Kim and Todd Saxton: Look close to home for innovations, but don’t forget the innovators

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Enthusiasm abounds for innovation in the state of Indiana.

Both Indiana University and Purdue University have established innovation initiatives with the goal of encouraging faculty, staff and students to innovate and commercialize those innovations. The state of Indiana has recently won several major federal grants, including the Department of Defense Microelectronics Commons Hub, involving Applied Research Institute Inc. and 130 hub members ($32.9 million); Hydrogen Hub in Indiana, Michigan and Illinois ($1 billion); and Heartland Bioworks (up to $70 million). Indiana University followed up with its own announcement that it would invest $111 million in microelectronics via facilities/labs, faculty and student activities.

The opportunities to innovate and commercialize innovations here have grown exponentially. At a high level, this seems promising—even amazing—but what does it mean for our entrepreneurs and innovators?

All these initiatives are aimed at improving the United States’ competitiveness in the world economy. And we should expect these new investments in research will generate patentable innovations. While some people question if patents are worthwhile, there are some important facts about U.S. patents to understand.

We sat down with Mike Pellegrino, the founder of IP Software Inc. and a nationally recognized intellectual property thought leader, to discuss trends in patent activity from the U.S. Patent Office. First, the number of inventors submitting patent applications to the USPO annually has dramatically increased over the last two decades, from roughly 185,000 in 2000 to more than 745,000 in 2019. That’s correct—the number of original inventors has more than quadrupled while the number of applications has only doubled. The universe of inventors is getting more inclusive and less concentrated.

While the number of patent applications and inventors from U.S. companies has increased, it has not kept pace with the rest of the world. The percentage of patent applications from U.S.-based inventors has decreased over time, from 42% down to 33%. Applications from Japanese inventors have also declined, while Germany has held constant at about 7% annually.

The countries with the greatest growth in percentage of the world’s inventors include our neighbor to the north, Canada (increased from 4% to 6%), and our rivals overseas, with China increasing from 3% to 7% and Korea increasing from 2% to 5%. But what’s notable is that international inventors are also filing patent USPO applications. The top five countries now only account for 61% of inventors, when it used to be 74%. This means innovators all over the world want to gain protected access to U.S. markets. At the same time, the percentage of applications that are granted varies from year to year but averages only 49%, which is likely lower than many people realize.

So, what does all of this mean for entrepreneurs? Startups need to consider three challenges that surround innovations and IP:

Recognize the challenges with getting and enforcing patent protection. Try to protect your ideas, but that might or might not be a successful strategy. The competition for new ideas is now global, which should factor into your strategy. Recognize that a patent does not guarantee limited competition and plan a backup strategy if your patent application is not accepted. From an investor perspective, seeking IP protection is a “darned if you do, darned if you don’t” situation. Investors appreciate founders who believe they have something unique and protectible, but founders who believe that protection will stop competition are naive.

Look for opportunities to leverage existing patents. Be aware of the companies that are working in overlapping areas, especially if they already have patents. Perhaps collaborating could be a win-win. But also look to universities as a source for ideas.

Pellegrino estimates that, on average, only roughly 18% of patents issued to universities have been licensed. Startups should consider universities a source of potential licensable technology. Other companies that focus on research might also have patents on their shelves they don’t plan to pursue.

Look beyond patents to other ways to protect new business ideas. Not all innovations are patentable, or they quickly become outdated. This is increasingly true with software and decision tools.

Developing proprietary processes or relationships can be a great hedge against competition. Offering a unique solution that provides more value to customers is another way to build a sustainable advantage. Lining up committed customers who want your solution over all others will add to the value your company creates.

It’s great that we have a lot of potential for innovation here at home in Indiana and efforts nationally to bolster our research pipeline. These recent announcements are a cause to celebrate, but it will take time, funding and talent to commercialize those innovations. High-level support will only lead to realizing potential if we enable individual creators to harness those resources.

Let’s hope that startups are a clear route Indiana takes to accomplish this goal. Which of these resources can you support or leverage to help Indiana and the United States remain competitive in global innovation?•

__________

Kim Saxton is a clinical professor of marketing at IU Kelley School of Business Indianapolis. Todd Saxton is an associate professor of strategy and entrepreneurship at IU Kelley School of Business Indianapolis. They are co-authors of “The Titanic Effect: Successfully Navigating the Uncertainties that Sink Most Startups.”

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