Number Of Companies Using The Patent System Is 'Surprisingly Small'

from the just-the-facts dept

Wed, Jun 4th 2014 3:05pm — Glyn Moody

One of the common mantras is that patents are indispensable, particularly for smaller companies, in order to prevent inventions being appropriated. If that is true, then presumably innovative companies are patenting like mad in order to protect their inventions. But is that really the case? Since the necessity of patents is so "obviously" true, like so many other dogmas in the area of intellectual monopolies, people rarely look at the data to see whether it is. However, there is some research in this area, such as this 2012 paper from the UK, which explored the extent of patenting by companies over the last decade or so (pdf). Here are the main results:

One of the most puzzling findings in the empirical analysis of firms' patenting behaviour is the low proportion of patenting firms in the population of registered companies. Our investigation of this phenomenon in the UK finds that only 1.6% of all registered firms in the UK patent and that even among those that are engaged in some broadly defined form of R&D, only around 4% have applied for a UK or European patent during our period of analysis (1998-2006).

Perhaps famously "inventive" high-technology sectors employ them more than traditional markets? Or maybe this is just a UK thing? Well, yes, but only to a certain extent: In our data, even in high-tech manufacturing sectors, which arguably produce the most patentable inventions, the share of patenting firms in the UK does not surpass 10% . Restricting the high-tech sector to R&D-doing firms that also innovate, the share of patenting firms increases only to 16%. Findings for the US are similar: Balasubramanian and Sivadasan (2011) find that only 5.5% of US manufacturing firms own a patent. Moreover, shares of patenting firms differ dramatically across sectors -- even within the manufacturing industry; for example in the UK, manufacturing of chemicals and chemical products has a share of around 10% of patenting firms whereas publishing and printing has a share of only around 1%. This suggests that (a) some firms do not automatically patent all of their patentable inventions, (b) some firms avoid the patent system altogether, either because of its cost or because patenting is perceived to yield no additional benefit, and (c) some innovations involve inventions that are not patentable.
The rest of the paper explores the data in detail, and seeks to come up with some explanations as to why patents are not used as a matter of course. As you might expect, there's no simple answer; instead, it seems to be due to a complex mix of factors. But what is not in doubt is the fact that companies making things -- that is, those who aren't patent trolls -- do not regard patents as indispensable as some proponents would have us believe.

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Filed Under: innovation, patents, r&d, studies, usage

28 Comments

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Reader Comments

The First Word

“

You have to be a big company

to game that system effectively.

—Anonymous Coward

”

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Anonymous Coward, 4 Jun 2014 @ 3:12pm

You have to be a big company
to game that system effectively.
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Anonymous Coward, 4 Jun 2014 @ 3:40pm

This should not be very surprising. Patents are expensive to get in terms of legal/filing fees and "lost" time (or opportunity costs).

Also patents are useless without the will and means to back them up. If you can't credibly employ the threat if litigation you can't enforce it. Small businesses do not have that sort of disposable cash to devote to litigation. Selling patents is also not as easy as making a product. Making a product you at least have control over-succeed or fail. Licensing is completely dependent on the will of others to play.
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That One Guy (profile), 4 Jun 2014 @ 3:51pm

Just as important:
How many companies filed for patents because they felt they needed to protect themselves from potential shakedowns by patent trolls, vs how many got them for their own sake?
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Anonymous Coward, 4 Jun 2014 @ 3:55pm

Makes sense. Patents are intended to benefit a small segment of the population and so only a small segment has them.
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Adam, 4 Jun 2014 @ 4:46pm

Patent Experience
Having consulted for a number of inventive companies in both the US and the UK, my own experience suggest that this is right on. Many more companies that I worked with thought they were better off with a trade secret than with a patent. Some were quite clear as they led me into spaces containing machines or processes of their invention that I was going to be held to my non-disclosure agreement after seeing how they had solved a particular patent. Over the course of a long career four of my inventions were patented by the companies for whom I had done the work but they were all large companies that rewarded patenting.

My father had 32 patents because the company he worked for believed in them (he didn't) but he collaborated with the process because only after a patent was granted was he permitted to write a paper about the research results (he was an organic chemist). To my knowledge none of them ever required litigation.

