Chapter 6: Industry, Technology, and the Global Marketplace

Patented Inventions

Inventions are of great economic importance to a nation because they often result in new or improved products, more efficient manufacturing processes, or entirely new industries. To foster inventiveness, nations assign property rights to inventors in the form of patents. These rights allow the inventor to exclude others from making, using, or selling the invention for a limited period of time. Inventors obtain patents from government-authorized agencies for inventions judged to be new, useful, and not obvious.[29]

Although the U.S. Patent and Trademark Office (PTO) grants several types of patents, this discussion is limited to utility patents, commonly known as patents for inventions. They include any new, useful, or improved-on method, process, machine, device, manufactured item, or chemical compound.

Patenting indicators have several well-known drawbacks, including:

  • Incompleteness— many inventions are not patented at all, in part because laws in some countries already protect industrial trade secrets.

  • Inconsistency across industries and fields— the propensity to patent differs by industry and technology area.

  • Inconsistency in importance— the importance of patented inventions can vary considerably.

Despite these limitations, patent data provide useful indicators of technical change and serve as a way to measure inventive output over time. In addition, information about foreign inventors seeking U.S. patents enables the measurement of inventiveness in foreign countries and can serve as a leading indicator of new technological competition (see sidebar, "Comparison of Data Classification Systems Used" in the introduction to this chapter).

U.S. Patenting

Although a record number of patents (more than 169,000) were issued in the United States in 2003, the rate of growth in U.S. patenting has slowed since 2000[30] (figure 6-22 figure.; appendix table 6-12 Excel table.). Nonetheless, U.S. patents have enjoyed a period of nearly uninterrupted growth since the late 1980s.

Patents Granted to U.S. Inventors

The share of U.S. patents granted to U.S.-resident inventors has been fairly stable over the years, fluctuating within a narrow range (52%–56%). Since peaking at 56% in 1996, the share of U.S. patents granted to and held by U.S. resident inventors has declined slightly. In 2003, U.S. inventors were awarded nearly 88,000 new patents, or about 52% of the total patents granted in the United States. The increase in the share of U.S. patents granted to foreigners (from 44% in 1996 to 48% in 2003) reflects the growing global capacity for technological innovation in a broader array of countries as well as the openness of the U.S. market to new products.

Patents granted to U.S. inventors can be further analyzed by patent ownership at the time of the grant. Inventors who work for private companies or the federal government commonly assign ownership of their patents to their employers; self-employed or independent inventors typically retain ownership of their patents. The owner's sector of employment is thus a good indication of the sector in which the inventive work was done. In 2003, corporations owned 84% of patents granted to U.S. entities.[31] This percentage has risen rapidly since the late 1990s. From 1987 to 1997, corporate-owned patents accounted for 73%–78% of all U.S.-owned patents. Since 1997, corporations have increased this share to 80% in 1999, 82% in 2001, and 84% in 2003.

Individuals (independent inventors) are the second-largest group of U.S. patent owners. Before 1990, individuals owned, on average, 24% of all patents granted to U.S. entities.[32] This figure has trended downward to a low of 12% in 2003. Government's share (whether U.S. federal or state or foreign government) of issued patents averaged 3% from 1963 to 1990 and has stayed around 1% since the mid-1990s.[33]

Patents Granted to Foreign Inventors

Patents issued to foreign inventors represented 48% of all patents granted by the United States in 2003. This share reflects a slight increase since 1999, but has changed little since 1990. In 2003, the top five countries receiving patents from the United States were Japan, Germany, Taiwan, South Korea, and France. (See sidebar "Top Patenting Corporations" for discussion of the top 10 corporations receiving U.S. patents.)[34] During the period examined (1990–2003), inventors from Japan and Germany consistently were awarded more U.S. patents than inventors from any other country. The share of U.S. patents granted to inventors from Japan fluctuated 20%–23% during the 14-year span examined, and the share granted to inventors from Germany fluctuated 6%–8%. In 2003, Japan's share was 21%, Germany's share was 7%, and France's share was 3%.

