The Global Patent Race Picks Up Speed

Up until the late 1980s, Digital Equipment Corp. gave short shrift to patents. DEC founder Kenneth H. Olsen believed that computer technology moved too rapidly for patents to offer much protection. What's more, he encouraged other companies to use DEC's technology to make add-on products that would raise demand for its computers. In 1985, DEC received just 20 U.S. patents--a tenth of the number garnered by Japanese rival Fujitsu Ltd.

Olsen's conviction soon ran up against changing times, however. Patents grew in value, thanks to court rulings and a slowdown in the evolution of computers. DEC began to see buried treasure in its inventions. And defensively, the company needed to build a patent war chest to have something to trade when other companies sought royalties on patents that DEC needed to license.

"FREEDOM." With Olsen's blessing, DEC's patent-filing machinery went into high gear. Last year, even though the company's profits evaporated, it won 223 U.S. patents--an elevenfold increase. Says DEC attorney Barry N. Young: "Our patents can be a sword or a shield. They give us freedom of action."

DEC's story is hardly unique. Plenty of attention has been given to the surge in U.S. patents won by Japanese companies. Less noticed is that big U.S. companies, from DuPont to Texaco to Philip Morris, have strongly stepped up their patent activity. Indeed, after years of steady decline, the share of U.S. patents won by American inventors is inching upward. Excluding design patents and other special cases, the proportion earned by American inventors has gone from a low of 51.9% in 1988 to 53% in 1991 and 53.5% in 1992, according to CHI Research Inc., a patent consulting firm in Haddon Heights, N.J.

U.S. industry's aggressiveness may soon be matched by a new toughness on the part of Washington. President Clinton's nominee for commissioner of the Patent & Trademark Office, Bruce A. Lehman, believes that the Bush Administration was prepared to give up too much in return for too little in its negotiations over international patent policy. Lehman is taking a second look at a Bush plan to "harmonize" U.S. patent law with the rest of the world's--by discarding America's 200-year-old system of awarding patents.

FIRST DIBS. Lehman, a Washington copyright attorney who headed Clinton's transition team for the Patent & Trademark Office, is likely to follow Clinton's hardball policy on trade issues. For uniformity and efficiency, other countries are pressing the U.S. to embrace their system of awarding a patent to the first inventor who applies on a particular invention. The U.S., by contrast, awards patents to the original inventor, even if someone else gets to the Patent Office first. Whether to keep that venerable system--highly prized by independent inventors--is topic No.1 in patent circles.

Most big U.S. companies favor a switch to the international first-to-file system, partly because it would reduce the threat of "submarine patents"--legal torpedoes issued to obscure inventors who convince the Patent Office that they had an idea first and then sock corporate giants for millions in royalties. On the other hand, Lehman knows that big foreign companies also strongly favor ditching first-to-invent. So, indications are that he won't endorse the switch without trying to win major concessions from abroad--in particular, better patent protection for foreign companies in Japan, where the average wait for a patent is five years, vs. 18 months in the U.S.

POLYGLOT GROUP. What happens to the U.S. patent system is of intense interest to companies around the world because winning a patent on an important product in the U.S. is like hitting the jackpot. It grants 17 years of exclusive rights to make and sell a product in the world's largest market. And a U.S. patent carries weight beyond America's borders. It makes little sense for a competitor to invest heavily in a me-too product for global distribution if it will be excluded from the essential U.S. market. No wonder, then, that U.S. patents were awarded last year to inventors living everywhere from Switzerland to Senegal.

BUSINESS WEEK's Patent Scoreboard, prepared by CHI Research from government data, shows how winners of U.S. patents performed in four key categories. The first three are repeats from last year's Scoreboard: the number of patents; current impact, which is how frequently a company's recent patents are cited in other patents; and technological strength, a combination of the first two measures. The leader in technological strength in this year's Scoreboard, up from third in last year's: Japan's Canon Inc., which has won a slew of U.S. patents for, among other things, its innovative printing technology. Canon's bubble-jet printer heads have rows of microscopic nozzles that spurt tiny blobs of ink onto paper 6,200 times per second. IBM was the highest-ranked U.S. company, up two notches, to fourth.

The fourth Scoreboard category--new this year--is science linkage. It measures how often a company's patents make references to scientific papers. The numbers vary a lot by industry. Companies with big numbers--say, a pharmaceutical company such as Upjohn, with 9.84 scientific citations per patent--work much closer to the cutting edge of science than, say, an auto maker such as Mazda Motor Corp., which had a 1992 rating of 0.

Studying the science linkage of patents reveals some interesting patterns. For one thing, Japanese companies, on average, rank lower than U.S. companies in the number of scientific references in their patents. It may be just a difference in the style of writing applications, but CHI President Francis Narin believes that the gap confirms the widely held belief that American research-and-development labs remain at the forefront.

