P ’ : Tomasz Grzegorczyk , Robert Głowi ń ski

Tomasz Grzegorczyk

, Robert Głowiński

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Abstract: There is undisputed need to properly measure innovativeness and patent data is commonly used in order to achieve that. However, its drawbacks are rarely taken into account. The aim of this article is to identify main advantages and disadvantages of using patents as innovativeness indicators - based on the literature analysis. Authors conclude that patents are valuable innovativeness indicators, which among others are very accessible and easy to use, but on the other hand they cannot be regarded as universal, as they have significant drawbacks and thus may lead to false conclusions. Therefore, it is still advised to use patent data, but only if being fully aware of their limitations.

Keywords: patent, patent management, technology management, innovativeness, innovativeness indicator

INTRODUCTION

The importance of measuring company’s technological development and its change is widely emphasized in the literature [Basberg 1987, p.131-132, Archibugi and Pianta 1996, p.451], as it affects strategic decisions made in business and is vital part of technology management. Patent statistics, out of all other tools, are probably the most often used measures to estimate innovation outcomes. This may be the result of the fact that patent rights are perceived as a rich source of knowledge about the technological advancement and the technological change [Guellec and van Pottelsberghe de la Potterie 2004, p.648-651]. However, patent data drawbacks are rarely taken into account. Therefore, the aim of this article is to identify the main advantages and disadvantages of utilizing patents as company’s innovation indicators - based on the literature analysis.

INNOVATIVENESS INDICATORS

The issue of patents and other tools being utilized as innovativeness indicators has been under consideration for many years. Researchers have tried to identify and develop a proper indicator of the technological output. However, a universal tool, which would answer all the questions related to the technological innovation measurement, has not been found yet [Griliches 1990, p.1661-1662].

Measuring technological innovativeness is a challenging task, due to a complexity of industrial innovation, which is dependent on various measures. Archibugi and Pianta [1996, p.451-452] listed three main aspects of industrial innovation and the technological change, which prove their variety and complexity. Firstly, technological progress impinges on the implicit and codified knowledge.

Furthermore, the innovation may have its source from the inside or the outside of a company.

Lastly, innovations might be contained in a product, a capital good or be intangible, i.e. as a know- how, patents, skilled employees, design, licenses, etc.

There are various possibilities enabling an acquisition of information on the enterprises’

inventiveness [OECD 2009, p.26-29]. Innovativeness can be determined by the ability to manage sustainable development, being familiar with e-commerce and having the capability of introducing new products at shorter intervals [Terziovski 2007, p.6-13]. Those factors play a dominant role, because they enable converting knowledge and intangible assets into products, processes or services and bring them to market. If a company has ability to continuously transform ideas into goods, it possesses a most desired feature, namely, an innovation capability. According to [Kalanje 2005,

7 Poznan University of Economics, Department of International Management. Al. Niepodległości 10, Poznań, Poland, tomasz.grzegorczyk@ue.poznan.pl

8 Rotho AG, Würenlingen, Switzerland, glowinski.r@gmail.com.

p.1-2], an innovation may in general be defined as a development of new ideas and their exploitation. To be more specific, innovation relates to creating or changing ideas into more efficient products or processes. Oslo Manual [2005] provides a different one: “An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations”. Furthermore, technological innovation can be grouped in 3 ways: radical or incremental [Frietsch et al. 2010, p.11-14], product or process and sequential or disruptive [Kalanje 2005, p.1-2].

To the most popular and broadly analysed barometers of output belong patent statistics and indicators sourced from innovation surveys [Archibugi and Pianta 1996, p.451-452].The former tool may be appropriate to protect products or processes against imitating rivals, and measure an inventiveness rate with reference to firms, industries, countries and individual innovators. The latter tool however, can estimate e.g. the effectiveness of innovative products’ or processes’

implementation on the market [Archibugi and Pianta 1996, p.451-452, OECD Frascati Manual 2002, p.25-26;126-136, OECD Oslo Manual 2005, p.20-21]. An impact of R&D on productivity is another applied method, which assesses inventiveness across industries, companies and countries.

