Chapter 6: Industry, Technology, and the Global Marketplace

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 allow the inventor to exclude others from making, using, or selling the invention. Inventors obtain patents from government-authorized agencies for inventions judged to be new, useful, and not obvious.

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

Despite these limitations, patent data provide useful indicators of technical change and serve as a way to measure inventive output over time.[18] 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.[19] (See sidebar, "New Database May Help to Identify Important Inventions.")

U.S. Patenting

More than 166,000 patents were issued in the United States in 2001, 5 percent more than in 2000. This record number extends a period of nearly uninterrupted growth that began in the late 1980s. Since then, growth in U.S. patenting has been steady, but slower[20] (figure 6-19

and appendix table 6-10

Patents Granted to U.S. Inventors

Some observers have at times expressed concern that any downward trend in the number of patents issued to U.S. inventors could indicate a decline in U.S. inventiveness. However, the share of total U.S. patents granted to U.S. inventors has been fairly stable over the years, fluctuating within a very narrow range (52–56 percent). A small decline during the mid-1980s rebounded by the end of the decade as patenting by U.S. inventors increased and outpaced patenting by foreign inventors. Since peaking at 56 percent in 1996, the share of U.S. patents granted to and held by U.S. resident inventors has declined slightly. In 2001, U.S. inventors were awarded nearly 88,000 new patents, or about 53 percent of the total patents granted by the United States. The increase in U.S. patents granted to foreigners may simply reflect the attractiveness of the U.S. market for new products and the growing capacity for global technological innovation.

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. Therefore, examining patent data by the owner's sector of employment can provide a good picture of a sector's inventive work. Corporations owned 82 percent of patents granted to U.S. entities (including other U.S. organizations, the Federal Government, and independent U.S. resident inventors) in 2001.[21] This percentage has gradually increased over time. From 1987 to 1997, corporate-owned patents accounted for between 77 and 79 percent of total U.S.-owned patents. Since 1997, corporations have generally increased their share of total patents, rising to 80 percent in 1999, 81 percent in 2000, and 82 percent in 2001.

Individuals (independent inventors) are the second-largest group of U.S. patent owners. Before 1988, individuals owned, on average, 23 percent of all patents granted to U.S. entities.[22] This figure has trended downward since then, to a low of 17 percent in 2001. The Federal Government's share of patents averaged 3 percent from 1963 to 1987, eventually falling to 1.1 percent in 1999.[23] Its share remained at about 1 percent in 2000 and 2001.[24]

Patents Granted to Foreign Inventors

Patents issued to foreign inventors represented 47 percent of all patents granted by the United States in 2001, a share that has increased slightly since 1999.[25] During much of the 1980s, growth in the number of patents issued to non-U.S. entities outpaced growth in the number of patents granted to U.S. inventors. This trend peaked in 1987 and 1988, when patents granted to foreign inventors accounted for 48 percent of all U.S. patents. (See sidebar, "Top Patenting Corporations.") From 1990 until 1996, however, the trend reversed: U.S. inventor patenting activity increased at a faster pace than did foreign inventors', which dropped the foreign share of all patents to 44 percent. Over that time, Japan and Germany accounted for about 56 percent of all U.S. patents granted to foreign inventors. The top four countries (Japan, Germany, France, and the United Kingdom) accounted for about 72 percent of U.S. patents awarded to foreign residents since 1963 (figure 6-20

Although patenting by inventors from leading industrialized countries has leveled off or declined in recent years, some Asian economies, particularly Taiwan and South Korea, have stepped up their patenting activity in the United States and are proving to be strong inventors of new technologies.[26] Between 1963 (the year data first became available) and 1987, Taiwan received just 1,293 U.S. patents. During the 14-year period since then, Taiwan was awarded nearly 29,000 U.S. patents. U.S. patenting activity among inventors from South Korea shows a similar growth pattern. Before 1987, South Korea received just 343 U.S. patents; since that time, South Korea has been awarded more than 21,000 new patents. The latest data indicate that Taiwan has moved ahead of France and the United Kingdom to become the third most active residence of foreign inventors who obtain patents in the United States. In 2000 and 2001, the top five countries receiving patents from the United States were Japan, Germany, Taiwan, France, and the United Kingdom.

