Patent Fever

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 there either.
• 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.[1] 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 In fact, legal authority for patents and copyrights in the U.S. is grounded in the U.S. Constitution as originally enacted at the birth of the nation.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.

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 economy.

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 company.

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.[2] 

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.

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

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. 

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