Patenting activity of Canadian-resident businesses

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Abstract This article presents some initial findings from a new longitudinal database created from administrative data sources to study patenting in Canada. The study of patenting is important, as patenting is a measure of innovative activity and has been linked to positive economic outcomes for firms. Over the 2001-to-2015 period, […]

Abstract

This article presents some initial findings from a new
longitudinal database created from administrative data sources to study
patenting in Canada. The study of patenting is important, as patenting is a
measure of innovative activity and has been linked to positive economic
outcomes for firms. Over the 2001-to-2015 period, Canadian-resident businesses
increasingly filed patent applications in the United States, and that the
increase was accounted for by smaller, younger firms in service industries. Patent
applications to other patent offices by Canadian-resident business declined
over the same period. Technical areas where applications to the United States
increased the most include civil engineering, medical technology, information
technology methods for management, computer technology, transport, and digital
communications. Finally, evidence is presented that suggests, for
Canadian-resident businesses, the economic outcomes associated with filing a
patent in the United States are similar to those of filing for a patent application
in Canada. Once firm and industry characteristics are controlled for, data show
that filing for a patent is associated with a 7.5% increase in the probability
of experiencing high employment growth and a 12.9% increase in the probability
of experiencing high revenue growth.

Authors

Chahreddine Abbes, John Baldwin and Danny Leung are with the Economic Analysis Division at Statistics Canada.

Introduction

Innovation is said to be a major contributor to economic
growth.Note 
While innovation can refer to a number of things, for the purpose of
measurement and comparison of innovation in businesses, the Organisation for
Economic Co-operation and Development and Eurostat (2018) recommend that
innovation refer to product (good or service) innovations or business process
innovations that differ significantly from previous products and processes.
Like many countries, Canada collects data on innovation through surveys, such
as the Survey of Innovation and Business Strategy.Note 

Considering the lack of universal definition of the notion
of “innovation,” researchers have used intellectual property (IP) to measure
it. As stated by Corbin (2010), IP constitutes the measurable component of
innovation. IP allows the broad concept of innovation to be concretized by a
set of measurable economic components (e.g., patents, industrial designs,
trademarks, etc). It facilitates the study of the relationshIP between innovation
and economic benefit, despite the fact that not all innovations are protected
by IP rights, and not all IP rights have economic value.Note 
Various countries and world organizations have used the number of patents,
trademarks, industrial designs and registered copyrights as proxy measures of
country innovativeness.  

Patents, along with other forms of IP, are an important
tool used by businesses to protect their innovations. Patents can be sought for
inventions that are novel, are inventive and have industrial usefulness.Note 
Patent holders have the right to stop others from making, using or selling
their inventions for a period of 20 years from the filing date in the country
in which the patent was granted. Patent statistics have also been used by some
as an alternative measure of innovation.Note 
Statistics Canada’s 2019 Intellectual Property Awareness and Use Survey shows
that innovation and patent statistics can be complementary.Note 
It found that not all businesses engaged in innovative activities were patent
owners,Note 
and not all patent owners were engaged in innovative activities.Note 
It also found that 60.3% of patent owners were innovators, while 7.8% of
businesses engaged in innovative activities were patent owners.

Patent statistics can also be important because they shed
light on an aspect of the innovation process, which, for policy makers and
businesses, can be as important as measuring innovation itself.Note 
Understanding the factors and inputs that contribute to inventions, and the
strategies and circumstances that lead to the successful introduction of those
inventions to market, informs the development of economic policy.

To complement the existing survey data already being
collected, Statistics Canada has developed from administrative data sources the
Canadian Patent Research Database, which can be used for analysis on innovation
in Canada. The Canadian Patent Research Database was created from the European
Patent Office Worldwide Patent Statistical Database (PATSTAT) and linked to
administrative data sources at Statistics Canada on business performance and
business activities.Note 
For businesses with operations in Canada, the Canadian Patent Research Database
gives the year of application, application authority, technological sector and
field of the patent, whether the patent was granted, and other patent
application characteristics for the period from 2001 to 2015. When linked to
other Statistics Canada administrative data sources, it can be used to examine
trends in patenting by firm characteristics. It complements existing survey data
by providing a longer-run view of patenting activity in Canada. It offers the
ability to disaggregate the data further because it contains data on all firms
patenting in Canada and the ability to conduct longitudinal analysis (for
example, to study the link between patenting and firm growth). This article
highlights some of the initial findings from the database.