The one small company I know of that had a good solid patent had it infringed by a very large and prosperous company to which they were to supply their technology. In a law suit that dragged on for years and cost a fortune, they eventually lost in East Texas. Davids don't stand a chance against Goliaths.
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Adam, 4 Jun 2014 @ 4:49pm

Correction.
"had solved a particular patent" should read "had solved a particular problem".
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Anonymous Coward, 4 Jun 2014 @ 5:39pm

Re:
The other point that I didn't mention was that it is also a matter of timing.

A patent can take 3+ years to get granted, so a small business is investing now in hopes of reaping some reward in the (distant) future.

Most small businesses do not have that luxury. They are concerned with their financials in the next month, 2 months, maybe 6 months. It is rare to know with high certainty you'll be solvent in 3+ years down the road so making the investment is difficult.
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tanj, 4 Jun 2014 @ 5:57pm

Re: Correction.
No need to correct. The terms are synonymous.
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Whatever, 4 Jun 2014 @ 7:00pm

Odd
low proportion of patenting firms in the population of registered companies

This is the phrase that struck me, because it seems so blindly obvious here:

Not all companies are creators.

How many patents do you think your corner shop has? How many do you think the local trucking company has, the taxi company, or the guy running the shoe store in the mall?

The real question should be patents in regards to companies who create products, not all companies. Do you honestly think that even 10% of the registered companies are in fact creators of products and not just resellers, transporters, retailers, repackagers, importers, distributors, and the like?
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Lawrence D�Oliveiro, 4 Jun 2014 @ 8:01pm

Re: The real question should be patents in regards to companies who create products
So how many products has Intellectual Ventures actually created?
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Anonymous Coward, 4 Jun 2014 @ 8:07pm

Re: Odd
How many supermarkets do you think are IP-intensive?
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Whatever, 4 Jun 2014 @ 9:49pm

Re: Re: Odd
I know a trolling question when I see it, but I will answer you anyway.

Supermarkets are very IP intensive. Barcodes, nearfield scanners, the technology that runs the cash registers, tracks inventory, decides on shelf placement... it's pretty endless. There is a lot of technology at work to make a modern supermarket run and get you the goods fresh and at low prices.

It isn't that they sell technology, they are selling the benefits of technology. Think of it as TaaS, technology as a service.

That said, most supermarkets don't have much to patent themselves, they are mostly end users.
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Anonymous Coward, 4 Jun 2014 @ 10:26pm

Re: Odd
Your response shows no indication that you even read the article.
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Anonymous Coward, 4 Jun 2014 @ 10:39pm

Re: Re: Re: Odd
If the argument is that patents are not needed for technological advancement then the claim that supermarkets rely on patents because they use technology requires that you first prove that patents were necessary for the technological advancements they use. It is not enough to simply show they were involved in these advancements, you must provide evidence they were necessary.
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John Gross, 4 Jun 2014 @ 10:58pm

John
sorry, this is not very insightful or accurate as someone who actually practices in this field can tell you

you would no more file a patent in the UK than plant vegetables in sand on the beach - its extremely expensive, and doesn't result in very much for the effort. The judicial system there costs many multiples of ours to enforce, and, guess what, they have "loser pays" which means most small companies are dissuaded from ever enforcing their rights

if anything the UK experience proves once and for all that the "loser pays" suggestion for the US would do nothing more than make patents even less accessible to small companies - you know, like Whatsapp which just saw Apple "borrow" a bunch of features with impunity because they have zero protection from the rest of the world continuing to steal their ideas
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Anonymous Coward, 4 Jun 2014 @ 11:10pm

Re: Re: Re: Re: Odd
and I think this is another good criticism of the patent system. Technological advancement has happened and will continue to happen without patents. Since monopolies are known to cause economic harm, they are socially costly to enforce, they infringe on my natural rights, and no one is entitled to a monopoly then if IP is to exist it should only exist on technological advancements and creations that require them, if any. The burden of proof is on those that want IP laws to exist to prove their utility. It is not on anyone else to prove they aren't useful. Yet, even with the very few alleged good patents that IP holders try to present as examples of good patents here they have failed to prove that patents were needed for these advancements. If we can not reliably determine which technologies need patents and which don't then that's a criticism of the patent system and calls for patents to be abolished. The best argument that IP holders have been able to come up with is "but we are more technologically advanced now than the past". Of course, that's to be expected with or without patents. But prove that patents are necessary for various technological advancements.

