how innovative are they? - Innography

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Salesforce.com, Regeneron. Pharmaceuticals, Incyte. Corporation, and Alexion. Pharmaceuticals, were measured across six
HOW INNOVATIVE ARE THEY? USING INTELLECTUAL PROPERTY DATA TO INVESTIGATE THE WORLD’S TOP FIVE MOST INNOVATIVE COMPANIES

CONTENTS

3 Introduction Defining the Metrics

4  Metrics Findings: Visualizations and Observations

9 Findings Summary 10 Conclusion

From broad insight to multi-layered analysis, intellectual property (IP) intelligence software can be used to provide an objective perspective into almost anything patent-related. Offering a perfect opportunity to illustrate this point was Forbes Magazine’s World’s Most Innovative Companies for 2016 list. The rankings were based on an “innovation premium” — “the additional value investors place on the company above its enterprise value.” To find out how this seemingly subjective ranking system fared against more objective metrics, the top five on the list were put up against Innography’s IP intelligence software. From an intellectual property perspective, are these companies really innovative or is it just media (or investor) hype? What else can a patent portfolio tell us about innovation? The top five, Tesla Motors, Salesforce.com, Regeneron Pharmaceuticals, Incyte Corporation, and Alexion Pharmaceuticals, were measured across six predefined objective

metrics, including number of inventions, number of inventors, inventor locations, patents per inventor, PatentStrength® percentage (more on this in “Defining the Metrics”), and PatentStrength percentage of filing activity post 2011. The results showed strengths and weaknesses for each company across the different metrics, as well as a generally high level of innovation for four of the five companies — Alexion Pharmaceuticals did not prove to be objectively innovative. Here is the summary of findings on the six metrics identified:

Number of Inventions

Number of Inventors

Inventor Locations

Tesla Motors

467

535

6

1.15

39%

30%

Incyte

814

665

13

0.82

17%

10%

Salesforce. com

1071

1326

14

1.24

45%

30%

Regeneron

502

633

17

1.32

25%

18%

Alexion

201

245

9

1.22

41%

9%

Company

Patents Per PatentStrength PatentStrength % Inventor % 2011 Onwards

The main goal of this study is not to make any outright claims about any of the top five of Forbes’ most innovative companies list, but to show how one may use IP Intelligence software to uncover actual— and not just perceived—insight into any competitor by closely analyzing different aspects of their patent portfolio.

© 2017 Innography. All rights reserved.

HOW INNOVATIVE ARE THEY? | WHITE PAPER

INTRODUCTION Defining “innovative.” There are many ways to define “innovative,” especially when it comes to patent portfolios. For some, the quantity of patents in a portfolio may not matter as much as the quality of them (and vice versa). Others may value market position or the scope of the claims blocking competitors. Some will favor commercial success above all. Listed and outlined below are the six metrics chosen to conduct the analysis. i

DEFINING THE METRICS Metric One: Number of Inventions and Overall Filing Trend For the first metric, the assumption is that the more patents a company has, the more innovative it is.

More patents = the more they are investing in R&D = the more they are filing = the more they are seeking protection for the technology in the market place It also matters when these companies filed their patents. Another assumption here is that innovation, as viewed by patent filings, would increase year over year — or at least be consistent — rather than regress.

Metric Two: Number of Inventors Here, the assumption is simply that the more inventors on a company’s payroll, the more opportunity it has to develop ideas and drive innovation and R&D efforts. Metric Three: Number of Inventor Locations Worldwide This metric assumes that with more locations, one has more inventors, and again more opportunity to develop ideas and drive innovation (as stated in Metric Two). In addition, with locations in other parts of the world, it’s assumed that there’s an opportunity to take advantage of cultural and technological differences, as well as the resources and experiences from an international platform. Metric Four: Patents Per Inventor It’s generally assumed that a larger inventor base yields more innovation, and thus, more patent applications. While it’s rare, the ideal situation is actually a small team of innovation geniuses, where ideas are effectively and efficiently harvested, reviewed, and turned into successful invention disclosures. The main thing to look for here is the higher number of patents per inventor, the better.

i Commercial success in terms of stock price or revenue growth was not included. Since Forbes based their definition of “innovative” on “investors’ ability to identify firms they expect to be innovative now and in the future,” it’s assumed that revenue growth and stock behavior would have to be favorable. (Read more about their ranking methods).

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Metric Five: Percentage of Patents in the 70 – 100% Range of PatentStrength This metric considers the quality of the patents as well as the level of filing activity, or interest, in the technology space. This concept is based on the Valuable Patents paper by UC Berkeley and George Mason Law School, which suggests that patents that fall in the top 30% of “patent strength” have an economic and strategic advantage to their owners. To measure the patent strength, Innography’s aptly titled algorithm, PatentStrength, was used. Metric Six: Percentage of Patents From 2011 in the 70 – 100% Range of PatentStrength To understand what percentage of the portfolio covers emerging core technology for the future, the percentage of the portfolio in the top 30% of PatentStrength was further filtered by a 2011-onward filing date. By isolating the younger, high-ranking patents into a smaller subset, it allows you to pay closer attention to what they cover, the role they play within the larger portfolio, and whether or not to continue to pay annuities on them.

