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ISSN 2318-2377
TEXTO PARA DISCUSSÃO N 571
TRADEMARKS AS AN INDICATOR OF INNOVATION: TOWARDS A FULLER PICTURE
Leonardo Costa Ribeiro Ulisses dos Santos
Valbona Muzaka
2 Universidade Federal de Minas Gerais
Jaime Arturo Ramírez (Reitor)
Sandra Regina Goulart Almeida (Vice-reitora)
Faculdade de Ciências Econômicas
Paula Miranda-Ribeiro (Diretora) Lizia de Figueirêdo (Vice-diretora)
Centro de Desenvolvimento e Planejamento Regional (Cedeplar)
Mônica Viegas Andrade (Diretora)
Eduardo da Motta e Albuquerque (Vice-Diretor)
Laura Rodríguez Wong (Coordenadora do Programa de Pós-graduação em Demografia)
Marco Flávio da Cunha Resende (Coordenador do Programa de Pós-graduação em Economia)
Adriana de Miranda-Ribeiro (Chefe do Departamento de Demografia)
Edson Paulo Domingues (Chefe do Departamento de Ciências Econômicas)
Editores da série de Textos para Discussão
Aline Souza Magalhães (Economia) Adriana de Miranda-Ribeiro (Demografia)
Secretaria Geral do Cedeplar
Maristela Dória (Secretária-Geral)
Simone Basques Sette dos Reis (Editoração)
http://www.cedeplar.ufmg.br
Textos para Discussão
A série de Textos para Discussão divulga resultados preliminares de estudos desenvolvidos no âmbito do Cedeplar, com o objetivo de compartilhar ideias e obter comentários e críticas da comunidade científica antes de seu envio para publicação final. Os Textos para Discussão do Cedeplar começaram a ser publicados em 1974 e têm se destacado pela diversidade de temas e áreas de pesquisa.
Ficha catalográfica R484t
2017
Ribeiro, Leonardo Costa.
Trademarks as an indicator of innovation : towards a fuller picture / Leonardo Costa Ribeiro, Ulisses dos Santos, Valbona Muzaka. – Belo Horizonte: UFMG/CEDEPLAR, 2017.
27 p. : il., gráfs. e tabs. - (Texto para discussão; 571)
Inclui bibliografia. ISSN 2318-2377
1. Marca registrada. 2. Economia. I. Santos, Ulisses. II. Muzaka, Valbona. III. Universidade Federal de Minas Gerais. Centro de Desenvolvimento e Planejamento Regional. IV. Título. V. Série.
CDD: 338 Elaborada pela Biblioteca da FACE/UFMG –
NMM118/2017
As opiniões contidas nesta publicação são de exclusiva responsabilidade do(s) autor(es), não exprimindo necessariamente o ponto de vista do Centro de Desenvolvimento e Planejamento Regional (Cedeplar), da Faculdade de Ciências Econômicas ou da Universidade Federal de Minas Gerais. É permitida a reprodução parcial deste texto e dos dados nele contidos, desde que citada a fonte. Reproduções do texto completo ou para fins comerciais são expressamente proibidas. Opinions expressed in this paper are those of the author(s) and do not necessarily reflect views of the publishers. The reproduction of parts of this paper of or data therein is allowed if properly cited. Commercial and full text reproductions are strictly forbidden.
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UNIVERSIDADE FEDERAL DE MINAS GERAIS FACULDADE DE CIÊNCIAS ECONÔMICAS
CENTRO DE DESENVOLVIMENTO E PLANEJAMENTO REGIONAL
TRADEMARKS AS AN INDICATOR OF INNOVATION: TOWARDS A FULLER PICTURE
Leonardo Costa Ribeiro Instituto Nacional de Metrologia Qualidade e Tecnologia. Av. Nossa Senhora da Graças 50, Duque de Caxias, RJ, Brasil. CEP 25250-020.
Ulisses dos Santos Universidade Federal de Minas Gerais. CEDEPLAR/FACE. Av. Antônio Carlos, 6627, Belo Horizonte, MG, Brasil. CEP 31270-901.
Valbona Muzaka King’s College London. European & International Studies, 22 Kingsway, London, UK, WC2B 6NR.
CEDEPLAR/FACE/UFMG BELO HORIZONTE
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SUMÁRIO
1. TRADEMARKS AS MARKET STRATEGY ... 6
2. TRADEMARK DATA AS AN INDICATOR OF INNOVATION ... 8
3. METHODOLOGY AND THE DATABASES ... 11
4. STATISTICAL ANALYSIS OF THE TRADEMARK DATABASE ... 13
5. ON THE CORRELATION BETWEEN PATENT AND TRADEMARK USE ... 21
6. CONCLUDING THOUGHTS: WHAT TRADEMARK DATA REVELS AND PATENT DATA OBSCURES ... 24
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ABSTRACT
Encouraged by the emergence of a new but still rather modest literature on the use of trademark data as a complementary indicator of innovation, this paper strengthen the case for such use by offering both qualitative and quantitative evidence in its support. Based on large trademark and patent databases built for this purpose, the paper makes the argument that changes in the economic profile of advanced economies, as well as changes in the global economy more broadly, necessitate the use of trademark data in order to gain a better understanding of innovation across all sectors of the economy.
Keywords: Trademarks, Innovation, Non-Technological Innovation
RESUMO
Motivado pela emergência de uma nova, e ainda modesta, literatura sobre o uso de marcas como um indicador complementar para inovação, e visando a reforçar este movimento, o presente artigo oferece evidências qualitativas e quantitativas sobre a aplicabilidade desse indicador. Por meio do uso de bases de dados de marcas e patentes, construídas para esse fim, é verificável que mudanças na estrutura setorial de economias avançadas, assim como mudanças na economia mundial, podem ser melhor compreendidas a partir do uso de dados de marcas.
