Patenting pays

Patent power

and software technologies benefiting Companies that sustain high annual from Moore’s Law. growth rates in patent applications • The convergence of technologies and the in comparison to their peers exhibit networking of products driving communication standards and huge greater long-term revenue and economic network effects. market share growth • The increasing output of engineers and scientists from top universities in India, By Vincent Pluvinage China and other countries, combined with accelerating broadband access to Technological innovations have been at the technical and scientific data with root of industrial competition and virtually no time delays and a marginal transformation for many years. During the cost close to zero. last decade, three trends in technology have increased competition between companies A natural consequence of this around the world: the greater movement of transformation is the increasing value of scientific and engineering talent between innovations and the apparent contradiction regions; almost instant and free access to between the need to drive fast adoption the latest technical information via across competitive boundaries while broadband internet; and the increasingly retaining the financial benefits required to global availability of investment capital to sustain and even increase future R&D fuel most stages of development and investments. commercialisation. Intellectual property rights have been an When companies invest in R&D, they integral part of this transformation. Trade typically seek to increase or protect their negotiations between countries have competitive advantage by filing patent strengthened IP rights in many developing applications. Small companies do this countries and provided the PCT process to principally to attract venture capital. Larger streamline the global filing of patent companies may use their patent portfolios applications. This has resulted in key and other types of intellectual property inventions being protected by families of assets in a variety of ways (Figure 1) to patents in a growing number of countries. increase the strategic and financial returns Standards organisations have provided on their R&D investments, as well as for various frameworks to define standard defensive purposes. essential patents, leading to interoperability While in the past the R&D function of products and services on a global basis, remained vertically integrated and was as well as cross-licensing between R&D treated as a proprietary internal resource, contributors. several factors have forced companies to Some companies and institutions have migrate towards a different R&D model. The been able to concentrate on R&D driving factors of this transformation investments rather than end-user product include: development, and have developed profitable • The rise of venture capital to fund investment models leveraging the adoption entrepreneurs. of their inventions. Other companies have • The ubiquity of digital semiconductors concentrated on creating brands, distribution www.iam-magazine.com Intellectual Asset Management July/August 2010 31 Patenting pays

Figure 1. Financial and strategic uses of IP assets

Cost reductions Expand IP & profits

Eliminate/avoid royalties Generate royalties/revenues

Financial returns Reduce/offset royalties Cross-licences

Assertion deterrence Joint ventures/standards IP Litigation avoidance Product differentiation

Strategic returns Litigation settlement Premium pricing

Injunction prevention Create/protect new markets

Legal protection Commercial competitiveness Defense Offense

Figure 2. Global TOP 1000 producers of US patents in 2006, 2007, and 2008

5,120 100 IBM 2,560 90 80 1,280 70 640 60 320

Chrysler 50 (%) 160 40 80 Silicon Graphics 30 Sandisk 40 20 Cisco 20 10

10 0 #1 100 200 300 400 500 600 700 800 900 #1000

Annual number of US patents granted (average for 06,07,08) Cumulative % of total for 06+07+08 Annual average during 96,97,98 and services, while acquiring smaller, alternate technologies based on other technology-focused companies to enhance inventions may wipe out the value of any their organic product development efforts. patent. In addition, enforcing patent rights Intellectual property assets can be may take many years of costly and often accumulated organically or inorganically to unpredictable litigation. Finally, it has been create competitive advantages. But building shown that only a small percentage of the a patent portfolio is not cheap. Aside from patents in almost any large portfolio are the R&D costs, protecting an invention in truly valuable. established or emerging markets requires a multi-year investment in translation, filing, Tracking filings and grants prosecution, patent issuance and Yet despite all this, the number of patent maintenance fees. As globalisation applications filed has increased steadily in increases, the number of countries in which the most developed countries, and has done key inventions must be protected and the so even more dramatically in the fastest- cost of proper geographical patent coverage developing economies. Given the expense multiplies. and risk, as well as the long period between Furthermore, the construction of patent filing and realisation of value, we postulated portfolios is a risky long-term investment: that the annual number of patent it will take many years for the patents to be applications and grants might provide clues granted and another few years to about a company’s global ambitions and its understand the market value of the future competitive position. Specifically, we inventions based on their actual market tracked these numbers over a long period of adoption. The discovery of previously time and across many countries and unknown prior art or the emergence of industries. For publicly traded companies,

32 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Figure 3. US and PCT filings by the Global TOP 1000 patent producers (based on their country headquarters)

25,000 US filings PCT applications 20,000

15,000

10,000

5,000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Rest of America BRIC Rest of world Rest of Asia Korea EU Japan US

