State of Innovation

Patents and Innovation Economics

Foreigners Receive More Patents than U.S.!

For the first time in U.S. history more patents were issued to foreigners than U.S. residents, by the U.S. Patent and Trademark Office (USPTO).  According to the USPTO, foreigners received 80,271 patents while U.S. inventors received 77,501 in 2008.[1] Six of the top ten patenting companies in 2008 were foreign.

1 INTERNATIONAL BUSINESS MACHINES CORPORATION 4169
2 SAMSUNG ELECTRONICS CO., LTD. 3502
3 CANON KABUSHIKI KAISHA 2107
4 MICROSOFT CORPORATION 2026
5 INTEL CORPORATION 1772
6 TOSHIBA CORPORATION 1575
7 FUJITSU LIMITED 1475
8 MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. 1469
9 SONY CORPORATION 1461
10 HEWLETT-PACKARD DEVELOPMENT COMPANY, L.P. 1422

What does this say about innovation in the U.S.?  Perhaps this just means that foreigners are becoming more innovative and catching up with the U.S.?  Unfortunately, this is not true.  As the chart below shows the number of patents issued to U.S. inventors has essentially been flat since 1998.

90-pat

Some people might point out that even though the number of patents has not increased, the number of patent applications by U.S. inventors has increased from 2000-2007.  These people would argue that this shows the U.S. is continuing to innovate.  This argument fails for a number of reasons.  First, the number of patents filed by U.S. inventors declined in 2008.  Second, investing in research and development and filing patent applications without ever receiving a patent is like a contractor building a house without receiving title to the house.  The contractor may have created some value, but since he has not profited from his effort he cannot justify continuing this business.  This situation has been exacerbated by the new policy of publishing patent applications in the U.S., even if they never receive patent protection.  Before 2000, an inventor could decide to keep their invention a trade secret if the USPTO denied them a patent and therefore capitalize on their R&D that way.[2] This avenue is now closed.  Numerous other changes have also weakened our patent system.  For more information see Intellectual Property Socialism.

Interestingly, U.S. median household income has been stagnant since 1998 as has the number of patents issued to U.S. inventors.

medhouseincome

While the median income chart only extends to 2006, according to Niall Ferguson as of 2008 it is still no higher than in 1998.[3]

Surely, you are not suggesting that the reason for the stagnation of median income and the economy are due to the stagnant number of patents?  How do you know that the cause for the stagnation in the number of patents is not the result of the poor economic performance?  While I am not suggesting an exact one-to-one correspondence, yes, these phenomena are linked.  Based on modern economics we know lack of innovation is the cause of the economic and per capita income stagnation.  Robert Solow won the Noble Prize in economics for showing that the major determinant for increased productivity is innovation.  This demonstrates that the cause is lack of innovation and the result is economic and income stagnation.  For more information see: Is Innovation the Key to Growing the U.S. Economy.

Is there any historical precedence for a stagnating number of patents correlating with a weak U.S. economy?  Yes, the economic weakness of the 1970s correlates with a stagnate period in the number of patent issued to U.S. inventors.

70spat

As you can see in the chart above, the number of patents were essentially stagnate from 1963 to 1985.  The increase in the number of patents from 1963 to 1966 was associated with a strong economy.  Starting around 1971, the number of patents start to consistently decline.  This period of time correlates with a weak U.S. economy.  A big reason for the declining number of patents was a FTC’s (Federal Trade Commission) antitrust attack on patents.  In 1975, the FTC forced Xerox to license its entire patent portfolio to all comers for a measly 1.5% royalty.  Xerox’s market share of plain paper copiers went from almost 100% to 14% in four years.  Xerox lost most of its market share to Japanese companies.  This was not an isolated incident.  According to the book The Invisible Edge (see Chapter 8), the FTC and DOJ brought more than 100 antitrust cases against companies because their patent portfolio gave them a competitive edge.  They forced U.S. companies’ to give away the technology associated with over 50,000 patents.  This had a chilling effect on patents and R&D.  Note that one of the prongs of Reagan’s economic program was to strengthen U.S. patent laws.

