At a glance

Select findings from a digital IP state of play study conducted by Konsert on large technology companies

The study analyzed the financial performance of large and technology-intensive companies (using the Forbes Global 2000 list as proxy) in relation to their filings of digital patents (using relevant subclasses of International Patent Classification classes G and H as proxy).

The study generally found few direct correlations between patent data and corporate metrics such as revenue growth, profitability and market cap growth for companies of this size, which was expected given the broad and complex mix of variables affecting these metrics.

However, on an aggregate level there were a few patterns of interest:

  • For companies in the automotive, heavy equipment and industrial equipment sectors higher growth seems to be correlated with a relatively higher focus on digital patents;
  • The winners in winner-takes-all markets file a significantly larger share of all digital patents; and
  • Companies in NA, Europe and Asia within high profit sectors file significantly more digital patents.

High-growth industrials have made a faster switch to digital IP

Industrial leaders allocate significantly more of IP activities to digital technologies

Analysis of Forbes Global 2000 companies within heavy equipment, industrial equipment and automotive indicates correlation between digital patenting and revenue growth rate.

The top quartile of industrials in terms of focus on digital patenting see revenue growth rates on average more than twice as high as the lowest quartile.

Share of filings in digital domains appear more important than nominal filings when looking at growth, implying that speed of switching IP focus is key.

Exemplified by the automotive industry, Tesla and Toyota largely filings patents in future technologies see consistently higher revenue growth than peers.

Similarly top companies in share of filings in digital categories for heavy equipment (e.g. Komatsu and Paccar) and electrical equipment (Legrand and Fortive) see higher revenue growth than their peers

Winners in winner-takes-all markets have larger focus on digital IP

IP can contribute to winner-takes-all dynamics in markets with revenues from digital products and services

In markets with high consolidation of industry profits, the few top companies file more digital patents than industry average (but are also larger and richer)

Using the IT & Telecom sector as example, the top 5% of companies by profit make up roughly 50% of all industry profit. These same companies file four times as many patent applications as the average. Looking at the top 20%, they generate 86% of total industry profits, and file three times as many digital patents as average.

Winner-takes-it all dynamics from direct and indirect network effects or data advantage is commonly observed in markets where a large share of the revenue is derived from digital products and services.

As share of digital revenues increases across industries, we expect similar dynamics to play out. E.g. McKinsey & Co points this trend in financial services and automotive where 87% and 77% respectively of digital revenue is consolidated with the top 10% of companies (source: McKinsey & Co, How tech giants deliver outsized returns – and what it means for the rest of us, 2017)

The most profitable industries double down on digital patents

Industries generating IP in digital technologies have considerably higher profits on average, although big differences exist on company level

The most profitable industries amongst technology-intensive companies on the Forbes Global 2000 list file considerably more patents related to digital products and services

Many of the top 10 industries have faced strong digital disruption and potential during the last decade such as banking, automotive and biotech, which has likely pushed their innovation agenda

In the same way, industries earlier in their digital journey such as pulp & paper, container shipping, food processing and construction materials still see limited innovation in new digital technologies

There are occasionally considerable variations within a sector such as consumer discretionary retail where you find a large discrepancy between internet retail, with brands such as Amazon, dedicating considerable resources to digital innovation whereas apparel retail, such as H&M, see very limited digital patenting activity