Trends in Applications for U.S. Patents

The review process leading up to the official grant of a new patent takes approximately 2 years, on average. Consequently, examining year-to-year trends in the number of patents granted does not always show the most recent changes in patenting activity. The number of patent applications filed with the U.S. PTO are 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 326,500 in 2001, about 10 percent more than in 2000. Applications rose by a similar percentage in 2000. These latest data add to what has been nearly a decade of annual increases (figure 6-21

and appendix table 6-11

Patent applications from U.S. residents made up 56 percent of all applications in 2000, a share maintained since 1997. In 2001, this share declined slightly, to 54 percent. Because patents granted to foreign inventors generally accounted for about 45–47 percent of total U.S. patents granted, the success rate for foreign applications appears to be about the same or slightly higher than that of U.S. inventor applications.[27]

Over time, residents of Japan have received more patents than residents of any other country. They accounted for 40–48 percent of U.S. patent applications made by foreign residents, more than twice that of Germany, which had the next most active group of applicants. Japan's share slipped only in the late 1990s, falling to a decade low of 40 percent in 1999. Since then, its share has increased. The German share has generally exhibited a downward trend, falling from a high of 16 percent in 1989 to about 13 percent in 2000 and 2001.

Although patent filings by inventors from the leading industrialized countries leveled off or began to decline, other countries, particularly Asian countries, stepped up their patenting activity in the United States. This is especially true for Taiwan and South Korea, and data on recent patent applications indicate that the rising trend in U.S. patents granted to residents of these two Asian economies is likely to continue. Since 1997, residents of Taiwan and South Korea distinguished themselves in the number of applications submitted, applying for enough patents to replace France and Canada in the top five foreign sources seeking U.S. patents. Residents of Taiwan moved further up the list, to third, in 1998, and in 1999 applied for more than 9,000 new patents. This was an increase of 27 percent from the previous year and 2,400 more applications than were made by residents from the fourth-ranked United Kingdom. U.S. patent applications by Taiwanese inventors dropped by about 4 percent in 2000 but resumed double-digit growth in 2001. If recent patents granted to residents of Taiwan are indicative of the technologies awaiting review, many of these applications will be for new computer and electronic inventions. After slowing somewhat in 1999, U.S. patent applications from South Korean inventors picked up, increasing by 13 percent in 2000 and 18 percent in 2001 (figure 6-22

Equally impressive was growth in patent applications by inventors from Israel, India, Finland, Belgium, and China. Data show dramatic increases over the past several years and provide yet another indication of the ever-widening community of nations active in global technology development and diffusion.

Technical Fields Favored by Foreign Inventors

A country's inventors and the distribution of its patents by technical area is a reliable indicator of both the country's technological strengths and its focus on product development. Patent activity in the United States by inventors from foreign countries can be used to identify a country's technological strengths as well as U.S. product markets likely to see increased competition. This 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.[28]

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

Although U.S. patent activity encompasses a wide spectrum of technology and new product areas, corporate patenting patterns reflect activity in several technology areas that have already contributed much to the nation's economic growth. In 2001, for example, corporate patent activity indicated U.S. technological strengths in business methods, medical and surgical devices, electronics, telecommunication, and biotechnology (table 6-4

The 2001 data also show Japan's continued emphasis on photocopying, photography, 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 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 have traditionally maintained a strong presence. The 2001 U.S. patent activity index shows that Germany emphasizes inventions for motor vehicles, printing, switches, and material-handling equipment.

In addition to inventions for traditional manufacturing applications, British patent activity is high in aeronautics, biotechnology, and chemistry (appendix table 6-12

). Like the British, the French are quite active in patent classes associated with manufacturing applications and aeronautics (appendix table 6-13

). They share the emphasis of U.S. and British inventors in biotechnology.

As recently as 1980, Taiwan's U.S. patent activity was concentrated in the area of toys and other amusement devices. By the 1990s, Taiwan was active in communication technology, semiconductor manufacturing processes, and internal combustion engines. Data from 2001 show that Taiwan's inventors also became active in other areas, adding electrical systems, semiconductors, and computer hardware technologies to their technology portfolio.