Palavras-chave: Marcas, Inovação, Inovações não-tecnológicas
6 Among the various economic data used to measure, evaluate, quantify, assess and compare activities within and between economies, those related to innovation have acquired a special importance since important changes in the nature of global economy from the 1970s onwards propelled high-tech and knowledge-intensive sectors towards the economic frontier. More often than not, measurements and indices of innovation are based on patent data, on account of their availability, but also of the historic importance technological innovation has played in economic growth. However, such reliance on patent data severely curtails our understanding of the kind and intensity of innovation that takes place within a sector or within the economy as a whole. If for no other reason, many of the new sectors on which the economic growth for many advanced countries is based are service ones, and the innovation activity in these sectors are rarely captured by patent data.
This is only one among other shortcomings inherent on relying in patent data alone to measure innovation across the economy. While such reliance persists, most of the literature on trademarks also continues to highlight the various role trademarks play in firms’ market strategies of consumers’ decision-making processes. Most of this literature has so far paid little attention to what trademark data may reveal about innovative activities that take place in various economic sectors. Only a few exceptions exist; contributing to this modest literature, the aim of the present article is to make the case for the use of trademark data as a complementary indicator of innovation, especially, as will be discussed, in the service sectors and other areas of economic activity where patents are not used.
The contribution it seeks to make is both qualitative and quantitative: using trademark and patents databases built for this purpose, the article traces important changes in trademark use that, as will be discussed, are in line with changes in the economic profile of most advanced economies from the 1980s onwards. Particularly striking is the manifold increase in trademarks – service trademarks much more than product trademarks – since the 1950s and particularly from the 1980s, in line with the rise of knowledge-intensive service sectors and other structural changes in the global economy. Noticeable, too, is the contemporaneous use of trademarks and patents within the same sectors, cautioning against a simplistic ‘patents-manufacturing’ and ‘trademark-services’ divide. As these trends and relationships are discussed, we pay particular attention to the pharmaceutical sector, as one which uses extensively both patents and trademarks, throughout the article. The dual use of patents and trademarks within the same sectors is discussed primarily in sections five and six, once the traditional use of trademarks as a market strategy is discussed in the first section, followed by a survey of the modest literature on the use of trademark data as an innovation indicator in section two, and an explanation of our databases and the main trends they uncover in section three and four, respectively.
1. TRADEMARKS AS MARKET STRATEGY
Trademarks are used for the purpose of distinguishing a good or service provided by a specific firm in the market (Carlton & Perloff, 2005). Names, words and symbols, amongst others, may be employed as a trademark to create mental images for advertised products in the market (Economides, 1992). Companies use trademarks to tie aspects such as quality, durability, good taste, beauty and social status to their marks and brands. Trademarks bring to their holders advantages in charging higher prices given their propensity in making products unique in the market (Sherer & Ross, 1990). In other words,
7 a trademark is a way of differentiating products in the market and is associated with companies’ commercial strategies aimed at strengthening their market position and increasing their profits (Sander & Block, 2011). Brands and trademarks, then, can be regarded as market assets; indeed, companies with significant intangible assets, such as trademarks, tend to have a higher market value. Not only this, but the contribution of intangible assets to total market value has increased substantially: just before the recent financial crisis, the market value of intangible assets was estimated to have exceeded that of tangible assets in the US market (Bryan et al., 2017).
For consumers, trademarks facilitate and enhance consumption decisions. The role of trademarks is to help the consumers to identify the unobservable features of products and services (Economides, 1992). Trademarks anticipate products’ characteristics before their consumption, thus influencing customer’s decisions. They reduce search costs for the consumers, providing a way to distinguish among competing producers and signaling features of the good only observable after the purchase (Economides, 1992; Graham et al., 2013). This aspect explains why trademarks create incentives for firms to produce products and offer services of desirable qualities, even when these qualities are only observable after its consumption, and to register symbols and names to differentiate them in marketing.
Legally, a trademark guarantees to its holder that no one can use the same signs or names related to it for as long as the trademark is valid. In contrast to other intellectual property (IP) protection tools, trademarks do not expire. The holder of a trademark can renew it as many times as it is deemed necessary or desirable. However, in some circumstances a firm may lose its trademark protection, e.g. when the word used as a trademark starts to signify the all products in the specific sector (Carlton & Perloff, 2005). In these cases, the word no longer represents a trademark, but has become a general term, e.g. “Xerox” or “nylon”.
These trademark functions are well known; our main argument, however, is that trademarks are worthy of attention also because they reveal something about the innovation landscape. Innovations in goods and services that reach the market are often accompanied by the launch of new brands1 or
trademarks with the aim of guarantying higher profits to their holders (Sherer & Ross, 1990)2. As soon
as a new product or service is developed by a firm, it has incentives to register a trademark to make it distinct in the market. In these cases, trademarks may indicate the first movers in a specific market (i.e. the iphone for Apple Inc.), besides the other uses noted above. Improvements in an existing product or service may also result in new trademarks. For instance, when Miller launched the ‘light beer’ as an innovative product, the new brand was strategically used to deliver to the consumers the image of a fat-free product (Sherer & Ross, 1990). For our purposes, the link between trademark use and innovation is thus not limited to first movers in a specific market, but also to incremental innovation in goods and services. We expand on this link in the following section.
1 Although there is a slight difference between trademarks and brands in legal terms, they are often used interchangeably. We
use the term trademark as a more generic term that also includes brands.
2 When a new product or service is developed, firms are faced with the choice of some appropriability mechanism. Patents,
secrecy, lead-time advantage on competitors and trademarks are all different ways that enable firms to accrue benefits from the new or improved products they bring to the market (Teece, 1986). Most of these appropriability mechanisms have been analyzed in the literature on innovation and industrial economics, especially patents.
