Internal Technology Development

NSF 95-309

Internal Technology Development

Asian Patenting Trends in the United States

Research and development activities serve as an incubator for new ideas that lead to new processes, products, and even industries. While not the only source of new innovations, R&D activities are associated with many of the important new ideas that have helped shape modern technology. Japanese society is widely recognized for the importance it places on education, especially education in technical fields. Similarly, Japanese industry is widely recognized for its large investments in applied research and development. Figures 1, 2, and 3 suggest that these characteristics might be attributed to several other Asian economies, as well.[10]

Figure 1

Figure 2

Figure 3

One of the important benefits derived from the Asian investments in both human and R&D capital is the development of new technical inventions that often lead to innovations - i.e., in new or improved products, and in more efficient manufacturing processes and services. One indicator of inventiveness is the patenting activities of a nation's inventors. A review of the literature shows patent data to be valuable indicators of technical change and inventive output (see Griliches 1990).

Domestic Patenting

Examining domestic patent activity provides the following information about a nation's technology development:

Patenting trends help identify countries that are loci of inventive activity;
Patent activity by resident inventors provides a measure of productivity for a nation's science and technology human resources; and
Patenting by foreign inventors highlights a nation's attractiveness as a market for new technologies.

Reported patent activity in seven Asian economies highlights the rapid technological growth that took place during the late 1980s. From 1985 to 1990, the number of patents granted within a seven-economy Asian region increased at nearly twice the rate as in the United States.[11] The number of patents granted in the Asian region increased by 44 percent during that period, rising from 65,000 new patents in 1985 to 93,000 in 1990. (See figure 4 and appendix table 3.) In comparison, 70,000 patents were granted in the United States in 1985, and 88,000 in 1990.[12] Patenting growth was especially rapid in China, South Korea, and Taiwan.

Figure 4

In 1990, nearly one-third more patents were granted to resident inventors in the Asian region than in 1985. This increase would be still greater if not for the more moderate increase recorded (19 percent) on the far larger number of Japanese patents. Domestic patenting by residents of the NIEs and EAEs alone doubled between 1985 and 1990.

These data also reveal that foreign inventors have been patenting in Asia at an even faster pace than the region's resident inventors.[13] Due to the greater difficulty and costs associated with gaining patent protection in a foreign country, this trend suggests _that foreign inventors see marketing opportunities in the region that justify the time and expense involved in patenting.

The numerical relationship between resident and foreign patenting also suggests a nation's openness to, need for, and dependence on foreign-developed science and technology. Within the region, the level of this foreign activity varies widely. Japan had the lowest percentage of patents awarded to foreign inventors (15 percent in 1990): nearly 6 patents were granted to resident inventors for every one awarded to a foreign inventor. Singapore and Hong Kong had the highest percentages of patents awarded to nonresident inventors - 99 percent and 98 percent, respectively. Taiwan is squarely in the middle of these two extremes, with 51 percent of its 1990 patents granted to foreigners. Taiwan's resident/nonresident patenting ratio is similar to that of the United States. (See figure 5.)

Figure 5

Laws Governing Intellectual Property Rights in Asia

Japan, Hong Kong, South Korea, and Taiwan have a complete system of laws for protecting intellectual property. Notwithstanding, South Korea and Taiwan have been watched by the Office of the U.S. Trade Representative (USTR) for uneven or inadequate enforcement of intellectual property rights (IPR) legislation. Elsewhere in the region, IPR laws tend to be either relatively new or simply not up to international standards, as the following illustrates (Office of the U.S. Trade Representative 1993).

Singapore. IPR legislation is new to Singapore: comprehensive copyright legislation was first enacted in 1987, and a new trademark law was enacted in 1991. Nevertheless, charges of pirated software and the manufacturing of "knock-off" watches and pharmaceuticals concern the USTR.
Indonesia. IPR laws have been recently enacted, but shortcomings in them have already been brought to the government's attention. Indonesia's first patent law came into effect in August 1991, providing for a relatively short term of protection (14 to16 years), and excluding several important technology areas from coverage such as biotechnology products and integrated circuits.
Malaysia. Before 1991, Malaysia's IPR laws were not up to international standards. At that time, Malaysia's laws were made to conform to international IPR accords and are now considered to provide one of the strongest IPR environments in the region.
China. China's IPR laws have been a concern in the international community for some time. The United States investigated numerous charges of inadequate IPR protection before reaching an agreement with China whereby China pledged to strengthen its patent law, enact trade-secret legislation, and otherwise adhere to international conventions.
India. India's IPR laws are also not consistent with international standards. IPRs are conferred only after striking a balance between the interests of the property owner and social interests as defined by the state. For example, India's Patent Act excludes from patent protection any new drugs, medicines, or foods prepared or produced by chemical processes. U.S.-invented drugs have thus been reproduced and distributed in India without regard to claims of U.S. ownership. Following a USTR review of India's IPR laws and practices, the United States suspended duty-free entry privileges on a portion of its trade with India.

