Of all the protections granted to intellectual property, patents are the Big Kahuna.

When the United States Patent and Trademark Office (USPTO) issues a patent number, it basically becomes a big burly bouncer at the door who prevents everyone else from making, using or selling the patented product or process. Patents make the products that can pass the statutory hurdles of being useful, original, new, and non-obvious as exclusive as a country club. And it is because of this big-iron-gate-and-vicious-barking- dogs-level of protection that those hurdles are notoriously difficult to pass. But once that number is issued, a patent holder can bar all unauthorized use of their inventions.

The idea is that a period of exclusivity for a patent holder will produce the optimum level of innovation. It’s about economics. Inventing is expensive stuff. Experimentation, commercialization and distribution all cost big dollars, and 20 years of exclusive rights seems about the right length of time for an inventor to recoup those costs.

So, Mr. Inventor has 20 years to do whatever he wants with his invention — he can sell it, set the price for it, become a millionaire, grow his company from startup to global industry leader, let it languish in obscurity, or go the way of the Segway.

“In the end, we have to remember why we grant patents,” says Lydia Pallas Loren, professor of law and interim dean of Lewis & Clark Law School. “Patents are good for society, good for progress. They are not meant to make people or companies rich. They are intended to be a way to invest in new, useful inventions, and in the end that is helping society.”

But how exactly does someone’s exclusive right to control his invention for 20 years do something good for Oregon? How do patents make a difference in the lives of real Oregonians?

“Patents are more important than they have ever been,” says Skip Rung, president and executive director of the Oregon Nanoscience and Microtechnologies Institute (ONAMI). “Innovation is the only thing that pays the kind of wages that Americans have come to believe is their birthright. Commodity jobs and services are being outsourced to places where they can be done for a lot less. We’d like to keep earning nice wages, but to do so we’re going to have to add more value, and the only thing that can do that is innovation. Hence the importance of protecting and furthering innovation with patents.”

Innovation is the name of the game. And patents are one way to promote innovation — by protecting the investment of resources to research and develop new products and processes. “Patents are used in a lot of metrics to reflect the innovativeness of a place,” says Erik Stenehjem, science and technology advisor to Gov. Ted Kulongoski.

In 2005, the USPTO granted 1,818 patents on which the first named inventor on the application was an Oregon resident. That figure lands Oregon 16th overall and sixth for per capita patents granted. Idaho tops the per capita list, followed by Vermont, California, Massachusetts, and Minnesota. California is number one overall.

“It is like any other statistic — you can’t read more into it than is warranted, but if you look at the industries in which we are showing a lot of Oregon patents, a lot of them are industries that we’ve also identified as particularly strong industry clusters from an economic development standpoint,” says Wally Van Valkenburg, managing partner of Stoel Rives LLP and chair of the Oregon Economic and Community Development Commission. “Part of what you look for in terms of economic strength is areas where you have companies that are competing at the top on the world scale. And if you see a lot of patent activity in a particular industry, that indicates companies are at the leading edge of innovation.”

According to an annual report written by attorneys at Stoel Rives, Oregon inventors were named on 2,261 patents in 2005. That number is different from the USPTO number because it includes patents on which any one inventor is an Oregon resident rather than only the first-named inventor. The number of patents granted to Oregon inventors has quintupled in the last 20 years, a gain of more than 300 percent over the national average, the report says.

“Oregon is significantly ahead of the pack,” says Kassim Ferris, one of the report’s authors and a patent attorney with Stoel Rives. “Patents are undoubtedly important to Oregon’s economy and for various reasons. One is that it helps innovators in Oregon stay competitive both in this country and on a global scale. They provide legal leverage for companies to get out there and benefit from their innovation activity. So in that sense, they help keep jobs here and further economic development activity here in the state.”

However, the best way to gauge innovation is by looking at productivity rather than number of patents, Stenehjem says.

“If innovation can cause you to be more efficient and, therefore, more productive, you can either cut your price or, if you maintain the same level of pricing, you can add more people and increase output and increase employment,” Stenehjem says. “From my individual point of view, innovation is about increasing productivity.”

Additionally, even a single patent can be incredibly important to early-stage companies, and those may not show up in statistics, Van Valkenburg says.