METRICS FINDINGS: VISUALIZATIONS AND OBSERVATIONS Metric One: Number of Inventions and Overall Filing Trend

Company

Number of Inventions

Incyte Corporation

814

Regeneron Pharmaceuticals

502

Salesforce.com

1071

Tesla Motors

467

Alexion Pharmaceuticals

201

Figure 1.1 Top 5 Filing Trend over time

Salesforce.com has a strong lead in total number of inventions and has increased filing, especially since 2013. Though they have less inventions in their portfolio, Tesla, Alexion, and Regeneron show a similar upward trend in more recent times. Filing heavily prior to 2000, Incyte Corporation is the only one of the top five that shows a reverse trend. One interesting observation that sticks out is Tesla’s burst into the scene. While they are the second lowest in terms of inventions, the rate at which they’ve grown their portfolio in such a short period of time (compared to the others) says a lot about them as a future contender.

© 2017 Innography. All rights reserved.

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Metric Two: Number of Inventors

Figure 1.2 Number of Inventors by Top 5 Innovative Companies

Again, Salesforce.com comes out on top with the greatest number of inventors. Alexion has the fewest inventors and a flat filing-trend line, as shown in Metric One. These correlations start to differentiate the more innovative companies (Salesforce.com) from the not-so innovative ones (Alexion). Though Incyte and Regeneron share a similar amount of inventors, Incyte’s recent decline in filing activity suggests high innovation early on that hasn’t been maintained, despite a reasonable R&D pool. Metric Three: Number of Inventor Locations Worldwide

Figure 1.3 Number of Inventor Location by Company

For the purposes of this paper, the world maps are not included. Tesla has the fewest locations with the majority of its innovation activity occurring in the United States. On the opposite end of the spectrum is Regeneron with the most inventor locations, across the US, Australia, and Europe. Salesforce.com and Incyte look to be in a close-tie for second place. While Alexion didn’t score well in Metrics One and Two with a small number of inventions, a flat filing-trend, and a small number of inventors, it appears to have some geographic scope to their R&D locations that outpaces Tesla.

© 2017 Innography. All rights reserved.

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Metric Four: Patents Per Inventor

Company

Patents Per Inventor

Remember, as defined above, Metric Four assumes that the Tesla Motors 1.15 more inventors per company, the more ideas created, and the more patents filed. What’s interesting here is how close these Incyte 0.82 Corporation companies are in patents per inventor, despite the size of their inventor community. This finding suggests a high caliber of their Salesforce.com 1.24 inventors, their inventing process, or both. Incyte’s place at the bottom, however, is not that surprising. Looking at Metric One, 1.32 Regeneron Incyte’s filings have significantly dropped over the years, a trend Alexion their inventor-to-patent ratio clearly aligns with. These findings 1.22 Pharmaceuticals beg many questions that Incyte should be asking themselves: Do we have the right inventor talent? Are we supporting them in the right ways? Are we capturing all of the ideas that may lead us to a better market position? While Incyte is considered to be in the top five most innovative companies in the world right now, are they doing what’s necessary to hold on to this position into the future? Metric Five: Percentage of Patents in the 70 – 100% Range of PatentStrength

Figure 1.4 Distribution of PatentStrentgh across Top 5 most Innovative Companies

When looking at PatentStrength, two things need to be taken into consideration: 1) t he quantity of patents, or percentage of the portfolio, that resides in the top 30% according to the PatentStrength metric and 2) the percentage should be balanced (some patents in the upper tiers and some — preferably more — in the lower tiers). Because some of the factors used in the PatentStrength calculation (citations, litigation, opposition) occur in patents that have existed long enough to acquire this data, too many patents in the top 30% of a portfolio can indicate an aging portfolio. Looking at the above graph, it could be argued that Incyte

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Corporation has a “healthier” balance than Salesforce, while the three remaining companies have an overall “healthier” distribution. This means that they have a good amount of their portfolio in that top 30%, denoting core technology, or technology that had been filed in an area of high interest, yet enough in the lower tiers to act as an insurance policy for the future. An interpretation of PatentStrength here can be seen as a symptom of innovation, as well as act as a guide to help understand whether the technology covered in the underlying patents was A) forward-looking at the time of publication or B) developed at the same time as others in the market. Both A and B can potentially lead to forward citations, oppositions, and even litigation activity that positively affect the ranking of the patents in the portfolios.

Innography’s PatentStrength® is a proprietary algorithm that predicts patent value and relevance, by deriving the likelihood that a patent will eventually be litigated. Starting with a well-regarded study on patent value correlations, Innography has refined and improved the predictive capability of the algorithm over years of analysis. Let’s take a look at the raw numbers at play here.

