Understanding innovative firms: an exploration of the use of USPTO data to identify innovative firms in small and medium sized economies

Abstract

The limitations of using patent data as a measure of technological innovation have long been known (Griliches, 1990). Despite this, patent data are frequently used in this way, providing potentially misleading analyses for policy makers. Kingston and Scally (2006) have shown that, for countries outside the NAFTA region, USPTO small enterprise data can provide a potentially more valid means of identifying genuine innovative activity in small and medium sized economies. The Kingston/Scally analysis focuses on inventors, a strategy partly forced by the available USPTO data on granted patents. From the perspective of national industry and innovation policy there is at least an equal (if not greater) interest in innovative firms. This exploratory analysis investigates whether the Kingston/Scally analysis can be extended from inventors to assignee firms and considers the challenges of making this conversion. It also explores whether such a data series can be used to develop a typology of innovating firms which can be of interest for research and policy analysis purposes. The approach has been to take data for a single country - here Australia. The initial dataset extracted from the USPTO BIB series from 1969 to 2010, consists of all granted patents where any inventor reports Australia as their country of residence. From this dataset of 23,834 cases, the sub-set where the patent was assigned to any entity other than an individual was first extracted (18,797 cases). Because of the interest in developing analysis useful for industry and innovation policy, the focus here is on firms, so all 2,245 non-profit entities were then excluded. Data on the country of the assignee firm was then added to the dataset. This identified 3,912 cases where the assignee firm had no Australian residence, leaving a balance of 12,962 patents owned by assignees with at least one patent owned by an entity based in Australia. It is well known that both patent ownership and returns from patent ownership are highly skewed distributions. The 12,962 patents remaining in the dataset are owned by 3,419 firms, of which 2,256 each have only one US patent during the 42 year period covered by the data. Within the remaining 1,163 firms patent ownership is highly skewed - at one extreme 567 firms have only 2 patents each while at the other extreme one firm, Silverbrook Research Pty Ltd owns 3,666 US patents granted between 1998 and 2010. The major part of the paper identifies a typology of Australian-based firms patenting in the USA. While only a limited range of variables are available from BIB, the small entity fee data allows the identification of most firms by size; in addition data on patent classifications provide at least some indication of the technology space within which these firms are operating. The long time series (42 years) allows investigation of whether there are changes in the types of firms patenting in the USA during this period. The major analysis, however, concentrates on the last 20-25 years. Three principal groupings of firms stand out - those which patent only once; Silverbrook, with its portfolio of thousands of US patents; and the remaining 1,162 firms. Because once-off patenters dominate the dataset, it is relevant to ask some questions about these firms - are they like Macdonald's disillusioned UK SME patenters (Macdonald, 2003), or are they firms which have had one useful technological development but which are not in general "new to the world" innovators? Have they changed over time in their characteristics? Similarly Silverbrook stands out as a very unusual company - it operates in the area of high-speed printing where strategic patenting is well-known, and large quantities of patents are traded to ensure companies have the freedom to continue operations. Does Silverbrook constitute a model to which Australian firms should aspire? Or is it simply forced to take out this very large number of patents to have the freedom to operate within its particular technology field. But it is within the remaining 1,162 Australian firms patenting in the US that the more important answers for industry and innovation policy may lie. What kinds of firms are these? Are they small firms? Have they grown over time? Are they domestic firms or subsidiaries of overseas companies? Do they themselves have overseas operations? What are the technology fields within which they operate? A key issue is whether the hypothesis that Australian-based firms patenting in the USA are more innovative than equivalent firms who do not patent in the USA. Certainly they are likely to be more globally oriented. But innovative firms may, for a variety of reasons including availability of complementary assets, choose a more limited geographic area of operation, especially in their early years. This exploratory analysis addresses the question of whether data on overseas patenting can usefully address the limitations of domestic patenting data for purposes of industry and innovation policy analysis. Show more