Number of US Patent Applications Set To Drops

September 9, 2002
By Peronet Despeignes in Washington

The surge of applications for US patents will fall off abruptly this year, according to projections by federal patent authorities.

Their forecast highlights the possibility that the productivity miracle that fuelled rapid economic growth through the late 1990s could soon fizzle out.

Officials have confirmed the accuracy of projections made this summer by James Rogan, recently appointed undersecretary of commerce and director of the Patent and Trademark Office, that patent applications were likely to total 350,000 in 2002.

That would be up only about 1.3 per cent from last year's figure - a sharp slowdown. Patent applications accelerated in the late 1990s and had been rising by about 10 per cent every year since 1996, accompanying a surge in productivity growth.

Fears by some economists that the late 1990s surge could stall have been fanned by the slump in business investment; particularly high-risk venture capital investment; corporate cost-cutting; a huge redirection of resources toward security; a concurrent surge in government spending; and the post-Enron pall on deregulation, privatisation and trade.

The implications are potentially serious, bearing on everything from stock market valuations to Federal Reserve policy, the strength of the dollar, the growth of US living standards and federal government finances.

The assumption that high-productivity growth would persist kept a floor under the dollar and stock price valuations. It also eased the Federal Reserve's worries about inflation, making the board less inclined to raise interest rates, and limited the size of the federal budget deficit.

Daniel Wilson, an economist at the Federal Reserve Bank of San Francisco, who has written extensively about patents and innovation, cautioned against drawing hasty conclusions from the latest projections, citing several possible explanations for a slowdown in applications not immediately bearing on productivity growth.

But Mr Wilson acknowledged economists had established a "close", if unstable, link between research and development spending, patent applications and productivity.

Bush administration economists, worried about stalling productivity growth, issued an annual Economic Report this year that proposed new economic incentives and competition-boosting measures as an insurance policy.

But Roger Ferguson, vice-chairman of the Federal Reserve, rejects a direct link between patent applications and productivity. He said

in a speech last year that, though its causes were multi-faceted, complex and not fully understood by economists, he was confident the productivity surge would "persist for some time".

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