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2. TRADEMARK DATA AS AN INDICATOR OF INNOVATION
Given the availability of data and the rather more direct association with innovation, patents have become widely used as the most reliable indicator of innovativeness in the last decades (Grilliches, 1990). Ranking of sectors and national economies in innovation tables is often carried out based on patent data. Despite its use along these lines, patent data are not as reliable an indicator of levels of innovative activity as assumed. Patent activity can increase as a result of laxer patentability criteria, for instance, while innovation levels may not have changed or they may have even deteriorated. A good example of this comes from the pharmaceutical sector: the average annual number of new molecular entities reaching the world market during the 2000-2006 period was 23, down from 44 in the 1990s, 48 in the 1980s and about 93 in the 1960s. But the number of patents granted worldwide in the field of pharmaceuticals and medical technology increased by over 500 percent between 1980 and 2014, indicating that patents are increasingly used as a tool for controlling markets and for appropriating a larger share of profits in them, thus weakening patent data reliability as an index of innovation (Muzaka, 2013).
More importantly for our purposes, patents are not a good indicator of innovation in the service sectors, especially, but not limited to, knowledge-intensive sectors (Gotsch & Hipp, 2012). For all service sectors, even low-valued added ones, trademarks are important because customers cannot try the services and cannot make evidence-based choices before buying them. More specifically, we are referring here to ‘non-technological innovation’, the main form innovation takes in the service sectors and that includes marketing innovation, organizational innovation and other forms not captured by patent data (Millot, 2009). This is not a marginal point because services account for the larger share of economic make-up in many developed and developing countries and in both sets of countries most innovation in service sectors is often not eligible for patent protection.
In any case, trademarks are used in almost every sector of the economy; even in manufacturing sectors, IP protection mechanisms other than patents may be chosen to appropriate the benefits of innovation (Teece, 1986). A good example of this tendency comes, again, from the pharmaceutical sector; while it is well known that proprietary firms in this sector make extensive use of patents and have historically lobbied for higher patent protection levels on account of their high R&D investments, they also make extensive use of trademarks. In the early 1980s, for instance, it was estimated that more than 40% of the trademarks used throughout the world were related to pharmaceuticals and associated goods (Chudnovsky, 1983: 190). Although the proprietary sector’s R&D intensity remains high, it also boasts among the highest rates of promotion expenditures per unit of sales, around 20-25 percent, sometimes higher than the equivalent R&D rate. Moreover, since the late 1970s, marketing expenditures as percentage of sales have for many firms been increasing faster than the R&D ones (Muzaka, 2011). Although promotion need not be brand-specific, most promotion efforts are concentrated on the promotion of a particular trademark in an effort to differentiate the products made by one pharmaceutical firm from those of other firms, thus giving rise to non-price competition on patented drug markets. In this case, this non-technological form of innovation – in the form of marketing innovation, accompanies technological innovation.
9 Because these forms of non-technological innovation are likely to be present in all sectors of the economy, it can be argued that a good part of the innovative activity going on in a sector or the economy as a whole is not captured if we rely on patent data alone. In order to get a fuller picture of such activity, it is important to use other indicators alongside the more traditional innovation indicators. We argue that one such indicator is trademarks: indeed, the use of trademark data as a complementary innovation indicator has increased in the last decades (e.g. Flikkema et al., 2014; Gotsch & Hipp, 2012; Mendonça et al., 2004; Millot 2009). Such use, and the literature supporting it, is still relatively modest, which is why we use the following discussion not only as a platform to highlight the valuable insights of this body of literature, but also to contribute to it by generating, analyzing and utilizing our own trademark data as a complementary indicator of innovative activity.
As a mechanism for appropriating a larger share of profits in a given market, trademarks, unlike patents, can be registered without having to satisfy requirements of novelty for the product or service in question. Equally, a trademark does not provide the same level or kind of protection against imitation or coping as patents. However, when a new product or service is launched, the innovative firm often chooses to use a trademark to make it distinguishable in the market, such as a name, a sign or a design (Graham et al., 2013). As noted, trademark registration is part of a firm’s market strategy aimed at building a mental identity for their new products and services, making them distinguishable from the existing products (Mendonça et al., 2004). New trademarks are also frequently used to indicate improvements or novelty in existing products and services, delivering to the consumers the idea of innovation. New trademarks are therefore often associated with some degree of innovation.
It is for this reason that more recently, as noted above, scholars have started to use trademark data as an innovation indicator, especially in sectors not covered well by patent indicators, such as services (Gotsch & Hipp, 2012; Mendonça et al., 2004; Millot 2005). Trademarks are also an interesting source of information for innovation in small and medium firms, such as high-tech start-ups (Flikkema et al., 2014; Gatrell & Ceh, 2003), even though it is understood that there is no one-to-one correspondence between trademark registration and the launching of a new product (Mendonça et al., 2004). In addition, process and organizational innovations are less related to the use of trademarks by firms, which calls for added caution when using trademark data as an innovation indicator (Gotsch & Hipp, 2012).
With these caveats in mind, the relatively modest literature on the link between trademarks and innovation offers some interesting insights. Most of this literature focusses on European firms and use data from the Community Innovation Survey,3 from national databases and from specific surveys
(Flikkema et al., 2014; Gotsch & Hipp, 2012; Mendonça et al., 2004). The most important outcome of this literature is related to the efficiency of trademarks data in capturing innovation in services as compared to patents. The broader contribution is that trademarks can be fruitfully used as an innovation indicator to evaluate economic sectors or activities whose innovative outputs are not patentable (Graham et al., 2013).
3 The Community Innovation Survey (CIS) is carried out by EU members every two years. The CIS is a survey of innovation
in enterprises and is based on Oslo Manual methodology. The survey provides information regarding to the types of innovation and to the innovative activities e. g. R&D and appropriability. For further information see http://ec.europa.eu/eurostat/.
10 Mendonça et al (2004) took the first important step in analyzing trademarks as an innovation indicator, which they define as a partial or complementary measure of innovative output for firms. In other words, the authors maintain that trademarks must be combined with additional data to produce consistent results regarding to innovation. Their analysis confirms the existence of a close relationship between innovation and firms’ marketing efforts. Trademarks in particular, for all the reasons mentioned earlier, are a useful way of capturing this connection; besides, as trademarks often accompany the introduction of new and innovative products and services in the market, they also express the innovativeness of those products or services. Based on empirical evidence, Mendonça et al (2004) sustain the argument that innovative firms are more likely to use trademarks than non-innovative firms.
