Stronger Protection or Technological Revolution: What is Behind the Recent Surge in Patenting?

Patent applications have increased because of improvements in the management of research in the United States.

From 1900 through 1980, applications to the U.S. Patent Office by U. S. inventors ranged from 40,000 to 80,000 per year. But in the decade from 1985 to 1995, patent applications by American inventors surged to all time highs of about 120,000 per year, leaving economists to wonder why.

In Stronger Protection or Technological Revolution: What Is Behind the Recent Surge in Patenting? (NBER Working Paper No. 6204), NBER Faculty Research Fellows Samuel Kortum and Josh Lerner attempt to determine what is behind the recent skyrocketing patent applications.

Kortum and Lerner examine three competing explanations for the increase in patent applications. They conclude that patent applications have increased because of improvements in the management of research in the United States. This effect has been enhanced by applying new information technologies to the research process itself, which has accelerated the pace and productivity of research and development. Finally, these two trends have occurred in an R and D environment in which a movement toward more applied research has further accelerated discoveries that lead to patents.

The authors reject a popular explanation for the rise in patent applications, which they dub the "friendly court" hypothesis. More patent legislation was passed by Congress in the first few years of the 1980s than in the previous two decades. In addition, the Court of Appeals of the Federal Circuit, set up by Congress in 1982 specifically to hear patent cases arising from federal courts, has been perceived as having a "pro patent" orientation. By broadening the rights of patentees, some have suggested, the Court has encouraged more patent applications.

If this "friendly court" hypothesis accurately explained the increase in patent applications, then the United States should have increased relative to other countries as a destination for patent protection for inventors from around the world. That is not the case. Worldwide patent applications have risen, but not particularly for patent protection in the United States. Rather it is U.S. inventors seeking patent protection both at home and abroad who display the biggest jump in patenting.

Another possible explanation for the increase in patent applications is that entrenched firms, those with larger and well-developed patent application mechanisms in place, will benefit selectively from patent reforms. They will therefore both lobby for such reforms and respond to any reforms by patenting more aggressively.

But, as Kortum and Lerner point out, the increase in patent applications is approximately evenly distributed among small and large firms, with the share of new, small and less frequent patentees actually increasing in the past decade. That calls into question whether the increase in patent applications is driven by larger, entrenched firms.

It is not technology alone that has driven the increase in patent applications, however, since the jump is not concentrated in any particular technology, such as biotechnology or software. In fact, the patent increases were uniform across a broad spectrum of industries. The authors suggest that changes in the management of technology must have contributed to the increase. Specifically, the trend toward more applied activities, a by-product of which is more patentable discoveries, helps to explain the huge increase in patent applications over the past decade.