Although patenting by inventors from leading industrialized countries has leveled off or declined in recent years, two Asian economies, Taiwan and South Korea, have stepped up their patenting activity in the United States and are proving to be strong inventors of new technologies (figure 6-23 figure.; appendix table 6-12 Excel table.).[35] The latest data show Taiwan (in 2000) and South Korea (in 2003) ahead of France and the United Kingdom, ranking third and fourth as residences for foreign inventors that obtain U.S. patents. Only inventors from Japan and Germany receive more U.S. patents.

Between 1963 (the year data first became available) and 1990, Taiwan received just 2,341 U.S. patents. During the subsequent 13 years, inventors from Taiwan were awarded more than 38,000 U.S. patents. U.S. patenting activity by inventors from South Korea shows a similar growth pattern. Before 1990, South Korean inventors received just 599 U.S. patents; since then, they have been awarded nearly 29,000 new patents.

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Trends in Applications for U.S. Patents

The review process leading up to the official grant of a new patent takes an average of 2 years, therefore, examining year-to-year trends in the number of patents granted does not always show the most recent changes in patenting activity.[36] Consequently, the number of patent applications filed with the PTO is examined to obtain an earlier, albeit less certain, indication of changes to patterns of inventiveness.

Patent Applications From U.S. and Foreign Inventors

Applications for U.S. patents reached 342,400 in 2003, an increase of only 2.4% from 2002, similar to the increase in 2001. Still, these latest data add to what has been nearly a decade of annual increases (figure 6-24 figure.; appendix table 6-13 Excel table.).

Shares of patent applications from U.S. residents have fluctuated between 54%–56% of all applications since the mid-1990s; in 2002 and 2003, U.S. residents accounted for 55%. Because patents granted to foreign inventors generally accounted for about 44%–48% of total U.S. patents granted, the success rate for foreign applications appears to be about the same or slightly higher than that for U.S. inventor applications.[37]

Over time, residents of Japan have applied for more U.S. patents than residents of any other foreign country. Since 1990, they accounted for 39%–48% of yearly U.S. patent applications made by foreign residents, generally at least three times that of Germany, which had the next most active group of applicants (figure 6-25 figure.). Japan's share slipped in the late 1990s, falling to a decade low of 40% in 1999. Its share has hovered around 40% since then. The German share has generally exhibited a downward trend, falling from a high of 16% in 1989 to about 12% in 2003.

Although patent filings by inventors from the leading industrialized countries have leveled off or begun to decline, other countries, particularly Asian economies, have stepped up their patenting activity in the United States. This is especially true for Taiwan and South Korea, and data on recent patent applications suggest that the rising trend in U.S. patents granted to residents of these two Asian economies is likely to continue. Since 1997, Taiwan and South Korea replaced France and Canada in the top five foreign sources of inventors seeking U.S. patents. In 2003, Taiwan accounted for 9% of foreign sources of U.S. patent applications and South Korea for close to 7%. Canada and the United Kingdom accounted for 5% and France for 4%. If recent patents granted to residents of Taiwan and South Korea are indicative of the technologies awaiting review, many of these applications will prove to be for new computer and electronic inventions.

Also impressive is the growth in patent applications by inventors from Israel, Finland, India, and China. In 2003, inventors from Israel filed more than 2,500 U.S. patent applications, up from about 600 in 1990; inventors from Finland filed more than 1,900 U.S. patent applications, up from about 600 in 1990; inventors from India filed for nearly 1,200 U.S. patent applications, up from 58 in 1990; and inventors from China filed for 1,034 U.S. patent applications, up from 111 in 1990. These dramatic increases over the past several years provide yet another indication of the ever-widening community of nations active in global technology development and diffusion.

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Technical Fields Favored by Foreign Inventors

A country's inventors and the distribution of its patents by technical area is a reliable indicator of the country's technological strengths as well as its focus on product development. This analysis can also indicate which U.S. product markets are likely to see increased foreign competition. The following section discusses the key technical fields favored by U.S. resident inventors and inventors from the top five foreign countries obtaining patents in the United States.[38]

Fields Favored by U.S. and Leading Foreign Resident Inventors

Corporate patenting patterns reflect activity in several technology areas that have already greatly contributed to the nation's economic growth. In 2003, for example, corporate patent activity indicated U.S. technological strengths in business methods, computer hardware and software, medical and surgical devices, and biotechnology (table 6-5 table.).

