Taiwan has made miraculous gains in the past decades. From small goods manufacturer to high tech industry powerhouse, and from "Made in Taiwan" to "Designed and/or Innovated in Taiwan", Taiwan is truly one of the world's most important and successful partners.

But somehow, both domestically and internationally, Taiwan can't seem to shake its status as a second-tier brand. When it comes to electronics, consumers tend to choose Japanese or even Korean. Taiwan companies always seem to be defendants rather than prosecution in patent infringement cases.

This raises a serious question: How is Taiwan faring in the innovation race?

To help answer this question, we'll look at Taiwan's most popular target for patent applications: the USPTO. We will limit the data to utility patents (invention patents) and focus specifically on how Taiwan compares to other non-resident, aka "foreign" applicants. And as we look at the results, we may come to a sad conclusion: compared to other countries in Asia, Taiwan is losing the innovation race.

Taiwan: Sixth Place—and Dropping

Below is the list of top all-time utility patent grant recipients at the USPTO:

Taiwan seems to be performing considerably well with a sixth-place finish. China, which seems to receive all the news today on patents, is currently a distant 17^th—and only if combining numbers from Hong Kong.

Unfortunately, if the data of Taiwan and China are plotted as a percent of all utility patent grants to foreign entities, we arrive at this chart:

*Note: Due to pending applications the true number of grants for recent years is not complete. However, as no one particular country receives examination priority, the data are relatively accurate compared to those of other countries.

Taiwan's share in utility patent grants seems to be leveling out and actually dipped the last three years. China, on the other hand is gaining percentage points quickly.

Comparing the number of utility patent grants from other countries reveals further interesting trends:

Specifically, Japan has continuously led all foreign countries in utility patent grants. Taiwan started slowly, but in the early 1990's began to surpass other "first-world" countries in grants-per-year. Taiwan's growth was faster than nearly every country for the better part of a decade. However, in only the past five years, other countries have caught up. The relatively steeper upward sloping curves of Japan, Germany, China and especially Korea, show that these four countries are increasing their grants at a faster rate than Taiwan. South Korea surpassed Taiwan in grants-per-year in 2007 and in 2010 received nearly 50% more utility patent grants (3,433 more) than Taiwan. If these growth rates continue, South Korea will easily surpass Taiwan in total utility patent grants by 2013.

Taiwan Utility Patent Grants by Technical Class

The USPTO also releases statistical data of utility patent grants classified into three major technical categories: Electrical, Mechanical and Chemical. Looking closer at Taiwan's performance in these categories may help provide a more accurate picture of Taiwan's competitiveness. Details of which USPTO classes are included in these categories can be found here: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/stelec.htm

Electrical Class – Struggling to Keep Up

In the category of Electrical class patents, Taiwan ranks fourth among all foreign entities in overall number of utility patent grants. Japan again dominates among foreign filers, and China (including Hong Kong) is a distant 13^th.

When looking at grants per year, in 2008 Taiwan surpassed Germany, although the relatively steeper upward slopes of both Japan and Korea make it unlikely Taiwan will catch up any time soon. And considering the current differential of 30,000 patents between Germany and Taiwan, Taiwan will likely remain in fourth place for near and distant future.

Mechanical Class – A Race to the Bottom

When looking at per-year-grants, the data show slow, but steady decline in Mechanical Class grants for nearly every country except China and South Korea (not shown).

Chemical Class – Business As Usual

In the category of Chemical class patents, Japan, Germany, France and the UK occupy first through fourth. Taiwan is eighth, but only closely behind Canada, South Korea and Switzerland. China (including Hong Kong) is 20^th.

When looking at grants per year, Taiwan is relatively flat in terms of grants, peaking at 1,550 grants in 2001, but now averaging just above 800 per year. Countries with the largest gains (aka the steepest upward sloping curves) are unsurprisingly, Japan, Korea and China. Korea is also on pace to surpass Germany by 2011.

In general, in all three major categories, Taiwan is falling behind or barely keeping up. The electrical class is the only category in which Taiwan is showing significant growth, but even then Japan, South Korea and China are receiving grants at a faster rate.

Utility Patent Applications & Grants at the USPTO

Of course, volume is not the sole measure of competitiveness. Taiwan's US patent allowance rate, the number of patents ultimately granted in proportion to the number of applications, may be a better measure of the "quality" of Taiwan's competitiveness.