In the same study, Mendonça and collaborators used data from the European official sources, from Portuguese official sources and from a firm level survey carried out in Portugal. These data were used to evaluate the use of trademarks as an indicator of innovativeness for Portuguese firms. Interestingly, the results obtained suggest that firms that use patents are also more likely to use trademarks. Moreover, high-tech sectors in general were found to be more likely to register trademarks. What is more revealing in the study is the observation that service sectors use trademarks the most. Consultancy, telecommunications and banking were identified as sectors that value highly the use of trademarks in their business strategies (Mendonça et al., 2004). Overall, these results confirm that innovative firms tend to use trademarks more often than non-innovative ones, which, in turn, strengthens the case for using trademarks as an indicator of innovation.
Gotsch and Hipp (2012) evaluated how trademarks can be used specifically as an innovation indicator for services for which, a noted earlier, traditional indicators are not adequate. Based on data from the European Community Innovation Survey their study found that trademark registration is positively related to innovation success for German firms. It also found out that firms in knowledge intensive business services are more likely to use trademarks than patents as an appropriability tool. Flikkeman et al (2014) performed a similar study regarding small and medium firms in the Benelux countries. In this firm level study, it was found that almost 60 percent of trademarks registered referred to innovation activities. For most of the cases, trademark registration was related to the launching of new products or services. Their results validate the use of trademarks as an innovation indicator for small and medium enterprises. While the authors support such use, they also note that a consistent use of trademarks as innovation indicator requires attention to characteristics such as the company size and the economic sector. Using a broader set of data from the Office for Harmonization in the Internal Market (OHIM) that covers several Trademark offices, Millot (2005) concluded that trademarks are a good candidate for quantifying non-technological innovation.
Lopez (2009) added to the discussion reflections on the use of trademarks in developing countries. Although trademark information for most of those countries is not available, when it does exist, it offers interesting insights. Using trademark data from Brazil, Lopez (2009) found that in developing countries trademarks appear to be more often used as a way of appropriating innovation profits. For instance, trademarks are the most frequently used IP title, according to official data in Brazil. Comparisons between sectoral trademark data from Brazil and from a number of developed countries brings to light a number of differences. In the pharmaceutical sector, for instance, 44 percent of Brazilian firms use trademarks as opposed to the 14 percent that use patents as an appropriability mechanism. In
11 the developed countries, the picture differs significantly as most proprietary pharmaceutical firms predominantly use patents for this purpose. Another difference is related to transnational companies’ strategies: using the case of Brazil, it becomes clear that trademarks are used extensively in sectors dominated by these companies.
In other words, it would appear that pharmaceutical transnational companies have been using patents predominantly in their home countries, while in host developing countries they are more likely to use trademarks as a way of expanding markets and appropriating a larger share of profits. At least this appears to have been the case for Brazil, most likely because after changes in patent law in 1945 and 1970, pharmaceutical product and process patents were excluded until the law changed again in 1995. Other developing countries of interest to pharmaceutical transnational companies, e.g. Mexico, Argentina, India, also offered limited pharmaceutical patent protection, so we can expect to see a similar trend there. It is important to note, however that the situation changed dramatically with the 1995 WTO TRIPS Agreement:4 now all WTO members are legally-bound to offer product and process
pharmaceutical patents for 20 years and we expect this change to eventually be reflected in trademark and patent use data in developing countries in the future.
Regarding US trademarks, Graham et al (2013) present a USPTO dataset comprising information from 6.7 million trademark applications between 1870 and 2012. The focus of their study is to draw data and trends from this dataset that remains insufficient explored to date. This has partly to do with the fact that most of trademark analysis, since the initial work of Mendoça et al (2004), is based primarily on the European official data (Community Trademark) and on specific firm level surveys. The authors provide a detailed description of the trademark data available at the USPTO; although they attempt to highlight certain trends, the authors do not explore the economic meaning of the data and its relation to innovation. In the US context, Gatrel and Ceh (2003) had already used some data from the USPTO trademark database to generate an interesting analysis of regional innovation activity. The authors observed that trademark registrations and patent applications shown a similar trend between 1974 and 2000 in the US. Nevertheless, trademark registration grew faster than patent applications during these years. This study also found that trademarks are capable of illustrating the performance of information technology sector in US. Interestingly, their regional analysis showed that patent and trademark data tell different stories: American states with high performance in traditional technological and innovation indicators do not perform as highly when trademark indicators are used (Gatrell & Ceh, 2003).
3. METHODOLOGY AND THE DATABASES
In order to support our case for using trademark data as a complementary indicator of innovative activity, two large databases were built based on data available on the internet. Despite the great effort required to built of them, this step is indispensable because available data is not the same as useable
4 TRIPS stands for Trade-related Aspects of Intellectual Property Rights. Developing countries that did not offer
pharmaceutical patents prior to TRIPS were allowed a period of transition to comply with TRIPS until 2005 (and later for less-developed countries).
12 data: in order to explore the relationships we are interested in, it is important to build databases that support classification, juxtaposition and large scale processing. Two databases have been built: the first is a trademark database containing full trademark information (including dates, owners, description, international class, etc.5) covering trademark registrations from 1823 to 2014 at the US Patent and
Trademark Office (USPTO), amounting to about 7.6 million trademarks. Each trademark is classified in one or more class according the Nice Classification established by the Nice Agreement (1957),6
which is an international classification of goods and services applied for trademark registration. The raw data used to build this database are available in eXtensible Markup Language format (.XML) at
http://trademarks.reedtech.com/. We use this database extensively in the following sections (five and six) and derive from its analysis some interesting trends related to the nature and use of trademarks across various sectors. The second database contains information regarding the economic sector of firms and entities that have applied for patents at the patent offices covered by the PATSTAT7 database or
have registered trademarks at the USPTO or the European Union Intellectual Property Office (EUIPO). This database also contains the ID number of the patents and trademarks that were applied for or registered, respectively, by the same firms or institutions, drawn from the Orbis database.8 We use this
second database especially in our investigation of the relation between patent and trademarks in section six.