The 2003 data also show Japan's continued emphasis on photography, photocopying, and office electronics technology, as well as its broad range of U.S. patents in communication technology. From improved information storage technology for computers to wave transmission systems, Japanese inventors have earned many U.S. patents in areas that aid in the processing, storage, and transmission of information.

German inventors continue to develop new products and processes in areas associated with heavy manufacturing, a field in which they traditionally have maintained a strong presence. The 2003 U.S. patent activity index shows that Germany emphasizes inventions for printing, motor vehicles, metal forming, and material-handling equipment.

In addition to inventions for traditional manufacturing applications, British patent activity is high in oil-drilling technologies, biotechnology, communications, and chemistry (appendix table 6-14 Excel table.). Like German and British inventors, French inventors are quite active in patent classes associated with manufacturing applications; however, they also show added activity in aeronautics and automotive technologies (appendix table 6-15 Excel table.). They share U.S. and British inventors' emphasis on biotechnology.

As recently as 1980, Taiwan's U.S. patent activity was concentrated in the area of toys and other amusement devices. But by the 1990s, Taiwan was active in communication technology, semiconductor manufacturing processes, and internal combustion engines. Data from 2003 show that Taiwan's inventors also added semiconductors, semiconductor manufacturing devices, and electrical systems to their technology portfolio.

U.S. patenting by South Korean inventors also reflects that country's rapid technological development. The 2003 data show that South Korean inventors are currently patenting heavily in a broad array of computer technologies that include liquid crystal cells, devices for dynamic and static information storage, and television technologies (table 6-6 table.).

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Patents for Biotechnologies

When inventions result in new or improved products or processes, patent owners can reap economic benefits that, in turn, typically spill over to users and consumers. But inventions that lead to the creation of entire new industries have more profound impact on national economies and on international relations. Patented biotechnologies are an example of industry-creating inventions.

Shadowing the widely anticipated economic and medical benefits associated with this technology area is a great deal of controversy. Proponents argue that biotechnology patents are necessary to allow for commercial development of many new diagnostic and therapeutic products. Others voice concerns about the patenting of naturally occurring elements and more general concerns that giving companies monopoly rights in certain biotechnologies may hinder scientific progress (see sidebar "A Patent System for the 21st Century"). Ethical issues surrounding cloning for reproductive and therapeutic purposes are also part of the debate.

Despite these ongoing controversies, patent offices worldwide have issued thousands of patents for biotechnologies. This section examines recent trends in biotechnology patenting in the United States and Europe and identifies countries that are the source for most of the biotechnology patenting in these two major markets.

U.S. Patenting of Biotechnologies

U.S. patenting of biotechnologies accelerated during the 1990s, especially during the latter half of the decade (figure 6-26 figure.; appendix table 6-16 Excel table.). The effort to map the human genome certainly contributed to this trend, as evidenced by the surge in applications to patent human DNA sequences. Although the number of biotechnology patents has remained high since 2001, the trend has turned slightly negative.[39]

U.S. resident inventors accounted for more than 60% of all biotechnology patents issued by PTO. This share is about 10% higher than U.S. inventors hold when U.S. patents for all technologies are counted.[40] Given the ongoing controversies surrounding this technology area, foreign inventors may be less inclined than U.S. inventors to file biotechnology patents in the United States.

Foreign sources account for about 36% of all U.S. biotechnology patents. These patents are more evenly distributed among a somewhat broader number of countries than that for all technology areas combined. Another evident pattern is the more prominent representation of European countries in U.S. patents of biotechnologies and the smaller representation by Asian inventors (figure 6-27 figure.). Not only are Japan and Germany the leading foreign sources for U.S. patents overall, they are the leading foreign sources for U.S. patents granted for biotechnologies. Recently, however, Germany's share of U.S. biotechnology patents granted has been rising while Japan's share has been falling. In 2003, Germany was still the leading foreign source, accounting for 6.5% of U.S. biotechnology patents granted, up from around 4% in the late 1990s, while Japan's share was 6.4%, about half the share held by Japanese inventors in the early 1990s.

