Where the innovations are: Patent making in the Great Lakes states.

• Author: Slaper, Timothy F.

Innovation is one of those "I know it when I see it, but I need to find my glasses" concepts. Innovation, a leading driver of economic and productivity growth, is difficult to measure--quantitatively or qualitatively.

The typical go-to measure for the innovation concept is counting patents. There is hard data on the number and technologies of patents, along with the geographic location of the inventors and their organizational affiliations. Patent technology often finds its way into the marketplace as new products or even start-up firms focusing on delivering products that meet the needs and wants of a heretofore unfulfilled customer niche.

A patent is the U.S. government's stamp of approval that the technology described in the patent application is distinct from other technologies in previous patents--that is, this technology is unique. Cutting-edge patents propel productivity and economic growth because it benefits at least two members of the free-market system: consumers and producers. It benefits producers along the supply chain because the product/technology meets a need of another link in the value-added chain to reduce production costs (and raise profits). It may also fulfill a need of consumers to reduce their effort and time to do tasks (think washers and dryers), reduce their pain (think knee replacements), or increase their enjoyment (for example, better TV screens or fabrics). If a patent technology does not benefit either producers or consumers, it will not be commercialized at full scale. In other words, the product, and maybe the firm, will flop. When there are benefits to producers and consumers, profits and wages typically rise. And following, productivity (or value-added) per worker or worker-hours worked also increase.

For this reason, making patents in a region is a good proxy for innovation in a region.

By extension, in regional economic development, there is the concept and type of policy initiative called "technology-based economic development" or TBED. If a region is producing new technology and patents, there is a good chance that many of those technologies will find their way into products at commercial scale and, hence, juice the regional growth of profits, employment and wages. Not all patents, or entrepreneurs who look for the potential applications of technologies to market segments, will find a favorable, growth-stimulating product that can be commercialized. But many technologies will. Reducing the friction from technology discovery to technology development to market application and opportunity to financing and building production to scale are goals of several U.S. government programs. For example, the federal government has initiatives for national laboratories to take their technologies and, typically with partnerships with private enterprises, polish and perfect their technologies from birth to commercialization and eventual market scale. There is even an established progress ruler to monitor and evaluate the success of government-funded technologies as they make their way from pure science to the marketplace.

Patents not only provide a signal for future economic regional growth potential, but the patent data also have information and geographic specifics on who the inventors are, whether there are several collaborators and the organizations with whom they are associated. This matters for an economic development practitioner (EDP) who may be looking for partners with whom they may apply for TBED-related research and development funding. Or, it may also help EDPs understand their local web-of-science--e.g., network analysis and knowing whether a critical technology resource is connected within-region (at a local university or corporation) or dependent upon knowledge flows from outside the region (from collaborators and relationships across the nation or internationally). Knowing what technology matters, and who matters, for a particular innovation relationship in a region can help EDPs formulate their vision and strategies for future industry and economic development. This network information, along with other resource or asset inventories, pressure checks whether a proposed development policy and strategic direction has a high or low chance of success.

Before concluding this section on why patents matter in economic development, it is important to note that some profound benefits of technology may not show up in the productivity statistics as value-added (profits and compensation). Environmental benefits are one example. Simply put, if there is a technology that, without an increase in capital costs (that reduce profits), reduces smokestack emissions of mercury and other effluent nasties, while not reducing electricity output, increasing the cost per megawatt to consumers, or reducing employment and wages at the plant, that is a huge social and economic win. That environmental benefit will not register in the productivity statistics or GDP, however. In this simplistic case, the regional benefits of fewer cases of asthma or neurotoxin-related outcomes don't register. (Explaining how these benefits can be measured is not within the scope of this paper. There are, however, established and well-accepted methods to put a price and benefit on mitigating the negative effects of pollution.)

In summary, this introduction tackles the question of why patents and technologies are important and tees up questions like:

1. Which regions are more innovative?

2. How does regional innovation impact the regional "bottom line"?

In this article, we address question one for the Great Lakes region's states and counties. We'll address question two another day in a future article.

Patent data

The U.S. Patent and Trademark Office (USPTO) employs some 12,000 people. So the following quick-and-dirty overview on patent data will lack in precision. By that, dear reader, I mean be grateful. Some of what follows has been known to make crusty tough guys weep.

For the following reckoning of regional technology concentration, the first key distinction for a patent is if it has been awarded--not just applied for. Many, if not most, of those 12,000 people determine whether a patent application demonstrates whether the technology expressed is new or just derivative. There is also a distinction between utility patents and design patents. A utility patent is the invention of a new and useful process, machine, manufacture, composition of matter, or a new and useful improvement thereof, according to the USPTO. A design patent is new, original and ornamental design embodied in or applied to an article of manufacture. If one has come up with a teapot that transfers heat more efficiently and quickly on a stove, thereby cutting the wait time by half, that sounds like a utility patent. Making the teapot round, square or oval, is design.

Likely the thorniest and most profound patent data change has been the transition from the U.S. patent classification (USPC) system to the Cooperative Patent Classification (CPC) system. According to USPTO, on January 1, 2013, this transition occurred completely in the U.S. As the reader will soon surmise, the transition was not and is not seamless. The USPC is based upon technology groupings and common subject matter (based on USPTO language). From the author's point of view, the CPC is more use or application driven than technology driven. There are many close alignments with technology and use--the case of peptides, for example. The technology of making and applying peptides is rather tight. The classification of "brushes," however, presents a problem. Brushes are everywhere, from cleaning teeth to actuating electrical motors to reading credit cards to cleaning bathrooms. The ubiquity of "brushes" in products and processes according to the CPC can be disorientating. "Brushes" as a technology intersect with many end uses. Consider this alternative, hypothetical example: In the CPC scheme, the same electronic thermometer technology or device that is placed on a ski jacket is considered apparel, placed on a wall in a house is considered construction, used in an automobile to regulate heat flow is considered vehicular, or used to measure temperature at a research station in Antarctica can be considered mitigating climate change. It is the same technology applied to different uses.

This makes the...