The total list of output measures would be comprehensive, if a few other tools were additionally mentioned: e.g. bibliometrics, index of globalization, literature-based indicators of technological output (LBITO) or skilled human resources [Archibugi and Pianta 1996, p.451-452]. Nevertheless, it is stressed in the OECD Frascati Manual [2002], that technological output (R&D and S&T) is much harder to determine compared to complementary input data. The report illustrates input-based innovation measures and their utilization. Firstly, measurement of the personnel working on R&D projects enables comparisons of the human resources-based investment outlays across countries or sectors. Secondly, statistics provided by e.g. Eurostat [2012] or OECD [2014] show expenditures on R&D in relation to the national GDP. Last but not least, sometimes the availability of R&D facilities (equipment, laboratories, libraries, etc.) can be applied as an indicator. Those three mentioned tools may are often aggregated and considered collectively [OECD Frascati Manual 2002].

PATENT RESEARCH

It is estimated that the patent literature comprises approximately 60 million documents from all over the world [Gassmann and Bader 2011, p.335]. This makes patent research a complex undertaking, because apart from the expert knowledge, also the acquaintance with systems of the patent categorization is required. Patent data is available in public thanks to numerous databases, provided by patent offices (national or regional) operating in industrialized countries [Schmeisser and Mohnkopf 2008, p.137]. Nonetheless, a comprehensive database, which would include all patent documents ever issued worldwide, has not yet come into being. On the other hand, thanks to the dynamic spread of Internet, patent searching has become easier recently (however is still complex), because an access to the databases can be reached from any place all over the world.

Patent statistics, out of all other tools, are probably the most often used measures to estimate innovation outcomes. Patents rights are perceived as a rich source of knowledge about the technological advancement and the technological change [Guellec and van Pottelsberghe de la Potterie 2004, p.648-651].

ADVANTAGES OF PATENTS AS INNOVATIVENESS INDICATOR

As a very popular way of measuring innovativeness patent statistics have many advantages.

One of them is the huge scope of knowledge derived from patent documents. They provide information on the wide range of technologies, for which there are sometimes few other academic dissertations (e.g. nanotechnology). Additionally, researchers can find scientific articles referring to the invention, as well as learn about the rate and the direction of the innovative measures. The

necessity of a public disclosure (a duty to give a detailed description of the technology) is seen as an advantage in the OECD (2009) report and the paper of Archibugi and Pianta [1996]. In contrast to innovation surveys, which results may be kept confidential, all the information included in patent documents has to be published, and thus they contribute to a rise in generally available knowledge on a particular topic.

Another aspect is a common availability of the patent documents. Griliches [1990] and the OECD [2009] point out that an access to them can be obtained with ease from any place all over the world by using internet. An additional advantage is the fact that all the information are collected by patent offices, thus they are available at no expense, without a necessity to conduct cost and time intensive surveys. Archibugi and Pianta (1996) add another advantage: patents’ accessibility in

“large numbers and for a long time series”. Therefore, the patent statistics provided e.g. by WIPO, demonstrate clearly trends of the technological development across countries, companies and industries, and thus make comparisons within these areas possible [Griliches 1990, p.1662-1702].

OECD [2009] as well as Archibugi and Pianta [1996] underline that patent is a direct result of the innovative process, thus patent rights have a close relation to invention. Most of the substantial innovations are patented, whether they are based on R&D or not. Due to a time-intensive and cost- intensive patent application processes, mostly those inventions are patented, which show a big potential for the high economic return from the innovation and can be commercially exploited. As such they are expected to bring an added value to a company. Therefore, patent statistics are expected to incur most significant inventions, as the law requires patentable inventions to be novel according to the state of knowledge.

Many studies prove the high correlation of company’s inventiveness, based on the amount of granted patents, with the economic performance [OECD 2009, p.26-29]. In addition, number of patent applications submitted to patent offices reflects very well the level of technological advancement of a company. Moreover, patent data enables categorization of innovativeness, allowing to identify innovators and to make international comparisons, comparisons over time, amongst industrial sectors and technical fields [Pavitt 1985, p.82-94]. In addition, patent statistics can be applied to help recognizing rival’s competitive market strategy, identifying the globalization patterns, observing dynamics of the innovation processes including cooperation in R&D and a diffusion of innovations within particular regions or industries. Finally, the OECD report states the chance to track the internationalization of R&D activities, namely, the multinational cooperation on science and technology or the territorial mobility of R&D professionals [OECD 2009, p.26-27].