PCT apps 97+98+99 US apps 97+98+99 PCT apps 05+06+07 US apps 05+06+07

EU JapanUS Rest of Asia Rest of world

we also obtained a series of financial metrics rankings among companies in specific derived from their published financial technology sectors. statements. These relational metrics provide more The number of patent applications or insights than the absolute numbers: patents granted is, of course, not necessarily companies and countries that sustain a an indication of the quality of a patent higher annual growth rate in patent portfolio. A number of prior studies have applications relative to their peers shown that, on average, start-up companies ultimately exhibit greater long-term often have very few patents, but of higher revenue and market share growth. By quality than the average patents found in contrast, companies that once dominated the much larger portfolios of well- their eco-systems and had large historical established corporations. Moreover, even in patent legacies, but which recently have had large portfolios of the most IP-savvy only modest or even no increase in companies, high-value assets may represent patenting activities, have typically only a single-digit percentage of the experienced less successful financial portfolio. In this study, we concentrated on performance. the largest patent producers, assuming that Although demonstrating a correlation their patenting activity is an indication of between the above variables does not prove a their level of investment in IP assets causal link, even a casual inspection of the (regardless of the eventual value of their data provides plenty of motivation for patents, which can be judged only many exploring further hypotheses and conducting years later). Additional data collection and more rigorous statistical analyses. analysis would be required to assess the differences in quality among these Methodology companies’ patent portfolios. The Global TOP 1000 Patent Producers In our analysis, we paid special attention were selected using simple, somewhat to the following: the rates of change over arbitrary criteria: the entities that were time of various patenting activities; the granted the greatest number of US patents ratios of patenting and financial metrics for in 2006, 2007 and 2008. These entities companies headquartered in different include publicly traded and privately held countries; and the shifts in relative patent companies, as well as universities and other www.iam-magazine.com Intellectual Asset Management July/August 2010 33 Patenting pays

Figure 4a. Average annual patent applications filed by the Global TOP 1000, ranked from 1 to 200

900

800

700

600

500

400

300

200

100

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 JP US EP PCT DE GB FR

Figure 4b. Average annual patent applications filed by the Global TOP 1000, ranked from 801 to 1,000

50 45 40 35 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 JP US EP PCT DE GB FR research institutions. Some large companies Kingdom (GB); Korea (KR); and China (CN), consist of groups of separate legal entities as well as the European Patent Office (EP) which are consolidated in a parent entity; and Patent Cooperation Treaty (PCT) and we counted all of the patent applications. The PCT process has provided Figure 5. Top 1000 PCT filings: increase applications or issued patents identifying as a way for companies to file a PCT patent over 10 years assignee an entity that includes the name of application first, reserving the right to the parent holding entity. proceed to the stage in a select 100,000 Japan We did not, however, perform an group of countries until later (within 18 extensive search for patent assets from all months), thus delaying some translation, France 10,000 possible subsidiaries. We also did not filing and prosecution costs while preserving South Korea attempt to track patents sold or purchased, the original priority date. We also obtained China and concentrated our analysis on the patent an aggregate count of all worldwide patent CCanada 1,000 assets that had been filed by and assigned publications across all jurisdictions. Singaporeing annually to entities from 1996 to 2008. In addition to patent-related India Thus, the patent counts and the ranking are information, we collected annual financial approximate, and do not fully take into information (from 1996 to 2008) for 100 account, for example, the effects of M&A publicly traded companies regarding annual and divestiture activities. sales, R&D expenditures, earnings before We counted the number of patent income tax (EBIT), debt, tangible and 10 applications filed based on their publication intangible assets on the balance sheet, and PCT applications filed in 06+07+08 year and the number of patents granted share prices. based on their issue year. We included a 1 number of jurisdictions: the US; Japan (JP); Global observations 1 10 100 1,000 10,000 100,000 Germany (DE); France (FR); the United The average annual patents issued during PCT applications filed in 96+97+98

34 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Figure 6. Patent applications filed by top 5 companies in each country/region

Number of applications 2006-2008 Ratio: 06+07+08/96+97+98

US filings US filings 100 1,000,000 100,000 FR filings 10 JP filings FR filings 10,000 JP filings 1,000 1 100 10 0 1

GB filings CN filings GB filings CN filings

DE filings KR filings DE filings KR filings

India China Korea India China Korea

Number of applications 2006-2008 Ratio: 06+07+08/96+97+988

US filings US filings 100 1,000,000 100,000 FR filings 10,000 JP filings FR filings 10 JP filings 1,000 100 1 10 1 0

GB filings CN filings GB filings CN filings

DE filings KR filings DE filings KR filings

US Japan Europe US Japan Europe

2006, 2007 and 2008 to the Global TOP two interesting observations can be noted 1000 is depicted by the blue curve on in Figure 3: a huge increase in US Figure 2. The distribution is highly skewed applications published between 2001 and towards the top 5%, which produced about 2005, followed by a decrease in the last few 47% of the total annual average of over years; and a steady and strong annual 112,000 patents granted to the TOP 1000. increase in PCT application filed during the Thus, the left vertical axis is logarithmic last 12 years. (base 2), indicating over 3,000 US patents In total, the TOP 1000 produced 60% of issued annually to IBM and and the total number of US patent granted fewer than 20 US patents issued annually to between 2006 and 2008, and 44% of the the bottom 45 companies in the ranking. total number of PCT applications during the The red curve indicates the cumulative same years. This compares to 40% and percentages: the TOP 300 account for 80% 34%, respectively, for the total number of and the TOP 533 for 90% of the total. assets between 1996 and 1998. If one For each company in the TOP 1000 we assumes an average cost of US$25,000 have also included a green dot indicating its (probably too low) per patent (not including average annual production one decade earlier R&D costs), the US patenting costs (during 1996, 1997 and 1998). For most of represent about US$2 billion per year by the the companies, the annual production TOP 1000, and US$19 billion per year when increased (see the jump for Cisco and including the patents obtained in other Sandisk), but a significant number of jurisdictions, based on the patenting companies have green dots above the blue between 2006 and 2008. line, indicating a decrease (see the drop for Chrysler and Silicon Graphics). Changes in contributions between Turning our attention to patent regions and countries applications filed during the last decade, We identified the headquarters for each of www.iam-magazine.com Intellectual Asset Management July/August 2010 35 Patenting pays