We as a society have been giving IP extremists a free pass when it comes to proving this. So far there is plenty of evidence that patents harm technological advancement and little to no evidence that they help it. Yet the IP extremists on this very board often show themselves to be very dishonest and too lazy to even read the article before posting their nonsense. Perhaps it's time we take away the free pass we have given them. We should require them to provide hard evidence that patents are needed for various technological advancements and to provide reasonable criteria by which we can reliably determine which technological advancements should be granted patents and which ones shouldn't in order for those advancements to exist.
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andypandy, 5 Jun 2014 @ 1:16am

Re: Re: Re: Re: Re: Odd
If big business want to have huge cases they must pay for both sides lawyers and pay for all court fees. If an innovator cannot protect themselves after applying for a patent then the courts should, simple as that.
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That One Guy (profile), 5 Jun 2014 @ 3:48am

Re: John
...they have "loser pays" which means most small companies are dissuaded from ever enforcing their rights.

As opposed to the US, which doesn't have 'loser pays', and has an incredibly lucrative patent trolling 'business', where companies who produce nothing, but hold a bunch of patents due to buying them from every source they can find, send down shakedown notices to companies, knowing full well that a good number of them know that even if they don't believe they're infringing, it's still cheaper to settle than fight it out in court?

Oh yeah, the current US system is very friendly to small companies and start-ups. /s
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Anonymous Coward, 5 Jun 2014 @ 4:16am

Re: Re: John
If he's a patent lawyer of course he's going to have a selection bias in terms of whom he chooses to represent in patent cases. Just because he chooses small businesses that want to exploit their patents and so a higher percentage of those he represents may think patents are good (especially if they can get infringement money from big corporations) doesn't mean that (small) inventors and innovators as a whole need or want patents.

It's like invent help paying people for patents. Those people that are being paid are going to be disproportionately in favor of patents. Doesn't mean that inventors and innovators as a whole like patents but the ones that inventhelp 'helps' or represents or whatever are going to have a higher propensity to think patents are good.

So his anecdotal opinion and the anecdotal and potentially bias opinion of those he represents really means nothing.
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Andrew D. Todd, 5 Jun 2014 @ 6:06am

Grocery Stores Are Not Driven by Technology, to Whatever, #12
What actually generates competitive advantage for a grocery store is things like what kind of groceries it carries, especially perishable groceries, where one has to "use it or lose it." Perishable groceries have the poorest fit with computerized logistics, because the computer doesn't do a very good job of telling whether or not the groceries have "perished." The existing bar-code system cannot even perform the basic function of going through and pulling sell-by-date-expired items before the government health inspector finds them, and levies a fine. That's hand labor.

What a computerized logistic system does an especially good job of is keeping track of a hundred different kinds of sugar-frosted cereal, all identical in taste, but each with the image of a different cartoon character on the box. When IP industry promoters say that supermarkets are IP intensive, they are referring to the cartoon characters. The theory is that there are supposed to be all these intimate tie-ins with Hollywood. I think you would find in practice that the different kinds of sugar-frosted flakes tend to get caught in price wars. People don't go to one store or another store, because of which kind of sugar-frosted flakes the store has, with which cartoon character. Even if you take a child grocery-shopping, out-of-sight is out-of-mind at that age. This has nothing much to do with how successful grocery stores brand themselves.

There are choices and trade-offs, of course. For example, do you cater to someone who wants to resupply his pantry and refrigerator, or to someone who wants to buy a picnic basket instead of going to a restaurant for lunch? Do you cater to people who are essentially concerned with feeding themselves, or to people who want to show off their hospitality? How does the customer feel about eating something he never ate before? I know some traditional small family grocery stores which do very well without barcode scanners, because they have picked the right answers to the foregoing questions and designed their limited stock around them.

