Special Report

The World's Most Innovative Companies

178705579The United States Patent and Trademark Office (USPTO) issued 300,678 utility patents in 2014, many of them to just a handful of companies. More patents were issued in 2014 than in any other year in the history of patent filings.

IBM (NYSE: IBM) was the global leader for innovation in 2014 for the 22nd consecutive year, with 7,534 patents. Last year was also the first year any company received more than 7,000 annual patent grants. Based on data from global patent data compiler, IFI Claims Patent Services, these are the world’s most innovative companies.

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The most innovative companies are not always the most financially successful ones. While IBM was the global innovation leader in 2014, its stock price fell 13.3% last year. In the case of several other companies, however, innovation has accompanied financial success. Google (NASDAQ: GOOG), for instance, appears on our list of most innovative companies for the first time after a dramatic increase in patent filings over the last several years. The company has reported substantial revenue increases as well as research and development (R&D) spending increases since at least 2011.

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In order to innovate, a company needs resources. IBM had a relatively poor year in terms of revenue in 2014, but this did not prevent the company from investing heavily in R&D. IBM invested more than $6.3 billion in R&D in fiscal 2013, one of the highest figures among all companies worldwide. Similarly, the economy can affect a company’s capacity to invest. Larry Cady, vice president of product marketing at IFI Claims Patent Services, suggested that a few years ago, when companies filed many of the applications for the patents awarded last year, “there was probably some cost-cutting” brought on by the recession and other “cyclical economic factors.”

This partly explains the slowdown in growth of U.S. patent grants. The number of patents issued in the United States increased by just 8.2% from 2013. This was down from a 9.7% growth in 2013 and from a 12.8% growth in 2012. Despite the growth slowdown, the United States is still far and above the most innovative country worldwide. “[This slowdown is] probably more related cyclically to the economy than it is to any other underlying change in technology,” Cady said. “I don’t think it’s the case that people are running out of things to patent.” There were 19 U.S.-based companies among the 50 most innovative companies, and four of the top-10 are based in the United States. According to Cady, the perceived stagnation in U.S. patents is likely temporary.

Cady explained that a range of factors contribute to high numbers of patent grants. Incentive structures at these companies and corporate culture are key among them. “If you provide someone with an incentive to patent their idea, they will patent more,” Cady said. For instance, Google employees are permitted one day per week to focus on whatever they want, according to the company’s website. This encouragement is part of Google’s eight pillars of innovation. IBM, too, has a long history of such incentive structures.

Patent grants are a reliable measure of how innovative a company is. However, in an interview with 24/7 Wall St., Cady said that “a fairly small number of the patents granted fall under the category of significant innovations that really change the landscape.” Not only are many patents representative of extremely incremental developments, but they are often filed for a variety of reasons. A key innovation, for example, will often require a range of different patents to protect it from challengers. Companies will also deliberately bolster their patent portfolios in order to take a “defensive posture,” Cady explained.

In particular, especially in the extremely competitive electronics and software industries, patent trolling has become a common occurrence. Patent trolls will purchase patents on the market without any intention of releasing the product, and they sue other companies for attempting to do so. The increasingly defensive strategies adopted by companies can be attributed in part to the rise of such patent trolls. Cady added that intellectual property laws have become especially vague in these industries. “What’s patentable is a contentious issue,” Cady said. Methods of doing business, or an intangible invention like software, are entering patent courts more often than ever. Historically, inventions such as these were deemed far too abstract for patent protection.

To identify the 10 most innovative companies, 24/7 Wall St. reviewed the companies with the 50 highest total number of patent grants in 2014 from IFI Claims Patent Services. Patent data from previous years also came from IFI Claims Patent Services. When available, financial data came from the companies themselves or Google Finance. Sales figures from non-U.S.-based companies were converted to U.S. Dollars using exchange rates current as of the publication of this article.

These are the most innovative companies in the world.

10. Panasonic Corp
> 2014 patent grants: 2,095
> Country: Japan
> Sales: $64.7 billion

Panasonic Corporation, based in Japan, was awarded nearly 2,100 patents last year, 19% less than the year before. Panasonic was one of only a handful to report a decline. Dwindling resources may explain in part the slowdown in innovation. While net sales rose last fiscal year, they fell annually between fiscal 2010 and 2013, when many patents awarded this year were filed. At any rate, the company’s spending on R&D has fallen steadily since at least 2011. Like most of the world’s most innovative companies, Panasonic offers a range of electronic products and services, including TVs and digital cameras. Nokia Networks recently announced that it had acquired a portion of Panasonic’s wireless network business with the stated intention of becoming “the highest quality and most innovative mobile broadband company.”

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9. LG Electronics
> 2014 patent grants: 2,122
> Country: South Korea
> Sales: $54.7 billion

While LG is no longer one of the dominant producers of handheld phones as it once was, it has become a world leader in TVs, where it has refocused much of its R&D spending. The company introduced its new Web-connected smart TV at the International Consumer Electronics Show in Las Vegas early last year. LG Electronics was awarded 2,122 patents last year, up 8% from the year before. LG is the second largest technology company in South Korea behind only Samsung. According to The Korea Herald, the company now has the most long-term evolution (LTE) technology patents worldwide. The extremely valuable mobile broadband technology is behind the fourth generation (4G) networks most Americans are familiar with.

8. Google Inc
> 2014 patent grants: 2,566
> Country: United States
> Sales: $67.9 billion

Google appears among the 10 most innovative companies for the first time this year, with 2,566 patents awarded in 2014, a 39% increase from the year before, and a 829% increase compared to 2010, when the company filed just 276 patents. Both were among the largest increases reviewed. Google’s dramatic revenue growth of the past several years has likely helped the company increase its R&D spending. Google spent more than $7.9 billion in fiscal 2013 on R&D, compared to less than $6.6 billion in the previous fiscal year. Google is widely regarded as an especially creative and innovative company, and many have tried to duplicate its management strategy.