Figure 7. Total US patents and number per US$M of R&D expenditures (public companies in Global TOP 1000, based on country headquarters)

100,000 9 Total issued patents (2006, 2007, 2008) 8.0 90,000 8 Patents/average R&D expenditure in US$M 80,000 7 70,000 6 60,000 5 50,000 4 40,000 2.5 3 30,000

20,000 2 Total patents from 2006 to 2008 patents from Total 1.1 10,000 0.2 0.2 0.1 0.0 0.3 0.9 0.1 0.2 0.1 0.2 0.1 0.3 0.1 0.5 1

0 0

Denmark Singapore Israel Italy Belgium Canada UK Sweden Finland SwitzerlandNetherlands France Taiwan Germany South Korea Japan USA Number of patents per US$M R&D expenditures

Figure 8. US patents and ratio to R&D costs (public companies in Global TOP 1000, based on sectors)

45,000 12 Total issued US patents (2006, 2007, 2008) 40,000 Number patents per US$M of R&D expenditure 9.5 10 35,000

30,000 8

25,000 6 20,000

15,000 4

10,000 0.4 0.3 1.5 0.4 0.9 0.3 0.4 0.2 0.1 0.2 0.7 0.2 0.8 0.3 0.3 1.0 0.5 1.4 Total patents from 2006 to 2008 patents from Total 2 5,000

0 0 Number of patents per US$M R&D expenditures Software Chemicals equipment and services manufacturing and machinery and machinery and equipment and automobile Oil and gas Industrial goods Semiconductors Pharmaceuticals Automotive parts petroleum refining petroleum Computer services Medical equipment Computer hardware household products Telecommunications Commercial vehicles Commercial Consumer electronics Electrical components Oil and gas equipment Aircraft and component Aircraft Consumer durables and Defence and government Sports and entertainment the TOP 1000 entities and Figure 3 provides companies one decade ago, the fastest- another insight: Asian companies have growing segment came from other Asian dramatically increased their patenting countries – Taiwan, Korea and, more activities (from 14% to 37% of total PCT recently, China (applications are a better applications, and from 26% to 48% of US indicator of the recent trend because of the applications) compared to their US or years required between patent filing and European counterparts (decreasing from patent grant and the increased pendency 86% to 62% of PCT applications and from delays). 74% to 51% for US applications). The rest Companies can choose to protect their of the world contributed less than 1% a inventions in various countries and by using decade ago and about 1% more recently. In various strategies. Figures 4A and 4B track other words, US and European companies the number of applications filed by the TOP went from filing almost nine out of 10 200 and the bottom 200 of our TOP 1000 patent applications filed in total by the list. In both groups, the number of US Global TOP 1000 companies one decade applications rises more than the number of ago, to approximately one out of two patent applications in any other country, but the applications recently. second group makes greater use of the PCT Furthermore, while most of this application process. In the two groups, the patenting activity was driven by Japanese EP applications and DE, FR and GB

36 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Table 1. Top 20 companies and entities (selected from Global TOP 1000 list) in five distinct groups

Rank Group A Group B Group C Group D Group E

1 IBM Du Pont Honda Motor University of California 2 Microsoft BASF Corp Corp ITRI 3 Nokia Medtronic Inc Toyota ETRI 4 Canon Alcatel Lucent Bayer Ag Honeywell Massachusetts Inst Techn 5 Cisco Genentech Inc Robert Bosch University of Michigan 6 Intel AT&T Roche General Motors Stanford University 7 Motorola Corning Inc Boeing Co California Inst of Techn 8 Hewlett-Packard Qualcomm Inc Boston Scientific Corp Ford Motor Co University of Texas 9 Limited Ericsson Squibb Bristol Myers Procter & Gamble CEA 10 Micron Technology Inc Nortel Networks Ltd Cardiac Pacemakers Inc Delphi Tech Inc Council Scient Ind Res 11 Corp NTT Carl Zeiss Nissan Motor Wisconsin Alumni Res Found 12 Siemens AG Sprint Communications Wyeth Corp Nike Inc University of Florida 13 LG Oracle Sanofi Aventis Daimler Chrysler Ag Johns Hopkins University 14 Nippon Electric Co EMC Corp Shinetsu Chemical Co Lockheed Martin Institute Francais du Petrole 15 Fujifilm Research In Motion Pfizer Kimberly Clark AIST 16 General Electric SAP Ag GlaxoSmithKline Yazaki Corp University of New York 17 Infineon Technologies Interdigital Schering Corp Wolverine World Wide Inc Korean Inst Sc & Techn 18 Sharp Kk Symbol Technologies Inc Corp L’Oreal University of Washington 19 Texas Instruments Inc Finisar Corp AstraZeneca Ab Aisin Group NASA 20 Kk ADC Telecom Novartis Ag Yamaha Motor Co Ltd University of North Carolina Group A Group B Group C Group D

