But just how strong is the link between patent activity and innovation in an era of exponential technological progress?
Just comparing the absolute number of patents on a company-by-company basis is misleading, to say the least. For example, consider the number of patents that companies have received thus far in 2015. According to this metric, IBM and Samsung are far and away the most innovative companies in the world, with 3,059 and 3,052 patents, respectively. Google ranks number five, with 1,083 patents, just ahead of Microsoft (No. 7), with 1,037. Apple, typically considered one of the most innovative companies in the world, comes in at only No. 11, with 780 patents. Facebook doesn’t even crack the top 40.
Using patents as a gauge of how innovation varies between countries can also result in some head-scratching findings. For example, judged in terms of patents alone, the 2015 Bloomberg Innovation Index says the United States ranks No. 4 in the world in terms of innovation, trailing South Korea, Japan, and China. Behind the United States is Germany — an innovative country, to be sure, but probably not the first European country you think of when it comes to innovation. Shouldn’t a country from Scandinavia – generally considered to be one of the most innovative regions in the world — be in the top five?
Even applying a scaling factor — such as dividing patent applications by population to smooth out the impact of size — results in some apparent anomalies. For example, the OECD uses the concept of patent intensity (measuring patents as a percentage of every 10,000 residents of a specific metropolitan area), a statistic that can be used to calculate the world’s most innovative cities. In 2013, America’s most innovative cities were San Diego, San Francisco, Boston and Minneapolis. These cities tend to score well because they are home to the types of companies (technology, pharmaceutical and biotech) that are most likely to file patents to protect their innovations. But what about cities that are home to innovators and creative thinkers, but not necessarily companies that file a lot of patents?
A slightly more accurate way to measure the innovation impact of patents might be a factor such as patent citations. Instead of tallying up the number of patents on an absolute level, tracking the number of patent citations would appear to do a more precise job of valuing the innovative value of a patent: If a patent has been cited quite often by others, then it must have more value than one that has not. Think of heavily cited patents as the innovation world’s equivalent of the first page of Google search results – they’re what people see when they want to build on current innovation work in the field.
However, just because you have a lot of highly cited patents (and not just a bunch of junky, frivolous patents) doesn’t immediately mean that you can create valuable products from those patents. If you think about innovation as a process from first invention to final product, then patents only measure the front-end of that process — the actual invention — rather than the back-end of innovation: the launch of the commercialized product. If your research and development system is broken, you may be front-loading the system with a lot of patents, without very much to show for it.
Moreover, in the 21st century, technological change just happens too fast, eroding the value of patents once intended to last for years. Innovation life cycles are now measured in months, not years. Innovation is happening around business methods and processes as much as around specific products. As a result, simply stockpiling patents for the long haul doesn’t always work out as planned. By the time you try to use those patents, the market may have decisively shifted away from you.
And that raises a further, far more troubling question: Why exactly are we seeing so many companies focusing on stockpiling patents? The fact that IBM and Samsung have each received more than 3,000 patents in just the first five months of 2015 is rather startling. The naïve answer would be that we are living in a time of unrivaled technological innovation, in which companies are cranking out patents at a prodigious pace.
A more nuanced answer would be that patents have become a potential defensive tool against patent trolls — making the defensive acquisition of companies simply for their patents a viable strategy. In short, paying millions of dollars for patents may be cheaper than paying tens of millions of dollars in legal fees or other penalties.
And that’s the really disturbing feature of 21st century innovation — patent trolls are transforming the patent from a proud badge of innovative activity into something negative — a “tax on innovation.” And that tax adds to the cost of everyday products. According to one estimate, one half of the cost of producing a smartphone is used to pay patent royalties. One professor at Harvard Business School has even suggested that patents might be destructive, rather than creative, in terms of their ultimate economic impact.
That means patents might be a better proxy for how litigious American business has become rather than how innovative a specific company or industry has become. Within the tech sector alone, 90 percent of all tech patent cases involve patent trolls. In the broader U.S. economy, that figure is 68 percent. That’s an enormous amount of legal activity attempting to wring concessions from deep-pocketed tech companies, a massive drag on future economic growth.
So, if not patents, then what might be the best metric to measure innovation?
When Tim O’Reilly asked that same question five years ago, some of the responses were enlightening — there seemed to be a growing consensus that there should be a greater focus on assessing the “end user utility” of specific innovations, not on simply aggregating the number of patents or totaling up the amount spent on research and development. And such a measure would have to be robust enough to cover all types of innovations — not just patents from big conglomerates and pharmaceutical companies — but also the type of innovation found in the maker world, in the open source world, and in emerging new industries where small companies just don’t have “time, money or inclination to divert effort from innovation to patents.”
The reason why all this matters, of course, is because the subject of patent reform — a seemingly perennial topic — is once again on the radar of legislators and lobbyists in Washington. Instead of viewing patents as we once did — as a way to encourage inventiveness and innovation, we may be better suited to see them for what they have become: an economic drag and an attractive target for patent trolls, who see them as a way to exact tributes from deep-pocketed tech companies. Tesla has even gone so far as to open source its entire patent portfolio. Reforming the patent system, then, will require reforming the way we think about patents and the very nature of innovation.