7. Qualcomm Inc (NASDAQ: QCOM)
> 2014 patent grants: 2,590
> Country: United States
> Sales: $26.5 billion

Unlike several other innovative companies — which have been on this list for many years — Qualcomm has risen rapidly through the ranks in recent years. Since ranking 41st in 2010, the company zoomed to seventh place this year, with 2,590 patents granted in 2014, a 23% increase from the year before. Over the past five years, the company’s patent filings grew by 294.2%, among the largest increases over that period worldwide. This growth was due in large part to increased investment. Qualcomm spent roughly $5 billion on R&D in 2013, up considerably from the less than $4 billion it invested on R&D in 2012. In addition to maintaining its relevance in the competitive wireless communications industry, Qualcomm’s emphasis on acquiring patents is also part of a strategy to generate licensing revenues.

6. Toshiba Corp
> 2014 patent grants: 2,608
> Country: Japan
> Sales: $54.9 billion

Based in Japan, consumer electronics company Toshiba Corporation has remained among the world’s most innovative companies for at least five years. The company was awarded more than 2,600 patent grants in 2014, up 8% from the year before. While many may associate the company with computers, Toshiba actually operates in a wide range of technology fields, including health care, infrastructure, and energy. For example, Toshiba was recently awarded a $1.6 billion contract to supply control systems for nuclear reactors in China. And while several of the most innovative companies compete fiercely with one another, Toshiba partnered with Microsoft in a recent deal to further advance the two companies’ pioneering efforts into self-checkout machines in supermarkets.

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5. Microsoft Corp (NASDAQ: MSFT)
> 2014 patent grants: 2,829
> Country: United States
> Sales: $91.5 billion

Microsoft Corporation spent far more on R&D than the vast majority of companies. In fiscal 2014, Microsoft spent nearly $11.4 billion on R&D, a substantial increase from the year before, when it spent roughly $10.4 billion. The company’s routinely large investments likely contributed to the company’s large number of patents — 2,829 were awarded to Microsoft in 2014, a 6% increase from 2013. Microsoft is known for its near ubiquitous software products Office and Windows. However, the company is also part of the rapidly growing cloud computing industry. With cloud computing giants like IBM, Samsung, and Amazon.com already well-established in the sector, it may surprise some that Microsoft has reported dramatic growth rates for its cloud products. Microsoft’s Xbox has meanwhile become one of only a few dominant gaming consoles.

4. Sony Corp (NYSE: SNE)
> 2014 patent grants: 3,224
> Country: Japan
> Sales: $66.6 billion

Japanese electronics giant Sony Corporation was awarded more than 3,200 patent grants in 2014, up nearly 50% from 2010. The company’s smartphone shipments have continued to decline, falling further behind its major competitors Apple and Samsung. As a result, Sony recently announced it would scale back handheld production to focus on components such as sensors, camera parts, and memory storage units. Sony was also among those hit by the recent onslaught of IT attacks from hackers. While these setbacks may slow the number of future patent filings, Sony is still among the world’s most innovative companies. At this year’s Consumer Electronics Show, Sony unveiled a slew of new products, including most notably demos of its ultra high-definition technology and its SmartWear — the company’s version of wearable technology.

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3. Canon Inc
> 2014 patent grants: 4,055
> Country: Japan
> Sales: $30.9 billion

Known primarily for its cameras, Japan’s Canon makes a variety of other products, including photocopiers, printers, and medical imaging tools. On the company’s website, Canon characterizes its strategy as a “relentless pursuit of innovation.” The tactic is primarily one of diversification, both in terms of geographical presence, and technology. The company recently announced it would attempt to expand its presence in both the United States and Europe. In addition, the company’s patents include a diverse array of technology often unrelated to its focus on optical-based instruments. One patent, for example, described a two-way touchscreen device. Canon was issued more than 4,000 patent grants last year, a substantial growth from 2010, when the company reported 2,552 patent grants.

2. Samsung Electronics Co Ltd
> 2014 patent grants: 4,952
> Country: South Korea
> Sales: $195.7 billion

Mobile giant Samsung Electronics has been among the world’s most innovative companies since at least 2010, when it was awarded a total of more than 4,600 patents. Last year, the company trailed only IBM with nearly 5,000 patents issued. Like most of the world’s most innovative companies, Samsung is a major semiconductor producer, which helped the company dominate the smartphone market. According to Samsung CEO Boo-Keun Yoon, however, his company will soon move well beyond smartphones and onto the Internet of Things (IoT) — technology that seeks to connect the Internet to virtually all everyday objects, rather than just to a cell phone. Yoon asserted earlier this year that 90% of Samsung’s products will be IoT devices by 2017.

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1. International Business Machines Corp
> 2014 patent grants: 7,534
> Country: United States
> Sales: $99.75 billion

For the 22nd consecutive year, IBM was the global leader for innovation, with more than 7,500 patents awarded in 2014. According to the U.S. patent office, no company has ever surpassed 7,000 patents in a single year. The company’s revenue fell slightly in its most recent fiscal year, and its stock price dropped by more than 16% in 2014. Yet, IBM has routinely had among the largest R&D investments, spending well more than $6 billion each year since at least 2010. However, the company may need to change its strategy to maintain its position at the top, as its R&D investment was only 6% of sales, versus Google, which spent 16% of sales on R&D.

Correction: An earlier version of this article had an incorrect figure for IBM’s 2013 revenue.

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