Semiconductors Computer services Pharmaceuticals Automotive parts United States and machinery Electrical components Telecommunications Biotechnology Commercial vehicles Asia and equipment and automobile Computer hardware Software Chemicals Aircraft and component Europe manufacturing Consumer electronics Services Medical equipment Consumer durables Rest of the world

applications represent declining percentages the public companies in the TOP 1000 of the total number of applications. between 2006 and 2008 were granted to Figure 5 illustrates a similar point: those those with headquarters in five countries: companies headquartered in Asia and in US, Japan, Korea, Germany and Taiwan. Canada increased their PCT filings by more These companies invested about US$269 than tenfold (more than thousandfold for billion per year in R&D (77% of the total China). Companies in France and Japan also R&D expenditures of the public TOP 1000) relied more heavily on the PCT process as and produced an average of 1.86 US patents compared to companies in other developed per million dollars of R&D investment economies. (Figure 7). Narrowing our analysis to the top five However, the number of US patents per companies with the highest rank in six areas million dollars of R&D varied significantly (US, EU, Japan, Korea, China and India), we from the mean in a few cases, notably for compared their total filings in seven companies headquartered in Japan, Korea jurisdictions during the decade, and their and Taiwan. In Figure 8, patenting respective increase between the first three productivity is shown based on the years and the last three years (see Figures 6 industry sector of each company, showing A, B, C and D). One conclusion appears a much larger number of US patents per obvious: the patenting activities are centred million dollars of R&D for companies in the US and in Asia, with the fastest focused on consumer electronics and growth in JP, KR and CN, and significantly semiconductors. slower growth in GB, DE and FR filings. Figures 9 and 10 compare the EP, US and PCT filings across technology sectors at the Investments in R&D and patents across beginning and the end of the decade for various sectors About 91% of the US patents produced by Continued on page 40 www.iam-magazine.com Intellectual Asset Management July/August 2010 37 Patenting pays

Table 2. Top 20 companies – in each technology domain

Group A

Semiconductors Electrical components Computer hardware Consumer electronics and equipments

Intel Hitachi Toshiba Samsung Electronics Micron Technology Inc Siemens Ag Hewlett-Packard Panasonic Infineon Technologies Nippon Electric Co Fujitsu Limited Canon Texas Instruments Inc General Electric Seiko Epson Corp Sony Broadcom Corp LG Philips Hon Hai Prec Ind Co Ltd LG Renesas Tech Corp Limited Sun Microsystems Inc Fujifilm St Microelectronics Agilent Technologies Inc Corp Sharp Kk

Hynix Semiconductor Oki Electric Ind Co Ltd TDK Corp Ricoh Kk Taiwan Semiconductor Mfg Samsung Sdi Co Ltd Co Ltd Philips Semiconductor Energy Lab Sumitomo Electric Industries Seagate Technology Llc Eastman Co Applied Materials Inc Au Optronics Corp Sandisk Corp Electric Co AMD Tyco Electronics Apple Freescale Semiconductor Inc Dell Olympus Corp Lsi Corporation Co Ltd Inc Pioneer Corp ASML Holding Nv United Technologies Corp Inventec Corp Thomson Electronics Ltd Co Western Digital Corporation Nippon Kogaku Kk Xilinx Inc ABB Inc Hannspree Inc Altera Corp Eaton Corp Lite-On Technology Corp Corp National Semiconductor Osram Gmbh Lenovo Electric Co Agere Systems Inc NGK Insulators Ltd Maxtor Corp Victor Company Of Japan

Group C

Pharmaceuticals Biotechnology Chemicals Medical equipment

Bayer Ag Genentech Inc Du Pont Medtronic Inc Roche Applera Corp Basf Corp Boston Scientific Corp Squibb Bristol Myers Co Human Genome Sciences Inc Corning Inc Cardiac Pacemakers Inc Wyeth Corp Novozymes Inc Shinetsu Chemical Co Carl Zeiss Sanofi Aventis Genencor Int Nitto Denko Corp Pacesetter Inc Pfizer Zymogenetics Inc & Haas Hoya Corp GlaxoSmithKline Affymetrix Inc Ciba Holding Advanced Cardiovascular System Schering Corp Immunex Corp Sumitomo Chemical Scimed Life Systems Inc AstraZeneca Ab Isis Pharmaceuticals Inc Mitsubishi Chemical Becton Dickinson Co Novartis Ag Genzyme Corp Degussa Ethicon Endo Surgery Inc Merck Patent Gmbh Chiron Corp Saint Gobain Resmed Ltd Merck & Co Inc Beckman Coulter Inc Dow Chemical Co Corp Boehringer Ingelheim Invitrogeneral Corp Air Products And Chemicals Ethicon Inc Abbott Lab Megica Corp Uop Llc Tyco Healthcare Eli Lilly Asahi Glass Co Ltd Baxter Ag Allergan Inc Ppg Industries Ohio Inc Hill Rom Services Inc Janssen Pharmaceutical Showa Denko Kk Warsaw Orthopedic Inc Takeda Pharmaceutical Solvay Sa Sherwood Services Ag Millenium Pharmaceuticals Inc Kaneka Corp St Jude Medical Warner Lambert Co Jsr Corp Sdgi Holdings Inc

