Companies Squeeze the Patent Pipeline
The Technology Review Patent Scorecard shows corporations focusing more than ever on intellectual property-but with sharply contrasting strategies.
AT&T boss Mike Armstrong has a lot of cards on the table. Witness his forays into cable television, local phone service and Internet access. To support these bold initiatives, a few years ago Armstrong ordered his researchers to bulk up AT&T’s intellectual property position, a strategy that has sparked an almost sevenfold increase in the number of patents issued in 1999 versus just two years earlier.
Now look at 3M-the inventor of Post-it notes and Scotch tape-whose name is almost synonymous with corporate creativity. There, 1999 patent output fell by nearly 150, a 24 percent dropoff from the previous year.
It might seem that one of these longtime research leaders suddenly hired a bunch of brilliant inventors while the other has forsaken R&D. Hardly. In fact, the two are aggressively pursuing the same goal: innovation. In AT&T’s case, the company is storming into some white-hot and rapidly changing areas-so its braintrust upped the ante on patenting. Explains intellectual property and standards vice president Jeff George, “We want to build picket fences around the technologies that we think are most important for the future.”
3M is also striving to “fence off” vital technology areas. Part of that effort, though, is a push to reduce filings extraneous to 3M’s businesses-a strategy that can diminish total patent output but if done right improves the payoff from a company’s inventions. Indeed, officials cite a 25 percent rise in the number of new products introduced in 1999. Patenting remains central to 3M, says senior vice president for research and development Bill Coyne, citing a legal change a few years back that spurred a rash of filings responsible for much of 1998’s all-time high of 617 patents. But while he expects the numbers to go back up in the coming years, Coyne adds, “What we’ve put more emphasis on is making sure we’re commercializing our technologies more effectively.”
And a lot is changing. A comparison of the 1999 leaders against the five-year averages shows that the firm occupying the top spot has changed in seven of eight industry groupings: Only IBM has rested undisturbed at the head of its class.
Even more telling than the shuffling of leaders are the dramatic gains or losses in technological strength that a host of companies have experienced in recent years. Take AT&T. The company ranked fourth in the telecommunications sector in 1999-behind Lucent, Motorola and Ericsson-just where its five-year average puts it. But last year’s projected technological strength rating of 1551 is more than five times its average for the previous half-decade-enabling it to close the gap on the leaders. The movement reflects to a great extent the forces put in place following AT&T’s 1995-96 trivestiture, which saw it split into AT&T, Lucent Technologies and NCR. “At the time of trivestiture…a much greater percentage of the patents that were held between the combined companies stayed with Lucent,” says intellectual property executive George. That made sense, he says, because Lucent is a hardware and manufacturing concern, while AT&T operates as a long-distance and services company-and few patents had traditionally been granted in the service sector.
The rules have been rewritten in recent years, though, with the awarding of patents for seemingly not-so-inventive service ideas such as “experts online” (see “Software Patents Tangle the Web”). In early 1998, the new service-friendly patenting environment helped spur chairman Armstrong to launch his campaign to bolster AT&T’s patent output-not just for its traditional long-distance business, but in cable systems, wireless communications and Internet telephony.
Among those tapped to bring about this new era was AT&T fellow Roy Weber, who back in the old AT&T days had won the basic systems patent covering the use of 800 numbers to handle customer-service calls. Weber, now a research vice president, oversees a variety of service-related investigations. Among other things, AT&T is pushing his scheme for a customer service operation called Wide-area Internet Sales Link (WISL-pronounced “whistle”). The idea is to improve on the current geographically based call centers spurred by his 800 patent by creating virtual centers in which service agents share data over the Internet and phone calls are automatically routed to agents who are free.
The advantage, says Weber, is flexibility. Many companies needing to expand their service centers are struggling to find skilled people and construct buildings fast enough. “What WISL does is give them a degree of freedom. They can build centers anywhere-strip malls, satellite offices-or let people work from their homes,” he says. AT&T has field tested WISL with a telemarketing service bureau in Florida and a Detroit-area travel service. Commercial rollout is planned for this year.
