfer was not a central element of the government's economic strategy. Multiple case studies highlight the opaque mechanisms through which technologies developed in academic institutions in Ukraine have been transferred through formal and informal commercialization agreements abroad. Only in 2019 did the Strategy of Innovative Development of the Economy of Ukraine 2030 outline policies in the field of innovation, which, among other initiatives, set in motion the creation of an institutional framework for establishing technology transfer offices. Capacity-building support is required to equip them with skills and processes for invention appraisal, IP evaluation, licensing and venture creation.
Without government influence and funds, the technology-based innovation may struggle to gain momentum after the war. The public expenditure on R&D has been falling since Russia's aggression in 2014, reaching 0.29% of GDP in 2021, compared to an EU average of 2.2%. The existing state funding mechanisms for development and commercialization provided through the National Research Fund and the Ukrainian Start-up Fund would benefit from increased transparency and enhanced accountability.
The prospects for advancing sustainable industrial development through biotechnology hinge on international technology transfer
Given our heritage field of life sciences and sustainable innovations, the deep dive into biotechnology is particularly compelling. Biotechnology is a diverse field dealing with application of biological systems or their substances to develop and create new medicine, chemicals, fuels, materials. In developed countries, biotechnology is a key asset to the economy in terms of overall added value, skilled jobs and investments. It holds huge potential to transform healthcare, agriculture and food production, and climate change.
Ukraine is often regarded as a country with abundant natural resources. However, the environmental and climate damage caused by Russian forces has been enormous. Transitioning to a bio-based economy could offer effective measures to conserve natural resources, restore biodiversity, and limit pollution. Ukraine’s commitment to carbon neutrality by 2060 will require the optimization of energy-intensive and environmentally harmful industrial processes, replacing them with more sustainable practices. Industrial biotechnology and its application in biomanufacturing can convert biomass, including agricultural residues, into alternative liquid or gaseous fuels and materials such as polymers, fibers, and specialty chemicals.
Traditionally, the pharmaceutical industry has had the deepest pockets in biotechnology, and local generic manufacturers apply biotechnological principles to a certain extent. Understanding the time and capital investment required, along with the challenges that need to be addressed in the Ukrainian context, the realization of full-cycle potential is likely a long-term prospect. In agriculture, incentivizing investments in biotechnology could add value to maize, wheat, barley, and sunflower production, or enable the expression of high-value alternative proteins, metabolites, and bioproducts. Since agricultural products do not require the lengthy development and review processes that pharmaceutical products must undergo, this provides a quicker pathway to market. Synchronizing Ukrainian and EU legislation and standards offers promising prospects for the sector.
Biotechnology ventures of all sizes rely heavily on IP rights. A strong patent portfolio is often essential for attracting investors and positioning a company for financial returns. In the business world, companies often launch based solely on proprietary know-how and without any patents, but this is more common outside of the biotechnology industry. Investors value the certainty that patents provide, as they minimize the risks posed by reverse engineering and offer companies the freedom to operate internationally minimizing litigation risk with respect to the IP of other businesses.
Over the past four years, the UANIPIO has received 4,048 patent applications in biotechnology and related fields, with only 15% coming from resident applicants. Given this level of patent activity, the prospects for becoming self-sufficient in developing biotechnology ventures are quite limited. Relying on international technology transfer could help narrow the technology gap and more effectively utilize the country’s natural and human resources.
Transforming technological inventions into much-needed economic growth
Ukraine is one of the largest countries in Eastern Europe. The gross domestic product reached an all-time high of $199.77 bn USD in 2021. However, its true economic potential has long been suppressed by poor governance, an informal sector of the economy, and post-Soviet corruption. In June 2024, the government-guaranteed debt reached an all-time high of $152 bn USD. The total cost of post-war recovery is estimated to be at least $486 bn USD. The EU projects the GDP will reach its pre-war level by 2030, assuming the war ends in 2024. The coming decades could indeed present significant challenges, particularly if economic marginalization persists.
Technology could be a powerful engine of change for economic recovery and growth. Three years into the war, Ukraine has become a global hub for innovations in defence and security. The country had to face existential challenges to realize that technologies can make a difference and start adopting them across various military sectors. Looking ahead, the military industry can provide a much-needed economic boost if the players adhere to international IP standards and fair competition laws.
Anticipating the economic avalanche, actions must be taken to nurture technological advancements in other frontier sectors to achieve a more robust growth rate. The reconstruction planning has set priorities for the energy, agri-food, critical raw materials, processing industry, and green transition. Although, there is a broad consensus to realize investment at scale to rebuild Ukraine, multiple investment mapping efforts so far struggle to generate quality investable projects ready to absorb significant capital. Investment opportunities typically arise from economic and entrepreneurial activities when new businesses are founded, restructured, spun-off and positioned for growth. Creation of technological SMEs was at a low and occasional level before the war and the situation since then deteriorated due to broader economic challenges facing the country.
The origins of new ventures can be found within Ukraine’s own innovation ecosystem, leveraging its strengths, such as human and knowledge capital. The analyses reveal that many patents granted to residents concentrate on the higher level category such as invention patent. In reality, not all of these patents hold real commercial value and appeal. High-quality due diligence should be applied to assess the risk and benefit profile of each patent to carefully prioritize investments in the most promising prospects. When a local technology pool is exhausted, or in R&D-intensive industries like biotechnology are not available, reliance on external sources of innovation becomes essential. In this context, if Ukraine is truly committed to transforming into a modern nation, it needs to establish a specialized agency to acquire technologies from foreign suppliers and create new business opportunities for local enterprises
While patents are undoubtedly important, they are not sufficient on their own to facilitate technology transfer. The most distinctive factor determining technology transfer success is technological capacity that influences how effectively the business can assimilate, master and apply technology. There is an intense technological activity involved even in importing and adapting existing technologies. Similarly important is an environment for innovation, which includes specialized physical infrastructure, shared platforms with related equipment. Establishment of technology parks and clusters could serve as a strong activation of the ecosystem. Startups need go beyond infrastructure to such issues as technical expertise, business expertise, market access. One central objective is to mobilize partnerships with the international community tapping into a broader regional business ecosystem to enable the expertise and technology inflow into Ukraine. The EU accession gives preferential market access and calls for a more expansive use of quality practices throughout business.
The economic case for technology transfer is strong, but public and private funding is weak. Capital markets have since the outsourcing boom optimised to finance software companies and tend to avoid science-based technologies and their perceived risks and long lead-times. New venture capital mechanisms should be established to pool and deploy capital for the development of technologies or the adaptation of imported ones. Even if institutional investors are willing to invest in Ukraine, they will demand transparency on funds allocation, seeking investment managers with strong governance mechanisms, established competence, and personal legitimacy. Historically, weak rule of law and insufficient protections for investors have increasingly deterred investors from viewing Ukraine as a viable place to do business.
Even for highly developed countries in Europe, translation of publicly funded research into commercialization is a major bottleneck in the innovation system. Ukraine faces more complex and, to some extent unique barriers. The transition from a nation with limited technological capabilities to one with innovation-driven economy depends on the translation of its own research into business. This looks like a tough proposition but is one that the technological transformation depends on. Otherwise, there is a risk of creating an ecosystem that fails to reach its potential, undermining the value of public investment in education and R&D, and exacerbating brain drain and the flow of technologies abroad.
References
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