I walked into a Middle-Eastern grocery store, and instead of asking for a particular kind of cheese, I asked the proprietor if he had some cheese "with personality." He understood exactly what I meant, and sold me some Bulgarian sheep cheese, and something he called "Spanish Cheese," made by a firm in Dearborn, Michigan, labeled in Arabic, and tasting somewhere between Feta cheese and Monterey Jack, good to top a salad with. The store wasn't very big. The refrigerator section was the size of a closet. The dairy section consisted approximately of those two cheeses, plus some butter, yogurt, etc. But, again, Selection.
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Anonymous Coward, 5 Jun 2014 @ 6:11am

Re: Grocery Stores Are Not Driven by Technology, to Whatever, #12
I notice the 'Arabic' stores around here (I can walk in and talk to the cashier in Arabic no problem) have Spanish names and try to cater to the Hispanic market a lot more than the Arab market.
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Anonymous Coward, 5 Jun 2014 @ 6:16am

Re: Re: Grocery Stores Are Not Driven by Technology, to Whatever, #12
(in fact, I know a lot of Arabs who own mom and pop retail outlets and various stores and whatnot that have gotten quite fluent in Spanish and over the years I myself have gotten pretty fluent. I guess it's just a consequence of living in California).
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Anonymous Coward, 5 Jun 2014 @ 8:14am

Re: Re: Odd
It's "Whatever". He thinks that if you can't afford knowledge you shouldn't be allowed to be smart. He thinks everyone who wasn't the first to discover things like electromagnetism and aviation should have all paid millions to have things like working power and air transport, or go suck a dick.
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John Fenderson (profile), 5 Jun 2014 @ 8:24am

Re: John
Right, because the patent systems works so well for the little guy in the US. /sarc
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Andrew D. Todd, 5 Jun 2014 @ 8:39pm

Re: Grocery Stores Are Not Driven by Technology, to Whatever, #12
Parenthetically, the one area where grocery stores really are subject to transformative technological upgrading is food stamps, that is, SNAP/WIC. Instead of computing one number, price, a computerized system can keep track of twenty or thirty numbers, viz. calories, protein, the various vitamins and minerals, anti-oxidants, etc., and the government can insist that welfare recipients buy things which are good for them.

https://www.techdirt.com/articles/20110909/04304315878/dailydirt-faster-food-faster.shtml#c104
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Anonymous Coward, 6 Jun 2014 @ 6:10am

Re: Re: Grocery Stores Are Not Driven by Technology, to Whatever, #12
What ends up happening is they ask someone next to them what they want, they buy what the person next to them wants with the welfare stamps, and they have the person next to them buy them cigarettes or something in return.
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Anonymous Coward, 6 Jun 2014 @ 6:14am

Re: Re: Re: Grocery Stores Are Not Driven by Technology, to Whatever, #12
(or the person with the welfare stamps buys the person next to them or someone they know what they ask for with the stamps and asks that person to give them the money for what they bought so they can spend that money on whatever they want. Yep ... government programs in action).
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Andrew D. Todd, 7 Jun 2014 @ 9:13am

Re: Re: Re: Re: Grocery Stores Are Not Driven by Technology, to Whatever, #12
You are assuming that just about anyone is willing to engage in a black-market transaction with a near-stranger. The evolving bias of the SNAP/WIC system is to make poor people eat more lettuce, to force the underclass to eat more like the upper-middle class. In practice, I think you would find that people who eat more than their quota of lettuce are people whom it would not be terribly easy for a welfare recipient to approach, people who are simply not interested in making an extra five or ten dollars, because they deal in much larger sums. They tend not to live in the same places as welfare recipients, or to shop at the same stores. If some stranger comes up, and wants you, a nonsmoker, to buy cigarettes for him, do you really want to comply, bearing in mind that, due to the special identity-checking procedures for tobacco, the purchase will probably become known to your health insurance company?

The classic black-market transaction of this sort involved a teenager getting the town drunk to buy a bottle of whiskey for him. But that worked on the presupposition that the town drunk could buy all the booze he could pay for. The teenager had money, but not an adult ID card. If there was a Scandinavian-style alcohol rationing system, this would not work, because the drunk, having used up his quota, could not easily get more.
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