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More Power to the Little Guys

The new climate for invention, say Myhrvold and others, is the result of four major trends. The first is the reemergence of invention outside big corporations. For nearly a century, the innovations of large corporate research centers such as Bell Labs or General Electric overshadowed those of inventors working alone or in small groups. But now a constellation of forces is bringing the individual inventor and small technology companies-and sometimes small teams within large firms-back to the fore.

The change marks a comeback for those iconoclastic souls who still call themselves inventors-the people considered the driving force of the economy in the days of Thomas Edison, Alexander Graham Bell, and the Wright brothers. From the 1920s and ’30s onward, with the rise of giant technology-based companies like GE, AT&T, and DuPont, invention became co-opted by corporate labs that had to answer to management hierarchies. Within corporate labs, inventors were reclassified as “researchers.” In 1932, the year after Edison died, more U.S. patents were granted to corporations than to individuals for the first time, and in 1940, the U.S. Census Bureau eliminated “inventor” as a job category.

At big companies, the emphasis gradually moved from invention to what legendary economist Joseph A. Schumpeter called the second and third stages of technological change: innovation, in which ideas are transformed into marketable products and services, and diffusion, which sees those products and services distributed across markets. Companies adopted the view that invention by itself was only a tiny part of business success; for every $1 spent on basic research, the conventional wisdom went, $100 would be spent on development and $1,000 on commercialization. Since great ideas often fail, and the best or most original product doesn’t necessarily win in the marketplace, the inventor came to be perceived as a relatively minor player in the equation. The dot-com boom of the late 1990s skewed this model to new extremes, as billions of dollars were staked on the conviction that the Web was changing everything about commerce, without much in the way of marketable inventions.

Now, with big corporate research laboratories focusing more and more on shorter-term product cycles, many see a growing opportunity for small companies, academic researchers, and individual inventors to generate breakthroughs that have longer-term impact. Anthony Breitzman, vice president of CHI Research, a Haddon Heights, NJ, patent analysis firm, reports that big corporations still have a wide lead in patent filings, especially in areas such as aerospace, motor vehicles, oil and gas, computing, and plastics, where research is expensive and small companies don’t have the resources to compete. But Breitzman notes that “there are areas where small companies are really competing.” In biotechnology, pharmaceuticals, and medical electronics-fields where every company is drawing on the same base of knowledge about the human body and the genome-about 25 percent of patents are being issued to small companies and individuals (see “Reinventing Biology, Virtually,” page 3). A disproportionate number of those are “high-impact patents,” Breitzman says, inventions that actually do become significant products in the marketplace.

The second trend: burned by the often vague schemes that passed for breakthrough thinking in the late 1990s, venture capitalists, in particular, have become far more selective, often insisting that the companies they back have significant, patented inventions that will shield their investments from competition. Attention to invention is becoming more rigorous across all areas of technology, says MIT engineering professor David Staelin. Staelin cofounded an MIT venture mentoring program that currently advises about 70 student- and faculty-led startups; he says 85 percent of the companies were formed around patentable inventions, from a smart golf club that tells users how to improve their swings to exoskeletons that help people in rehab.

The new emphasis on invention pays off. CHI Research combs patent databases for “highly cited” patents, ones that are frequently referenced in papers and later patents. According to CHI, the stocks of companies with a high proportion of these highly cited patents have greatly outperformed both the S&P 500 index and the stocks of companies with low numbers of highly cited patents (see “Investing in Invention Pays Off,” below). “Highly cited patents correlate to [stock market] success,” says Breitzman.

Investing in Invention Pays Off

Companies holding patents that are cited most frequently by papers and other patents and that yield marketable products the fastest have far outperformed the S&P 500. This chart depicts the successive year-end values of $1,000 initially invested in January 1990.

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