The OECD defines innovation as the "implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method." Innovation is widely recognized as instrumental to the realization of commercial value in the marketplace and as a driver of economic growth. ICT technologies, for example, have stimulated the creation of new products, services, and industries that have transformed the world economy over the past several decades.
This section will present data on how innovation activity varies among U.S. industries, using information from the National Science Foundation's (NSF's) Business R&D and Innovation Survey (BRDIS). The section also includes three indicators of activities that are related to innovation, but do not actually constitute innovation. Two of these, patents and trademarks, are indicators of invention—they protect intellectual property in inventions that can have value for commercial innovations. The third indicator concerns early-stage financing for U.S. HT small businesses, which can be an important milestone in the process of bring new products and services to market.
The NSF BRDIS survey provides innovation indicators that are representative of all U.S.-located businesses with five or more employees. Survey results indicate which kinds of companies introduced new goods, services, or processes between 2006 and 2008. Preliminary data from a 2008 pilot survey suggest that U.S. KTI industries have a much higher incidence of innovation than other industries.
In the U.S. manufacturing sector, four of the six HT manufacturing industries—computers, communications, scientific and measuring instruments, and pharmaceuticals—reported rates of product and process innovation that were at least double the manufacturing sector average (figure
Several of these industries, notably computers, communications, and scientific and measuring instruments, reported significantly higher than average rates of process innovations, particularly in production methods and logistics and delivery methods. Innovation is also higher in several commercial KI service industries in comparison to other service industries (figure
To foster innovation, nations assign property rights to inventors in the form of patents. These rights allow the inventor to exclude others from making, using, or selling the invention for a limited period in exchange for publicly disclosing details and licensing the use of the invention. Inventors obtain patents from government-authorized agencies for inventions judged to be "new…useful…and…nonobvious."
Patenting is an intermediate step toward innovation, and patent data provide indirect and partial indicators of innovation. Not all inventions are patented, and the propensity to patent differs by industry and technology area. Not all patents are of equal value, and not all foster innovation—patents may be obtained to block rivals, negotiate with competitors, or help in infringement lawsuits (Cohen, Nelson, and Walsh 2000).
Indeed, the vast majority of patents are never commercialized. However, the smaller number of patents that are commercialized result in new or improved products or processes or even entirely new industries. In addition, their licensing may provide an important source of revenue, and patents may provide important information for subsequent inventions and technological advances.
This discussion focuses largely on patent activity at the U.S. Patent and Trademark Office (USPTO). It is one of the largest patent offices in the world and has a significant share of applications and grants from foreign inventors because of the size and openness of the U.S. market. These market attributes make U.S. patent data useful for identifying trends in global inventiveness.
This section also deals with patents filed in all three of the world's largest patenting centers: the United States, the EU, and Japan. Because of the high costs associated with patent filing and maintenance in these three patent offices, inventions covered by these patents are presumed to be valuable.
The USPTO granted inventors 220,000 patents in 2010, 50,000 more than in 2009 (figure
Inventors residing in the United States were granted 107,000 patents in 2010, a 30% increase over 2009 (figure
The overall growth of patent grants, accompanied by a decline in the U.S. share in these grants over the past two decades, reflects a marked increase in patents granted to non-U.S. countries. The USPTO granted 112,000 patents to non-U.S. inventors in 2010 compared to 46,000 in 1995 (figure
Japan has the largest share of foreign patent grants by the USPTO, 40%, down slightly from the early 2000s (figure
Patenting by U.S. industry provides an indication of inventive activity, mediated by the relative importance in different industries of patenting as a business strategy. According to the NSF BRDIS survey, U.S. KTI industries account for a large share of USPTO patent grants (figure
U.S. commercial KI services received 86% of the 17,000 patents issued to nonmanufacturing industries (figure
This section discusses trends in several technology areas in a new technology classification system that includes broad science and technologically advanced areas that are emerging and technologies closely aligned with HT industries. The largest area is ICT, which consists of networking, information processes, telecommunications, semiconductors, and computer systems (table
Several of these advanced and emerging technologies were among the fastest growing patent areas during the 2000s (table
Technologies that lagged behind overall growth in patents included pharmaceuticals, materials, and aerospace and defense (table
The next section will present patent technology activity indexes for selected regions/countries/economies, which measure the world share of a region, country, or economy in patents in a particular technology relative to its world share in all patents. A ratio greater than 1 signifies that patents by a region/country/economy are concentrated in a particular technology.