Another sign of the dynamic nature of invention these days is the way relative small fries can crack the big-boy ranks. In the biotech/pharmaceuticals arena, tiny Incyte Pharmaceuticals, a Palo Alto concern with about $150 million in sales, soared from 17th place in the five-year tech strength averages to tenth in 1999-surpassing notables such as Abbott Labs and Glaxo Wellcome. A big part of this rise came via sheer patent volume, as last year’s estimated total of 248 easily outstripped its average of just 27 annually for the previous five years. Indeed, the estimated total for 1999 came close to putting Incyte in a tie for first place in its sector, along with Merck, Roche and SmithKline Beecham.
Incyte’s main area of patenting: human genes. Around 1993, Incyte realized that advances in automatic sequencing and characterization were making it possible to affordably identify and patent human genes or pieces of genes. This genetic information, Incyte reasoned, would be a valuable commodity to other companies striving to create diagnostics and drugs. So the firm quickly abandoned its own drug-development business to become a supplier of genetic data.
Things moved slowly at first, as the company ramped up technologically. By late 1998, however, Incyte’s patent pump was primed, and it announced plans to spend $80 million to $90 million over the next two years to beef up its intellectual-property portfolio. The results have been impressive. At the beginning of 1999, Incyte had filed patent applications on just under 2,000 genes, reports general counsel Lee Bendekgey. By year’s end the figure was between 6,500 and 7,000.
Better Bang for the Buck?
Just as the scorecard spotlights cases like Incyte’s in which patents and technological strength are rising, it raises the alert for companies whose numbers are mixed or have fallen. In the automotive sector, General Motors is up 12 percent in tech strength in 1999 compared to its previous five years but slipped 4 percent in patent numbers.
Vice president for R&D and planning Larry Burns says GM has made no major policy changes that would account for the patent downturn. But the CHI figures can be broken down by specific categories. This detailed analysis shows significant falloffs in patenting in such areas as motor vehicle parts and machinery over the past five years. These declines are not totally offset by gains in other areas-including a whopping 600 percent rise in telecommunications patenting, where GM now claims more than 200 inventions. The pattern fits with Burns’ strategy of focusing on hot growth areas and integrating technologies from several fields-and not on creating individual components.
A prime example is OnStar, which combines telecom with computer systems to track cars and enable drivers to get directions or even order flowers. GM expects to see the service in one million vehicles this year. “We judge our innovation success not just by counting patents, not that we ignore that,” Burns says. “We really measure ourselves in terms of how well we prepare the company for the future.”
3M is another company that has seen some erosion in the quantity of patents. And along with its 14 percent drop in patent numbers comes an estimated 17 percent falloff in technological strength, although even with that decline it ranked second in the chemical industry, behind only Procter & Gamble. At the same time, 3M’s science linkage improved some 50 percent-an indication that in concert with its improved focus, the company is working closer to the cutting edge.
Case in point: the company’s advances in multilayer optical films, which are being applied to everything from PalmPilot screens to decorative bows, ergonomic lighting and temperature control for offices and cars, and even fiber optics. Since the first key breakthroughs in 1993, researchers have filed roughly 140 patent applications around this technology-covering its basic composition, functionality and uses. Officials estimate that in the next five years, this field-nonexistent at 3M less than a decade ago-could account for more than 10 percent of company sales, a figure that could reach as high as $2 billion annually.
The relentless effort to create, control and optimize intellectual property is not by any means limited to American firms. Indeed, the scorecard is permeated by foreign competitors. Some, like German chemical concerns Bayer and Hoechst, have ranked as world leaders for more than a century. As they have for several decades, the Japanese continue to look strong in autos and computers and come close to dominating the electrical/electronics sector-though last year Korea’s Samsung catapulted to the top spot in this arena. Meanwhile, foreign firms are also making their presence felt in telecommunications, with Sweden’s Ericsson, Finland’s Nokia and Canada’s BCE, parent of Nortel Networks, all in the top six.