Foreign Inventors Patenting in Asia

U.S. inventors are well-represented among the foreign inventors awarded patents in Asia. In 1990, U.S. inventors accounted for 44 percent of patents granted to foreign resident inventors in Japan ( see text table 1). This share represented twice as many as were granted to German inventors. U.S. inventros accounted for 37 percent of nonresident patens gratned in Hong Kong, and 35 percent in India. Japanese inventors demonstrated similiar patenting strength in several other Asian economies, notably South Korea and China.

Text Table 1

Asian Patenting Trends in the United States

Analysis of Asian inventiveness using patent activity in the individual economies is complicated by differences in patent laws and processes. These differences are eliminated by examining Asian patenting in a country located outside the region, such as the United States. Research has shown that the United States' patent system serves this purpose well: the United States is a large, wealthy country whose market dynamics tend to attract cutting-edge technologies from around the world.[14]

During the 1970s, the number of U.S. patents granted to Asian inventors nearly doubled; it tripled during the 1980s. Not surprisingly, given its economic position vis-a-vis the other economies in the Asian region, Japan represented about 95 percent of Asia's patent activity over these two decades. (See Figure 6 and appendix table 4.)

Figure 6

The most rapid growth in U.S. patenting among Asian inventors was recorded by those from Asia's newly industrialized economies. Paced by inventors from Taiwan and South Korea, NIE patenting in the United States quadrupled during the 1970s, and increased tenfold during the 1980s, with the most dramatic growth registered after 1987. The sharp rise in U.S. patenting by inventors from Taiwan and South Korea closely tracks the rapid growth in industrially funded R&D spending in those two countries. (See figure 3 and NSF 1993.)

Patenting in the United States by inventors from the emerging Asian economies was more erratic - declining during the seventies, and rising during the eighties and into the nineties. Chinese inventors led the EAEs in patents awarded after 1986, making particularly impressive strides during the last few years. Since 1988, inventors from China have obtained more U.S. patents than have inventors from Singapore and as many as inventors from Hong Kong.

In 1990, Asian inventors were awarded a large number of U.S. patents in the semiconductor field, fields associated with television and other telecommunication technologies, and several computer-related fields. Inventors from each of the Asian economies showed a tendency to patent in these fields; theavored other electronics-related technologies. (See appendix tables 5 to 11.) There is considerable consensus among experts in the United States that leadership in these kinds of facilitating technologies will play a role in future economic competitiveness.[15]

For analytic purposes, U.S. patents can be classified by industry sector, with each patent fractionally distributed according to the number of industry-related product fields to which it is pertinent.[16] Six commercially significant industries are examined here: computer hardware, industrial machinery, radio and television equipment, electronics, automobiles, and aircraft. (See appendix table 12.) Among these six industries, Japanese patenting in the United States grew fastest in computer-related technologies. NIE patenting grew fastest in electronics (led by South Korean inventors), as did EAE patenting, led by China.

10. See NSF (1993) for a more extensive analysis of human resource development and R&D investments in the Asian region.

11. These data are provided by the World Intellectual Property Organization (WIPO), Geneva, Switzerland; and the Taiwan Coordination Council for North American Affairs. Patenting activity data for Indonesia and Malaysia were excluded from this discussion since, during the period examined, they reported to WIPO only on the number of patent applications; even these data are suspect, however, given the inadequacy of laws covering IPR in those two countries before 1991 (see box).

12. U.S. patent data as reported by the World Intellectual Property Organization. Official data from the U.S. Patent and Trademark Office report nearly 72, 000 U.S. patents granted in 1985 and 90,000 in 1990.

13. During this period, growth in the United States in foreign-inventor patenting also exceeded that for resident inventors.

14. For a more extensive discussion of the value of examining foreign patenting in the United States, see Pavitt (1985).

15. See Competitiveness Policy Council (1993), National Critical Technologies Panel (1993), and Technology Administration (1990).

16. In this classification system, each patent class is associated with the Standard Industrial Classification (SIC) industry that would produce that class's product or apparatus or carry out its process steps. See OTAF (1985), p. 26.