How Good Are Patents as Innovation Indicators?

December 1, 2022

Patents can be a good indicator of innovation.

While there are advantages to seeing patents as an indicator of an innovative company, the sum of a patent portfolio can be an incorrect way to understand a company's innovative strength for a variety of reasons. While useful metrics in some industries (such as chemicals and pharmaceuticals), they do not provide a broad enough assessment of future business processes or unconventional strategies in less product-oriented industries such as retail.

In recent years, innovations have emerged in various industries, especially in the field of technology. A key indicator of technological innovation is intellectual property (IP), an umbrella term for patents, copyrights and other creative expressions. Research examines stronger links between patents, innovation and economic growth. The relationship between patents and economic growth is based on the rationale that stronger patent rights positively impact innovation through cost-saving technologies and the development of new products, thereby promoting economic growth (Kanwar and Evenson 2003; Hudson and Minea 2013) . However, research in this area is not always consistent. Park and Ginarte (1997) used the patent rights index developed by Ginarte and Park (1997) for 60 countries to examine the relationship between patent rights, economic growth, and R&D spending. While they found a positive relationship between strong patent rights and R&D spending in high-income OECD countries, they found no correlation in low-income countries. They also found no link between patent rights and economic growth. On the other hand, Hudson and Minea (2013) found that patent rights and per capita GDP have a positive impact on economic growth. Park (2003) analyzed data from 18 manufacturing industries in 21 OECD countries between 1980 and 1995 and found a positive relationship between patents and labor productivity and R&D spending. However, for a larger sample of countries, they found that R&D spending increased with patents but not labor productivity. In an analysis of 32 countries between 1981 and 1990, Kanwar and Evenson (2003) found a positive relationship between patent rights and R&D intensity (the ratio of R&D spending to GDP). Kimmet people. (2008) found that patent rights in developed countries are associated with higher R&D intensity. As a result, studies are diverse and full of conflicting results, suggesting the need for further analysis and discovery.

"How do patents encourage innovation?" is the question of many people. Proponents often say that patents encourage innovation that benefits society as a whole. Because patents give inventors more incentive to achieve technological and process engineering advancements.

Patents can be an indicator of a company's technology leadership.

While the composition of names may be sticky from year to year, technology shifts and generational issues can be tracked through long-term trends in patent leadership. For example, the top 10 patent manufacturers in 1990 included 6 industries. Consumer discretionary was the best performing sector with 3 names, IBM being the only tech company. Fast forward to 2017: The top 6 patent producers are all tech stocks. More specifically, they are all leaders in the smartphone, cloud computing, and/or internet services industries, which have seen explosive adoption and rapid growth over the past decade. These companies spend considerable resources protecting their intellectual property through patenting activities and cementing their positions as industry leaders.

Generally speaking, companies can expect to increase their technology revenue by an average of 50% by holding patents. Healthcare companies can increase sales by 60%, while electronics companies can achieve up to 40% sales growth by holding patents.

This staying power is evident from the top companies throughout the period. The graph below shows the change in ranking of the top10 companies with the highest annual patent grants in 1990. Of these top companies, two remained in the top 10 in 2017, and half remained in the top 20(6 if a merger was considered The Dow Chemical Company). and DuPont). IBM is particularly notable because it was the largest patent producer in the United States for 22 of 28 years.

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