Like Germany, inventors from the United Kingdom, France, Canada, and the Netherlands also accounted for a larger share of U.S. patents granted in the biotechnology area compared with their shares of U.S. patents granted in all other technology areas. Conversely, inventors from Taiwan and South Korea are far less active in this technology area than for all technology areas combined.

Top Biotechnology Patenting Organizations

In the biotechnology area, universities, government agencies, and other nonprofit organizations are among the leading recipients of U.S. patents, although corporations are still awarded the most patents overall (table 6-7 table.; appendix tables 6-16 Excel table. and 6-17 Excel table.). The University of California system has been awarded the most patents; its total represents 1.6% of total patents granted in this technology area since 1977.[41] The U.S. Department of Health and Human Services was the second leading recipient with more than 1,000 U.S. biotechnology patents, accounting for about 1.1% of the total. Corporations, U.S.- and foreign-based, are well represented among the top 25 and include most of the large pharmaceutical companies and several companies closely identified with this field.

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Patenting of Valuable Inventions: Triadic Patent Families

One limitation of using patent counts as an indicator of national inventive activity is that such counts cannot differentiate between minor inventions and highly important inventions. A database developed through an international partnership of patent offices in the United States, Europe, and Japan provides a new tool for patent researchers that helps to address this problem.[42] This data set counts only those inventions for which patent protection is sought in three important markets: the United States, Europe, and Japan.[43] Each invention that satisfies this condition forms a triadic patent family.[44]

The high cost of filing for patents from three separate patent offices makes triadic patent families a more accurate measure of important inventions than simple patent counts, because generally only highly valuable inventions justify the costs (see sidebar "Identifying Valuable Inventions: A Comparison of Results When Using PTO, EPO, and PCT Patent Citations"). For example, application fees alone can exceed several thousand dollars, not counting related legal costs. The costs for an inventor to file for patent protection in his or her country of residence are significant. The costs to file in other countries are even greater.

Counts of triadic patent families, sorted by the inventor's residence for selected countries, are listed by priority year, i.e., the year of the first patent filing. The United States has been the leading producer of triadic patent families since 1989, even when compared with European inventors. Inventors residing in EU countries produced nearly as many triadic patented inventions as did inventors living in the United States since the late 1980s, and they produced more than the U.S. inventors from 1985 through 1988 (figure 6-28 figure.). Within the EU, Germany had more triadic patent inventors than the next three leading European countries: France, the United Kingdom, and the Netherlands. Inventors residing in Japan produced only slightly fewer triadic patents than inventors in the United States or the EU. Estimates for 2000 show U.S. inventors' share at 34%, EU's share at 31%, and Japan's share at 27%. However, given its much lower population, Japan's inventive productivity would easily exceed that of the United States or the EU if the number of inventions per capita were used as the basis for comparison.

When the data are examined by the patent applicant's or owner's country of residence rather than by the inventor's residence, the overall rankings for the United States, the EU, and Japan do not change, although the U.S. share increases, the EU share decreases, and Japan's share stays about the same (table 6-8 table.). The shift in shares between the United States and the EU is nearly identical; it appears that the percentage increase in the U.S. share comes almost completely from the EU. The difference in country shares when triadic patent families are sorted by the owner's residence as opposed to the inventor's residence suggests that U.S. companies (corporations own most triadic patent families) employ or otherwise purchase ownership of more European innovations than European firms employ or otherwise purchase ownership of U.S. innovations. Another explanation might be that U.S. companies' European operations are more R&D- or discovery-oriented than European operations in the United States. The near-constant shares for Japan tend to reinforce the image of Japanese firms as more insular, relying mostly on the discoveries of inventors residing in Japan.

Rankings change dramatically when national activity is normalized by population or by size of the economy as reflected in the GDP (figure 6-29 figure.). When data are normalized for size, smaller countries emerge, Switzerland and Finland in particular, and demonstrate high output of important inventions. Among the big three (the United States, the EU, and Japan), Japan clearly is the most productive when size is factored into the measurement.

Counts of triadic patent families also can be used to further examine patenting in biotechnology. During 1998 and 1999, which are the most recent 2 years for which complete data are available, the United States, the EU, and Japan together accounted for more than 90% of all biotechnology triadic patents, a percentage slightly lower than their share of all triadic patents formed during this period. Biotechnologies account for a larger share of the U.S. patent portfolio compared with the EU or Japan. Combining these 2 years, biotechnology patents accounted for 6.8% of total U.S. triadic patent families, 3.5% for the EU, and 1.5% for Japan (figure 6-30 figure.).