Still, the United States seems to be leading the way. After a long period of sluggishness, the rate of patenting by U.S. residents and corporations relative to the nation’s size and spending has been climbing for more than a dozen years (see “National Numbers Game,” TR November/December 1999).
Much of the growth is arising from small and middle-sized firms that previously played little role on the patenting scene, according to Harvard Business School professor Josh Lerner. That’s in line with the consensus view of startups as hotbeds of technological creativity. But the Patent Scorecard makes clear that many big American corporations are also doing well in navigating the intellectual-property vortex. Lerner and other observers feel the trend is indicative of a wellspring of innovation that has played a key role in driving the economic expansion that began in March 1991 and now ranks as the longest in U.S. history.
For Lou Galambos of Johns Hopkins University, the current U.S. edge stems from the country’s uniquely “large and complex system, which in education, government and business has sloppy boundaries that promise interaction.” That interaction between diverse sectors-and their abundance of venture capital and expertise-fosters the competition, risk-taking and creative change vital to success. The great challenge in today’s global business climate, Galambos says, lies in maintaining innovation now that the economies of scale built up in the post-World War II years no longer suffice to protect market share. In this quest, intellectual property has never been more important.
The numbers are in on 150 of the world’s most inventive companies
COMPANYTechnological Strength/RankNumber of PatentsCurrent Impact IndexScience LinkageTechnology Cycle Time1999*1994-98§1999*1994-98§1999*1994-98§1999*1994-98§1999*1994-98§AerospaceBOEING (U.S.)278/1153/43251800.850.850.550.829.9013.20ROCKWELL INT’L (U.S.)231/2154/31851551.250.991.010.376.808.00LOCKHEED MARTIN (U.S.)218/3212/22292430.950.871.491.407.808.60UNITED TECHNOLOGIES (U.S.)206/4249/13103500.660.710.600.378.709.60NORTHROP GRUMMAN (U.S.)138/5102/51631240.850.820.500.637.808.80TEXTRON (U.S.)48/677/653770.911.000.100.278.009.90TI GROUP (U.K.)42/750/735361.191.380.380.117.309.70SNECMA (France)31/836/863730.490.500.350.198.5011.90GENERAL DYNAMICS (U.S.)27/98/142591.050.962.788.638.3011.80AEROSPATIALE GROUP (France)23/1033/948680.480.480.300.309.2010.50AEROQUIP-VICKERS (U.S.)22/1120/1120231.090.841.060.838.108.50GKN (U.K.)17/1221/1028370.620.570.000.028.109.70DFVLR (Germany)16/1314/1322220.720.610.801.387.507.70SEQUA U.S. (U.S.)13/1418/1215170.841.030.430.2811.1014.00AutomotiveTOYOTA (Japan)700/1331/54872591.441.280.300.355.806.10HONDA (Japan)580/2375/44703220.127.116.11.195.906.40DENSO (Japan)527/3403/34383201.201.260.280.296.806.60GENERAL MOTORS (U.S.)513/4460/14274471.201.030.590.486.707.60DAIMLER