Governments, academia, and business all contribute to the activities that comprise the innovation process. Successful business research and development (R&D) incorporates new knowledge into new products and processes while attempting to prevent useful new knowledge from spreading to rivals (Arora, Belenzon, and Sheer 2017). Governments limit release of knowledge that could compromise national security. Otherwise, governments and academia tend to create new basic knowledge with the intention of transferring the new knowledge for innovation that betters society or becomes a foundation for new products or processes in the marketplace. New knowledge created by R&D activities across all sectors takes different forms, including scientific literature meant to be published and shared and private knowledge meant to be kept secret, both of which may contribute to inventions or innovations.

In this report, inventions are defined as any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement; an invention that has been introduced into public use is an innovation. That use may be in the market or may be freely shared. The distinction between invention and innovation is an important one in the study of technological advancement. To be considered patentable, an invention must meet the additional criterion of non-obvious and useful.^{​This corresponds to the USPTO criteria for a utility patent of new, non-obvious, and useful.} However, the usefulness criterion requires only that an invention be useful in principle. The Organisation for Economic Co-operation and Development (OECD) distinguishes innovation from invention by defining the former as “a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous products or processes and that has been made available to potential users (product) or brought into use by the unit (process)” (OECD Eurostat 2018). The term unit here is generic and refers to any institutional unit in any sector, including households and their individual members. Thus, the OECD’s definition identifies innovations as those inventions that have achieved some degree of user impact.

These definitions identify new knowledge as a set of nested concepts (Image INV-1). All R&D output qualifies as new knowledge. A subset of this new knowledge takes the form of inventions, and a subset of inventions qualifies as innovations. Knowledge is shared among individuals, transmitted from one organization to another, and applied to new domains and fields of study. Transfer of knowledge is essential to the transformation of knowledge into new types of output. The processes by which new knowledge becomes embodied in inventions and inventions are then transformed into innovations are not linear, nor do they proceed only in one direction. Attempts to transform new scientific knowledge into invention, for example, often lead to new scientific insights. Similarly, the work required to bring new products and processes to market often leads to technology refinements that qualify as new inventions. Image INV-1 illustrates the relationship between the concepts covered in this chapter—invention, knowledge transfer, and innovation—and how they combine to push forward scientific and technological advancements.

Although the definitions presented above describe invention and innovation in terms of output, both terms are also frequently used to describe the processes by which inventions and innovations are created. This report treats patents as an invention output measure and counts of trademarks and counts of companies introducing new products and processes as innovation output measures. Not all invention and innovation activity is covered in this report; good indicators are not available for many creative activities that go unmeasured. This unmeasured activity is sometimes referred to as dark innovation (Martin 2016).

Knowledge transfer is closely associated with invention and innovation. Technology developed at universities, for example, is rarely ready for use outside the lab without further work. Companies that license university technology usually invest significant effort in refining the new technology before introducing it to the marketplace. In this regard, the distinctions made in Image INV-1 and the divisions of this report into invention, knowledge transfer, and innovation are inherently artificial constructs.

The indicators of invention, knowledge transfer, and innovation presented in this report come from data available in public records, data collected as part of government activity, and data contained within confidential government-administered surveys (Table INV-1). Measurement of invention output relies heavily on patent data from the U.S. Patent and Trademark Office (USPTO) and the World Intellectual Property Organization (WIPO), as well as data regarding business approaches to intellectual property protection contained in surveys administered jointly by the U.S. Census Bureau and the National Center for Science and Engineering Statistics (NCSES). The contributions of individual inventors, separate from their activities as employees, are assessed by analysis of patents assigned to individuals.

The indicators assessed in this report include both direct and indirect measures. Direct measures use data that explicitly reflect the rate, volume, and mix of invention and innovation outputs and knowledge transfer activities. Indirect measures are those that are correlated with these concepts but for which precise linkage and impact must be inferred. Patent application numbers, for example, reflect directly on invention output. Similarly, firms that cite patents as important to intellectual property protection are providing data that directly reflect their use of patents and thus their invention output. The number of total new firms started in a year, on the other hand, is an indirect measure of knowledge transfer. A share of these firms will be formed on the basis of new scientific and technical knowledge acquired from outside of the firm. Accordingly, there is a correlation between new firm formation and knowledge transfer, but the formation of a new firm does not necessarily involve knowledge transfer. The indicator thus relies on correlation rather than direct measurement.

Measures related to knowledge transfer embedded in R&D outputs include coauthorship of research publications across sectors; citations to the peer-reviewed scientific literature appearing in patents; the licensing by businesses of university-owned patents; and invention disclosure made by, patents granted to, and licenses granted by federal government entities. Knowledge transfer indicators also include measures of formal research collaboration in the form of cooperative R&D agreements between federal laboratories and one or more nonfederal organizations. In addition to these direct indicators, the report examines knowledge transfer through the lens of startup activity, including U.S. startup formation and employment trends and federal government support for startups made available through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Indicators of innovation output rely on Annual Business Survey (ABS) data on the introduction of new products and processes, trademark registration by the USPTO, U.S. and global trends in venture capital investment, and patterns of new firm formation and employment.

The motivations to conduct R&D are diverse and include both the potential for profit as well as the desire to expand scientific knowledge. The individuals who engage in R&D and knowledge transfer are equally diverse and include staff working in commercial, government, and academic organizations as well as individual inventors and citizen scientists. As data permit, this report assesses the role and impact of contributions from academia, government, and industry, and of individuals working independently. The report also includes analyses of the geographical distribution of invention activities across the United States. Additionally, a sidebar highlights participation by citizen scientists in projects organized by federal government agencies. Finally, two additional sidebars are included. One examines open-source software (OSS) as an example of international collaboration on innovation, and the final sidebar considers how the COVID-19 pandemic has influenced innovation activities in the drive for the rapid development of vaccines.

For the first time, this report also includes three county-level machine readable public use data sets that can be downloaded to create analyses of U.S. patenting and trademarking. The patent data sets provide 23 years of county-level patent data tabulated for each of 35 technology areas based on the location of the inventor (File Supplemental Workbook INV-1) and based on the location of the patent owner (File Supplemental Workbook INV-2). The trademark dataset (File Supplemental Workbook INV-3) provides 23 years of county-level trademark data tabulated for each of 10 goods or services classifications based on the location of the trademark owner.

The major sections of the report describe the concepts of invention, knowledge transfer, and innovation in detail and present diverse indicators for each. The section on invention considers the entities that create potentially useful new products and processes, including national and international trends in invention output. The section on knowledge transfer examines the many ways in which knowledge created in one setting is refined and used in other settings, including the transfer of knowledge from universities into the commercial sector. Finally, the section on innovation examines a series of output indicators for innovation following an internationally comparable definition that has two parts: (1) an innovation is a new or improved product or process or combination of the two that differs significantly from the innovator’s previous products or processes, and (2) if a product, it has been made available to potential users, and if a process, it has been brought into use (OECD Eurostat 2018).