Patents do not statistically measure innovation.
Smith & Funk 21’ – Gary N, the Fletcher Jones Professor of Economics at Pomona College. Jeffrey, an independent technology consultant who was previously an Associate, Full, or Assistant Professor at National University of Singapore, Hitotsubashi and Kobe Universities in Japan, and Penn State where he taught courses on the economics of new technologies. “Why We Need to Stop Relying On Patents to Measure Innovation”, ProMarket, https://www.promarket.org/2021/03/19/patents-bad-measure-innovation-new-metric/, 03-19-2021
“PATENT DATA ARE A VERY “NOISY” MEASURE OF INNOVATION BECAUSE MOST INNOVATIONS ARE NOT PATENTED AND MANY PATENTED INVENTIONS ARE NOT VALUABLE.”
On the other hand, patents have been awarded for thousands of seemingly useless inventions like bird diapers, a beer keg hat, and an “animal toy” that can be made of wood or wood composites and looks very much like a stick that might be thrown for a dog to fetch. There are also prophetic patents that are granted for things that don’t exist and may never exist, like Amazon’s patents for a flying warehouse, underwater warehouse, delivery blimp, and underground delivery tunnels.
Nor are patents closely related to profitability—past, present, or future. Of the top ten corporate patent applicants, only three were in the top 100 for market capitalization in 2019: IBM (9), Samsung (19), and Toyota (27). Of the top 10 companies in market capitalization, only four were among the top 100 patent applicants: IBM (8), GE (31), Microsoft (45), and Google (65). Apple, Exxon Mobil, PetroChina, Walmart, and Nestle are not in the top 100 for patent applications even though they are in industries that apply for many patents.
Patent law offers patent recipients protection in return for disclosure, but not all innovators benefit from this trade-off. Tesla CEO Elon Musk has said that, “We have essentially no patents in SpaceX. Our primary long-term competition is in China. If we published patents, it would be farcical, because the Chinese would just use them as a recipe book.”
The key to a nation’s long-run economic growth is the effect of innovation on productivity; however, economists have long known that there is little correlation between productivity and patent activity. The figure shows the patent inflation that began in the US around 1990 as patents applications and awards soared while productivity languished. After increasing by nearly 3 percent a year between 1870 and 1970, US productivity growth slowed to 1.5 percent a year, then 1 percent, and is now about 0.5 percent. Even though patent activity paints a rosy picture of innovation, corporate revenue generated per dollar of corporate R&D spending has fallen by 65 percent since the 1970s.
To the extent that patent applications and infringement litigation are an expensive distraction for engineers, scientists, and managers, they might actually be a drag on productivity. The direct cost of a patent application is about $10,000; the total cost of the time spent by engineers, lawyers, and other personnel could easily push the total expense past $50,000. If so, the total cost of the 669,434 patent applications filed in 2019 was more than $30 billion, which is approximately half of the entire federal investment in nondefense R&D.
Some highly cited patents are extremely important and valuable, and some scientific papers are very influential, but the obsession with patent data suggests that such cases are everywhere, and are what drives an innovative economy, when in fact “home runs” like transistors are rare. Patent citation research is also self-serving in that it enables university professors to boast that they are writing papers that are cited in patents and it enables Science magazine and other journals to claim that they are the drivers of innovation and productivity growth.