Why Patenting Is at Its Highest Level Since the Industrial Revolution
By George C. Lewis, P.E.
As published in the Denver Bar Association's The Docket, December 2016
The meteoric rise in patent filings reflects a fundamental change in how business is done in the modern world, as much as it reflects the pace of technological innovation. We are all experiencing technological innovation firsthand with the increased use of technology. As technology becomes more and more intertwined with daily life through “smart this” and “automated that” there is always more to be improved on. This surge in innovation is leading to increases in the patenting of that new technology.
To illustrate this shift, imagine the world of business in 1916 and imagine yourself as an entrepreneur in that world. You want to start a manufacturing business based on a new type of shoe or any other new product. There was little in the way of venture capital at the time. So, unless you already have a personal fortune that you want to sink into this endeavor, you start your business small and hustle to get your new product accepted — and create a market for it. If you are successful and lucky enough to avoid all of the random pitfalls that can beset any business, you will grow steadily over the decades into a large corporate behemoth with all the attendant assets necessary at the time: manufacturing facilities, a shipping department, a marketing department and all the other departments needed to run that corporate behemoth. This is evidenced by many of the well-known brands of today with roots back in that era: Levi’s, Ford, BMW and Westinghouse, to name a few.
In 1916, all of this took a lot of time. But your only competition would likely be existing shoe companies that may not even want to compete in the new market. Other upstarts hoping to enter your newly-created market would need to do what you did: come up with money and go through the same growth process before they can become a competitor worth noting. Another way to look at this is to say that there were two intrinsic barriers to entry for most new businesses: capital and time to grow. Even then, a competitor’s road was not going to be easy.
Fast forward 100 years to 2016. You come up with a new shoe concept and design. You scan and email the design to some contract manufacturers in cheap labor markets and, within a week, you already have multiple prototypes, and your full-scale manufacturing is lined up and ready to go. You put your product on sale on the Internet, set up a viral marketing campaign using independent contractors and contract brick-and-mortar distributors in anticipation of the holiday ordering season. Up to this point, it would not have been unrealistic to have funded all of this with a credit card. You get orders and, with orders in hand, you can access real capital to fill those orders. Even your business functions, like accounting and logistics, can be outsourced without having to go through the trouble of hiring lots of employees. The next thing you know, you are handling the same volume within a year of that first email that the 1916 company may have needed 20, 30 or even 40 years to achieve — all accomplished with just you, as the sole employee, and everything else contracted out. It is almost frictionless when compared to the process in 1916.
But there is a catch: It’s even easier for your competitor than it was for you!
The only barrier to your success is creating the market. But your competitors won’t even have that barrier. In 2016, you enable competition the minute you show your product to the world, and you create your competitors the very second that you prove that there is a market for your new product or service. There is nothing stopping competitors from instantly springing into existence (often using the very same factories in parts unknown that you are using) and taking as big of a share of the market that you created as they can with their lower costs. There is nothing to slow them down — except intellectual property.
Intellectual property was simply not as important in 1916 as it is now. This is largely because there were other barriers to entry for your competitors, like capital and time, that you could rely on and that you had to invest in anyway. Intellectual property, and particularly good patent protection, has always been and will always be very expensive; but in 1916, in the midst of World War I, it was in the “nice-to-have” category, not the “must-have” category. In 2016, intellectual property — the patents on your product, your brand name and the goodwill associated with it, and your control over the content you create — represents one, if not the sole, remaining barrier to entry for your competitors. It is rapidly becoming obvious that the only way to keep some of that market you create is to take the money that used to be spent on physical assets, such as trucks, factories, retail outlets and a huge staff, and spend it on intellectual property. Because if you don’t, you will only have a short time to bask in the light of success before your market is completely overtaken by the lowest-common-denominator competitors with the cheapest manufacturing costs.
In essence, all companies are becoming like the pharmaceutical industry (where the cost is in finding an effective drug, but once it is found, anyone can make it for next to nothing). And pharmaceutical companies live and die by their intellectual property, particularly their patents and the name recognition of their patented and trademarked products.
The increasing trend in patent filings reflects this new business climate. In 2015, a total of 298,407 patent applications were filed in the U.S. Patent Office. Although roughly 2,000 applications shy of the all-time record in 2014, it is still some 7.5 percent higher than in 2013 — and twice the number filed just 10 years earlier.
As a patent attorney, I have a first-row seat in both games: the technology game and the business game. I can’t tell you which is changing faster or which is having the biggest impact on our everyday lives. But I can tell you to get your patent and trademark applications on file before you email your design to parts unknown. And, most importantly, the amount of time and money you spend on those applications will have a direct relationship on how much of your created market will remain yours.
How Colorado Is Growing into an Innovative State
So, what does this fundamental change in how business is done in the modern world and the pace of technological innovation play out in Colorado? Colorado is the 22nd most populous state and the 17th most prolific U.S. patent application filer. Colorado is in the top five states with the highest percentage of adults, aged 25 to 64, with a bachelor’s degree (23.2 percent by one measure, if you are wondering) and in the top 10 states with the highest percentage of graduate or professional degrees. Colorado’s universities and colleges continue to move up in world rankings and spin out ever more quality research companies and startups. These outcomes are neither accidents nor independent phenomena: They are all self-reinforcing and combine to accelerate the growth of Colorado’s tech sector.
As discussed above, now you can be an entrepreneur and launch a successful company from anywhere in 2016. To the extent you need good connections to the rest of the world, Colorado has that covered — and we’re centrally located. If you need proximity to well-educated and motivated people, you can find them playing in the mountains of Colorado year round. People with the entrepreneurial drive want to live here and will continue to move here, start businesses here and grow the tech sector here. These companies may get acquired by a larger company and have their headquarters moved to one of the coasts, but the people will stay here. And do it all over again. Rinse and repeat. To make a long story short, innovation will only keep growing in Colorado.
As a professional engineer turned intellectual property attorney, George C. Lewis, a partner at Merchant & Gould, emphasizes developing and managing patent and trademark portfolios to support Colorado’s innovation, business industries and growth. He focuses on creating a coordinated portfolio of IP assets (encompassing patent, trade secret, trademark and copyright protection as appropriate) to supports his clients’ strategic business plans and goals.