The present patent reform proposals are all designed to weaken our patent laws by reducing damage awards, by changing our patent laws from a first-to-invent to a first-to-file, and by forcing all patent applications to be published within 18 months of being filed.  The change in how damages are calculated favor technology thieves at the expense of technology creators.  The publication and first-to-file rules favor large corporations at the expense of start-up companies and individual inventors.  The publication rule makes it easier for foreign companies to steal our technology.

We must strengthen our patent laws to encourage innovation, if we want to create real sustainable jobs, increase per capita income, and jumpstart our economy.

Press release


[1] Patent origin is determined by the residence of the first-named inventor, see http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#by_geog.

 

[2] An applicant can ask that their patent application not be published, but this comes with other restrictions.  As a result, most U.S. inventors allow their patent applications to be published.

[3] http://finance.yahoo.com/tech-ticker?start=21 (10/25/09)

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October 26, 2009 - Posted by | Patents | , , , , , ,

5 Comments »

  1. […] The number of patents grew steadily from 1991 to 1998.  Since 2004 the number of patents issued to Colorado inventors has declined significantly.  This trend is fairly consistent with the national trends.  For More information on national trends click here. […]

    Pingback by Colorado Patent Statistics « State of Innovation | October 26, 2009 | Reply

  2. […] to emasculate patents.  For more information on the link between patents and economic growth see Foreigners Receive More Patents than US.  In this decade the approach has been more subtle and includes the absurdly low patent allowance […]

    Pingback by Bilski Case Reveals Supremes Ignorance « State of Innovation | November 10, 2009 | Reply

  3. […] In the 1970s, antitrust was used to force U.S. companies to give away the technology of over 50,000 patents directly and frighten companies into not enforcing their patents.  A MITI substantiates that most Japanese companies took advantage of this traitorous policy by the U.S. government to catch up with U.S. companies technologically.  For more information on this disastrous social tinkering by the U.S. government see Jobs, the Economy and Patents. The data from the U.S. patent office also shows that the economy falters when the number of patents issued to U.S.  inventors declines or stagnates.  For more information see Foreigners Receive More Patents Than U.S. Inventors. […]

    Pingback by Levine & Boldrin Argue the U.S. Should End the Patent System « State of Innovation | December 9, 2009 | Reply

  4. […] The bigger problem in the US is the dearth of patents being issued to US based inventors.  The number of patents issued to foreigners from the US Patent Office, exceeded the number of patents issued to US inventors in 2008.  The number of patents issued to US inventors has not increased since 1998.  Not coincidentally, the median household income in the US has not increased since 1998.  The last time the US attempted to emasculate the patent system was in the 1970s, which lead to worst decade economically since the great depression.  For more information see Foreigners Receive More Patents Than US. […]

    Pingback by Patent Reform Propoganda « State of Innovation | September 17, 2010 | Reply

  5. […] The empirical evidence does not support the suggestion by the Professor that patents inhibit the diffusion of inventions and technology.  Those countries with the strongest patent rights also have the greatest technology diffusion.  A major goal of modern patent systems is to spread the information associated with inventions, so that other inventors can build on the work of previous inventors.  There is also no empirical evidence for the idea that inventions would occur without property rights for inventions.  Those countries without strong patent systems do not produce inventions.  The suggestion that, in a free market system, inventions will just occur is at best speculation and the evidence we have shows the opposite.  When the US has weakened its patent system, our innovation has suffered as well as our economy.  For instance, in the 1970s we weakened our patent system and the US started to technologically fall behind Japan.  For more information see Foreigners Receive More Patents Than US! […]

    Pingback by Failing of Free Market Theory « State of Innovation | November 12, 2010 | Reply


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