As part of Patent Progress’ series on innovation in the United States, we are examining ways to measure innovation. One useful metric, measuring the investment being made in the creation of new and innovative technologies, is research and development spending. This metric tends to show the investment in innovation, in particular by larger companies. And if we examine R&D spending, we see the same story we saw with respect to startups and venture capital earlier in our series—innovation in the United States continues to be world-class.
We can start simply by looking at national levels of spending on R&D. According to the OECD, the United States continues to lead the world in total research and development spending.
In fact, the United States actually spends more on research and development than the entire European Union and South Korea combined. Innovation in the United States, as measured by spending on research and development, leads the world.
But total research and development isn’t the whole story. It’s possible that some technologies are being affected in ways others aren’t. In order to make sure that we aren’t missing some uniquely affected sector—for example, that drug discovery is in a downturn that’s masked by advances in computing—we should also examine research and development in key industries.
R&D—Sector By Sector
One area of technology that has seen significant changes in patent law over the past few years is software. The Alice and Bilski cases, as well as a number of See CAFC cases on subject matter eligibility, means-plus-function claiming, and other topics, have helped to eliminate some of the worst software patents and to prevent new software patents that abuse the patent system from issuing. Another area which has seen changes in patent law is in certain areas of pharmaceuticals. The Mayo and Myriad decisions impacted diagnostic methods and certain genetic products. Critics claim that these changes have driven innovation out of the relevant industries.
Except they haven’t. A study performed by Strategy&, PricewaterhouseCoopers’s strategy consulting business, shows that, if anything, the opposite is true.
Spending on research and development in the software industry has grown faster than any other industry in recent years, including after the Alice decision and after the introduction of Intellectual Property Rights. Usually associated with formal legal rights such as patent, trademark, and copyright. Intellectual property is a broader term that encompasses knowledge, information, and data considered proprietary whether or not it is formally protected.. Spending on research in healthcare has also grown steadily after Mayo and Intellectual Property Rights. Usually associated with formal legal rights such as patent, trademark, and copyright. Intellectual property is a broader term that encompasses knowledge, information, and data considered proprietary whether or not it is formally protected.. There’s a simple explanation. Prior to Alice, there was a chilling effect on innovation in software caused by the risk of being the target of a patent lawsuit from a An entity in the business of being infringed — by analogy to the mythological troll that exacted payments from the unwary. Cf. NPE, PAE, PME. See Reitzig and Henkel, Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms. exploiting a bad patent. The prospect of this type of suit had real, measurable impacts—one professor, after surveying a number of startups, reported that half of all startups had spent at least $250,000 dealing with patent An entity in the business of being infringed — by analogy to the mythological troll that exacted payments from the unwary. Cf. NPE, PAE, PME. See Reitzig and Henkel, Patent Trolls, the Sustainability of ‘Locking-in-to-Extort’ Strategies, and Implications for Innovating Firms. demands. Large companies faced more frequent demands of this type and were concomitantly forced to consider the potential negative impacts on any research and development from overbroad patent assertions.
After Alice and inter partes review made it easier to invalidate the kind of patents frequently seen in these cases— patents that never should have issued in the first place—this innovation tax was significantly reduced. Contra the assertion that these decisions would reduce innovation in software and healthcare, the reduction of the bad patent innovation tax has actually allowed these industries to flourish. As measured by R&D spending, the software and health industries remain innovative and in fact have shown a steady increase in spending on creating new innovations.[1. The “computing and electronics” industry shows a downward trend. However, this appears to—at least to some extent—be a reflection of older companies effectively exiting from research and development, with replacements being classified in sectors like software. Active innovators in the computing and electronics sectors—companies like Intel, Samsung, Apple, Broadcom, and NVIDIA—have increased R&D spending over the past five years.]
U.S. Continues To Innovate
Startups and venture capital show that there’s no cause for concern about innovation from the smallest companies in the United States. And R&D spending confirms that large companies continue to innovate as well.
The last place to look in order to confirm that innovation remains strong is patent activity. While a significantly less relevant measure than startup activity or R&D spending, my next post will show that patent activity also confirms that innovation in the United States continues to be strong.