So why do Japanese companies such as Toshiba Corp. continue to excel in the marketplace? In science linkage, Toshiba ranks toward the bottom of the electrical industry, yet the company is a market leader in a stunning array of products, from semiconductors to notebook computers to advanced medical-imaging gear. One secret is how it moves ideas out of the lab, says Senior Executive Vice-president Sei-ichi Takayanagi: "A researcher with a good idea can stick with it through the development phase and then transfer to a sales division to create a successful product. That system is very rare in America."

A patent offensive won't help American companies match the likes of Toshiba in product development. But what it might help them to do is defeat foreign and domestic rivals through the legal system by combating alleged infringements. A word of caution, though: Ultrastrong patent protection by sympathetic courts can end up hurting consumers by reducing their choice of suppliers. Ever since the 1982 formation of a special federal appeals court in Washington to hear patent cases, the judiciary has swung toward upholding broad claims of patent infringement, possibly chilling competition. Says Boston University law professor Robert P. Merges: "There is more fear now that a particular line of research belongs to Company X."

TRUST FUND. Litigating companies say they're just protecting their property. They draw inspiration from Texas Instruments Inc., which funds most of its R&D effort with income from patent licenses. It has scooped up $1.2 billion in royalties since 1986, including $391 million last year alone--much of it from the Japanese. Intel Corp., a latecomer to the patent race, expects to apply for 400 this year, up from 100 filings in 1990. The chipmaker is also chasing alleged infringers harder. Warns Intel's general counsel, F. Thomas Dunlap Jr.: "Life's going to get tougher and tougher for imitators that are just trying to steal other people's intellectual property."

Rivals may grumble. But as long as courts, lawmakers, and the Clinton Administration are sympathetic, count on U.S. companies to mine their patent portfolios for every last ounce of inventor's gold.

                                           Number of  Current  Techno-  Techno-
                                           patents    impact   logical  logical 
      Company/                               1992      index  strength  strength
      Headquarters country                     1992     1992     1991 (rank)
           1.     CANON Japan                  1118     1.76     1971     3
           2.     HITACHI Japan                1165     1.45     1688     2
           3.     TOSHIBA Japan                1176     1.29     1514     1
           4.     IBM U.S.                      842     1.77     1488     6
           5.     GENERAL ELECTRIC U.S.         995     1.24     1236     8
           6.     MITSUBISHI ELECTRIC Japan     976     1.18     1147     4
           7.     MOTOROLA U.S.                 671     1.68     1126     10
           8.     EASTMAN KODAK U.S.            804     1.25     1005     5
           9.     XEROX U.S.                    477     2.08     990     18
          10.     AT&T U.S.                     528     1.81     955     11
          11.     MATSUSHITA ELECTRIC Japan     732     1.27     931     16
          12.     GENERAL MOTORS U.S.           790     1.17     925     7
          13.     FUJI PHOTO FILM Japan         652     1.10     719     9
          14.     NISSAN MOTOR Japan            395     1.80     709     13
          15.     NEC Japan                     502     1.41     709     15
          16.     TEXAS INSTRUMENTS U.S.        401     1.76     707     14
          17.     FUJITSU Japan                 443     1.57     697     19
          18.     DUPONT U.S.                   684     0.94     644     17
          19.     PHILIPS Netherlands           607     0.97     589     12
          20.     SONY Japan                    446     1.26     560     29
          21.     RICOH Japan                   366     1.53     559     30
          22.     3M U.S.                       395     1.40     555     21
          23.     BAYER Germany                 692     0.73     507     28
          24.     SHARP Japan                   394     1.21     477     25
          25.     SIEMENS Germany               550     0.85     468     20
      *Including GM Hughes Electronics 
      NOTE: Current impact index measures the number of times a company's patents are 
      cited in other patents. Technological strength is a multiple of number of 
      patents and the impact index. A more complete explanation is on page 59.
      Company/                1992 current
      Headquarters country     impact index
      CORDIS U.S.                 2.68
      XEROX U.S.                  2.08
      MITSUBISHI MOTORS Japan     2.05
      NTT Japan                   2.05
      AMP U.S.                    1.94
      DIGITAL EQUIPMENT U.S.      1.92
      INTEL U.S.                  1.88
      PROCTER & GAMBLE U.S.       1.81
      AT&T U.S.                   1.81
      NISSAN MOTOR Japan          1.80
      IBM U.S.                    1.77
      TEXAS INSTRUMENTS U.S.      1.76
      CANON Japan                 1.76
      KIMBERLY-CLARK U.S.         1.74
      MOTOROLA U.S.               1.68
      Company/                 1992 science
      Headquarters country       linkage*
      UPJOHN U.S.                 9.84
      ROCHE HOLDING U.S.          9.11
      WELLCOME Britain            4.44
      MERCK U.S.                  4.20
      SCHERING-PLOUGH U.S.        3.88
      ELI LILLY U.S.              3.46
      BRITISH TELECOM Britain     3.02
      MONSANTO U.S.               2.91
      ALZA U.S.                   2.52
      BECTON DICKINSON U.S.       2.52
      SYNTEX U.S.                 2.40
      UNOCAL U.S.                 2.39
      SMITHKLINE BEECHAM Britain  2.38
      *Average citations per patent to scientific literature
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