“They may only have one application, and it might be years before it matures into a patent,” he says. “But when you talk to the investors, whether they are angel or venture capital or any kind of investor, having patent protection for your product is often the competitive differentiator that investors are looking for when they are trying to decide where to place their capital.”

Recently the USPTO highlighted the importance of patent protection for the Seattle area.

“The residents of Washington realize the importance of intellectual property protection as evidenced by the more than 10,000 patent applications they filed last year,” says Under Secretary of Commerce for Intellectual Property and Director of the USPTO Jon Dudas. “Business owners here want to understand the intellectual property system for success in today’s global market.”

Hewlett-Packard and Intel are in the top ten most prodigious patent assignees in the United States, according to the USPTO. Though all patents are granted to inventors, they are often transferred to an assignee corporation as part of a contract. Intel and Hewlett- Packard are the top two assignees respectively in Oregon.

“Oregon’s traded sectors, including high tech, have outperformed their peers throughout the country,” Rung says. “So that says our workforce is actually competing very well. Our problem is that we have misunderstood the side our bread is buttered on, namely innovation. We have ignored, at our peril, until fairly recently, research and higher education, which is the thing that creates opportunity for everybody else. If you think about it as an elite thing that only benefits the wealthy, you’re missing the impact on the entire state including creation of jobs for people who don’t hold advanced degrees.”

The average wage in Oregon is 10 percent below the national average. So in other words, we are a relatively poor state in terms of per capita income, Rung says.

“That is certainly not true in the sectors where we have the world’s leading assets, including nanotechnology. But it does say that lots of Oregonians and communities are not benefiting,” Rung says. “We have not had a relative degree of success in startups and entrepreneurism, and unless we think we can repeat our recruiting of Intels and HPs, we better figure out the indigenous part — our own research, our own startups, our own venture capital, our own research-based, technology-based companies.”

Kulongoski recently included recommendations from the Oregon Innovation Plan, the product of the Oregon Innovation Council, in the budget for the coming biennium, Van Valkenburg says.

Part of the Innovation Plan calls for the creation of two new signature research centers that would follow the model used for ONAMI. The first, called the Oregon Bio-Economy and Sustainable Technologies (Oregon BEST) research center received a unanimous vote from the State Board of Higher Education for $270,000 in funding. Kulongoski recommended $3 million for the center in his higher education budget. “The consequence of all of the analysis that went into the Innovation Plan — and there really was a lot of it — was the identification of six initiatives, and in each case, the objective was to support innovation,” Stenehjem says.

The governor’s higher education budget also includes $38 million for research and economic development in areas including wave energy, food processing, manufacturing competitiveness, and nanoscience.

“Oregon has made a quantum leap really in just the last five or six years driven partly by the recognition that we had fallen behind in terms of not taking advantage of some of what is coming out of the university system for purposes of economic development,” Van Valkenburg says.

In 2005 Oregon’s three research universities, Oregon Health Sciences University, University of Oregon and Oregon State, were granted 14 patents, according to the USPTO.

“Historically, the role of universities in Oregon hasn’t been a significant one in terms of the number of patents, but we are starting to see some changes in that, particularly with some of the initiatives in the state. For example, ONAMI,” Ferris says. “There is some momentum building both in terms of innovation and research work that is being done as well as a focus on preparing those developments for transfer into the private sector.”

Ferris says that all signs point to Oregon’s continued growth in patent numbers and that the state is poised to continue to outpace the rest of the country.

“Not all innovations are patented or patentable,” says Stenehjem, “but implementing them could result in an enormous amount of new jobs for Oregon.”

ONAMI’s Rung is more reserved in his prediction.

“I think it really depends on how well we do with research and entrepreneurship. It is going to come less and less from established, large companies, and we can’t count on what was our good fortune in the past. We’ve got the quality of people, and if we invest and with a little bit of luck, you always need that, then we can grow. But if we don’t, there is an equally good chance that we’ll fall further behind. And while we are doing some very good and some very innovative things, we are not the only ones. Every state, every governor talks about innovation and most of them are spending more money than we are. So this is a real horse race. I’m not necessarily sanguine that we’ll win. We’re doing some of the right things, but believe me, we’ve got to run fast.”

BrainstormNW - January 2007