Patents: The US is losing its lead

When it comes to U.S. patents, America is no longer No.1. Last year, for the first time, the U.S. Patent & Trademark Office issued more patents to foreigners than to Americans.

And the rest of the world is expected to widen its lead over the U.S. as manufacturing and research and development continue to migrate to emerging markets.

While the U.S. is still the biggest recipient of patents -- and holds the most valuable ones, according to analysis by Ocean Tomo, a firm that measures the worth of intellectual property -- the slippage comes amid recent reports that show the U.S. losing its edge when it comes to innovation.

Among them: a study by the National Association of Manufacturers and Boston Consulting Group that ranks the U.S. eighth, with Singapore, South Korea, and Switzerland at the top.

"If I were a policymaker, I would be paying attention to this," says Wendi Backler, global leader of BCG's intellectual property practice.

Asian R&D

The role reversal is due mostly to an upsurge in patents to inventors in Japan, South Korea, and China, and a decline in the U.S. for the second year in a row.

All told, American inventors received 92,000 patents in 2008, down 1.8% from the year before and a rise of just 1.4% over the past decade. Meantime, patients issued to foreigners rose 4.5%, to 93,244, in 2008 and 28.6% since 1998.

South Korea's gains have been most dramatic. In 1978, Korean inventors obtained 13 U.S. patents. By 1998, that number had grown to 3,362. Korea's total jumped another 2.5 times, to 8,731, last year, vaulting it to third place in patents awarded to foreign countries.

Only Japan (36,679) and Germany (10,086) had more. (See the complete data on 2008 patent awards.)

Intellectual property lawyers and consultants attribute the patent trends to the rise in factory operations and, more recently, R&D activities in Asia and other developing areas.

BCG, for instance, recently conducted another study, as part of BusinessWeek's Most Innovative Companies ranking. Asian executives chose innovation as a Top 3 priority in 68% of their responses vs. 61% from North American respondents.

Also at work are changes in corporate strategy. To reduce royalty payments to American patent holders and protect intellectual property in their home countries, these experts say, more foreign countries are seeking U.S. patents.

American patent awards may be dropping for another reason.

"A lot of U.S. companies are cost-conscious and are not filing for patents on everything," says Christopher J. Renk, an IP attorney at Chicago law firm Banner & Witcoff. Instead, they are seeking protection only on breakthroughs that seem most valuable and therefore worth the two years it takes to procure a patent.

Jonathan A. Barney, managing director of Ocean Tomo and founder of PatentRatings (who holds a dozen patents himself, including one for a wireless magic wand), doesn't foresee the U.S. reclaiming its patent title any time soon.

"As long as globalization and offshoring of manufacturing continue," he says, "I would expect today's trends to continue."