Issue Date: August 27, 2007
The Patent Leader
The top-scoring company in the most recent ranking of global patent activity by the Patent Board, a patent analytics firm, is not a West Coast semiconductor or software giant, but DuPont, the 200-year-old chemical company based in Wilmington, Del.
The Patent Board's third-quarter survey puts DuPont ahead of Intel and Microsoft in terms of "technology strength," a measure of the overall quality and size of a company's patent portfolio. The Chicago-based firm uses a normalization process to factor out industry dynamics so it can compare portfolios across industries. Weatherford International, an oil-field services firm, is number four, and the medical technology firm Medtronic is number five.
Other chemical companies are much further down the list. For example, BASF comes in at 35; Rohm and Haas, at 57; Shin-Etsu Chemical, at 90; and U.S. chemical sales leader Dow Chemical, at 128.
The Patent Board and its predecessor company CHI Research have been tracking patent activity for close to 40 years, according to Jude Reter, a managing director at the firm. Among its clients is the National Science Foundation, which uses the data to determine whether research institutes are on the leading edge of scientific and technical development.
For corporate customers, the Patent Board divides the industrial world into 17 categories such as chemicals, industrial materials, semiconductors, and consumer products. Reter explains that the firm gathers patent filings in the U.S. and Europe and then massages the data to ensure accuracy and to apply various patent quality measurements.
For example, "industry impact" is the Patent Board's measure of how often other patent filers mention a company's patents in their own filings. "We are determining how influential a firm's patents or art are to others within their industry," Reter says.
"Research intensity," in contrast, is a measure of the frequency of patent mentions in scientific journals, while "innovation cycle time" measures the median age of all patents referenced by new patents to determine how close a company is to newer or older technologies in its industry. The Patent Board combines and weights these and other measures to come up with technology strength, its aggregate measure of patent portfolios.
Explaining DuPont's rise to first place, from third place in the Patent Board's second-quarter survey, Reter notes that its industry impact was up 18% over the year-earlier quarter, while research intensity was up 23% and patent count rose 37%. Overall, the firm's technology strength increased 60%.
Uma Chowdhry, DuPont's chief science and technology officer, confirms that DuPont's patent filing is on the rise. "We put a special focus on intellectual property creation back in 2001," she says. Since then, the firm has doubled its patent productivity. In 2006, she points out, DuPont was granted its most patents since 1993, and this year through July, it is 11% ahead of last year. Key areas of activity have been crop genetics, industrial biotechnology, and electronic materials, she adds.
According to Reter, company executives and financial analysts are interested in quantitative assessments of patent strength, because, increasingly, intellectual property (IP) is seen as a financial asset. "A patent is an intangible," he says. "It's not on the balance sheet yet. So how do you value it? These are the questions our customers are asking."
A Wall Street chemical stock analyst, who asked not to be quoted by name to comply with his firm's disclosure rules, confirms that IP is an important indicator of a company's financial performance. "It affects the ability of a company to earn above-market returns, either profitwise or sales growthwise," he says.
For most chemical makers, however, patents and other intellectual property are already reflected in earnings, he says. Using DuPont as an example, the analyst notes that the firm's performance materials or safety and protection businesses both enjoy strong patent portfolios that allow them to charge premium prices.
"But since DuPont has been working in these areas for a while, we expect that the IP is expressed in its ability to earn sales and profits in these businesses," he says. "Therefore, the IP becomes part of the overall valuation." He prefers to predict future performance by measuring the percent of a company's sales that come from new products.
At DuPont, Chowdhry notes, patent filings and new product creation do indeed go hand in hand. Products less than five years old have increased from just over 20% of DuPont sales in 2001 to 34% of sales in 2006, and a good 95% of those new products are patent protected, she says. "Even our chairman pays attention to the number of patents that are granted each year."
There's some evidence that companies with strong IP perform well. For example, the Ocean Tomo 300 Patent Index, launched last October, is a stock index representing 300 companies that, by Ocean Tomo's reckoning, possess valuable patents. The company, a competitor of the Patent Board, says the index would have outperformed the Standard & Poor's 500 stock index by an average of 3% annually over the 10 years prior to its launch.
According to Reter, a thorough analysis of patent strength can open a window on a firm's next 10 years as well. Coming up, the Patent Board plans to focus this view by linking its data on companies' patents to the commercial success of products based on those patents. "Our indicators are leading indicators," Reter says. "They are a little look into what the future is going to be for these companies."
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