The article first looks at aggregate trends in patenting
activity of Canadian-resident businesses (businesses with operations in
Canada). It finds that there is a shift toward applications made to the United
States Patent and Trademark Office (USPTO) underlying a modest increase in
patent applications overall. The article takes advantage of the newly
constructed database to examine the drivers of these trends by firm size, firm
age, industry and technology field. It then presents evidence on whether there
are economic consequences to the shift in applications toward the USPTO.

The number of patent applications made by Canadian-resident
businesses has increased slightly over the 2001-to-2015 period. All of the
increase was accounted for by an increase in patent activity in the United
States. The number of patent applications filed at other patent offices,
including the Canadian office, declined. The increase in applications in the
United States was accounted for by smaller, younger firms in service
industries, while the decrease in applications at all other offices was traced
to larger firms and firms in manufacturing. The top five technical areas in
which patent applications increased include civil engineering, medical
technology, information technology (IT) methods for management, computer
technology and transport. An area in which applications increased in the United
States, but not at other offices, is digital communications. Finally, evidence
is presented that suggests that, for Canadian-resident businesses, the economic
outcomes associated with filing for a patent application in the United States are
similar to those of filing for a patent application in Canada. Furthermore,
filing for a patent is found to be positively correlated with the probability
of experiencing high employment and revenue growth.

Canadian-resident businesses are increasingly filing for
patent applications in the United States

The number of patent applications made by Canadian-resident
businesses has increased modestly over the 2001-to-2015 time period (Figure 1).
It has increased from around 8,100 applications in 2001 to 8,500 applications
in 2015. This small increase obscures larger changes to where Canadian-resident
businesses are filing for their patent applications. Canadian-resident
businesses are increasingly filing for patents at the USPTO. Patent
applications to the USPTO rose from around 1,800 applications in 2001 to about
4,000 in 2015. Since 2008, the USPTO has been the leading destination for
patent applications by Canadian-resident businesses. This increase has been
offset by declines in patent applications at the Canadian Intellectual Property
Office (CIPO), the European Patent Office (EPO) and other offices around the
world.Note 
The largest decrease in the number of applications was to the other offices
category, which fell from 2,400 applications in 2001 to 1,100 applications in
2015.

The observation that patent applications by Canadian
residents have increased at the USPTO has been made before by Greenspon and
Rodrigues (2017).Note 
However, because the Canadian Patent Research Database is linked to other
firm-level data sources, additional insights can be gained on what is behind
the increase.Note 

Data table for Chart 1

























Data table for Chart 1

Table summary

This table displays the results of Data table for Chart 1 CIPO, USPTO, EPO, Other offices and Total, calculated using Number of applications by patent office units of measure (appearing as column headers).
CIPO USPTO EPO Other offices Total
Number of applications by patent office
2001 2757 1817 1185 2378 8137
2002 2751 2034 1174 2582 8541
2003 2726 2288 1271 2670 8955
2004 2502 2540 1496 2417 8955
2005 2985 2607 1557 2670 9819
2006 2937 2811 1576 2558 9882
2007 3057 2897 1539 2556 10049
2008 2724 2777 1376 2182 9059
2009 2552 2727 1418 1812 8509
2010 2917 3237 1552 1783 9489
2011 3133 3308 1475 1494 9410
2012 2685 3566 1342 1388 8981
2013 2576 4228 1190 1146 9140
2014 2538 4297 1230 1266 9331
2015 2377 4032 1004 1124 8537



Smaller, younger firms in service industries are
responsible for the increase in patenting by Canadian-resident businesses in
the United States

Patent are applied for by both young and small firms and
older and larger firms (Table 1). In 2001, small firms with 0 to 19 employees
accounted for about one-quarter of patent applications at each patent office,
while firms with 500 or more employees accounted for about 40% or more. At the
same time, new firms (0 to 1 year of age) accounted for around 13% of
applications, while older firms (11 years of age and older) accounted for
around 50%. In 2001, patent applications were concentrated in the manufacturing
industry (over 50%), but a large fraction was also in the professional,
scientific and technical services industry (around 20%).

