Patent Numbers May Be Declining, But Innovation Isn't

By Pedram Sameni
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Law360 (February 26, 2021, 10:09 AM EST) --
Pedram Sameni
Pedram Sameni
In this article, we look at recent patent filing activity to see the effect of the weakening global economy in many sectors, which was accelerated by the pandemic. We also discuss the best sectors and geographical locations from which patent practitioners can gain or expand their clients.

The U.S. Patent and Trademark Office has not yet released the number of new filings in 2020, which usually comes out in the second quarter of the year. But, for the time being, we analyzed the number of issued patents as well as the maintenance payments by majors corporations to see if there were any signs that we could use to assess the impact of the pandemic and predict trends to come in the following years.

The following chart shows the number of issued patents by the USPTO in the last five years. There was a small drop of about 1% in the number of issued patents in 2020. We understand that some companies may have decided to abandon the pending applications or not to pay allowance fees to save money, but this most likely was a very small percentage that had minimal impact on the number of issued patents in 2020.

There is usually a two- to three-year lag between filing and issuance. Therefore, we will see the true impact of 2020 filing activity in 2022 or later. This 1% drop was expected, and we believe the pandemic may just accelerate this decline in the following years.

Activity of the Top 10 Most Active Companies

Taking a closer look at the activity of the top 10 USPTO filers may reveal trends. The following chart shows the number of patents issued to these 10 companies for a four-year period from 2016 through 2020.

During this five-year period, the USPTO issued approximately 1.8 million patents. The top 10 companies made up about 12% of the USPTO's total volume. Therefore, any significant change in the behavior of these companies will impact the USPTO's revenue and also may trigger other companies to adjust their strategies in a similar fashion.

IBM Corp. has been the volume leader for more than 28 years, and, while the company has maintained its top position as the most active filer, a comparison of its activity in the last two years shows that it is slowing down. In fact, our review of the top 10 companies shows that almost all of them had a decrease in the number of issued patents in 2020. Only Apple Inc. showed double-digit growth in 2020.

Analysis of Activity by Country

One apparent trend in the above table is the drop in filing activities by foreign companies such as Canon Inc. Japan was the largest filer at the USPTO after U.S. companies. Our review of patents issued in 2019 and 2020 shows that filing by the Japanese companies dropped from 57,205 in 2019 to 55,237 in 2020. This represents a 3.5% decline.

In fact, the only two countries out of the top 10 that showed growth in their U.S. patent activity are China and Taiwan. Chinese companies obtained 19,469 patents in 2019 vs. 22,047 in 2020, which shows a 13% increase.

China's activity may also slow down once the foreign patent subsidy by the local Chinese government ends in 2025 In fact, some subsidies may end as early as June 30, 2021.[1] The USPTO released a report on Jan. 13, 2021, highlighting some of the nonmarket factors, contributing to higher filing activity by Chinese entities.[2]

Analysis of Patent Maintenance Fees

Our research team reviewed the utility and reissued patents that were abandoned in 2020 due to the nonpayment of maintenance fees and found that it increased 9% compared to 2019. In 2020, a total of 135,842 patents expired due to nonpayment of either first, second or third maintenance fees. This number was 124,925 in 2019.

Our data also shows that patents that were due for second maintenance fees had the highest rate of abandonment. In 2020, nonpayment of second maintenance fees increased by 15%.

We estimate that this drop in renewal reduced the USPTO's revenue by more than $40 million in 2020.

We also reviewed IBM's maintenance payments to see whether the company, as volume leader, changed its strategy and reduced its intellectual property spending in 2020. Our data shows that the company abandoned 7,785 utility and reissued patents in 2020 compared to 6,841 in 2019. This represents approximately a 14% increase in 2020.

We also found that IBM increased its rate of abandonment for third maintenance payments by as much as 27% in 2020 compared to 2019. The third maintenance is the highest and costs $7700.

Observations and Conclusions

The above analysis suggests that both micro and macro effects are important and that law firms and companies should consider both when defining their IP strategies.

The decline in eight out of 10 top filers at the USPTO suggests that, generally, we may see further weakness in filing activity and a decline in USPTO filings in the following years.

But at the same time, the sharp increase in Apple's issued patents suggests that innovative companies will likely continue to invest heavily in patents. Apple is known as one of the most innovative companies and is currently the largest company in the world by market capitalization.

Most likely, we will see similar growth in the number of patents filed by other emerging technology companies in growth areas such as green energy, driverless cars, bioinformatics, etc.

The U.S. and most other Western countries including Germany, France and Canada, together with Japan, decelerated their filing activities. This may be an indication of a weaker economy ahead and slower/negative GDP growth for some of these countries in the coming years. We believe that this decline will continue in the following years.

The growth of China and some of the other Asian countries has been strong. The Chinese government subsidies will end in 2025, but as the country's GDP grows, some of the Chinese tech giants will continue their global expansion and this means they will increase their filings in the U.S. to protect their future market in the country. However, this may be negatively affected by the U.S. foreign policy and the relationship between the two largest economies in the world.[3]

Some of the USPTO's volume leaders, such as IBM and Canon, seem to be slowing their U.S. filing activities. It is hard to understand their strategy from the outside, but, most likely, the cost of maintenance, the lack of good returns on their IP investment, and the effectiveness of inter partes review at the Patent Trial and Appeal Board in killing low-quality patents, have contributed to their decisions. This helps them lower their IP spending.

Companies increased their rate of abandonment of U.S. patents in 2020 by 9%. As they reduced their IP spending, the USPTO's revenue also suffered.

Patent firms and attorneys should focus their business development efforts on innovative companies, especially those working with emerging technologies. Some of these companies will take the position of of the current top 10 in the next decade.

Pedram Sameni is the CEO and founder at Patexia Inc.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organization, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.




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