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Good Morning
Patents may not always be a reliable indicator for measuring innovation
On Monday, when Tata Consultancy Services Ltd declared its second-quarter earnings, chief executive Rajesh Gopinathan underlined his firm’s innovation strength by highlighting the number of patents won by the Mumbai-based company.
“In terms of granted patents, we have crossed 2,500. We now have 2,560 patents which is a growth of 460 patents (from the previous year). So, we are now getting granted patents at a rate of more than one every calendar day,” said a visibly happy Gopinathan.
This was not the first time TCS had gushed about patents. In July, TCS disclosed it had 2,400 patents making one journalist quiz the management on the importance of exclusive rights over inventions.
The Economist: I was very struck by your comments on patents. I wanted to ask if, in this initiative, there are any patents that are truly significant and that will change TCS’s positioning as a technology company going forward.
Gopinathan: It’s like asking which is our favourite child. All of them are equally important to our researchers who have worked on them. But the way to think about it is this: The patent portfolio and our approach to patents are not designed to unearth one single item that is likely to completely pivot. That is not to say that that might not happen. But if it happens, we will know it in retrospect. We are not a pharma company trying to discover one killer molecule for a known problem. We have a much more broad-based research agenda across a very wide spectrum. So, our approach to this
is different from what one sees in other industries. We do try to consolidate these patents and incorporate them in many of our products and solutions. Some of them could be game-changing. But our approach is very different compared to pharma or a technology company.
The thirty-eighth edition of Twich+ tries to explain this new-found love of patents by TCS and if there is reason to be enthused about it.
Patents are a part of the intellectual property system that covers four areas. The other three are copyrights (used to protect literary or musical work), trademarks (for things like brands) and trade secrets (commercial agreements as part of a business). An efficient patent system offers an incentive for innovation, allowing the inventor to make money from time-consuming work.
Now, TCS has not disclosed details of its patents, including the used cases or in which technology areas it has got these exclusive rights over inventions.
An independent patent database, IFI Claims Patents Services, tracks the number of patents won by the largest companies and research institutes globally and also clubs the technology areas in which companies are getting awarded exclusive rights over their invention.
TCS, Wipro Ltd and the Council of Scientific and Industrial Research are the only three Indian entities in the IFI Claims Patents Services database.
For TCS, getting the maximum number of patents (734 since 2017) for an Indian company is undoubtedly a badge of pride. However, it is possible that the number of patents calculated by IFI may differ from that of TCS. This is because of two reasons.
First, IFI counts the Patent family as a collection of patent filings related to a single invention. So say, if a company invents a new technology and files related patent applications in 10 countries. Then, IFI will count the patent as one.
Second, IFI’s count includes active patents, not those expired.
Your writer parsed through data collated by IFI Claims Patents Services to compare how TCS fares against Accenture Plc. in this race to innovation.
Assuming Accenture’s research and development spending in the year ended August 2022 was similar to in the earlier year (Accenture, which follows a September-August fiscal year, is yet to file its annual report for the latest year), the company has spent $5.3 billion on innovation since 2017. It has won 1,413 patents.
During these six years, TCS spent $1.5 billion but bagged 734 patents.
Put simply: TCS spent $2 million compared to Accenture’s $3.75 million for every patent.
Let us dwell a little more on the technologies that excite the two companies.
Even though IFI clubs patents under 20 broad technology areas, many technology innovations are common to more than one technology.
For this reason, TCS has 960 patents across five areas, while Accenture has 2,504 patents.
TCS got 145 patents in the field of Computing Arrangements, including technologies like machine learning. Accenture got about three times more patents in this field.
But about 74% of patents filed by TCS are in areas that saw no growth or a decline in patents granted by US Patents Office in 2021 compared to the calendar year 2020. For Accenture, about 77% of its patents granted are in domains that saw no growth or decline.
This brings us to the question: Why are technology services companies battling out in this race to innovation?
First, IT services firms like TCS and Accenture have a small but growing number of product offerings. Patents underpin these.
Second, most large companies look at “interoperability” and common standards instead of being locked in with proprietary systems. This implies that technology firms like TCS and Accenture need to build a healthy pipeline of patents that can be used as part of “cross-licensing agreements” when offering solutions to customers.
Third, more companies are now open to licensing out inventions done by others. TCS and Accenture may not find immediate use for some of these inventions, and they could be building an arsenal of these patents in the hope they could come in handy someday.
Finally, it could simply be just a vanity metric. CEOs can often throw the number of patents won by a company when questioned on how a company is looking to stay relevant and embrace the new.
It’ll be foolhardy to conclude that garnering a plethora of patents makes a company very innovative. This is simply because the number of patents says zilch about the value of the inventions, as the majority of them have zero economic worth.
In the past, year after year, for close to two decades, IBM continued to win the highest patents. The management kept chugging out areas like artificial intelligence and blockchain. But the company just couldn’t do much with them.
Generating ideas and retaining exclusive rights over them is the easy part. Exploiting these concepts is harder. As Thomas Edison (who commercialized the light bulb and later co-founded GE) put it, genius is 1% inspiration and 99% perspiration.
This should serve as a handy reminder for TCS and other companies looking to impress investors and analysts with the number of patents.
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By Varun Sood