38 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Group B

Computer services Telecommunications Software Services

IBM Nokia Microsoft American Express Travel Relate EMC Corp Alcatel Lucent Oracle First Data Corp Unisys Corp Cisco SAP AG Fina Technology AOL AT&T Network Appliance Inc JPMorgan Chase Bank Na Yahoo! Inc Motorola Cadence Design Systems Inc Amazon.Com Google Inc Qualcomm Inc Symantec Corp Capital Formation Inc Electronic Data Systems Ericsson Adobe Systems Inc Polaris Inc Corporation Nortel Networks Ltd Digimarc Corp Bic Soc Nippon Telegraph & Telephone Synopsys Inc Staples The Office Superstore Sprint Communications Bea Systems Inc Research In Motion National Instruments Corp Interdigital General Hospital Corp Symbol Technologies Inc Mcafee Inc Finisar Corp Veritas Operating Corp ADC Telecommunications Inc Autodesk Inc Harris Corp Computer Associates SBC Communications Novell Inc Juniper Networks Inc Fisher Rosemount Systems Inc Sony Ericsson Invensys Systems Inc Verizon Siebel Systems Inc

Group D

Automotive parts Commercial vehicles Aircraft and component Consumer durables and machinery & automobile manufacturing

Denso Corp Honda Motor Honeywell Procter & Gamble Robert Bosch Toyota Boeing Co Nike Inc Delphi Tech Inc General Motors Lockheed Martin Kimberly Clark Yazaki Corp Ford Motor Co Airbus Wolverine World Wide Inc Aisin Group Nissan Motor Rolls Royce Corp L’Oreal Lear Corporation Daimler Chrysler Ag Snecma Group Kohler Co Zahnradfabrik Friedrichshafen Yamaha Motor Co Ltd Thales Sa Unilever Toyoda Gosei BMW Pratt Whitney Corporation Newfrey Llc Visteon Global Tech Inc Hyundai Motor Japan Aviation Electron Henkel Corp Takata Corp Porsche Ag Rockwell Collins Inc Sc Johnson & Son Inc TRW Automotive Kawasaki Heavy Ind Ltd ASM Inc Kao Corp Koito Mfg Co Ltd Volvo Ab Textron Inc Reckitt Benckiser Inc Siemens VDO Automotive Amgeneral Inc Hamilton Sundstrand Bsh Bosch Siemens Hausgeraete Valeo Sa Mazda Motor L 3 Communications Ajinomoto Kk Borg Warner Inc Fiat Spa Bombardier Inc Colgate Palmolive Co Continental Automotive Systems Chrysler Llc EADS Kraft Foods NGK Spark Plug Co Kubota Kk Goodrich Corp Unicharm Corp Dana Corp Mitsubishi Motors Corp Aerospace Corp Gillette Co Luk Lamellen & Kupplungsbau Suzuki Motor Co Eurocopter Ashley Furniture Industries Inc Advics Co Ltd Volkswagen Ag Hansgrohe Ag

www.iam-magazine.com Intellectual Asset Management July/August 2010 39 Patenting pays

Figure 9. EP, US and PCT applications filed from 1996 to 1998 (by sectors and regions for the headquarters)

Scale for patent Aircraft and component 30,000 Medical equipment 15,000 Computer services 5,000 Commercial vehicles and automobile

