Innovative organizations with intangible assets are more successful than counterparts

Tue Oct 8, 2013 7:06am EDT

(This article was produced independently of the Reuters newsroom. It was created by the public relations department of another Thomson Reuters unit, the Intellectual Property & Science division.)

The Thomson Reuters Top 100 Global Innovators are deemed to be the most innovative organizations in the world based on a series of scientific metrics that objectively rate each company according to their patent portfolios.

This unique approach to analyzing and quantifying innovation is founded on the premise that intangible assets, a.k.a. patents, are the output of an organization rooted in idea generation, R&D, protection and commercialization. Companies, institutions, governments and other organizations that invest in the protection of their ideas are ones that not only see the commercial benefits of such protection but also understand the interdependency between innovation, protection and commercialization.

Yet the question remains: is there any "proof" that these Top 100 organizations, with deep roots in the intellectual property system, perform better than their competitors and other organizations outside this elite sphere?

To answer this, one can start by picking up the business section of today's newspapers. Headlines increasingly feature stories that tell of the value a well-planned patent portfolio brings to an organization.

Microsoft recently agreed to buy Nokia's phone business and license its patent portfolio for the equivalent of $7.2 billion. Blackberry's patent portfolio, which appears to be the foundational gem in the sale of that business, is estimated at between $2 and $3 billion, contributing to the more than $4 billion pricetag of the company. Nortel Networks sold its patent portfolio to a consortium of companies, called Rockstar Consortium, which includes Apple (58% owner in the consortium) and Microsoft, among others, for $4.5 billion. Microsoft also purchased 925 patents from AOL for $1.05 billion. Facebook bought 650 patents from Microsoft for $550 million. Google purchased Motorola Mobility for $12.5 billion - for a portfolio of 17,000 patents and the ability to compete more effectively in the mobile phone market. And the list goes on.

And this is just one sector, albeit the most expensive (or lucrative - depending on what side of the bargaining table you sit), but the underlying message is that patents are no longer just defensive publications relegated to the purview of the legal department. Rather, they're corporate assets that contribute to a business's strategy and its potential for economic growth and success.

With this backdrop, it is appropriate to look more closely at just how financially successful the 2013 Top 100 Global Innovators are. There is no disputing that these are the organizations that lead the world in terms of their investments in protecting innovation. But does that protection pay off in terms of financial rewards, growth and long term stability?

In order to answer this question, analysts from the Intellectual Property & Science business of Thomson Reuters looked at financial data for the 100 organizations in their top 100 and compared those figures to the S&P 500. And, for the third year in a row, the numbers show that the Top 100 do outperform this index of companies.

The Thomson Reuters Top 100 Global Innovators exceeded the S&P 500 in every category assessed, by:

-Over 4 percent in annual stock price gains

-2 percent in year-over-year market cap weighted average revenue growth

-8.8 percent in market cap weighted average R&D spend

Collectively they earned $4.5 trillion in revenue and spent $223 billion on R&D, the equivalent of 5 percent of overall revenue on R&D. Comparatively, the S&P 500 as a group spent just 2.1 percent of its revenue on R&D, with a smaller annual revenue gain than the Top 100.

Industry wise, the Semiconductor & Electronic Components sector is the most prevalent on the list (23 percent). The Thomson Reuters 2013 Top 100 companies in this category also outperformed an index group of 20 semiconductor companies around the world. The ratio of outperformance was by:

-3.34 percent in annual revenue

-4.7 percent in R&D spend

Again the Top 100 companies spent more on R&D as a portion of its annual revenue than the comparison group. In this case, the Top 100 spent 10.47 percent of its annual revenue on R&D, while the semiconductor index group spent 9.97 percent of its 2012 revenue on R&D.

All in all, these stats point to the fact that:

1.The Top 100 are outspending the comparison groups on R&D as a percentage of annual revenue

2.Their year-over-year increase in R&D is greater than the control group

3.Their year-over-year annual revenue change is greater than the control group

What does this all really mean?

It is an indicator that companies that protect their inventions with patent rights and that invest in ongoing R&D initiatives, while meeting the other criteria to become a Top 100 Global Innovator, are more successful than their counterparts that don't make the list.

As patents now garner attention from legal, financial and strategy departments, they are seen and used as unique corporate weapons in providing competitive advantage to the organizations that hold them. Patent portfolio pricetags may not all be in the billion-dollar range, as is the case in the telecomm space, but we're sure to see them increase in value across industries, especially in those with fierce competition and high shareholder value.

(This article was produced independently of the Reuters newsroom. It was created by the public relations department of another Thomson Reuters unit, the Intellectual Property & Science division.)