CHRYSLER (Germany)493/5328/65114050.960.810.310.227.708.40TRW (U.S.)465/6323/83302041.411.580.770.596.907.50FORD (U.S.)446/7439/24043718.104.22.1680.317.408.20BOSCH (Germany)413/8324/74503370.920.922.214.171.124.80AISIN SEIKI (Japan)338/9131/122271301.491.010.380.515.806.80NISSAN (Japan)314/10198/102691851.171.070.100.156.006.20EATON (U.S.)306/11171/112391781.280.960.160.267.508.90YAZAKI (Japan)300/12219/92981871.011.170.010.026.606.60LEAR (U.S.)298/1362/17162561.851.111.490.378.408.90YAMAHA (Japan)233/1495/141771391.320.680.000.026.708.90CUMMINS ENGINE (U.S.)153/1570/15116621.3126.96.36.199.3010.70DELPHI AUTOMOTIVE (U.S.)131/16102/131069188.8.131.52.255.606.90BREED TECHNOLOGIES (U.S.)115/1726/1860131.921.940.020.064.906.70MITSUBISHI (Japan)101/1868/1661501.651.350.000.065.105.60Biotech/PharmaceuticalsMERCK (U.S.)246/1180/42542050.970.885.856.425.706.40SMITHKLINE BEECHAM (U.K.)227/243/18251800.910.545.4184.108.40.206PFIZER (U.S.)195/3174/51531411.281.242.772.597.107.80ROCHE (Switzerland)180/4215/12482750.730.7815.4614.618.208.50ELI LILLY (U.S.)171/5141/81831830.940.777.659.466.609.00BRISTOL-MYERS SQUIBB (U.S.)155/6156/71691720.920.9110.127.448.908.30AMERICAN HOME PRODUCTS (U.S.)149/7204/32262220.660.927.386.667.307.90NOVO NORDISK (Denmark)133/869/10218980.610.715.527.226.808.10NOVARTIS (Switzerland)133/9205/22083410.640.6011.264.598.909.60INCYTE PHARM. (U.S.)127/1044/17248270.511.628.7912.704.305.50ABBOTT LABORATORIES (U.S.)124/11168/61491630.831.037.794.089.608.90ASTRAZENECA (U.K.)121/12109/92111430.570.766.605.178.208.00GLAXO WELLCOME (U.K.)115/1352/1590741.290.708.269.857.708.60SCHERING-PLOUGH (U.S.)113/1436/21110631.030.5812.068.827.6010.20PHARMACIA & UPJOHN (U.S.)109/1564/121391040.780.6114.719.168.109.00ISIS PHARMACEUTICALS (U.S.)103/1638/2067241.531.5636.6138.876.906.40ALZA (U.S.)92/1735/2256341.631.042.902.4010.4010.30GENERAL HOSPITAL (U.S.)84/1845/1686420.971.0736.6232.797.908.10SCHERING (Germany)61/1941/1973590.840.694.954.198.908.60TAKEDA CHEMICAL (Japan)61/2060/1394950.650.635.292.578.308.90WARNER-LAMBERT (U.S.)55/2167/1180830.690.818.696.199.809.40XOMA (U.S.)51/2219/2315123.271.5541.2944.354.705.90CHIRON (U.S.)49/2353/1474530.671.0042.5729.258.909.00ChemicalsPROCTER & GAMBLE (U.S.)1115/1664/25573412.001.951.052.099.4010.203M (U.S.)621/2749/14725461.311.373.042.009.2010.30DUPONT (U.S.)380/3396/35204830.730.824.723.168.909.90BASF (Germany)302/4243/75144590.590.531.700.958.8010.50BAYER (Germany)260/5254/65225080.500.502.491.748.409.30SHIN-ETSU CHEMICAL (Japan)205/6129/122331900.880.680.430.396.407.70CABOT (U.S.)205/713/1744124.631.075.005.548.209.90MONSANTO (U.S.)201/8137/102481930.810.7112.968.309.909.40DOW CHEMICAL (U.S.)189/9204/81802651.050.775.233.809.109.90DOW CORNING (U.S.)169/10138/92061660.820.830.810.778.709.10RHONE POULENC (France)164/11115/132362090.700.558.373.599.0010.40HOECHST (Germany)162/12300/43305560.490.545.263.089.009.40ROHM AND HAAS (U.S.)160/13260/51602111.001.231.010.717.707.90HENKEL (Germany)135/14114/141891730.720.661.531.239.2012.40BRIDGESTONE (Japan)135/1593/151671220.810.760.881.238.4010.80AGFA (Germany)120/16131/111951680.620.780.070.156.707.30DEGUSSA-HÜLS (Germany)118/1792/161891610.620.570.870.747.108.90Computers IBM (U.S.)6895/13888/1273618002.522.161.011.315.606.10NEC (Japan)2857/21608/2191212181.491.320.650.704.805.10FUJITSU (Japan)2153/31261/312699201.701.370.640.665.505.80SUN MICROSYSTEMS (U.S.)2083/4433/105591683.732.581.911.704.204.50HEWLETT-PACKARD (U.S.)1558/5977/58505651.831.731.151.406.006.50MICROSOFT (U.S.)1441/6463/73611423.993.262.611.774.404.60COMPAQ (U.S.)1403/7924/64153423.382.700.771.244.606.30XEROX (U.S.)1051/81029/46446551.631.570.930.876.506.40RICOH (Japan)584/9453/84223431.391.320.280.356.105.60SEIKO EPSON (Japan)526/10319/113102101.701.520.680.837.407.00APPLE COMPUTER (U.S.)496/11450/91781612.782.801.291.365.205.20NCR (U.S.)429/12172/141931122.231.540.780.615.906.70SEAGATE (U.S.)355/13186/13177992.011.880.640.556.106.50NOVELL (U.S.)347/1442/1858116.033.993.632.624.604.00OKI (Japan)338/15133/152421031.391.290.610.585.005.20ORACLE (U.S.)331/1660/1689213.742.811.491.103.504.70CISCO SYSTEMS (U.S.)324/1757/1755135.854.300.920.925.404.60FUJI XEROX (Japan)290/18233/1224919220.127.116.110.745.305.50Electrical/ElectronicsSAMSUNG (Korea)2347/1956/617057901.318.104.22.168.305.60CANON (Japan)2102/21897/1177414371.191.320.490.527.607.20SONY (Japan)1970/31280/314219411.391.360.310.365.605.70TOSHIBA (Japan)1926/41347/2129410601.491.270.620.635.706.00HITACHI (Japan)1869/5354/1312802641.461.340.760.826.306.70MATSUSHITA (Japan)1588/61209/4123310071.291.200.520.686.005.90MITSUBISHI ELECTRIC (Japan)1527/71161/5110910181.381.140.610.775.805.90PHILIPS (Netherlands)1269/8755/99997191.271.050.510.675.906.40EASTMAN KODAK (U.S.)1007/9940/79878621.021.090.310.447.308.10SIEMENS (Germany)930/10596/119956930.930.860.660.836.907.20SHARP (Japan)783/11544/125684611.381.180.780.785.105.60LG ELECTRONICS (Korea)676/12328/155753451.180.922.214.171.124.70TYCO INT’L (U.S.)560/13651/104194491.341.450.890.608.809.60GENERAL ELECTRIC (U.S.)559/14799/87088150.790.980.550.648.309.30MINOLTA (Japan)408/15195/183441811.181.080.050.036.806.40TOKYO ELECTRON (Japan)354/16180/20143942.481.910.220.076.305.20DAEWOO (Korea)349/17205/172811461.241.400.060.185.406.30BROTHER INDUSTRIES (Japan)335/18146/222681611.250.910.030.045.706.10MURATA MFG (Japan)325/19139/232521481.290.940.260.216.507.70RAYTHEON (U.S.)281/20344/142543341.111.030.480.917.907.70SANYO (Japan)281/21173/212451641.151.060.630.545.806.00TRIMBLE NAVIGATION (U.S.)274/22110/2476373.592.980.300.305.805.20YAMAHA (Japan)268/23181/192051491.3126.96.36.199.005.50THOMSON (France)268/24246/162782800.960.880.670.627.207.30SemiconductorsMICRON TECHNOLOGY (U.S.)3470/1757/310473193.322.371.800.905.305.30ADVANCED