China Erodes U.S. Dominance in Tech With an Avalanche of Patents
(Bloomberg) -- The U.S. is losing its advantage to China and other countries when it comes to innovations related to artificial intelligence, blockchain and other key technology, according to an analysis of patent filings over the past decade.
While American inventors still command the largest portion of the nation’s patents, the percentage is dropping in the high-tech fields, according to a yearlong study conducted by the law firm Kilpatrick Townsend & Stockton LLP and researchers at GreyB Services Pte. That could lessen any home-field advantage in areas like wireless phones, internet of things and artificial intelligence, the study’s authors said.
U.S. applicants filed 66% of patents for artificial intelligence in 2018, down from 78% in 2007. The percentage of filings for so-called internet of things fell to 59% last year, from 66% a decade ago, while financial technology dropped to less than 75% from 82%.
“We are filing more; they’re just filing more, more quickly,” said Kate Gaudry, a patent lawyer with Kilpatrick Townsend in Washington and one of the study authors. “In a lot of high tech areas and in software, we’re seeing a decrease of contributions.”
The report comes as Beijing’s top trade negotiator, Liu He, is in the U.S. for high-stakes trade talks and as President Donald Trump raised tariffs on Chinese goods early Friday.
The administration contends that China is stealing American know-how, and the trade talks center in part on claims China has reneged on pledges to end a policy that requires U.S. companies to reveal proprietary technologies and other intellectual property if they want to do business in the Asian nation.
The Chinese government, however, has spent billions to fund research in key technologies and the increase in patent filings indicates Chinese companies are developing their own technology as well.
Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington-based nonprofit that says it is devoted to policies that accelerate innovation, said what the U.S. needs is a coherent innovation policy.
“We do not have one, at all. Zero,” he said.
The report, he said, is “a canary in a coal mine, telling us a pretty important message that we’re resting on our laurels.”
The study looked at filings with the U.S. Patent and Trademark Office between 2007 and 2018. Rather than relying on the agency’s traditional classification numbering system, the researchers considered wording within the patents to see what industries were related.
The number of patents sought and received has risen over the past decade in each of the 12 fields studied. Areas where American companies retained or increased their dominance included medicines, industrial design and computational biology, which includes statistics used in genomics research and personalized medicine.
The biggest drop-off was in the area of internet of things, which encompasses internet-connected products that send and receive data like smart home appliances, traffic devices and energy grids. Overall, patent filings in the field are “skyrocketing,” from about 5,000 in 2007 to more than 18,000 in 2018, according to the report.
At the same time, the percentage of internet of things applications that originated with American companies dropped to less than 60%, with the biggest growth from companies in South Korea and China. Korea’s Samsung Electronics Co., one of the top recipients of those patents, is building model homes in Seoul to show off the possibilities of a completely connected homes, though Qualcomm Corp. and International Business Machines Corp. are among the top-five patent holders in the field.
The U.S. National Institute of Standards and Technology, which overseas policies related to the licensing of government-funded research, last month laid out what it called “the critical need to modernize the U.S. system of technology transfer and innovation” and acknowledged that “the U.S. is continuing to lose ground to competition.”
In many categories, large American companies are the biggest holders of patents -- Alphabet Inc.’s Google is prominent in artificial intelligence, Boston Scientific Co. is a leader in medical device-related patents and General Electric Co. was tops in both green technology and bioinformatics.
While Bank of America Corp. has the most patents related to blockchain, the ledger technology used for verifying and recording transactions, Japanese and Chinese companies have been increasing their percentage.
IBM, the developer of the Watson computer, was the top overall recipient of patents in artificial intelligence but smaller companies are dominant within subgroups, like Florida-based Magic Leap Inc. in augmented reality and Texas-based CognitiveScale for augmented intelligence in the financial areas.
“They have a lot more employees, so they should have more patents coming out,” Gaudry said of the big companies.
Some of the growth in patenting particularly from Chinese firms can be related to globalization and the maturation of companies that want to operate in the U.S., she said. While China’s network-gear company Huawei Technologies Co. and display-screen maker BOE Technology Group weren’t named in the report, both ranked among the top 20 recipients of U.S. patents last year.
Patents give their owners the exclusive right to use an invention. Particularly in the tech space, they also are used as a sort of bulwark to deter competitors from filing suit for fear of starting a tit-for-tat war.
“They want to be here,” Gaudry said. “Some companies who want to come to the U.S. even buy patents because they see it as necessary to operate.”
As the foreign companies seek more U.S. patents in high-tech fields, the percentage assigned to American companies will continue to drop, she said.
“What is the impact on our competitiveness?” said Sridhar Kota, an engineering professor at the University of Michigan. “Are we creating national wealth in the industries of the future? That is questionable, particularly when it comes to hardware.”
Kota, who also is executive director of MForesight: Alliance for Manufacturing Foresight, which advocates for policies to increase manufacturing in the U.S., said too many American companies that originally went to Asia for manufacturing also are turning there for research, engineering and design. He pointed to things like cellular telephones, lithium batteries and flat panel displays.
“They were invented in the U.S. but not manufactured in the U.S. and now we don’t have the know-how to manufacture the next generation,” Kota said. “If you are not manufacturing, you lose that entire knowledge of ‘learning by doing.’ You lose the ability to develop the next generation of products.”
Gaudry said it’s likely that an analysis of the patent filings in China would see an increased presence of U.S. companies there as well because of globalization, though Chinese firms would be tops in their home country. In the European Patent Office, American companies make up 25% of the total, according to that agency’s annual report. Even there, though, the Chinese companies are seeking more patent protection.
“We’re declining and the patent data is telling us that’s what’s going on,” Atkinson said. “That, to me, is a problem.”
©2019 Bloomberg L.P.