Innovation with and without patents

TL;DR

This study assesses how well patents reflect actual innovation by analyzing Swedish innovations from 1970 to 2015, revealing significant information loss and limited overlap between patents and real innovations.

Contribution

It quantifies the informational content of patents regarding innovation and highlights the limited coverage and effectiveness of patents in capturing innovation activity.

Findings

Most innovations were not patented.

Only 17% of innovation information is captured by patents.

Patent law changes increased innovation response by about 8%.

Abstract

A long-standing discussion is to what extent patents can be used to monitor trends in innovation activity. This study quantifies the amount and quality of information about actual innovation contained in the patent system, based on 4,460 Swedish innovations (1970-2015) that have been matched to international patents. The results show that most innovations were not patented and that among those that were, 43.9% of all innovations, only a fraction can be identified with patent quality data. The best-performing models identify 17% of all information about innovations, equivalent to an information loss of at least 83%. Econometric tests also show that the fraction of innovations responding to strengthened patent laws during the period were on average 8% percent. The overlap between the patent and innovation systems is hence more modest than often assumed. This accentuates the need to, alongside patents, develop versatile approaches in order to induce and monitor various aspects of innovation.