Proof: R&D Investment Pays Off
Thomson Reuters announced its 2013 Top 100 Global Innovators the week of Oct 7., 2013, a list of the who’s who in innovation based on a series of proprietary patent metrics using its Derwent World Patents Index database.
The 2013 honorees comprise many of the likely suspects: AT&T, Apple, Google, Ford, L’Oreal and Microsoft, as well as some that aren’t so likely: Alcatel Lucent, Blackberry and Ericsson.
Annually, Thomson Reuters analysts look at all companies around the world that file patents and perform a deep dive analysis of those with 100 or more unique inventions over the last three-year period. They measure each patent holder according to the number of its unique inventions, its success of applications to grants, the global nature of its patent portfolio and its influence on future innovation.
The company also performs financial analysis on the Top 100, to see how they fare year over year, as well as compared to the S&P 500 stock index.
For the last three years, the Thomson Reuters Top 100 Global Innovators have outperformed the S&P 500 in a number of areas. Specifically, in 2013, they outspent the S&P 500 by 8.8% on R&D, and outperformed the S&P by 4% in annual stock gains and 2% in year-over-year revenue.
This consistent pattern of performance, in conjunction with other factors like the Top 100’s addition of more than 266,000 new jobs, gives one reason to pause and take a second look at the Thomson Reuters list.
David Brown, managing director for the IP Solutions business of Thomson Reuters, said, “The Thomson Reuters Top 100 Global Innovators study provides further evidence that innovative organizations—those that secure global patent protection for their intellectual property, continue to push the envelope with new technologies and invest more in R&D—are those that outperform the S&P 500 on virtually every measure of business success.”
These 100 organizations spent $223.2 billion on R&D in 2012, or 5% of revenue on R&D, whereas the S&P 500 spent just 2.1% of revenue in this same area.
Not only does the study show that patents are a proxy for innovation, but it also underscores the importance of investing in R&D. And, how such investments can lead to greater economic success.
Interestingly, China is missing from the list—as it has been for the past three years. Bob Stembridge, IP analyst at Thomson Reuters, attributes this to the fact that “Chinese organizations are still very insular in their filing strategies. They protect their inventions domestically, in their homeland, but only 7% of the patent filers in China actually protect their assets abroad.”
So, despite the fact that China leads the world in patent filing volume, companies that originate innovation in China are not bringing those inventions to market in other parts of the world and therefore are not influencing future innovation.
Stembridge added, “As a point of comparison, U.S. patent holders collectively protect 58% of their inventions internationally, and that number is 53% for Japan.”
Another finding from this year’s Top 100 is that governments that incent innovation and R&D with tax credits and pro-innovation policies, have greater representation on the list. One can make the correlation between government policies, innovation, R&D and economic success.
The United Kingdom, also absent from this year’s list, is an example of a country where the government is just starting to introduce innovation incentives, but that these need time to take root and grow. The 2013 UK Patent Box legislation offers a tax break to companies that sell products in the U.K. that are also protected by patents there. It’s a step in the right direction, but will require time to turn the ship. Gross domestic spending on R&D performed in business enterprises is just $24.1 billion in the U.K., versus $279 billion in the U.S. and $107.9 billion in Japan.
With Blackberry’s future in flux, it’s natural to question why and how the company made Thomson Reuters list. The answer lies in the organization’s commitment to protecting its inventions with patents. It was very diligent at this over the past few years, with a 38% surge in patent filings between 2010 and 2011, and 17% growth in patent filings between 2011 and 2012. The rapid expansion of the company’s patent portfolio, and its current estimated value of more than $2 billion, are certain to factor into Blackberry’s pricetag.
The bottom line
Companies that invest in R&D, develop innovative products and protect those inventions with patents are better positioned for future business success than those that don’t. At a minimum, the patent provides the corner on a market or area for a set period of time, allowing the opportunity for more innovation, growth and commercialization.
“The fruits of rigorous R&D are clear-cut in the results of our study: those companies that spend more on R&D, yield more patents, and more innovative solutions,” summed up Brown.