ICT: Computer Systems, Information Processes, Networking, Semiconductors, and Telecommunications. U.S. patents are concentrated in three ICT-related technologies: information processes, networking, and telecommunications, with special strength in information processes and networking (table
EU patenting activity in ICT is comparatively low (table
In Asia, Japan, South Korea, and Taiwan have similar ICT patterns, with strength in computer systems and semiconductors balanced by weaker activity in networking and information processes (table
Biotechnology, Medical Electronics, Medical Equipment, and Pharmaceuticals. The United States and the EU have relatively strong patenting activity in these health-related technologies (table
Four of the Asian economies are very weak in these biomedical technologies (table
Automation and Control, Measuring and Instrumentation, and Optics. These are areas of generally low patent activity. Relative strengths are automation and control for the United States, measuring techniques and instrumentation for the EU, and optics for Japan, South Korea, and Taiwan (table
Aerospace and Defense and Materials. The United States and EU have a strong concentration in aerospace and defense, to which the EU adds strength in materials (table
Using patent counts as an indicator of national inventive activity does not differentiate between inventions of minor and substantial economic potential. Inventions for which patent protection is sought in three of the world's largest markets—the United States, the EU, and Japan—are likely to be viewed by their owners as justifying the high costs of filing and maintaining these patents in three markets. These "triadic patents" serve here as an indicator of higher value inventions.
The number of such "triadic" patents was estimated at about 48,000 in 2008 (the last year for which these data are available), up from 45,000 in 1999, and showing little growth after 2004 (figure
Firms use trademarks to launch new products and services, promote their brand, signal novelty, and appropriate the benefits of their innovation. Trademarks enable companies to establish exclusive identities for their new goods and services and to distinguish their products from those of competitors. Trademarks are considered a downstream indicator of innovation, showing the efforts of firms to build brand equity in new products and services. Because the U.S. market is large and open, this section will use applications for U.S trademarks as a measure of innovation activity for both the United States and other countries.
The total number of U.S. trademark applications was about 300,000 in 2008, with 250,000 applications originating from within the United States (figure
The number of U.S. trademark applications rose 20% from 1998 to 2008, although it dropped sharply during the recession of the early 2000s, and again showed signs of slowing during the late-decade recession (figure
Patterns in trademark applications by class may indicate innovation activity in related technology or industry areas. Classes related to KTI industries are among those with the most applications in 2008. After advertising, the scientific and measuring category had the second-largest share of applications (10%) (figure
Many of the new technologies and industries seen as critical to U.S. innovation and economic growth are also identified with small businesses. Many large HT businesses invest in and acquire small businesses as part of their efforts to develop and commercialize new technologies. Biotechnology, the Internet, and computer software are examples of industries built around new technologies in whose initial commercialization microbusinesses—those with fewer than five employees—played an important role. Trends in the number of microbusinesses in emerging or established HT sectors may point to innovative industries with future areas of growth. This section covers patterns and trends that characterize microbusinesses operating in HT industries, based on data from the Census Bureau. Two sources of financing for HT small businesses—angel investment and venture capital investment—are also examined using data from the National Venture Capital Association and other sources.
According to U.S. Census data, the number of microbusinesses in industries classified as HT by the Bureau of Labor Statistics (BLS) is about 325,000, more than 60% of all firms operating in these industries (figure
The three HT services with the largest number of microbusinesses are management, scientific, and technical consulting; computer systems design; and architectural and engineering. HT manufacturing industries with large numbers of microfirms include navigational, measuring, and electromedical equipment and semiconductors (table
The number of microfirms in BLS-classified HT industries grew much faster than in other industries from 2000 to 2008 (figure
Entrepreneurs seeking to start or expand a small firm with new or unproven technology may not have access to public or credit-oriented institutional funding. Often, they rely on friends and family for financing. However, when they need or can get access to larger amounts of financing, angel capital and venture capital investment are often critical to financing nascent and entrepreneurial HT businesses. (In this section, business denotes anything from an entrepreneur with an idea to a legally established operating company.)