Between 2001 and 2015, there were some changes in these
shares. Although small firms with 0 to 19 employees accounted for 23.0% of
USPTO patent applications in 2001, they accounted for 38.0% in 2015. USPTO
patent applications rose by 2,215 between 2001 and 2015, and small firms
accounted for 50.1% of that change. In contrast, large firms with 500 or more
employees accounted for 48.9% of USPTO patent applications in 2001, but for 28.6%
of them in 2015. Large firms accounted for 12.2% of the change in the number of
USPTO patent applications between 2001 and 2015.

The changes by firm age were less stark. The youngest firms,
those 0 to 1 year of age, accounted for 10.8% of USPTO patent applications in 2001
and 16.2% of the change between 2001 and 2015. The oldest firms, those aged 11
or older, accounted for 60.1% of USPTO applications in 2001 and 47.8% of the
change in applications.

However, there were more significant changes by industry. Although
businesses in manufacturing accounted for the majority of USPTO patent
applications in 2001 (58.3%), they accounted for 8.4% of the change between
2001 and 2015. Most of the change was because of trade (15.1%); professional,
scientific and technical services (30.7%); and other service industries
(37.3%).

The source of the decreases in the number of patent
applications at other offices almost mirrors the explanation for the increase
in applications at the USPTO. Larger firms were mainly responsible for the decrease
in the number of applications at the other patent offices examined, but
especially at CIPO and the EPO. In 2001, large firms with 500 or more employees
accounted for 40.6% and 44.4% of patent applications at CIPO and the EPO,
respectively. By 2015, the large firm share of patent applications at CIPO and the
EPO fell to 33.8% and 36.4%, respectively. Large firms with 500 or more
employees accounted for 83.6% of the (-380) decrease in applications at CIPO,
90.8% of the (-181) decrease in applications at the EPO, and 49.6% of the (-1,254)
decrease in applications at other patent offices.

When the decreases in applications are broken down by firm
age, firms that are 2 to 5 years old were primarily responsible. In fact, 77.2%
of the decline in patent applications at CIPO were because of these firms,
compared with 73.0% at the EPO and 34% at other patent offices.

Finally, most of the declines in the number of applications
at CIPO, the EPO and other patent offices were because of declines in
applications made by businesses in manufacturing. Businesses in manufacturing
accounted for 137.2% of the decline at CIPO, 157.1% of the decline at the EPO
and 62.3% of the decline at other patent offices. The decline in the number of
applications at CIPO and the EPO was offset somewhat by increases in the number
of applications, most notably, in trade and other service industries.






























Table 1

Number and share of patent applications, and share of change in patent applications by firm characteristics and patent office

Table summary

This table displays the results of Number and share of patent applications Applications in 2001, Applications in 2015 and Change in applications between 2001 and 2015, calculated using number and percent units of measure (appearing as column headers).
Applications in 2001 Applications in 2015 Change in applications between 2001 and 2015
CIPO USPTO EPO Other Total CIPO USPTO EPO Other Total CIPO USPTO EPO Other
number
Total 2,757 1,817 1,185 2,378 8,137 2,377 4,032 1,004 1,124 8,537 -380 2,215 -181 -1,254