Until the launch of the USPTO Dashboard, the USPTO did not release allowance data in their statistics section. However, the office does publish data on number of patent applications per year (http://www.uspto.gov/web/offices/ac/ido/oeip/taf/appl_yr.htm), and the number of patents granted by year of application
(http://www.uspto.gov/web/offices/ac/ido/oeip/taf/h_at.htm#PartA2_1). By dividing the number of patents granted by year of application by the number of applications per year, we can obtain a reference point to which we can make comparison and analysis.¹

*Note: Due to pending applications, data from most recent years (2005 onward) is incomplete.

Surprisingly, foreign applicants have better allowance rates than domestic applicants, which may be attributed to the fact that these applications may have already been more thoroughly vetted in their country of first filing.

Comparing the allowance rates by country results in the following chart:

Perhaps one of the most disappointing trends is the consistent underperformance of Taiwan compared to its Asia competitors. Even in 1997, the year an astonishing 76.3% of all applications became issued patents, Taiwan only managed 64.6%. In that year, for every 100 utility patent applications filed by Japanese organizations, nearly 86 were ultimately granted and issued. The only solace for Taiwan seems to come in the preliminary data from 2007, where Taiwan is currently leading in allowance rate.

Finding the true cause(s) of this underperformance is nearly impossible; however, we can put forth several theories. For example:

- Historically Taiwan has been a manufacturer, responsible for commercializing inventions from places like the US and Japan. As a result, a higher percentage of Taiwan's applications may be on "older" technological subject matter, which are more likely to have objection-raising prior art.

- Taiwan's economic development strategy has been to distribute economic support among more companies and industries, as opposed to focusing on a few super-companies (as do Korea and even Japan). As a result, Taiwan may have a more diversified, but less experienced applicant base. This may leads to higher volume, but lower quality patent applications.

- Considering the fast pace, low-profit margins of Taiwan's largest patenting pool—the high tech industry—these organizations may file large numbers of patents (non-provisional or provisional), but later choose to abandon or withdraw applications due to market shifts or changes in strategy.

One, none or all of these reasons may be true. Regardless, the data undoubtedly show some shocking trends—ones that hopefully will encourage Taiwan patent applicants to further review their strategies and goals.

Conclusion

Based on the numbers, Taiwan is struggling to compete at the USPTO. In overall volume and percentage stake of foreign applicants, Taiwan is losing ground. In three major technical classes, Taiwan is… yes, losing ground. And finally, in allowance rate Taiwan woefully underperforming.

So does this mean that Taiwan is doomed? Of course not. A major caveat to any of these conclusions is that a patent is not any useful unless it is used. If only 5%² of all patents are ultimately commercialized (litigated or licensed for royalty), then the scale of the gap between countries decreases significantly. Furthermore, countries like the UK and Singapore are considered highly successful, and they rank relatively low in all patent categories.

However, patents are one of few reliable and commonly used indicators of a country's overall competitiveness—in the high tech industry. And therein lay the crux of the issue. As high tech manufacturing and innovation moves to China, Taiwan must carve its niche in the global economy. Can Taiwan become a financial powerhouse like Hong Kong? An R&D think tank like Japan? Or a service economy like Singapore? Or should Taiwan continue in the high tech industry? According to the numbers, without improvements or changes, in the long run that may not be the best decision.

Addendum:

¹For those who have not seen the USPTO's allowance rates before, the utility patent allowance rate chart may be quite shocking. However, comparing this data to a graph released by the USPTO in their 2009 Patent Operations Update, shows reasonably accurate results.

Allowance Rate for Utility, Plant & Reissue Patents by Fiscal Year

Comparison of Allowance Rates

*Note: Several factors may contribute to the disparity between the data: The USPTO has only released this single graph showing allowance trends for all Utility, Plant and Reissue patents. Furthermore the USPTO data is calculated using the Fiscal Year, which may explain its relatively lower volatility. In addition, not all allowed grants are necessarily issued, which may explain the lower rates.

² Probabilistic Patents, Lemley, Mark A., and Shapiro, Carl, "Journal of Economic Perspectives", Volume 19, Number 2, Spring 2005, p. 84.

Other resources:
USPTO Patent Statistics: http://www.uspto.gov/patents/stats/index.jsp