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[29] Rather than granting property rights to the inventor as is the practice in the United States and many other countries, some countries grant property rights to the applicant , which may be a corporation or other organization.

[30] The number of U.S. patents granted jumped by 32% from 1997 to 1998. Although patent applications had been rising before that, the PTO attributes much of the increase in 1998 to greater administrative efficiency and the hiring of additional patent examiners.

[31] U.S. universities and colleges owned about 1.9% of U.S. utility patents granted in 2001. The PTO counts these as being owned by corporations. For further discussion of academic patenting, see chapter 5.

[32] Before 1990, data are provided as a total for the period 1963–1980. In U.S. PTO statistical reports, the ownership category breakout is independent of the breakout by country of origin.

[33] The Bayh-Dole Act of 1980 (PL 96–517) permitted government grantees and contractors to retain title to inventions resulting from federally supported R&D and encouraged the licensing of such inventions to industry. The Stevenson-Wydler Technology Innovation Agreement of 1980 (PL 96–480) made the transfer of federally owned or originated technology to state and local governments and to the private sector a national policy and the mission of many government laboratories. The act was amended by the Federal Technology Transfer Act of 1986 (PL 99-502) to provide additional incentives for the transfer and commercialization of federally developed technologies. In April 1987, Executive Order 12591 ordered executive departments and agencies to encourage and facilitate collaborations among federal laboratories, state and local governments, universities, and the private sector, particularly small business, to aid technology transfer to the marketplace. In 1996, Congress strengthened private-sector rights to intellectual property resulting from these partnerships. See chapter 4 for a further discussion of technology transfer and other R&D collaborative activities.

[34] Although historically, U.S. patents awarded to all companies headquartered in Germany rank that country among the top five countries receiving U.S. patents, no single German company ranks among the top 10.

[35] Some of the decline in U.S. patenting by inventors from the leading industrialized nations may be due to movement toward European unification, which has encouraged wider patenting within Europe.

[36] As of September 30, 2004, the U.S. Patent and Trademark Office reports that average pendency is 27.6 months for utility, plant, and reissue patent applications. Applications for utility patents account for the overwhelming majority of these requests.

[37] The additional expenses associated with applying for a patent in a foreign market may discourage weak foreign applications.

[38] Information in this section is based on the U.S. PTO classification system, which divides patents into approximately 400 active classes. With this system, patent activity for U.S. and foreign inventors in recent years can be compared using an activity index. For any year, the activity index is the proportion of corporate patents in a particular class granted to inventors resident in a specific country divided by the proportion of all patents granted to inventors resident in that country. The activity indices are restricted to corporate patents to facilitate comparability between the United States and foreign countries because most U.S. patents granted to foreign inventors are filed by foreign corporations.

[39] Trends reported in this section include all patents (i.e., utility, design, and plant patents), although most are utility patents otherwise known as patents for inventions. According to a recent report issued by the U.S. Patent and Trademark Office, biotechnology patents can span eight patent classes and describe subject matter related to bioinformatics, gene therapy, cellular immunology, and recombinant enzymes and proteins to name a few. See U.S. Patent and Trademark Office Technology Profile Report. 2004. Patent examining technology center, groups 1630–1660, biotechnology. Office of Electronic Information Products.

[40] One seminal court decision opening the floodgate for biotechnology-related patents is the 1980 Supreme Court decision, Diamond v. Chakrabarty, which ruled that genetically engineered living organisms could be patented.

[41] Patent data cover years 1977–2003.

[42] The project is a collaboration among OECD, the National Science Foundation, the EU, the World Intellectual Property Organization, patent offices in the United States and Japan, and the European Patent Office. The database was developed by and is currently housed at OECD.

[43] Up until March 2001, only patents granted in the United States were published. Technically, the data set counts those inventions for which patent protection is sought in Europe and Japan and obtained in the United States.

[44] Although patents granted in one country do not offer any protection under another country's intellectual property laws.

National Science Board.