U.S. Patents Take a Fall

Has the U.S. lost its Yankee ingenuity? For the first time in 2009, non-Americans were granted more U.S. patents than resident inventors, accounting for 50.7% of new grants, according to recent data from the Patent & Trademark Office. Moreover, for only the second time in the last 25 years, patent applications fell overall in the year ended Sept. 30.

The role reversal had been only a matter of time. Led by Japan and the likes of South Korea and China, other countries have been zigzagging their way higher in patent awards for decades, while the number granted to U.S. residents peaked in 2001. Still, the inflection point troubles American tech industry advocates and other analysts. "The U.S. is losing its innovation base," says Robert D. Atkinson, founder and president of the Information Technology & Innovation Foundation (ITIF), a Washington think tank.

The shift reflects in part moves by U.S.-based companies to offshore research and development. Take IBM (IBM), a company that for 16 years running has ranked No. 1 in patent volume. Big Blue still owns the rights to an invention that originated in one of its Indian labs, but the Patent Office would include it in its foreign resident tally. Taxes are one reason more innovation is going abroad. The U.S. once boasted the most generous research and development tax credits among the 30 countries in the Organization for Economic Cooperation & Development. Now, according to the ITIF, it ranks 17th, as other nations have cut taxes to spur investments in labs and equipment.

U.S. education gets rapped, too. India and China produce more scientists and engineers than the U.S., and international students who attend American universities generally must return home as soon as they've graduated. "We're forcing these people to do their productive work elsewhere," says Mark Chandler, general counsel of Cisco Systems (CSCO). "They should have a green card stapled to their admittance letter."

The 2.3% drop in overall patent applications is likely a byproduct of the Great Recession, as companies slash R&D budgets to help maintain profits. The last decline was in 1996, when new global rules on the duration of patent protection went into effect, prompting applicants to hustle and file in 1995. The only other time over the past three decades that the number of patent seekers fell was in 1983, when the U.S. was emerging from a deep recession.

As before, the slide in applications will likely last just a year. But 2008 could turn out to be the last time the U.S. won the patent race.

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