The IFI CLAIMS Patent Advantage: IP Profiles for Investors

Lucid Motors Patents Are A Driving Force

To receive a patent, an invention must be novel compared to what has come before, called prior art in the patent industry lingo. When an invention is filed, the inventor references prior art in order to prove the uniqueness of the new idea. Those references are known as citations. With patents, citations are measured both backward and forward. A backward citation brings up previously published documents that are foundational to the new invention. The more backward citations a patent mentions, the less original the invention is deemed to be. The improvement tends to be accretive and isn’t expected to disrupt an industry or make huge commercial strides. Forward citations, in contrast, measure how often subsequent patents refer to an earlier patent and indicate an opposite effect; the more forward citations a patent receives, the more potentially disruptive and valuable the technology is. Think of forward citations, if you will, as something akin to social media influencers with millions of followers. Those influencers have a lot of profit-making power when they choose to endorse certain products. If a startup company has a forward citation graph that looks like a hockey stick, it has invented something that is a big deal.

Is Fisker Coming to the End of the Road?

A strong company has to have a strong pipeline. With patents, that pipeline is judged by what the layman might understand as “patents pending.” In the patent industry, patents pending are measured in two different ways: at the family level, and at the document level. A patent “family” is a term used to denote a single invention, regardless of where in the world that invention has been filed. There might be seven different patents in seven different countries for a particular widget, but all seven of those patents are the same. As such, they belong to a family, and the term “family” is a proxy for a particular invention. So if you’re quantifying the pipeline of patents pending at the family level, you’re looking at the number of overall inventions.

Calculating the number of patents at the document level is a different exercise, and it’s important to understand the difference. The number of documents measures the number of filings around the world, so a single invention will be counted multiple times, depending on the number of countries in which it has been filed. An invention might have originated in Japan, but in order to protect it in markets outside of Japan, the inventor needs to apply for patents in those countries. So at the document level, the number of patents pending will be much higher than at the family level because a single invention will have duplicates if it’s being filed around the globe.

Back to the notion of a strong company having a strong pipeline—let’s look at Xerox, for instance. It has some 35,000 inventions in its lifetime portfolio, more than 7,000 of which are still active. Mature companies, naturally, should contain plenty of expired patents because the lifespan of protection is approximately 20 years (give or take a few years depending on the type of patent and extensions) from application to expiration, so alarm bells shouldn’t always go off if the lapsed patent number is high. But Xerox, the once great innovator, which was cornerstone to the Internet that we use today, has just 732 inventions currently that are pending (we’re looking at the “family” level in this example). There are differing views on what kind of metric should be used to gauge the overall health of a company’s innovation because one shiny, new patent can change everything. But for a company like Xerox, which has struggled for years, 732 inventions pending doesn’t appear to be all that robust. It’s a sign that the company is on the wane.

Patents the World Over

Filing a patent is not a once-and-done thing. If a company plans to make, use, or sell its invention around the world, it needs to file for protection in each market it wants to enter. It’s a laborious and expensive endeavor so a smart company tries to file in other countries in a strategic and judicious way. To get a sense of the worldwide filing strategy of an organization, it’s useful to look at the number of total patent publications per invention. The proxy for a single invention, as we stated above, is called a patent family, which represents all the patents held around the world for a single invention. Using the “family” to denote the invention allows an analyst to strip out the duplicate filings from different countries. Amazon, for example, is an inventive company, but tends to patent mainly in the U.S. and Europe. Their publication to invention ratio is around 2.5, which means, on average, they protect in fewer than three countries per invention. Shouldn’t they be protecting themselves everywhere? Not really. Patent protection lasts for about 20 years and Amazon is active in a limited set of countries. If a company is protecting absolutely everywhere it legally can, it either has a technology with ubiquitous demand (anything with 5G phone standard might be patented all over the world), or it’s a young company that doesn’t have a clue about patent strategy and is wasting a lot of money protecting in markets it might never enter.

The Corporate Components Under the Hood of the Automaker

One of the more difficult aspects of quantifying patent data is the fact that companies register their patents under assorted names. The reason for name iterations can be as uncomplicated as one employee writing IBM, for example, in the application fields, while another might use I.B.M. Additionally, corporations tweak their identities over time as Facebook did when it donned the name Meta in 2021. And sometimes, companies file under subsidiary names for internal purposes such as systematizing IP within global org charts or trying to keep promising inventions under the radar. (Strategy is always a behind-the-scenes player with patents. There can be a lot of cloak-and-dagger in how a company files.) As a result of this lack of uniformity, the most careful patent searcher can miss a lot.

Because IFI maintains a Names Service that standardizes corporate identities—something we have been doing for almost 70 years—a side benefit of tracking data at such a granular level is that it provides an uncommon view into the number of entities beneath a corporate umbrella.

Pharma’s Forward-Leaning Citations

Pfizer: Big Hat, Few Patents

So although Pfizer has the most patents, the company only has a relatively small chunk that they can profit from right now, in comparison. (In fact, Pfizer has fewer active patents right now than AbbVie, which should raise some eyebrows). Pfizer’s pending patents are about even with its current active patent count.

J&J holds the most patents that are currently enforceable, and its pipeline also looks more robust. Pharmaceutical industry revenues are highly susceptible to steep patent cliffs when a blockbuster drug’s protections expire and less expensive generics are allowed to enter the market. So in the pharma M&A arena, it’s imperative to check the patent status of any target company. This past March, for example, Pfizer announced that it would acquire Seagen, a biotech that develops cancer medicines, for $43 billion. Although the announcement touted Seagen’s enhancement to Pfizer’s oncology position, Seagen’s number of inventions is merely accretive to Pfizer’s portfolio. Again, mere patent count isn’t necessarily the key marker. If Seagen has a disruptive technology, one patent can make all the difference.

AbbVie: The Little Patent Engine That Could