The Economist - 04.12.2021

The Economist December 4th 2021 Business 69

lineadrevenuesinChinahit767bnyuan.

Howwillthefirmsrespond?Themost

outrageousinternetstunts,attractingmil­

lionsofviewersandgeneratingstronge­

commerce sales, have become increas­

inglyimportantforgroupssuchasByte­

DanceandKuaishou.Nowtheywillproba­

blyblockmuchproblematiccontent,says

anexecutive.Internettrafficwillfall.

A purgeonprogrammingisalreadyun­

derway.Forexampleiqiyi, China’sNetflix,

saidinAugustthatit willnolongerfeature

talentshowsorvenueswherefanscanvote

forstars.ItsNewYork­listedshareshave

tumbledbyalmost60% sincemid­year.

Douyin,Weibo,Kuaishouandotherplat­

formshavealreadyshutdowntheirceleb­

rity­rankinglists,venueswherefansoften

paidtobuyproductsinordertosupport

theirfavouritestars.

One internet executive says that the

government’smovesdocommandpublic

support.ManyparentsinChinaagreewith

theparty’sviewofonlineentertainmentas

vacuous andeven dangerous for young

people.Regulatorsaroundtheworld are

grapplingwithhowtodealwithpotential­

ly harmfulinternetcontent. ButMrXi’s

driveisextreme.MrHuo’smillionsoffans

willfindfewopportunitiestovoicetheir

oppositiontowatchingtheirfavouritestar

disappearintoa censoriousmist.n

Valuingpatents

Billion-dollar blueprints

I

t istestamenttohumaninventiveness

that  50m  patents  are  estimated  to  have

been  granted  globally.  But  in  aggregate

much of the collection resembles an intel­

lectual  junkyard.  Included  are  plausible

ideas  that  no  firm  ever  wanted  to  pay  for,

plausible ideas that fell short, and absurdi­

ties. A patent on the crust­less peanut­but­

ter­and­jelly sandwich, for example, failed

to be renewed in 2007. 

Pare the list to those that are both sensi­

ble  and  in  force  legally,  meaning  a  fee  is

paid  to  a  patent  office  to  keep  them  alive,

and there are 16m patents that count. Last

year, 1.6m were granted.

Most are the property of companies, but

balance­sheets and conventional account­

ing are ill­suited to capturing their worth.

Using  acquisition  cost,  then  depreciating

it, does not work. Instead, lawyers provide

subjective numbers based on factors such

as  a  patent’s  likely  validity,  royalties  and

litigation  history.  Many  firms  reckon  it  is

not worth paying the tens of thousands of

dollars that it costs for a valuation.  

In  2008  an  intellectual­property  ex­

change opened in Chicago to do for patents

what  other  bourses  did  for  stocks,  bonds

and  commodities.  Its  backers  were  blue­

chip firms like Hewlett Packard and Sony,

but  it  closed  in  2015.  Patents  cannot  be

treated  like  commodities,  said  the  Cornell

Law Review.  A  subsequent  effort  to  value

them  used  software  to  read  and  evaluate

the  documents.  So  far,  however,  not  even

machine­learning  techniques  have  al­

lowed  code  to  penetrate  the  opaque  legal

language in which patents are couched.

Now  a  startup  called  PatentVector,

founded  by  a  law  professor,  an  informa­

tionscienceprofessoranda softwareengi­

neer, is trying something new. It uses a va­

riation  of  a  method  started  in  the  1960s

which  evolved  into  tallying  up  how  fre­

quently individual patents are cited (a sim­

ilar  process  based  on  citations  is  used  to

evaluate academic research). 

Rather  than  attempting  to  understand

the patent, PatentVector employs artificial

intelligence  to  comb  through  132m  patent

documents  kept  by  the  European  Patent

Office  in  Munich  (the  world’s  biggest  col­

lection).  Then  it  evaluates,  first,  how  fre­

quently a patent is cited and, second, how

frequently  it  is  cited  by  patents  that  are

themselves cited frequently. That provides

an indication of importance which is then

multiplied  by  a  mean  value  of  patents

based on an estimate by James Bessen, an

economist at Boston University, which has

become  a  reference  point.  A  number  of

companies,  legal  firms  and  institutions

(including the Canadian Patent Office) are

buying PatentVector’s product.

The results contain interesting insights

into  inventing.  Frederick  Shelton  iv(pic­

tured) does not feature among prominent

innovators of the 20th century but he prob­

ably should. He works at Ethicon, a medi­

cal­devices subsidiary of Johnson & John­

son,  and  PatentVector  values  his  inven­

tions  at  a  cool  $14bn,  placing  him  aeons

ahead of anyone else. His top three are for a

mechanical  surgical  instrument,  surgical

staples and the cartridge for the staples; in

short, tools to cut tissue and bind it up. 

Ethicon itself, a medical­device maker,

holds  95  of  the  world’s  200  most  valuable

patents,  PatentVector  finds.  The  firm  also

employs  Jerome  Morgan,  who  is  listed  in

second  place  with  $5bn  worth  of  patents

(many overlapping with Mr Shelton’s). On­

ly  one  other  person  is  in  the  $5bn  club:

Shunpei Yamazaki, president of Semicon­

ductor  Energy  Laboratory,  a  Japanese  re­

search­and­development  firm.  Mr  Yama­

zaki’s  most  important  patent  covers  the

displays on computers, cameras and other

semiconductor devices. 

PatentVector  found  65  other  people

each  responsible  for  patents  worth  in  ex­

cess of $1bn. Only 14 of the top 650 tinker­

ers are women. The highest ranked is Mar­

ta  Karczewicz,  who  works  for  Qualcomm,

an  American  chip  designer,  and  played  a

vital role in inventing the video­compres­

sion technology that makes Zoom and oth­

er video services function. 

Almost  all  valuable  patents  can  be

found in a few broad industry groups: bio­

pharma,  software,  computer  hardware,

medical  devices  and  mechanical  equip­

ment.  Over  the  past  40  years  the  impor­

tance of specific categories has marginally

expanded  and  contracted,  but  biopharma

and  information  technology  (it)  have

dominated  and  their  significance  has

grown. The companies with the largest ag­

gregate value of patents are in it,topped by

ibm, Samsung and Microsoft. 

PatentVector’s  figures  on  the  patent

holdings  of  countries  are  revealing,  too.

America has the most active patents of any

country, at 3.3m, followed closely by China

with 3.1m. But there is a world of difference

in how frequently they are cited and their

imputed  value.  America’s  library  is  calcu­

lated  to  be  worth  $2.9trn,  compared  with

China’s collection at $392bn. 

Of  course,  PatentVector’s  methodology

will  face  scrutiny.  Naturally,  the  startup

has  patented  its  own  technique.  Informa­

tion about patents, which are critical com­

ponents of invention, has never been more

important.  Perhaps  it  was  inevitablethat

innovation  would  be  applied  notonlyby

means of patents, but to them as well.n

N EW YORK

A new way of understanding the high but elusive worth of intellectual property

Fred and his 1701th invention