Overview of the State of the U.S. S&E Enterprise in a Global Context

S&E research and the S&T knowledge produced thereby are an important part of the overall innovation process (Pavitt 2005). These activities contribute to a nation’s capacity for innovation. The potential to transform this capacity into implementation and economic growth drives interest in internationally comparable measures of innovation. Chapter 8 describes innovation as an interrelated system that translates the creativity and knowledge from S&E activities into benefits to society and the economy. Discoveries and inventions evolve from potential to realized usefulness through the interaction of a wide variety of actors and institutions. These take place through interrelated activities: invention is the process of bringing something new and potentially useful into being; knowledge transfer involves the transfer of S&T to and from businesses, government entities, academe, and other organizations and to individuals for further development and eventual commercial and otherwise useful applications; and innovation takes place when a new or significantly improved product or process, including in business practices, workplace organization or external relations, is implemented.

Science and Engineering Indicators 2018 presents detailed data on these various components for the United States, but internationally comparable data on these topics are limited. The Overview presents selected topics from this three-part system for which comprehensive and comparable international data are available. Two such topics are patents, an important (albeit partial) indicator of invention, and venture capital, an important catalyst for the transformation of inventions into innovation and practical use.

Patenting confers the rights of property to novel, useful, and nonobvious inventions for a specified period. Although the propensity to patent varies across technology areas—and many patents do not become commercialized or lead to practical innovations—patent grants and applications are one indicator of invention. While academic studies question the strength of the link between patents and innovation, strengthening of intellectual property protection has been found to promote foreign investment, which may in turn provide a pathway for knowledge flows (Boldrin and Levine 2013).

The developed world dominates global patenting, with notable growth (albeit from low bases) in several Asian economies. The U.S. Patent and Trademark Office (USPTO) grants patents to inventors worldwide, with over 300,000 patents granted in 2016. Inventors from the United States, Japan, and EU account for the majority of USPTO patents (Figure O-10). In comparison however, patents granted to inventors from the rest of the world have risen more robustly since 2000, with more than a three-fold increase in patents to other developed economies and a more than 13-fold increase in patents to developing economies. The U.S. share of USPTO patents declined to under half of all USPTO patents by 2008.

U.S. patents to inventors from developing countries have risen from under 1% in 2000 to 6% in 2016, with China (4%) and India (1%) accounting for the bulk of these patents. China and India, however, still receive relatively modest shares of USPTO patents. Additionally, China’s patent office has experienced a much faster growth in patent applications than in the USPTO and other major patent offices (WIPO 2014). Unlike USPTO patents, utility patents in China are not subject to extensive examination, and while the foreign share is growing, patents in China’s patent office are overwhelmingly filed by residents of China (Hu 2010).

Three broad technology categories closely linked to the knowledge- and technology-intensive (KTI) industries (discussed in the next section) account for more than 60 percent of USPTO patents granted in 2016: information and communications technologies (ICT);^​ testing, measuring, and control;^​ and chemistry and health.^​ Materials and nanotechnology,^​ also linked to KTI industries, accounted for 2% of USPTO patents in 2016. Between 2000 and 2016, the technology focus of USPTO patents granted has shifted toward more ICT-related inventions (which rose from 22% of the total in 2000 to 37% of the total in 2016) and slightly fewer chemistry and health-related ones (share fell from 20% to 16% from 2000 to 2016) (Figure O-11).

The pattern of specialized concentration at the country level, previously noted in a variety of indicators, is also evident in patenting: each economy or country’s patents reflect different strengths. Adjusting for the size of its patenting pool, USPTO patents awarded to U.S. inventors have a particularly high concentration in the ICT area of information technology (IT) methods for management, a field that includes special-purpose software for business management. This U.S. specialization in part reflects patent rule differences within each country. In many countries outside of the United States, business methods software is not patentable (Schmoch 2008). Both U.S. and EU inventors are particularly concentrated in the testing, measuring, and control area, such as analysis of biological materials, and in chemistry and health, such as biotechnology and pharmaceuticals. In contrast with EU inventors, Japanese inventors with USPTO patents focus in the ICT area of semiconductors (Figure O-12).

Inventors in Japan, South Korea, Taiwan, and China are focused in ICT technologies—these technologies include basic communication processes, semiconductors, and telecommunications. These four Asian economies also have a focus in optics, a technology in the testing, measuring, and control area category that includes lasers as well as optical switching. Japanese inventors are more than twice as likely to be granted USPTO patents in optics compared to other fields. South Korea, Taiwan, and China also focus on nanotechnologies (Figure O-12 and Figure O-13).

Knowledge transfer, including the transfer and dissemination of technology from inventors to users, is a critical component of the innovation system. International transactions allow tracking of the market-based diffusion of technology and innovation across international boundaries. One measure of such international transaction is the export flows of intellectual property, measured by charges for the use on intellectual property, including cross-border royalties and fees collected for licensing proprietary technologies.^​ Although trade patterns in royalties and licensing fees are affected by different tax treatments, income from intellectual property broadly indicates which nations are producing intellectual property products with commercial value. These patterns generally correspond to the countries and economies holding patents. Not surprisingly, export revenue from the use of intellectual property continues to be concentrated in the lead recipients of USPTO patents: the United States, the EU, and Japan. U.S. export revenue for use of intellectual property was $122 billion in 2016; in that same year, it was $66 billion for the EU and $39 billion for Japan. However, the share accounted for by the United States has declined, and the rest of the world’s share (excluding the EU and Japan) more than doubled from 6% to 16% between 2008 and 2016 (Figure O-14). As the U.S., EU, and Japan export revenues for use of intellectual property have leveled off or declined in the last few years, these revenues have continued to grow in other countries and regions.

Another essential component of the translation of inventions into innovations and practical use is access to financing. Developing and commercializing new and emerging technology is inherently risky, and financial support can provide insurance against some of this uncertainty. Venture capital investment is an indicator of support for emerging technologies that have the potential for successful commercialization and was globally about $131 billion in 2016. The United States attracts slightly more than half of this venture capital funding, although its share has been declining as other countries, particularly China, ramp up their S&T capabilities for developing new technologies.

Seed-stage venture capital refers to very early-stage financing, which generally provides funding for preliminary business operations, such as proof-of-concept development and initial product development, as well as marketing for startups and small firms that are developing new technologies. The United States attracted more than half of the nearly $6 billion of global seed-stage venture capital investment in 2016. These seed-stage investments are very small relative to early- and later-stage venture capital investment (totaling almost $125 billion in 2016), which provide financing for further development, production, commercialization, and marketing of new technologies (Figure O-15 shows the data for the combined category of early- and later-stage venture capital). The United States attracts slightly more than half of the global early- and later-stage venture capital investment, followed by China. Between 2010 and 2016, the level of investment grew strongly in the U.S. although the U.S. global share dropped from 68% to 52%. In China, investment rose from a low base between 2006 and 2013; after 2013, growth accelerated as investment leaped from almost $3 billion in 2013 to $34 billion in 2016 (Figure O-15), resulting in its global share to rise from 5% to 27%.