University and scientific

Automotive parts and machinery

Consumer durables and household

Industrial goods and machinery

Pharmaceuticals

Telecommunications

Semiconductors

Computer hardware

Chemicals

Electrical components and equipment

Consumer electronics

EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A US RoA EP BRIC JP KR RoW

Continued from page 37 companies headquartered in various regions. While the clusters of letters appear to Computer hardware, electronic components indicate a correlation, one could argue that and equipments, and consumer electronics as companies grow, they simply invest more shifted further from the US to Asia, while resources in R&D and consequently file computer services, software and medical more patents. To understand better whether equipment developed faster in the US. the patenting activity was a leading or Telecommunication equipment, industrial lagging indicator for revenue growth, we goods and machinery, and automotive parts have undertaken a variance auto-regression and machinery continued to develop more in (VAR) analysis on the respective time series; Europe. Three new countries emerged: Korea however, this work is not yet completed. A and Taiwan (in rest of Asia) and Canada (in simpler but less robust approach is shown rest of world). US universities increased on Figure 12. dramatically their filings. In general, US The companies were split into four entities increased their US filings more, quartiles based on the values of the two while European entities balanced EP, US and ratios, and we used their annual average PCT applications. sales and patent application filings from 1996 to 1998 to normalise the growth in Relationships between patenting both variables from 1999 to 2005. For each activities and some financial metrics quartile, the growth in patenting is indicated We looked for a correlation between with a dashed line, and that of sales with a increases in sales and increases in patenting continuous line of the same colour. activities. In Figure 11, the ratio of US and Interestingly, for all quartiles the PCT applications filed in 2006-07-08 to growth in patenting rises more than that in those filed during 1996-97-98 is plotted revenues, suggesting that companies have against the ratio in sales for the same two tended to invest a greater percentage of time periods. We split the companies based their sales in patenting activities. What is on their headquarters (colours) and by more striking is the slope of the curves: industrial group (the letters A, B, C and D the companies in the first quartile indicate the groups, as listed in the legend). increased their patent filings dramatically Note that the two axes are logarithmic, right at the beginning of the period and at allowing comparison between established a pace faster than the revenue growth. For companies with little growth and others this group of companies, patenting grew that experienced tremendous growth during the last decade. Continued on page 44

40 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Figure 10. EP, US and PCT applications filed from 2006 to 2008 (by sectors and regions for headquarters)

Scale for patent Computer services 80,000 Software 40,000 Medical equipment Consumer durables and 20,000 household products Commercial vehicles and automobiles

Pharmaceuticals

University and scientific institutions Automotive parts and machinery

Industrial goods and machinery Chemicals

Telecommunications equipment Computer hardware

Semiconductors Electrical components and equipment

Consumer electronics

EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A EP-A US-A PCT-A US RoA EP BRIC JP KR RoW

Figure 11. Ratios in patent filings and sales between 96+97+98 and 06+07+09 (by industry groups and country headquarters)

10000

10

1

0.101 Ratio: US applications+PCT applications (2006-2008) / US applications+PCT applications (1996-1998)

0.01.01 0.1 1 10 100

Ratio: average sales (2006/2008)/average sales (1996-1998) US JapanEU Korea BRIC Rest of Asia Rest of world

Group A: Semiconductors + electrical components and equipment + computer hardware + consumer electronics Group B: Computer services + software + telecommunications + services Group C: Pharmaceutical + biotech + chemical + medical equipment Group D: Automobile parts and machinery + commercial vehicles and automobiles + aircraft and component manufacturers + consumer durables www.iam-magazine.com Intellectual Asset Management July/August 2010 41 Patenting pays

Table 3a. Top 20 publicly traded companies based on positive delta of ranks (ie, highest moved up the most in the rankings)

Top 20 in Rank in List of companies Headquarter Market Market Market Market rank gain top 1,000 country cap average cap average cap decadal cap or loss 1996-97 2006-07 growth CAGR (US$ million) (US$ million)

1 25 Hon Hai Prec Ind Co Ltd Taiwan 1,823 38,027 1986% 35% 2 20 Infineon Technologies Germany NA 10,867 NA NA 3 33 Broadcom USA NA 15,880 NA NA 4 148 Wyeth Corp USA 43,636 63,808 46% 4% 5 472 Yahoo Inc USA 1,784 32,848 1741% 34% 6 119 Research In Motion Canada NA 19,315 NA NA 7 113 Kyocera Japan 11,654 17,166 47% 4% 8 48 LG Philips South Korea NA 11,981 NA NA 9 30 Cisco USA 48,702 165,359 240% 13% 10 135 Interdigital USA 217 1,404 548% 21% 11 104 Au Optronics Corp Taiwan NA 12,917 NA NA 12 123 Boston Scientific Corp USA 9,799 21,339 118% 8% 13 76 Daimler Chrysler Ag Germany NA 80,884 14 72 ASML Holding Nv Netherlands 3,124 12,824 310% 15% 15 101 Sandisk Corp USA 372 8,591 2212% 37% 16 162 Inventec Corp Taiwan 1,840 1,715 -7% -1% 17 157 Funai Electric Co Japan NA 3,321 18 69 Samsung Sdi Co Ltd South Korea 1,000 2,964 196% 11% 19 127 SAP Ag Germany 22,886 63,601 178% 11% 20 64 TDK Corp Japan 7,965 10,703 34% 3%

Table 3b. Top 20 publicly traded companies based on negative delta of ranks (ie, lowest dropped the most in the rankings)

Top 20 in Rank in List of companies Headquarter Market Market Market Market rank gain top 1,000 country cap average cap average cap decadal cap or loss 1996-97 2006-07 growth CAGR (US$ million) (US$ million)