U.S. patenting by South Korean inventors also reflects that country's rapid technological development. The 2001 data show that South Korean inventors are currently patenting heavily in television technologies and a broad array of computer technologies that include devices for dynamic and static information storage, data generation and conversion, error detection, and display systems (table 6-5

Patent Activity Outside the United States

In most countries, nonresident (foreign) inventors account for a much larger share of total patent activity than is true in the United States.[29] When foreign patent activity in the United States is compared with that in nine other countries, only Japan and Russia consistently showed lower activity levels (figure 6-23

and appendix table 6-14

). Data from the patent offices in Brazil, Italy, and the United Kingdom all show that about 80 percent of patents granted in those countries go to nonresident inventors.[30] Even higher levels of nonresident patenting occur in Canada and Mexico (more than 90 percent in 1999 and 2000). Although much attention is given to the level of nonresident patent activity in the United States, it has remained fairly stable over the past 10 years, accounting for about 44–47 percent of all U.S. patents issued.

Data from the World Intellectual Property Organization (WIPO), which includes patent data from most patent-granting countries, show the global reach of U.S., Japanese, and German inventors who patent their inventions in other countries. In 1999 and 2000, U.S. inventors made up the largest group of foreign inventors seeking patents in the countries neighboring the United States and in major markets in Asia, Europe, and Latin America. U.S. inventors also received more patents than other nonresident inventors in Japan, India, Brazil, Mexico, France, Germany, Italy, and the United Kingdom (figure 6-24

). Japanese-resident inventors, who consistently account for the largest percentage of U.S. patents granted to nonresident inventors, also patent successfully in other parts of the world. In addition to their success patenting in the United States, Japanese-resident inventors lead all foreign inventors patenting in China and South Korea, and they follow only U.S. inventors in the United Kingdom and Canada. Germany, whose inventors also have a long tradition of patenting new inventions in the United States, actively patent in India, Japan, Brazil, Mexico, and other large European markets.

These data underscore the importance that corporations and other owners of new technologies—through seeking to protect their intellectual property—place on national patent systems. They also show the extent to which both advanced and developing nations depend on the diffusion of new technologies from around the world.

Footnotes

[18] For a survey of literature related to this point, see Z. Griliches. Patent statistics as economic indicators: A survey. Journal of Economic Literature 28 (December): 1661–707.

[19] It should also be noted that there is concern that patents and other forms of exclusive ownership of intellectual property may discourage research into, communication about, and diffusion of new technologies. The question arises whether, in some cases, the extension of intellectual property rights has gone too far. To provide answers and guide intellectual property right (IPR) policy over the next decade and beyond, the Science, Technology and Economic Policy Board (STEP) of the National Research Council (NRC) has undertaken a project to review the purposes of the IPR legal framework and assess how well those purposes are being served. The board will identify whether there are current or emerging problems of inadequate or over-protection of IPRs that need attention and will commission research on some of these topics. The report is due out later in 2003.

[20] The number of U.S. patents granted jumped by 32 percent 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.

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

[22] Before 1988, data are provided as a total for the period 1963–87. In U.S. PTO statistical reports, the ownership category breakout is independent of the breakout by country of origin.

[23] Federal inventors frequently obtain a statutory invention registration (SIR) rather than a patent. SIR is not ordinarily subject to examination and is less costly to obtain than a patent. Also, SIR gives the holder the right to use the invention but does not prevent others from selling or using it.

[24] 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 duty of 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.

[25] Corporations account for about 86 percent of all foreign-owned U.S. patents.

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

[27] This may not be surprising because the additional expenses associated with applying for a patent in a foreign market will likely discourage weak foreign applications.

[28] Information in this section is based on U.S. PTO's 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 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. Because U.S. patenting data reflect a much larger share of patenting by individuals without corporate or government affiliation than do data on foreign patenting, only patents granted to corporations are used to construct the U.S. patenting activity indices.

[29] Patents granted for an invention in one country do not offer any protection under another country's intellectual property laws.

[30] This discussion is based on data from the World Intellectual Property Organization in Geneva, Switzerland, which includes patenting data from most patent granting countries. These data were compiled by Mogee Research & Analysis, LLC.