Is Asia Winning a Race to Patent Ideas in the U.S.?

Posted by: Kenji Hall on January 16, 2009

The world’s most innovative companies go to great lengths to guard their trade secrets. But do companies with the most patents have the inside track on the best ideas? It’s a question worth exploring now that IFI Patent Intelligence has released its annual ranking of U.S. patent approvals.

Every year, an elite club of the world’s biggest brands seems to have a lock on the top 10 spots—and 2008 was no exception. Of the 157,774 patents issued by the U.S. Patent and Trademark Office last year, IBM had the most, with 4,186, followed by Korea’s Samsung Electronics, Japan’s Canon, according to an IFI announcement on Jan. 14. Just below them are Microsoft, Intel, Panasonic, Toshiba, Fujitsu, Sony and Hewlett-Packard Development Co.

In a statement, IFI, based in Wilmington, Delaware, noted that the list “may be shifting away from corporate America in favor of companies overseas, especially in Asia.” Indeed, half of the Top 20 spots went to Japanese companies, while seven went to U.S. companies. (Two Korean companies, Samung and LG Electronics, and German chipmaker Infineon Technologies were the other three.) “Securing patents may be even more important in a down economy, since it gives patent-holders an edge over their competitors,” says IFI general manager Darlene Slaughter.

But here’s something to consider: Patent registrations might not be an accurate benchmark for measuring companies’ success. (It also runs counter to the crowd-sourcing and open-source software development approaches now in vogue.) Japanese companies do well in part because of their willingness to spend lavishly on research and development—even in an economic downturn.

But there’s another factor at work: Japanese companies reward engineers for every single patent they file. Why? Under Japanese patent law (Article 35), companies are required to do so. And while the law doesn’t specify how much companies should pay, it says the compensation should be reasonable. (The courts can intervene when it’s not.) By contrast, the U.S. and other countries let companies decide whom to compensate and by how much.

At Canon, for instance, engineers earn a bonus when their patents are submitted, registered and approved. They stand to earn more if whose ideas “make a considerable contribution to the company,” according to spokesman Richard Berger, who noted that Canon has stayed in the top three of U.S. patent-approval rankings since the early 1990s.

Meanwhile, Toshiba pays employees for their inventions based on two criteria: sales contribution and licensing agreements. Sony says it, too, has a multi-stage process for rewarding inventors.

The problem with the Japanese system is that it emphasizes quantity over quality. Figuring out a patent’s value can be tricky because it can take years to turn a good idea into a winning product. So the solution in Japan has been simply to give a bonus for every little incremental invention. And why submit one solid patent when you can get more money for filing five? The result: There’s more of an incentive to file a lot of patents than to come up with one that’s hard for rivals to copy (plus a few tweaks to discourage a court battle).

In recent years, the law has drawn howls of protest in Japan from corporate executives, who complain that they should have discretion over how engineers are compensated. Not all engineers are for it, either, and some of them—notably Shuji Nakamura, a UC Santa Barbara professor who invented the blue laser diode while at Japanese tech company Nichia—have sued their employers for not paying enough. “If Japanese companies didn’t have to pay and could take the same pot of money but distribute it differently, would they have fewer patents but be better at monetizing their ideas?” says one legal expert who requested anonymity because he wasn’t authorized by his firm to speak about the topic. “I think the answer might be yes. It seems to me that the Japanese patent code may be doing more harm than good.”

Of course, there can be benefits to a patent-blitzkrieg approach. In an average year, Canon gets 3,000 to 4,000 patents approved in Japan (out of 10,000 filed) and about 2,000 in the U.S. The Tokyo company has long had one of the largest legal divisions working on intellectual property issues of any of Japan Inc.’s big brands. It credits an aggressive patent filing approach in the 1960s for the success it has had at breaking Xerox’s hold on the office copier market and challenging Leica and other more established brands in cameras.

IFI's list of Top 35 performers in 2008:

Rank Company Name 2008 Patents
1 INTERNATIONAL BUSINESS MACHINES 4186
2 SAMSUNG ELECTRONICS (Korea) 3515
3 CANON 2114
4 MICROSOFT 2030
5 INTEL 1776
6 PANASONIC (Japan) 1745
7 TOSHIBA (Japan) 1609
8 FUJITSU (Japan) 1494
9 SONY (Japan) 1485
10 HEWLETT-PACKARD DEVELOPMENT 1424
11 HITACHI (Japan) 1313
12 MICRON TECHNOLOGY 1250
13 SEIKO EPSON (Japan) 1229
14 GENERAL ELECTRIC 912
15 FUJIFILM (Japan) 869
16 RICOH (Japan) 857
17 INFINEON TECHNOLOGIES (Germany) 814
18 LG ELECTRONICS (Korea) 805
19 TEXAS INSTRUMENTS 757
20 HONDA MOTOR (Japan) 747
21 SIEMENS (Germany) 724
22 HON HAI PRECISION INDUSTRY (Taiwan) 719
23 DENSO (Japan) 708
24 CISCO TECHNOLOGY 704
25 BROADCOM 643
26 HONEYWELL INTERNATIONAL 619
27 NOKIA (Finland) 608
27 SILVERBROOK RESEARCH (Australia) 608
29 SHARP (Japan) 603
30 NEC (Japan) 547
31 XEROX 529
32 LG DISPLAY CO (Korea) 524
33 RENESAS TECHNOLOGY (Japan) 513
34 SUN MICROSYSTEMS 509
35 KONINKLIJKE PHILIPS ELECTRONICS (Netherlands)497


* Includes 4 patents assigned to Hewlett-Packard Co

Reader Comments

peace4all1

January 16, 2009 12:57 PM

Like an Ostrich, we're still trying to bury our heads in the sands to avoid reality. While I agree that increasing number in registered patents won't guarantee increasing number in revenues, the decreasing number in registered patents will definitely signal a trend of declining leadership in advanced technology! Maybe one day, America can provide outsourcing services for Asian countries. That certainly is one way to increase US employment rate at lower salary.

Duncan Williams

January 18, 2009 11:16 AM

One explanation that Japanese applicants are applying for U.S. patents is that it takes an average of about 5-6 years to get a Japanese patent issued. Another explanation is that Japan has the most expensive fees in the world to have a patent application processed, and the most expensive fees to maintain the patent after it is issued. Filing for a U.S. patent is attractive since the U.S. economy is larger than Japan's. The Japanese Patent Office is supposedly addressing these issues. For more info, see my post at http://duncanlaw71.com.

Mike O'Keeffe

January 18, 2009 2:23 PM

More patents are probably one indicator of corporate intent but its not as simple as that. It costs a lot for non US companies to translate to English and 'prosecute' the patents in the US. Canon is streets ahead of other companies in ensuring it has rock solid defensible patents, it learned the hard way after a suit it lost about 20 years ago. Samsung is high in the ratings now but then NEC was once too, lets see if they can sustain it ? The top ten in US patents has always (last 10 - years at least) been populated by 5-6 Japanese companies, now Samsung and LG are joining the fray. Its important to see which other countries they all file patents in, if the technology is any good. I had a look at patents filed in China and Samsung and LG lead the pack while many US companies don't bother. Japanese companies mostly do file in China. Not much benefit now, but patents last 20 years...

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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