1 71 LSI Corporation USA 3,101 3,624 17% 2% 2 300 Eli Lilly USA 58,838 59,760 2% 0% 3 262 TRW Automotive USA NA 2,322 4 89 National Semiconductor USA 3,522 7,322 108% 8% 5 310 AGFA Gevaert Belgium NA 2,550 6 201 NCR Corp USA 3,140 6,061 93% 7% 7 66 AMD USA 3,033 7,838 158% 10% 8 98 Goodyear Tire & Rubber USA 8,990 5,259 -42% -5% 9 130 Shell Netherlands 186,473 241,484 30% 3% 10 576 Akzo Nobel Nv Netherlands 11,003 19,251 75% 6% 11 457 Baxter Ag USA 12,647 33,479 165% 10% 12 176 United Microelectronics Taiwan 6,090 9,830 61% 5% 13 623 Nippon Steel Corp Japan 21,331 36,698 72% 6% 14 567 Johnson & Johnson USA 77,451 190,227 146% 9% 15 91 Lockheed Martin USA 18,391 40,928 123% 8% 16 317 Colgate Palmolive Co USA 17,643 36,565 107% 8% 17 869 Novo Nordisk As Denmark 8,829 33,602 281% 14% 18 219 Henkel Corp Germany 8,269 22,744 175% 11% 19 329 Becton Dickinson Co USA 5,733 18,800 228% 13% 20 146 Northrop Grumman Corp USA 6,265 24,993 299% 15%

Table 3 c.

Median 102.5 20 most rank gained Median 3,124 14,398 196% 11% Median 240.5 20 most rank lost Median 8,909 20,998 108% 8%

42 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Sales Sales Sales Sales R&D R&D R&D R&D Delta Delta average average decadal CAGR spending spending spending spending (top 200 (from 1,000 1996-97 2006-07 growth average average decadal CAGR public companies) (US$ million) (US$ million) 1996-97 2006-07 growth companies) (US$ million) (US$ million)

607 46,508 7558% 54% 21 400 1837% 34% 155 319 3,195 10,485 228% 13% 253 1,622 541% 20% 141 592 29 3,722 12663% 62% 11 1,233 11176% 60% 138 692 14,142 21,375 51% 4% 1,494 3,177 113% 8% 136 714 43 6,697 15388% 66% 8 959 12192% 62% 125 704 NA 2,552 NA NA NA 198 NA 119 592 5,916 10,444 77% 6% 193 502 160% 10% 110 274 NA 53,452 NA NA NA NA NA 106 586 5,268 31,703 502% 20% 549 4,283 681% 23% 105 159 52 357 590% 21% 23 76 233% 13% 102 349 NA 11,900 NA 164 99 742 1,667 8,089 385% 17% 142 1,049 640% 22% 98 164 128,017 172,623 35% 3% 4,993 5,820 17% 2% 96 167 829 5,156 522% 20% 87 626 621% 22% 96 736 111 3,577 3110% 41% 12 357 2905% 41% 94 521 1,415 7,988 464% 19% NA 117 93 543 NA 3,209 NA 119 88 502 2,698 6,326 134% 9% 14 121 785% 24% 85 719 2,881 13,686 375% 17% 417 1,946 366% 17% 79 713 5,041 7,020 39% 3% 221 405 83% 6% 74 110

Sales Sales Sales Sales R&D R&D R&D R&D Delta Delta average average decadal CAGR spending spending spending spending (top 200 (from 1,000 1996-97 2006-07 growth average average decadal CAGR public companies) (US$ million) (US$ million) 1996-97 2006-07 growth companies) (US$ million) (US$ million)

1,264 2,293 81% 6% 205 534 160% 10% -147 -353 7,932 17,162 116% 8% 1,286 3,308 157% 10% -133 -272 NA 13,923 NA 178 -132 -254 2,565 2,044 -20% -2% 403 345 -14% -2% -123 -300 4,657 4,642 0% 0% 264 267 1% 0% -117 -302 6,776 5,556 -18% -2% 385 187 -52% -7% -114 -409 2,155 5,831 171% 10% 434 1,526 251% 13% -113 -151 13,134 19,951 52% 4% 379 366 -4% 0% -112 -242 125,073 354,534 183% 11% 572 1,097 92% 7% -110 -206 12,418 16,526 33% 3% 639 785 23% 2% -104 -229 5,788 10,821 87% 6% 366 687 88% 6% -94 -293 795 3,465 336% 16% 60 293 388% 17% -91 -190 26,196 34,771 33% 3% 122 335 175% 11% -87 -221 22,125 57,210 159% 10% 2,023 7,403 266% 14% -87 -240 27,472 40,741 48% 4% 900 1,169 30% 3% -86 -127 8,903 13,014 46% 4% 166 244 47% 4% -85 -247 2,497 7,528 201% 12% 363 1,206 232% 13% -82 -118 10,868 17,957 65% 5% 260 480 85% 6% -74 -96 2,790 6,097 119% 8% 160 334 108% 8% -72 -158 8,612 31,083 261% 14% NA 555 -71 -107

2,183 8,039 425% 18% 142 502 621% 22% 100.5 564.5 7,932 13,468 81% 6% 373 507 90% 7% -99 -234.5

www.iam-magazine.com Intellectual Asset Management July/August 2010 43 Patenting pays

The most dramatic change of the last decade is the increasing patenting activity of Asian companies, and more specifically, those headquartered in Taiwan, Korea and China