DISADVANTAGES OF PATENTS AS AN INNOVATIVENESS INDICATOR

Most of the analysed literature harmoniously perceive the fact that patent statistics are not complete, which is the biggest disadvantage of its use as innovation indicator. Due to the fact that numerous inventions cannot fulfil the patentability criteria, patent databases do not reflect all innovative undertakings (e.g. in software industry). On the other hand, inventors of a potentially patentable innovation or managers representing companies which are in possession of such an invention, may simply decide to pursue alternative technology protection strategies, since they are often seen as more effective [Archibugi and Pianta 1996, p.452-455]. The most innovative technologies are sometimes kept as trade secrets. Desrochers [1990] points out in addition that patent applications for many ground-breaking technological innovations are never submitted to patent offices, due to a poor recognition of their quality, excessive costs or long patenting procedures. Therefore, the question occurs if the patent data are in principle credible.

Another aspect, which is mentioned in most of the sources, refers to patent valuation. Patents differ significantly when it comes to their economic value, and an identification of those with the high or low potential stays extremely challenging. Moreover, patent relevance (quality) is not reflected in patent classifications, so patent counts and the patent’s expected value may be skewed.

Thirdly, there is strong criticism related to patent researches and categorization. Accordingly, OECD [2009] and Archibugi and Pianta [1996] state that despite international patent agreements, varied patent laws, regional regulations and practices used worldwide have an impact on the protection’s effectiveness, costs and length. Additionally, this fact makes comparisons of patent data across sectors more difficult. Moreover, patent law modifications or administrative simplifications over years contributed to changes in patenting patterns. Therefore, trends ought to be analysed carefully with reference to those modifications. On the other hand, according to Desrochers [1998], the administrative and financial burdens for patent rights have evolved over time precluding many small innovators from patenting their inventions. An example for that may be European Union’s idea to implement European patent with unitary effect, which on the one hand makes it easier to obtain protection in all EU member states, but on the other hand it may be more expensive to obtain in comparison to patents granted only in a couple of chosen member states [Nowicka 2014].

However, as of 2016 the required number of thirteen EU member states have not ratified the Agreement on Unitary Patent Court, thus it still has not entered into force.

In addition Griliches [1990] points out the difficulties in identifying the source of invention at the firm level, due to numerous mergers and extensive diversifications of corporations. All in all, OECD notices an extremely complex nature of patent data and statistics, since they stem from composited business and legal processes. Therefore, it is easy to draw incorrect conclusions.

Another issue is a propensity to file and submit a patent application [Archibugi and Pianta 1996, Desrochers 1998]. The motivation to apply for a legal protection differs according to technical field, industry, type of invention and size of the enterprise. Most often, due to the deterrent, defensive character of excessive patenting (e.g. semiconductors in the electronic industry), some industries experience more patent registrations than others, skewing the view of the innovativeness rate.

Additionally, start-ups and SMEs suffer also from the massive patenting, because in contrast to big companies, they experience problems to cover costs of a large number of patents and thus abandon the idea. Mostly activities of large enterprises are examined, whereas SMEs and individual innovators are often ignored, because they lack in funds to file and submit a patent application, and thus seem to be completely non-innovative [Archibugi and Pianta 1996, Desrochers 1998].

Table 1. A brief summary of the most important advantages and disadvantages of patents as an innovation indicator.

S Source: authors’ own elaboration, based on aforementioned literature.

A certain obstacle to employ patent statistics in assessing the innovativeness is the inability to get rid of subjectivity when it comes to the evaluation of the patent right’s quality. Another problem is a usually biased sample taken for examination of the firm’s R&D performance.

CONCLUSION

Desrochers [1998, p.72] underlines that common problem is that many researchers do not notice or simply ignore problems concerning patents, therefore they may finally come to incorrect conclusions. However, this seems not to be the case. The conducted analysis of previous research revealed that patent data is not a universal and sufficient instrument, which could be uncritically applied to evaluate the inventiveness rate of a specific firm. Patent data has significant advantages like ease of use, accessibility of the data and inclusion of state of the art inventions. But the disadvantages (e.g. unclear value of patents, company’s strategy not to reveal most innovative inventions) create the need to use them with caution. Therefore, it is advised to exploit patent statistics in order to assess company’s innovativeness in a particular area. However, awareness of the aforementioned drawbacks is required.

REFERENCES

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