Before proceeding with our analysis, it is important to clarify the way in which the economic sector to which firms using patents and trademarks belong is captured in the databases. The index used to refer to an economic sector here is NACE, the General Industrial Classification of Economic Activities within the European Communities used to designate the various statistical classifications of economic activities developed since 1970 in the European Union. NACE provides the framework for collecting and presenting a large range of statistical data according to economic activity in the fields of economic statistics (e.g. production, employment, national accounts) and in other statistical domains. Statistics produced on the basis of NACE are comparable at European and, in general, at world level. One NACE code is assigned to each unit recorded in statistical business registers, according to its principal economic activity. The principal activity is the activity which contributes most to the value added of the unit. A final point relates to the use of the trademark IDs – which are the same in both databases – to match the information between the trademark owner and the economic sector in which they operate, thus opening the possibility to investigate our data more thoroughly.
5 See Gatrel and Ceh (2003) for a more detailed description of the available information regarding trademarks in UPSTO
database.
6http://www.wipo.int/treaties/en/classification/nice/
7 The PATSTAT is a database organized by the European Patent Office (EPO) that covers about 70 million patents from about
90 patent offices worldwide.
8 The Orbis database is organized by the Bureau van Dijk and captures, treats and standardises data from a wide range of
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4. STATISTICAL ANALYSIS OF THE TRADEMARK DATABASE
As discussed in the previous section, the trademark database we have built covers all registration in USPTO from 1823 to 2014, amounting to 7,648,490 trademarks belonging to 2,746,988 different owners from 257 different countries (see Table 1). Each trademark is classified in one or more class according the Nice Classification; the full list of the Nice classes can be accessed on WIPO NICE online. For the trademarks analyzed 8,457,227 Nice classifications were attributed, a higher number than that of trademarks9. We also distinguish between domestic and foreign trademark registrations, made
possible by the fact that through the Madrid International System, a trademark can be internationally registered in all its 98 member countries. In our first database, 356,007 trademarks are foreign registrations that required the international acceptance through the Madrid System, and 212,794 are US trademarks that required international acceptance.
TABLE 1 Database Overview10
Figure 1 shows the temporal evolution of trademark registrations, exhibiting an exponential growth with an annual rate of 8.4% from 1930 to 2010. The trend in trademarks registration follows the world’s and US’ business cycles along the twentieth and early twenty first century.
9 The higher number of Nice classification occurs because more than one class can be assigned to one trademark.
10 It is noteworthy that the number of countries noted in the table (257) is greater than the total countries’ count today due to:
countries that existed in the past and no longer exist, independent territories that are sometimes considered as countries in the databases, and misspelling of the country code.
14 FIGURE 1
Trademarks Registration Evolution
Data shows an increase in the trademark registrations in US in the 1940s, reaching the peak in 1947. After this point, trademark registration grew for most of the golden years (1950-70) of US economic growth. The plateauing of trademark registration in the early 1970s reflects a phase of crises and restructuration of the US economy (Jessop, 2002). Notably, this is the period in time when the emergence of the so-called based economy – capturing the rise of high-tech and knowledge-intensive sectors as key sectors in most advanced economies – is located. The 1980s and 1990s show a recovery in trademark registrations growth based in the new structure of the US economy. This last phase is related to the emergence of new high-tech sectors in that country (e.g. IT, biotechnology etc.) and to the increased share of services in the overall economy (Kutscher and Personick, 1986). Strategies like innovation and marketing also became more important for competition and companies’ growth during this period.
In Table 2 we can see the temporal evolution of the top-ranking trademark owners in USPTO, illustrating the structural changes in the US economy and its implications for trademark applications in the period comprising 1950-2014. Some important observations need to be made regarding the analysis presented here. The first is the constant presence of toiletry and cosmetics firms in the top ranks during almost the entire period. Chemistry-related firms appeared frequently in the initial rankings. However, these companies lost their top position over time and have sunk down the list in the more recent rankings. Pharmaceutical firms have had a similar trajectory, since companies in this sector have also dropped from the top in recent years. This trajectory might be related to the internal advances in technological patterns: it may be that the decrease in the importance of traditional chemistry and medicines and the rise of biotechnology and biomedicines accounts for this result (Ribeiro et al., 2010, 2014). The data also makes clear that the top companies in the latest period own over 25 times more the number of trademarks that top companies owned in the earliest period listed in Table 2. This support our argument,
15 borne out in Figure 1, that companies today make more intensive use of trademarks as an appropriability mechanism than before.
TABLE 2
Trademark Owners Ranking - Owner name (no. of trademark registrations during the corresponding periods11)
11 The common range of 5 years was set for period to facilitate the comparison of total registrations among them. The periods
1955-1959, 1965-1969, 1975-1979, 1985-1989 were not shown to fit the table into the page size and because there weren’t much movement in that time as in the recent one - for which all periods where shown.
16 Another important trend related to structural changes in the US economy that becomes evident in Table 2 relates to the rise of new sectors from the mid-1970s onwards. While the rankings during 1950-1974 are dominated by companies engaged in traditional manufacturing sectors, in the 1980s electronics and entertainment companies started to appear in the top rankings. From then onwards, companies related to ITC, electronics and computers, toys and electronical games dominated the highest position in the trademark owners’ ranking. Entertainment companies have also risen to the top of the table since the last two decades of the twentieth century. The rise of these companies in Table 2 rankings shows their increase importance not only in the US economic performance, but also that of the global economy. These creative industries are highly intensive in technology and have played an important role in economic growth during the last three decades (Florida, 2002). Their innovativeness, however, is not always well captured by more traditional innovation indicators. This is the case, for instance, for the electronic games and entertainment sectors. Once again, trademarks may offer an alternative tool for evaluating the innovative performance of these sectors.