MICRO DEVICES (U.S.)2376/2569/48142472.922.301.011.155.005.30INTEL (U.S.)2236/31163/17584102.952.840.970.845.204.90TEXAS INSTRUMENTS (U.S.)1013/4952/25905801.721.641.141.285.906.40LSI LOGIC (U.S.)961/5321/73341372.882.342.191.596.005.90SEMICONDUCTOR ENERGY LAB. (Japan)844/6112/12180854.681.312.371.395.606.50TAIWAN SEMICONDUCTOR MFG (Taiwan)731/7196/9275912.6188.8.131.52.504.00STMICROELECTRONICS (France)624/8382/54172961.501.290.930.986.506.30UNITED MICROELECTRONICS (Taiwan)516/9246/82491382.071.780.250.334.404.20NATIONAL SEMICONDUCTOR (U.S.)371/10338/61901961.951.721.131.595.605.80VANGUARD INT’L SEMICONDUCTOR (Taiwan)354/11101/13105393.372.570.240.264.303.60XILINX (U.S.)284/12160/1092483.093.340.671.285.305.00CYPRESS SEMICONDUCTOR (U.S.)257/1387/14113412.2184.108.40.2065.504.80WINBOND ELECTRONICS (Taiwan)235/1416/17110192.140.850.170.404.004.60ALTERA (U.S.)198/15116/1169302.893.882.022.196.905.90LAM RESEARCH (U.S.)154/1641/1554192.8220.127.116.116.106.40TESSERA (U.S.)142/1727/1629114.922.470.690.518.208.00TelecommunicationsLUCENT TECHNOLOGIES (U.S.)2592/11473/211377592.281.941.241.965.405.30MOTOROLA (U.S.)2320/21978/1120710931.921.810.550.775.205.50ERICSSON TELEPHONE (Sweden)1758/3448/36352092.772.140.891.695.406.00AT&T (U.S.)1551/4291/4318694.818.104.22.168.404.90BCE (Canada)754/5230/72811252.681.840.941.144.804.90NOKIA (Finland)629/6175/102871232.191.420.560.515.005.60QUALCOMM (U.S.)541/7282/5106425.096.770.981.657.006.20MCI WORLDCOM (U.S.)445/8139/12128383.463.711.450.804.604.50ALCATEL (France)331/9274/62542561.301.070.941.136.606.50CABLETRON SYSTEMS (U.S.)271/1067/143597.677.331.413.354.504.80BELL ATLANTIC (U.S.)219/11165/1134376.404.420.681.856.205.90NIPPON TELEGRAPH AND TELEPHONE (Japan)216/12195/81171131.841.731.572.094.805.20US WEST (U.S.)162/1351/1640164.073.131.191.175.404.60BRITISH TELECOMMUNICATIONS (U.K.)119/1467/1477531.541.272.673.565.506.00ADC TELECOM (U.S.)109/1518/1932143.391.360.141.575.908.40BELLSOUTH (U.S.)108/1628/1824134.442.120.360.525.706.20SCIENCE APPLICATIONS INTERNATIONAL (U.S.)105/17177/924604.332.963.682.785.305.20SCIENTIFIC-ATLANTA (U.S.)92/1873/1329303.192.400.462.045.907.40KOKUSAI DENSHIN DENWA (Japan)84/1937/1745221.851.690.710.924.504.60
* – estimated from 47-week data
§ – average
Technological Strength:The number of U.S. patents multiplied by the Current Impact Index (see below).Number Of Patents:The total number of U.S. patents awarded, excluding design and other special-case inventions.Current Impact Index:Number of times a company’s patents for the previous five years are cited in the current year, relative to all patents in the U.S. system. A value of 1.0 indicates average citation frequency.Science Linkage:The average number of science references cited in a company’s U.S. patents.Technology Cycle Time:Median age in years of the U.S. patent references listed on a company’s patents.