percent
Employment size of firm
0 to 19 employees 25.8 23.0 24.4 25.9 25.4 38.5 38.0 38.3 38.0 37.7 -55.9 50.1 -56.4 13.1
20 to 99 employees 18.6 13.8 15.6 18.4 17.5 17.6 19.2 13.1 19.4 17.4 25.1 23.6 30.1 17.4
100 to 499 employees 15.1 14.3 15.7 16.0 15.1 10.0 14.2 12.2 12.3 12.0 47.3 14.1 35.6 19.9
500 or more employees 40.6 48.9 44.4 39.7 42.0 33.8 28.6 36.4 30.3 33.0 83.6 12.2 90.8 49.6
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Age of business
0 to 1 year 13.5 10.8 11.7 12.6 12.8 10.7 13.8 10.5 9.6 11.8 31.1 16.2 18.4 15.7
2 to 5 years 22.7 16.3 23.3 23.7 22.0 14.2 16.9 14.8 14.0 15.3 77.2 17.4 73.0 34.0
6 to 10 years 14.7 12.9 16.0 17.1 15.2 11.2 16.0 11.7 16.9 13.6 36.9 18.6 41.1 17.3
11 or more years 49.1 60.1 49.0 46.6 50.0 63.9 53.3 63.0 59.5 59.3 -45.2 47.8 -32.5 33.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Industry
Unclassified 10.1 11.5 9.5 14.2 11.0 7.4 5.9 6.5 3.2 6.3 27.4 1.4 26.4 25.9
Other goods industries 2.0 0.9 2.2 2.0 1.8 3.1 2.2 1.7 1.4 2.2 -4.9 3.3 4.9 2.7
Mining, oil and gas 7.3 1.4 1.1 2.3 3.5 9.9 2.8 1.4 2.7 8.3 -8.9 3.9 -0.6 1.9
Manufacturing 50.3 58.3 55.2 50.0 52.0 36.7 30.7 37.7 38.5 33.1 137.2 8.4 157.1 62.3
Trade 3.5 3.6 4.0 5.1 4.0 9.1 9.9 6.5 6.2 8.1 -32.0 15.1 -11.0 4.1
Professional, scientific and technical services 17.9 16.4 19.5 17.8 19.0 18.3 24.3 23.0 32.1 23.2 15.3 30.7 -0.6 2.8
Other service industries 8.9 7.9 8.6 8.4 8.6 15.6 24.2 23.2 15.9 18.8 -34.0 37.3 -76.1 0.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Canadian-resident businesses are increasingly
patenting in the technology field of civil engineering

Overall, the number of patent applications by
Canadian-resident businesses increased the most in civil engineering (for
example, the construction of buildings and roads, and some mining
infrastructure).Note 
Between 2001 and 2015, the weightedNote 
number of patent applications in civil engineering grew by 317. Medical
technology (+198), IT methods for management (+153), computer technology (+153)
and transport (+127) were the four other areas that showed the largest
increases between 2001 and 2015.

When only patent applications to the USPTO are considered,
the top fields are similar. Between 2001 and 2015, the weighted number of
applications increased the most in the field of computer technology (+300),
civil engineering (+235), digital communications (+227), medical technology
(+185), transport (+142) and IT methods for management (+132). Interestingly,
despite the increase in patenting in digital communications at the USPTO,
overall, Canadian-resident businesses are patenting less in the area of digital
technologies (-160). There were declines in the number of patent applications
in digital communications at CIPO, the EPO and other patent offices.

Data show that Canadian-resident businesses that file for
patent applications are more likely to experience an episode of high growth,
regardless of where the patent application is made in Canada or the United
States

The increase in patent applications made to the USPTO by
Canadian-resident businesses could be motivated by a number of factors. Zhao
(2020) notes several differences in the patent systems in Canada and the United
States. The USPTO allows for patents in areas related to medical methods and
software and business methods, while CIPO requires a technical solution (a
computer) as an essential element of a construed claim in
these cases;Note 
patents proceed to examination automatically at the USPTO, while a separate
request for examination is required at CIPO; and there are annual maintenance
fees for patents and patent applications at CIPO, while maintenance fees are
due only three times over the life of a patent at the USPTO. Ultimately,
differences in the potential monetary benefits from holding a patent in the
United States versus Canada because of differences in the size of the markets
may be an important factor, but it is not clear why this factor has changed
over time.

Investigating further the reasons behind the increase in
patenting in the United States is beyond the scope of this first article using
the new Canadian Patent Research Database. Instead, some evidence on the
relationship between filing for patents and growth at the firm level is
presented to see whether the economic outcomes of applying at CIPO and the
USPTO are different.

Table 2 shows that firms that applied for at least one
patent over the 2001-to-2015 period to any patent office had a 25.2 percentage
point higher chance of experiencing at least one episode of high employment
growth over that same period and a 36.0 percentage point higher chance of
experiencing at least one episode of high revenue growth.Note 
When controls for industry sector, firm employment size, age of firm, whether
the firm had research and development expenditures at least once over the
period, and year of observation are included, applying for at least one patent
is still found to be correlated with experiencing an episode of high employment
and revenue growth. Filing for a patent is associated with a 7.5 percentage
point higher probability of experiencing high employment growth and a 12.9
percentage point higher chance of experiencing high revenue growth.