Regarding sectoral shares in trademark registrations, it is also possible to observe a number of changes during the 1950-2014 period. During the registration process, the trademark is classified following the Nice Classification system (presented in the Appendix I) on the basis of the kind of product or service being registered. Based on this classification, Table 3 ranks trademarks according to the Nice classification for the entire period. Beyond the remarkable increase in trademark registrations for each sector, the data presented uncovers a number of sectoral trends. In the first period (1950-1954), most trademarks were registered under the Pharmaceutical Product Class (05) which would gradually lose its top position, reaching the 10th place in 1985-1989, rebounding somewhat to the 8th place in the
2010-2014 period. Such ‘recovery’ is likely to be linked to changes in the global pharmaceutical market in the recent decades and, more specifically, to the increased number of ‘me-too’ patented drugs released by proprietary companies for which trademarks offer a complementary tool to hold on to or increase market penetration, and to the increased share of the so-called ‘branded generics’, an issue we discuss further in section six.
17 TABLE 3
Trademark Classes Ranking –
International class code* (trademarks registrations during the corresponding periods)
* The full list of the Nice classes and their codes can be accessed online at WIPO NICE pages
The Computer, Software and Electrical Product Class (09) dominates the top rankings during almost the entire period. Until 1975-1979 the main products were related to electrical ones that were stepped up with computer and software products in the latter periods. The dominance of Computer, Software and Electrical Products in trademark registrations occurred in parallel with the rise of this sector as the technological leader in manufactures. As an ascendant technology, the possibilities for launching new products in during the 1960-1990 period were greater than in old technology sectors. Based on trends pointed by long technological waves theorists (Freeman & Louçã, 2001), new dominant technologies such as ITC are characterized by the fast and intensive introduction of new products. This characteristic might be used to explain the large and increasing number of trademarks registrations for computer and related sectors during most of the time analyzed here.
This trend is reinforced by the upward movement of the Computer and Software Services Class (42) that came in second place in 1980-2004. The ascendance of this service class may also be related to the restructuration of the US economy after the 1970s. This process was based on the rise of new and specialized services, such as Computer and Software Services. Alongside this process, important computer and electronical US-based enterprises started to expand their activities including services in their portfolio of activities. The IBM restructuration along the 1990 decade is the most emblematic example of this process (Ahamed et al., 2013).
Another important trend to note in the case of the US data, but also likely to apply to other advanced countries whose economies have gone through similar changes during the last 40 years, is the impressive rise of the Advertising, Business and Retail Services Class (35). That class first appeared in
18 the ranking in 1990-1994 in 8th position and in the 2010-2014 period it topped the table. Advertising,
business and computer and software services are known as knowledge-intensive business services (KIBS). These services are very innovative but their performance is hardly captured by traditional innovation indicators. As pointed above, recent studies have shown that trademark statistics are a useful tool to study innovation for these kinds of services (Gotsch & Hipp, 2012; Mendonça et al., 2004).
The Cosmetics and Cleaning Products Class (03) appears in the ranking during the entire period and shows some stability being near the 7th position (with the exception of the 1965-1974 period when
it reaches higher rankings). Another class that appears in the ranking during almost the entire period and shows some stability is the Clothing and Apparel Products Class (25). Such a relatively long period of permanence in the top ranking indicates a systematic choice by the firms in these sectors to use trademarks as a tool of market differentiation and publicity. Since most of the new products launched in both sectors are not patentable, trademarks may be cautiously seen as a proxy for innovation.
Shifting the analysis to a more aggregated perspective, Table 4 shows the temporal evolution of the share of product and service trademarks. The increase of the share of trademarks registered to services is clear: it increased from three percent in 1950-1954 to 41.1 percent in the 2010-2014 period. As pointed out earlier, a large part of this increase in the share of service trademarks since 1950 is accounted for by the performance of KIBS. For these sectors at least, trademark statistics capture more of their approach to innovation and market capture than patents and other traditional innovation indicators. In addition to the movement of percentage share of product and service trademarks, it is important to notice the growth of their absolute values: service trademarks has grown over about 2000 times while product trademarks about 90 times since the 1950s.
TABLE 4
19 As with patent analysis, it is possible to mine trademark data in order to discern trademarks’ international flow as expressed by trademark registrations by non-residents (NR) owners12. For this
analysis, we have used only the first owner country to determine whether the trademark belonged to a resident or a non-resident (NR). Table 5 shows in its first four columns the comparison between the total number of trademarks and trademarks of NRs for each period under study. As it is evident, the share of NR trademarks has increased from 6 percent in the 1950 – 1954 period to 16 percent in 2010 – 2014, a trend that is in line with both the increased use of trademarks borne out in all our data and the increasingly globalized nature of economic activities, especially from the early 1980s onwards. In the following five columns of Table 5, we list the top 5 ranking countries from which NR trademark registrations originate for each period (and their respective number of trademarks in brackets).
TABLE 5
Non-Resident Trademark Analysis
An interesting observation drawn from this data is the rise of Canadian trademark registrations at the USPTO from the 5th position in the 1955 – 1959 period to the very top from the 1985 – 1989
period onwards. Given the geographical proximity and the existence of trade agreements between Canada and the US13, it is not surprising that Canadian companies have stepped up their efforts to
strengthen and enhance their reach in US markets through registering trademarks at the USPTO. Switzerland’s ranking during our period is the opposite to Canada’s: it falls from the top position in the 1950 – 1954 period to the 5th in 1975 – 1979 and then drops off the top five ranking altogether. France
also fell behind from being 2nd in the 1950 – 1954 period to 5th in 2000 – 2014. From 1955 to 1984
Germany was the top country in terms of trademarks registrations in the US, a position taken by Canada and Japan from then onwards. This is likely to have been the case due to the high growth rates these two latter countries experienced post-WWII, evidenced by the pressure such growth – and the penetration of US markets by German and Japanese high-tech goods and services – would place on the US policymaking and business circles during the 1970s and 1980s.
12 Patents registered in a country by non-residents are commonly related to inventions developed abroad. In this way the
referred product is not a result of domestic innovative efforts. In the same way a trademark registration by non-resident might be related to a product developed outside the country.