Continued from page 40 fifteenfold in seven years, while sales four groups of technologies and added a increased fivefold. Those in the next fifth group representing the universities and quartile increased patenting fivefold and research institutions (Table 1). The colour experienced a doubling in revenues during coding of the various cells in the table are the period. based on the headquarters’ region. While we would not want to suggest Second, we extended this table to the that the data proves a causal link between sub-categories of each of the five groups, patenting and sales, there is plenty of and again colour-coded the entries, to help evidence that the management of the visualise the geographical concentrations of faster-growing companies invested heavily the various regions (Table 2). in patenting activities at an astounding rate, Third, we computed the changes in spending progressively larger percentages of patent ranking that the public companies revenues on patents. In other words, exhibited between two periods: 1996+97+98 significant growth in patenting investment and a decade later – 2006+07+08. We activities precedes significant growth in selected the companies that moved up the sales. It is as if the companies in the top most in the relative ranking, as well as those percentile took the risk of investing heavily that moved down the most (Tables 3A and in R&D and in patent applications, 3B, respectively). For each of these anticipating future revenue growth. Such companies, we obtained its market strategy could be justified if a company capitalisation, sales and R&D expenditures intends to expand globally from unprotected during each of the two periods. markets to more developed markets, facing Finally, we computed the median greater competition and potentially changes in rank and in the various financial competitive IP assets. metrics for each of the two groups (Table The composition of the first quartile is 3C). Interestingly, those companies that interesting. The companies headquartered improved their patent ranking the most, in Asia but outside of Japan represent only relative to the rest of the TOP 1000 2% of the companies in all four quartiles, experienced an 11% compounded growth but 20% of those in the fastest-growing annualised rate (CGAR) in market cap and percentile and 0% of those in the slowest 18% compounded growth in sales, as quartile. By contrast, Japanese companies compared to 8% and 6% respectively for represent 29% of the total, but only 10% of the group that lost the most fees in the those in the fastest-growing quartile and rankings. During the decade we studied, 16% of those in the slowest one. It appears the former group increased R&D spending that the dramatic increase in patenting by a median percentage of 621%, as activities and growth in revenues from fast- compared to the 90% for the latter group. growing Asian companies has come at the The median R&D spending in 2006+07+08 expense of their Japanese counterparts. for the two groups is similar, but represents a greater portion of their Relative rankings of companies respective revenues, as the fastest-growing First, we extracted from the TOP 1000 list group had median revenues approximately the companies with the highest ranking in 40% lower than the slower-growing group.

44 Intellectual Asset Management July/August 2010 www.iam-magazine.com Patenting pays

Figure 12. Normalised growth in PCT + US applications and in sales: average for each of the four quartiles in decadal growth (public companies in TOP 1000, ranked based on their ratios 06+07+08/96+97+98 for patents and for sales (note that these have been normalised at 100 for the average in 96, 97, 98)

1,600

1,400

1,200

1,000

800 (%)

600

400

200

0 Average 1999 2000 2001 2002 2003 2004 2005 Top quartile (patents) Third quartile (patents) Second quartile (patents) Bottom quartile (patents) Top quartile (sales) Third quartile (sales) Second quartile (sales) Bottom quartile (sales)

Making sense of the data to be companies that grow their R&D The data and the analysis presented here are investment much faster than their both approximate and incomplete. Yet revenues; they also tend to exhibit the several important observations can be made greatest growth in sales and market that might stimulate additional work: capitalisation. How significant is the • Patenting activities by the TOP 1000 linkage between those variables and what companies we have identified have are the causal links? These questions are grown faster than their revenues during beyond the scope of this article. They will the last decade, both in number of be addressed with more detailed and patent applications and in number of formal statistical analysis. countries in which patent applications • Intellectual property assets are clearly are filed. During the last decade, the linked to accelerating technology pattern of patenting has also changed in competition around the world. It is thus different ways between the top 20% and not surprising that many companies the bottom 20%, as well as between seek to optimise their patent portfolios companies headquartered in different by selling what they no longer require regions. and buying the IP rights they need to • The most dramatic change of the last complement internally generated IP decade is the increasing patenting assets. Thus, R&D is progressively activity of Asian companies, and, more being horizontalised, much as specifically, those headquartered in manufacturing was transformed a Taiwan, Korea and China. With respect decade or two earlier. to the latter group, the trend is most apparent when looking at PCT applications filed in the last five years, as very few of these inventions have completed the prosecution process; thus, the resulting number of patents issued is very small for now. Vincent Pluvinage, PhD is General Manager, • The competition among companies Strategic Acquisitions & Private Equity at from various parts of the world is Intellectual Ventures different across the various technology fields we delineated: certain countries The author wishes to thank Deepak Sharma have a majority of incumbents, while for his tremendous help in analysing the data, others have a majority of emerging and Carlo Segantini, TJ Hall and Micah Siegel challengers. for their respective contributions to this • Companies that are the most aggressive article, as well as the data collections and in growing their patenting activities tend support provided by eValueServe, Inc www.iam-magazine.com Intellectual Asset Management July/August 2010 45