Patent stories are suddenly everywhere in the popular media.
- The NPR radio documentary program, "This American Life," recently did a full
length feature called When Patents Attack.
- Apple, Microsoft, RIMM-Blackberry, Sony, Ericsson and EMC teamed up to pay
$4.5B for 6000 Nortel patents - that's $750K per patent - reportedly to keep
them away from Google.
- Google's top legal officer warns of "a hostile, organized campaign against
Android by Microsoft, Oracle, Apple and other companies, waged through bogus
patents" under the blog heading: When Patents Attack Android.
- Hard-fought U.S. patent reform legislation is pending and its supporters
expect it to provide some measure of sanity, but there's not complete consensus
- All the while, the United States Patent and Trademark Office (PTO) is
issuing approximately 5,000 patents per week and by mid-August it's expected
that the PTO will issue U.S. Patent No. 8,000,000.
- The Financial Times calls it "The Great Patent Bubble of 2011."
It's patent fever in the U.S., but then there's China. Like everything else
in China, the scale and acceleration of China's patent activity is astounding.
When truly understood, it almost makes the patent fever controversy in the U.S.
seem agonizingly quaint.
Let's get some perspective on this. As mentioned, U.S. Patent No. 8,000,000
is expected to issue on August 16, 2011. That's a lot of
patents, but patents are numbered sequentially. In fact, legal authority for
patents and copyrights in the U.S. is grounded in the U.S. Constitution as
originally enacted at the birth of the nation. The very first U.S. patent was
issued 221 years ago, in 1790.
Figure 1 shows a curve of patents issued per year in the
U.S. from 1790 through 2010. Along the x-axis in red are the millionth-patent
milestones. U.S. patent number 1M issued in 1911, 2M in 1935, 3M in 1961, 4M in
1976, 5M in 1991, 6M in 1999, and 7M in 2006. As mentioned, U.S. patent number
8M will issue on August 16, 2011.
FIGURE 1: U.S. Cumulative Patent Issuance Through 12-31-10
U.S. Pat. No. 8,000,000 issues Aug 16, 2011
Source: PTO and SIPO
Seen simply as a proxy for innovation, the U.S. patent curve since 1790
represents an increasing non-linear acceleration of innovation in the American
Moreover, a great percentage of U.S. patents are issued to foreign parties.
In 2010, the top ten U.S. patentees with their 2010-only patent counts were: IBM
(5866), Samsung (4518), Microsoft (3121), Hitachi (2852), Canon (2656),
Panasonic (2536), Toshiba (2212), Sony (2130), Siemens (1743), and Intel (1652).
Hence, seven of the top ten U.S. patentees in 2010 were foreign: five
Japanese, one Korean and one German. Foreign standing throughout the balance of
the U.S. patent rankings is likewise ubiquitous. Indeed, the Nortel patents that
sold to Apple and team for $4.5B were originally issued to a Canadian
Therefore, the 8 million patents issued in the U.S. since 1790 is really a
proxy for worldwide - not just U.S. - innovation. From this perspective, 8
million seems like a rather modest number of U.S. patents given all the
world-wide innovation which has occurred since 1790.
Figure 2 shows the same U.S. patent curve with China's corresponding patent
curve superimposed. Note the astounding acceleration in China's patent
activity since China's patent regime began in 1984. Since 1984, China has issued
half as many patents as the U.S. has issued since 1790.
FIGURE 2: US and China Cumulative Patent Issuance Through 12-31-10
US - 7,861,361 patents issued through 2010; China - 3,822,461 patents issued
Source: PTO and SIPO
Of course, these numbers must be qualified. Many of China's patents are
so-called "utility" and "design" patents which are much milder and faster
versions of the typical U.S. patent. Also, China has been able to learn from
existing patent regimes for the design and implementation of its own patent
regime, so it's natural it would accelerate faster.
But the point here is the rate of change. When seen as a proxy for
innovation, the Chinese patent curve represents an economy in innovation
overdrive, which is accelerating. Indeed, China's National Patent
Development Strategy for 2011-2020 calls for a quadrupling of patent
activity by 2020, including patent applications in foreign countries. Chinese
companies already occupy lofty rankings among the top U.S. patentees and they're
likely to move up the rankings fast. We can expect to see Chinese parties among
the very top U.S. patentees by 2020.
So what does all this mean? The answer requires a grasp of the changes in
intellectual property and its role in economic prosperity since China launched
its patent regime in 1984. The difference in intellectual property - and patents
in particular - between 1984 and today is like the difference in American
football before and after the introduction of the forward pass. It's the same
game, but completely different. The fundamentals still matter but the speed and
complexity of the modern game has changed its character. The comparable analog
for intellectual property and patents is the value, volume, pace and
internationalization of activity.
Table 1 shows high-level comparative economics for the U.S. and China
Table 1 - 2010 Comparative
GDP ($ trillions)
1. The PTO issues new patents each Tuesday.
2. It's also important to
remember that two-thirds of those 8 million patents have expired and are now
public domain since U.S. patents only live for approximately 20 years.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of their affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.