An angel investor is a person who provides capital, in the form of debt or equity, from his or her own funds to a private business owned and operated by someone else who is neither friend nor family (Shane 2008). Angel investors may invest on their own as individuals or through an informal network of affiliated investors. Angel funds are more formal organizations where groups of investors pool their resources and jointly invest in businesses.
Venture capitalists pool the investments of others (typically wealthy investors, investment banks, retirement funds, and other financial institutions) in a professionally managed fund. They receive ownership equity in the companies in which they invest, and they almost always participate in managerial decisions.
Angel and venture capital investment are generally categorized into four broad stages of financing:
This section examines angel capital and venture capital investment patterns in the United States and internationally, focusing on the period from 2001 to 2008. The section examines (1) changes in the overall level of angel and venture capital investment, (2) venture capital investment outside the United States, (3) angel and venture capital investment by stage of financing, and (4) the technology areas that U.S. angel and venture capitalists find attractive.
U.S. angel investment. There are no sources of current, nationally representative data that directly measure U.S. angel investment. Data on U.S. angel investment have largely been restricted to samples that are not nationally representative or that rely disproportionately on angel groups and thereby exclude individual investors. This section will examine two data sources that provide some data on the level and activities of U.S. angel investment, the Global Entrepreneurship Monitor's (GEM's) survey of U.S. informal investment and the Angel Capital Association.
The GEM's U.S. survey is a nationally representative survey that provides a variety of data on patterns of U.S. entrepreneurship, including informal investment. The survey asks respondents who identify themselves as informal investors about their relationship with the person that received their investment, ranging from close family members to strangers. The proportion of strangers provides a crude estimate of the level of U.S. angel investment. By that measure, U.S. angel investment was estimated at $9 billion in 2010 (figure
The estimated level of angel investment is significantly lower than that of venture capital investment during this period, and anecdotal evidence suggests that HT areas receive a minority of U.S. angel investment. The returns to angel investors in lower technology industries can be very high, and many individual angel investors make limited or one-time investments, often in lower technology industries (Shane 2008).
In contrast with individual angel investors, angel networks and groups are more likely to invest a larger share in HT industries. Angel groups allow angels to exchange and analyze information about industries and talk with experts on technologies. Angel groups that pool their investments can invest larger amounts that may be required for HT industries, such as biotechnology or medical devices.
The Angel Capital Association (ACA) is a trade association of 150 leading angel groups in North America. According to ACA's survey of its members, the average investment for an ACA group fell from $1.8–$1.9 million in 2007–08 to $1.4 million in 2009 during the recession. The majority prefer to invest in the earlier stages of financing of companies, with 70%–80% reporting preferences for seed/startup or early-stage financing (figure
Venture capital investment. Data from Dow Jones Venture Capital show that global venture capital investment rose more than 40% from $28 billion in 2005 to $41 billion in 2008 (figure
Venture capital investment originating outside the United States grew rapidly but from a low level, nearly doubling from $4 billion in 2005 to $7 billion in 2010 (figure
U.S. venture capital investment by financing stage. Knowledgeable observers believe that venture capital investment has become generally more conservative during the 2000s. Later stage venture capital investment has both grown in absolute terms and as a share of total investment, from $10.8 billion (50% share of total investment) in 2002 to $17.4 billion (65% share) in 2010 (figure
In 2010, U.S. venture capital investment in the early stage, consisting of seed, startup, and initiation of commercial activities, was $4.6 billion, slightly higher than its level in 2002 but well below its prerecession peak of $7.9 billion in 2007 (figure
U.S. venture capital financing by technology. Five technologies—software, biopharmaceuticals, medical devices and equipment, consumer information services, and business support services—dominate venture capital financing (table
Medical devices and equipment were second, receiving $13 billion in total financing (table