Figure 1.5 Percentage of the Patent Portfolio residing in the top 70th to 100th percentile of PatentStrength

An argument could be made that Alexion, Tesla, and Salesforce.com have portfolios that are too heavily weighted in the top 30% of PatentStrength. As mentioned earlier, while this can be an indication of innovative activity, it can also indicate an aging portfolio. Having this information would help these companies identify a need to prioritize ongoing innovation and patent-filing within their overall strategy to ensure they don’t lose their position. That said, further digging is required — i.e., taking the time review what these portfolios cover when it comes to emerging core technology of the future. On a positive note, having many strong patents offer a lot of monetization opportunities via licensing or selling. PatentStrength can be used to find the stronger patents to license and/or sell.

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Metric Six: Percentage of Patents from 2011 in the 70-100% of PatentStrength

Figure 1.6 Percentage portfolio in top 30% of PatentStrength ranking after 2011 filing comparison

Figure 1.7 Comparison of the percentages of the companies’ portfolios in the top 30% of PatentStrength overall and percentage of the portfolio in the top 30% of PatentStrength ranking filed from 2011 onwards

To recap Metric Six’s description, looking at the percentage of the portfolio filed since 2011 that falls into the top 30% of the PatentStrength ranking gives insight into what percentage of the portfolio covers emerging core technology of the future. In other words, patents that are relatively new to the portfolio and yet are already ranked high. With the exception of Alexion, all of these companies have maintained consistency in their percentages. Alexion is the only company that experienced a significant drop — from 41% to 9%. This finding, together with a somewhat flat filing-trend and small number of inventions, doesn’t support the idea that Alexion is a true innovator.

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FINDINGS SUMMARY: COMPANY COMPARISON RECAP Company

Number of Number of Inventions Inventors

Inventor Locations

Patents Per Inventor

PatentStrength %

PatentStrength % 2011 Onwards

Tesla Motors

467

535

6

1.15

39%

30%

Incyte Corporation

814

665

13

0.82

17%

10%

Salesforce.com

1071

1326

14

1.24

45%

30%

Regeneron

502

633

17

1.32

25%

18%

Alexion

201

245

9

1.22

41%

9%

Observations Summary To dig in a little deeper into the top five of the “World’s Most Innovative Companies 2016” as perceived by investors, six metrics were measured using IP intelligence software in order to determine level of innovation more objectively—from a portfolio perspective. The results highlighted clear strengths and weaknesses for each of the top five. For a complete analysis, all the data must be consolidated and further analyzed to really understand which (if any) of these companies are truly the world’s top innovators. Alexion Pharmaceuticals With a flat filing-trend line, the fewest inventors, and second-to-last in terms of R&D centers, coupled with a large drop in emerging core technology for the future, Alexion cannot objectively be considered innovative. Without R&D intervention and a focus on patent filing, what is presented here does not sustain continued, ongoing success. Incyte Corporation With the lowest patent-to-inventor ratio, the smallest percentage of their portfolio residing in core technology, and a filing trend that shows heavy investment in their technology prior to 2000 with little recent activity, it appears that Incyte is not currently such an innovative company. Tesla Motors Though they don’t lack in media and mainstream interest in today’s world, the metrics findings don’t fully attest to Tesla being a front-and-center innovator just yet. However, the metrics do show that as younger organization with a fairly new portfolio, Tesla’s staying power looks very promising for the future. Regeneron Pharmaceuticals and Salesforce.com From the findings, these two companies are shown to be the most innovative companies of the top five. With a larger number of inventions, more R&D centers, and a larger percentage of the portfolio in the top tiers of PatentStrength, plus strong patent-to-inventor ratios, the technology potential of these organizations looks objectively strong, both now and in the future.

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CONCLUSION As the saying goes, “Things are not always what they appear.” How a company seems from the outside can be a reflection of many factors — even the past. The proof is in their patent portfolios. There are many ways to use IP intelligence software to gain a more objective view into what’s really going on — or what you can expect — from your competitors or a technology space now and in the future. So, rather than make a costly mistake, take some time and possibly a step back to look at every piece of the puzzle carefully. With all the intelligence at your fingertips and the tools to be able to weigh your own metrics, making informed, objective IP decisions is easier than ever before.

ABOUT INNOGRAPHY Innography provides patent search and intellectual property analytics software that helps the world’s leading patent owners, innovators and decision-makers drive more business value from IP investments. Correlating 100 million patent documents with financial, litigation, market and business data, Innography helps clients track competitors, uncover lucrative revenue sources, pre-empt litigation risk and stay abreast of innovation trends. With more than 350 global clients across all product industry categories, Innography is proud to achieve customer satisfaction far above the industry average. Headquartered in Austin, Texas, Innography is a CPA Global company.

innography.com [email protected] | +1 512 306 8688 | +1 877 603 2070 | © 2017 Innography, A CPA Global Company. All rights reserved. Innography, CustomStrength, Patent Market Tracker, PatentIQ, PatentScout, and PatentStrength are registered trademarks and IP AnswerGuide, IdeaScout, PatentGuard, and Vippet are trademarks of Innography, A CPA Global Company. Innography disclaims any proprietary interest in the marks and names of others.