13 In the 1980 and 1990 decades trade agreements were signed by United States and Canada. The most important is the North
20 When attention is turned to the sectoral composition of NR trademarks, the dominance of the ITC sector (products and services) and of service sectors becomes clear. Canadian companies lead in the last two periods with trademarks predominantly in the areas Computer and Software Products (5927 trademarks) and Advertising, Business and Retail Services (4638), followed by German companies in Computer and Software Products (7002) and Computer and Software Services (4375), United Kingdom with predominant areas Computer and Software Products (5481) and Advertising, Business and Retail Services (3253), Japan with predominant areas Computer and Software Products (4815) and Clothing and Apparel Products (1478) and France with predominant area Computer and Software Products (3248) and Cosmetics and Cleaning Products (2286), respectively.
Our trademark data brings to light another interesting trend: as suggested by data presented in Table 5, the share of NR trademarks in the recent period is 16 percent of total trademarks, while the percentage of NR patents in recent years has been near 50% (USPTO Statistics, 2015). Attempting to understand this difference, we quantified the share of trademarks for products and for services trademarks as we did in Table 4, but now considering only NR trademarks. Table 6 shows the result of this analysis. Now the share of NR trademarks registered for products is nearly 72 percent of total NR trademarks, while, as indicated in Table 5, trademarks registered for products accounted for nearly 59 percent of all trademarks. Non-resident trademarks registered for services, as seen in Table 6, constitute around 28 percent of total NR trademarks, suggesting that, foreign service providers do not have the same incentives to register their trademarks at the USPTO as foreign product producers. This difference can be accounted for by the fact that most services are non-tradable. This said, due to impressive improvements in computer and communication technologies from the late 1980s onwards, some KIBS became tradable, which is why we see the share of NR trademark registrations for services rising at the USPTO from then onwards.
Bringing some of these trends together, it becomes clear that our trademark data corresponds to the nature of structural changes taking place predominantly in the advanced economies, most notably their relative de-industrialisation and the shift towards service-orientated economies from the 1980s onwards. However, it is also noteworthy that unlike most developing countries that have also experienced de-industrialisation and seen their economies become more service-based – albeit of a low value added kind – many service sectors in the advanced economies are knowledge-intensive and increasingly tradeable, accounting for the notable rise in (residential and non-residential) service trademark use in these countries.
21 TABLE 6
Non-Resident Trademarks of Products or Services Analysis
5. ON THE CORRELATION BETWEEN PATENT AND TRADEMARK USE
As discussed in the third section, the literature suggests that those firms that use patents also register trademarks (Flikkema & Castaldi, 2014; Gotsch & Hipp, 2012; Mendonça & Godinho, 2004). In other words, innovative firms may use trademarks alongside patents as a tool to appropriate the gains from the introduction of a new product or service in the market. In order to further investigate the relationship between patents and trademarks, we develop an analysis of the temporal evolution of the total number of patent applications and the total number of trademark registrations at the USPTO. The trend behavior of each evolution was identified and corresponds to an exponential growth for both of them, with an exponent of 0.062 for patents (which corresponds to a annual growth rate of 6.3%) and 0.056 for trademarks (annual growth rate of 5.8%). The deviation from the trend was calculated and renormalized to show similar scales. Figure 2 shows these deviations from the trend and makes clear the temporal correlation between total patents and trademarks due to the synchronized upwards and downwards movements for both of them.
22 FIGURE 2
Comparison of the deviation from the trend of Patents and Trademarks temporal evolution
To further investigate the correlation between patents and trademarks we use the second database discussed in Section 4. More specifically, we matched the total number of patents and trademarks per firm or entity14 with the specifics economic sectors in which they operate, using the
NACE codes. For a more comparative investigation, we selected two different sectors: pharmaceuticals and the manufacture of computer, software and electronic components. Apart from the economic relevance of each sector and their persistence presence in the data presented up to now, focusing on these two sectors is useful because firms and entities in each of them resort to both patenting and the use of trademarks, a necessary feature for any exploration of the relation between the two. In other words, both sectors engage in technological and non-technological innovation, the latter primarily in the form of organizational and/or marketing innovation, a characteristic which calls for attention to be paid to both patent and trademark (see classes 09 and 05 on Table 3) data.
Firms and other entities resort to patenting because they confer, in principle at least, perfect appropriability (monopoly over the invention) for a limited time period in return for a public disclosure that ensures, again in principle, widespread diffusion of benefits associated with the patented knowledge once the patent expires. However, research suggest that this appropriability is not perfect and that the public disclosure does not always ensure the widest diffusion of an invention or of the knowledge underpinning it. Levin at al (1987) surveyed more than one hundred manufacturing industries and created an index of effectiveness for process and product patents’ appropriability. Organic chemicals and drugs – both related to pharmaceutical sector – show the two highest scores in that index of effectiveness (6.1 and 6.5, respectively, on a scale from 1 to 7). The manufacture of computer and
14 We refer to other entities that are not firms, e.g. universities and research institutions (and, of course, individuals); due to
changes in intellectual property laws, initially in the US during the 1980s and later in many other countries, public and private-public entities of this kind can also be granted patent protection.
23 electronic components does not appear in Levin at al (1987) work, however, other work (Ribeiro at al, 2010) shows that firms in this sector often appear in the top patenting firms list.
With the use of patents by firms in both sectors beyond doubt, their use of trademarks can be ascertained by data presented in Table 3, under class 09 for the manufacture of computer and electronic components and class 05 for the pharmaceutical sector. As noted, both sectors have topped the trademark class rankings for a long period, each boasting a high number of trademarks. Further elaborations are presented in Figure 3a and 3b. Figure 3a shows the correlation at the firm level for firms in the pharmaceutical sector, under the NACE codes 2120 and 2121.15 This analysis covers 1,844 firms or
entities, 327,886 patents and 76,296 trademarks. Figure 3b shows the same analysis for the manufacture of computer and electronic components firms, under NACE codes 2611, 2612, 2620, 2630. This second analysis covers 3561 firms or entities, 3,019,766 patents and 55,048 trademarks. Both Figures 3a and 3b show a positive correlation between the total number of patents and trademarks in the sample. In other words, a firm that has a high number of patent applications is likely to also have a high number of trademark registrations. Similar evidence was found by Mendonça et al (2004) based on the analysis of a firm level survey conducted in Portugal. Our evidence drawn from the USPTO database suggests that trademarks may be used as a complementary innovative indicator, even for most general analysis and based on larger databases such as the USPTO or the EUIPO ones, consisting of thousands of firms from two different economic sectors.
