Business

Economic Bust, Patent Boom

High-tech companies try to invent their way out of the recession, applying for a record number of patents in 2001.

It’s no news flash that the economy has been struggling for over a year, with the high-tech sector taking the biggest beating. But you’d never know it by looking at patent activity. The U.S. Patent and Trademark Office received a record flood of 344,717 patent applications in 2001, as companies worldwide beefed up their patent portfolios. The intellectual-property principle for the post-dot-com world: patent or perish.

So, too, reads the message that jumps off the pages of Technology Review’s latest Patent Scorecard. Based on data from CHI Research of Haddon Heights, NJ, the scorecard annually tracks the U.S. patenting activity of 150 top companies in eight key high-tech sectors. The project goes beyond mere patent numbers to rank the quality and strength of each company’s portfolio according to its comparative relevance.

Once again, the editors have delved deeper into U.S. patenting activity by identifying a handful of patents issued last year that are of special note. Be they stem cells that can help repair or replace any tissue in the human body, systems that speed up wireless communications or novel materials and software algorithms used to build, store and process information, these “Five Patents to Watch” (p. 73) represent advances that could transform a number of industries-or even create new ones.

But it’s the scorecard that tells the broader story, setting the stage on which these individual dramas will play out. Its figures show that from autos to pharmaceuticals to computing and all manner of electronics, patent activity is booming. The biggest surges last year came in information technology and telecommunications. Semiconductor companies saw an average increase of 21.4 percent in the number of patents issued from 2000 to 2001. Similarly, patenting grew 20.4 percent in the telecom industry, and in computing 11.6 percent. Even more impressive, U.S. Patent and Trademark Office statistics suggest the penchant for patents among information technology companies will continue; these three sectors saw the highest numbers of new patent applications filed in 2000, the latest year for which data are available.

As long as these companies keep investing in research and development, they will continue to patent voraciously, says Alan Fisch, patent attorney with Washington, DC, firm Howrey, Simon, Arnold and White. “If it’s valuable enough to continue investing in, it’s valuable enough to protect.”

No firm more clearly epitomizes the patenting mania than IBM. For an astonishing nine years running, the company has topped the U.S. Patent and Trademark Office’s list of patentees, receiving 3,454 patents in 2001-almost 10 a day. Its supremacy also extends to TR’s ranking of technological strength, as Big Blue dominates not just its industry category but the entire scorecard. “I definitely see this trend continuing,” asserts Jerry Rosenthal, IBM’s vice president of intellectual property and licensing. “We think it’s what keeps us ahead of the industry.”

IBM doesn’t make its push for patents just for public-relations value, although that helps. The behemoth earned more than $1.5 billion from licensing income last year, all of which it plowed back into R&D, according to Rosenthal. “The problem we’ve got is that technology is moving so rapidly, it’s hard to predict always where and what the next generation will be,” he says. “So we have to patent broadly to protect ourselves.” Knowing that their technology will be patented-and ultimately licensed out to other companies-forces IBM’s researchers to stay one step ahead of the pack, Rosenthal adds.

More and more firms are getting the message. Hewlett-Packard hopes to use a strategy similar to IBM’s to advance its position. In December 1999, the 62-year-old company launched its “Invent” campaign, a push to increase innovation and, especially, patenting. To accomplish this goal, HP vigorously promotes its “inventor incentive program,” in which the company gives $170 to any employee who submits a description of a new invention. The inventor receives an additional $1,750 if HP’s lawyers choose to file a patent application on the creation-and a special plaque if the patent issues. As a result, says Steve Fox, director of intellectual property, the company has seen “considerable growth” in the numbers of invention disclosures it receives, and patent applications have doubled.

The concrete goals of the campaign are highly pragmatic: to break into the list of the top ten U.S. patentees and to increase revenue by licensing the patents out to other companies. “We will move up into the top ten in the next year or two years,” Fox predicts.

Although the process of patenting historically tends to be dominated by large, well-known concerns-four of TR’s five patents to watch come from IBM, Lucent Technologies, NEC and Microsoft-the scorecard also shows that smaller, newer companies are making inroads in fast-moving industries like biotechnology and semiconductors.

San Jose, CA-based chip-packaging innovator Tessera Technologies, ranked twelfth in the semiconductor sector, has made its methods for connecting chips to circuit boards an industry standard without making chips itself; instead it sells licenses for its technology to companies like Intel and Samsung. Meanwhile, biotechnology firms like top-ranked Santa Clara, CA-based DNA-chip maker Affymetrix and eighth-place Mountain View, CA-based microfluidics company Caliper Technologies are turning their patent-protected products into the tools that will drive drug discovery and biomedical research over the next decade.

While these upstart companies have increased their patenting, sometimes dramatically, their appearance and position on the scorecard are due more to the wider impact of their patents, which boosts their technological-strength rating dramatically. In Caliper’s case, its microfluidics technologies shrink the volumes of reactions needed to evaluate new drugs or perform diagnostic tests from microliters to nanoliters-and put the whole experimental apparatus on a single chip. Theoretically, this will enable dramatic cost savings in the time and money needed to develop drugs or diagnose diseases.

“We were fortunate enough to come into microfluidics in a time when the patent landscape wasn’t as crowded as it is now,” says Caliper vice president of intellectual property Matt Murphy. “We’ve tried to file broadly enough to cover the general path we’re taking and then file aggressively.”

The six-year-old company has sold its initial system, codeveloped with Agilent Technologies, to nearly every major pharmaceutical maker.

Affymetrix holds a similar position as the leading supplier of DNA chips that allow researchers to analyze the activity of thousands of genes at a time. Although the company isn’t new to the scorecard, it made an astonishing leap from the fourteenth position in the biotechnology/ pharmaceuticals sector last year to the top spot. Its 54 patents issued in 2001, although double its 2000 total, lag far behind number two GlaxoSmithKline’s 432. Its strength comes instead from its position as an early manufacturer of DNA microarrays, as well as devices to synthesize and read the chips and software to analyze the resulting data. “We try to cover the array area from start to finish,” says Philip McGarrigle, Affymetrix’s chief intellectual-property counsel.

Both small companies such as Affymetrix and industry giants like IBM say they will continue to innovate and to aggressively protect their innovations by filing patents, tough times or not. They will also increasingly defend the patents on which they depend for their future fortunes, likely leading to further growth in already vigorous patent litigation. All of which means that while one sector or another may be hot in a given year-and there is no telling where next year’s most important inventions will come from-the corporate passion for patents won’t end anytime soon.


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