When similar analysis is carried out controlling for where
the patent application is filed, there is little difference in the relationship
between filing a patent application in Canada and the United States and the
probability of experiencing either high employment or revenue growth. When
other firm characteristics are taken into account, making at least one patent
application at CIPO over the 2001-to-2015 period is associated with a 4.4
percentage point higher chance of having an episode of high employment growth,
compared with a 4.1 percentage point higher chance when a patent application is
filed at the USPTO. The results are similar for revenue growth. Firms that file
patent applications at CIPO have a 7.0 percentage point higher chance of having
high revenue growth, compared with a 5.7 percentage point higher chance for firms
filing applications at the USPTO.Note 

The relationship between filing a patent application at the
EPO or other patent offices and high employment or revenue growth is less
strong and not always statistically significant. It might be the case that
applications to the EPO and other patent offices are often accompanied by or
preceded by applications to CIPO and the USPTO, and disentangling the
relationships requires more sophisticated analysis. Nevertheless, the analysis
presented here suggests that patenting in the United States is associated with
similar economic outcomes to patenting in Canada, and that the increase in
patenting in the United States by Canadian-resident businesses may not be of
concern.



















Table 2

Marginal effect of filing a patent application on the probability of experiencing an episode of high employment or revenue growth

Table summary

This table displays the results of Marginal effect of filing a patent application on the probability of experiencing an episode of high employment or revenue growth Probability of high employment growth and Probability of high revenue growth (appearing as column headers).
Probability of high employment growth Probability of high revenue growth
No controls With controls No controls With controls No controls With controls No controls With controls
Filed a patent application
Coefficient 0.252 0.075 Note : not applicable Note : not applicable 0.360 0.129 Note : not applicable Note : not applicable
P-value (0.000) (0.000) Note : not applicable Note : not applicable (0.000) (0.000) Note : not applicable Note : not applicable
CIPO
Coefficient Note : not applicable Note : not applicable 0.149 0.044 Note : not applicable Note : not applicable 0.218 0.070
P-value Note : not applicable Note : not applicable (0.000) (0.000) Note : not applicable Note : not applicable (0.000) (0.000)
USPTO
Coefficient Note : not applicable Note : not applicable 0.114 0.041 Note : not applicable Note : not applicable 0.151 0.057
P-value Note : not applicable Note : not applicable (0.000) (0.000) Note : not applicable Note : not applicable (0.000) (0.000)
EPO
Coefficient Note : not applicable Note : not applicable 0.023 0.008 Note : not applicable Note : not applicable 0.025 0.016
P-value Note : not applicable Note : not applicable (0.016) (0.351) Note : not applicable Note : not applicable (0.012) (0.088)
Other offices
Coefficient Note : not applicable Note : not applicable 0.006 0.007 Note : not applicable Note : not applicable 0.034 0.032
P-value Note : not applicable Note : not applicable (0.511) (0.440) Note : not applicable Note : not applicable (0.001) (0.001)

Conclusion

This article presents some initial findings from the new
Canadian Patent Research Database. Over the 2001-to-2015 period, the number of
patent applications made by Canadian-resident businesses increased modestly,
but there was a stronger increase in patent applications made in the United
States. This increase in patenting in the United States can be traced to the
increased activity of smaller, younger firms in service industries and in the
technological fields of computer technology, civil engineering, digital
communications, medical technology, transport, and IT methods for management.

It is not clear why Canadian-resident firms are
increasingly patenting in the United States, but evidence suggests it is not
detrimental. Canadian-resident firms that file patent applications in the
United States are as likely to experience high employment or revenue growth as
firms that make applications in Canada.

Future research using the Canadian Patent Research Database
will take full advantage of the longitudinal nature of the database to examine
the causal impact of patenting on firm outcomes, and the ability to
disaggregate results along a number of dimensions, including whether businesses
are owned by men or women. The database will also be further developed to
include data on individual inventors, in addition to business applicants. These
developments will facilitate studies on, for example, the role inventors play
in the success of businesses and knowledge diffusion through the movement of
inventors between businesses.

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