FIGURE 3
Correlation between Patents and Trademarks in Firm Level
Figure 3a – Manufacture of basic pharmaceutical products and pharmaceutical preparations (2110,
2120)
Figure 3b – Manufacture of computer and electronic components (2611, 2612, 2620, 2630)
24
6. CONCLUDING THOUGHTS: WHAT TRADEMARK DATA REVELS AND PATENT DATA OBSCURES
Based on the previous correlation analyses and discussion, it is possible to argue that by using trademark data as an indicator of innovation we can analyze the sectors/firms that traditionally use patents to protect their innovation, as well as in those sectors which do not. The joint use of patents and trademarks reinforces the results observed in other analyses based on different trademark and patent datasets to our own. In other words, the combined use of trademark and patent data would give us a better understanding of innovation – technological and non-technological – occurring in all economic sectors; however, we argued that trademark data is particularly useful in analyzing innovation activity in sectors: (1) where patents are not an effective tool for appropriability (Levin at al, 1987); (2) those that are intensive in incremental innovation for which the product differentiation is not great enough to justify a new patent; (3) in most service sectors as patents do not generally cover innovations in services; (4) or in sectors or activities for which patents are forbidden. These cases are unpicked briefly below.
The first case can be illustrated by the electronic games and entertainment sectors. These sectors are knowledge-intensive but most of their innovation is not captured in patent statistics or R&D indicators. However, trademark data can be used as a reasonable proxy for innovation for them. The second case can be illustrated by the Cosmetics and Cleaning Products (Class 03) and Clothing and Apparel Products (Class 25). Our results indicates a systematic choice by the firms in these sectors to use trademarks as a tool of market differentiation and publicity. Since most of the new products launched by this industry are not patentable, trademarks also appear to be a good proxy for innovation here.
The third case can be illustrated by Advertising, Business and Retail Services, as well as Computer and Software services. Due to innovation in these KIBS, their share of global economic activities has increased in the last decades. But because services are not generally patentable, their (predominantly non-technological) innovativeness is missed in traditional innovation statistics that use only patent data. As our previous analysis shows, trademarks are able to capture their efforts towards introducing new services in the market. As pointed out before, this result is in accordance with other studies based on smaller samples. In short, the use of trademark statistics opens an important window of opportunity into the study of innovation in KIBS, at either the sectoral level or at the more aggregate one.
The fourth case can be illustrated by generic medicines and biosimilars,16 referring to
highly-similar versions of generic medicines or biologics whose patents have expired. By their very nature, generics and biosimilars are not patentable, but this does not mean that there is no innovation taking place in this part of the pharmaceutical sector, as relying on patent data alone would indicate. Missing this part of the sector is not insignificant; due to governments’ efforts in developed and especially developing countries to contain the medicine cost17 component of their total healthcare budgets since at
16 Generics and biosimilars are almost identical versions of patented and already approved medicines, the difference between
the two being that a biosimilar is a version of a biological medicine, whose active substance is made of a living organism, rather than a chemical composition as is the case of non-biological medicines.
25 least the early 1980s, the generic medicines sector has increased considerably. During the early 1990s, generics accounted for about 14 percent of the aggregate pharmaceutical global market, a share that increased to 25 percent of global pharmaceutical spending in 2011 and was expected to reach 35 percent in 2016, thanks in large part to the growth of the so-called ‘pharmerging’ markets in large developing countries (Jungmittag et al., 2000; IMS, 2012).
The more the growth chances of this part of the pharmaceutical market have been growing, the more attractive it has become to proprietary pharmaceutical firms. Indeed, the lines between proprietary and generics medicines in the market have blurred, because many proprietary companies participate actively in the generics market: as early as 1979, for instance, generics manufactured by proprietary companies, i.e. branded generics, accounted for 93% of the generic market in the United States (Chudnovsky, 1983: 192), a share that despite growing competition from other generic companies did not diminish significantly and was around 80 percent twenty years later (Tarabusi and Vickery, 1998: 90). Similarly, several generic companies have started to invest in innovative medicines;18 in particular,
because biologics are more complicated, producing biosimilars requires generic companies to invest in R&D, further blurring the distinction between proprietary and generic companies.
It is notable, also, that these changes in the market dynamics have been accompanied by changes in the technological and non-technological innovation profile of the pharmaceutical sector. As noted earlier, proprietary companies were and remain keen users of trademarks, alongside patents, as a means of fostering brand-name loyalty and a tool of non-price competition in the market; indeed, it is not unusual for branded generics to fetch a higher price than unbranded (also referred to as commodity) generics in the market. It is to be expected, therefore, that as the generic and biosimilars will continue to lead growth in the global pharmaceutical market in the years to come, all pharmaceutical firms will seek to develop technological, organisational and marketing innovations, the latter two all the more important for the generics companies operating in developed and especially developing countries. Trademark data will be able to capture this sort of innovation much better than patent data. In our analysis of the second database, for instance, we already found 170 trademarks which related to biosimilar, generics, generic drugs or generic medicine. This confirms the use of trademarks in this part of the sector; a more specific analysis of such trademarks and of the profile of companies making use of them, however, requires further research that will be undertaken at a later stage. At this point, our main argument is that trademark data analysis provides a more complete picture of innovation taking place in the economy, and welcome further contributions and advances in this field.
18 E.g. Ranbaxy (India) and GlaxoSmithKline (UK) signed a multi-year R&D collaboration agreement in in respiratory and
26
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