The Road to $1 Trillion Valuation: FAANG Patenting at the USPTO
Less than six weeks apart, both Apple and Amazon hit major milestones, reaching $1 trillion in valuation. (Apple on August 2, 2018, and Amazon on September 4, 2018.)
These two tech giants, along with Facebook, Netflix, and Google, are often grouped under the acronym “FAANG,” and are synonymous with rapid growth and innovation. As a group, the five companies command over $3 trillion in market capitalization and hold thousands of patents.
But from a patent prosecution perspective, how similar are they? What does FAANG patent prosecution activity tell us about organizations on their way to (and surpassing the) $1 trillion benchmark?
Most of the extraordinary FAANG market growth has occurred over the last 10 years, and naturally, so has the bulk of their patent prosecution. We looked at disposed patents from 2008-2017 to see how each company performed individually and as a group before patent examiners, the degree of diversity and overlap in technology areas, and which technology areas are the fastest growing for these five organizations.
Investing in New Technologies
The FAANGs' explosive growth in the patent landscape over the last decade begs the question – where are the FAANGs focusing their efforts, and are there technologies being left behind?
To better understand which technology areas were growing and shrinking, we found the slope rate of change in dispositions by art unit and class for any art unit or class with more than 20 disposed applications.
Generally, when we look at the FAANGs as a group, far more art units and classes were growing rather than shrinking. The fastest-growing art units seem to relate to increasingly interconnected devices and sensors – or, the Internet of things (IoT) – with rapid growth in language processing (AU 2659), low energy signal transmission (AU 2649), image analysis (AU 2665), and graphical user interfaces (AU 2171), along with the electrical circuits and systems (AU 2835) likely to help power it all.
Unsurprisingly, the picture of the highest growth classes is very close to that of the art units. Data processing, presentation, and transmission are all represented, further backing the theory that the hottest innovations among FAANGs relate to IoT and increasingly connected devices and sensors in general.
Interestingly, we found very few shrinking art units and classes among FAANG patent activity, and many of those that shrank were art units that have since been reorganized at the USPTO.
Even where there were declines, the rate was quite modest (in fact, the rate of growth, positive or negative, in most classes and art units is negligible). This suggests that while the FAANGs are focused in the particular high-growth technology areas discussed above, they’re still consistently practicing in a variety of technology areas.
Overlap and Diversity of Patents
A little trivia for you – the FAANG grouping actually arose out the finance world as a shorthand way of talking about the most popular and, generally, most valuable tech stocks on the market. Beyond the shared Wall Street connection, the FAANG companies also have a host of technology areas in common, at least when before the USPTO.
Taking a look at each FAANGs' most frequent USPC classes (excluding any design patent classes), all five companies have had applications disposed in Classes 709 and 707, and four share space in Classes 705, 382, and 345.
Of the 20 distinct USPC classes that appear across all five of the FAANGs’ top ten, 11 classes are on more than one list. This overlap, broadly covering various types of data processing and storage (Classes 704, 707, 709, 713, 715), image analysis and display (Classes 345 and 382), telecommunications (370, 455), e-commerce (705), and information security (726) make sense considering each company's business model.
Of course, the portrait is a bit more nuanced when FAANG applications are examined by art unit (again, excluding any design art units), though significant overlap remains. When we look at the top ten art units that each of the FAANGs practiced in from 2008-2017, 40 different art units are represented. Among these, nine art units appear in at least two of the FAANGs’ top ten lists (2113, 2168, 2171, 2441, 2448, 2451, 2454, 2455, 2457), though the only shared art unit in which more than two of the FAANGs practice was AU 2457 ("Computer Networks"). Netflix, Amazon, and Facebook were all issued patents in that art unit.
FAANG Success at the USPTO
The FAANG companies are often synonymous with technology and innovation, and as you’d probably guess, are well-versed in getting their patents from application to allowance.
As a group, the FAANGs show a healthy 89% allowance rate over the period from 2008-2017. Collectively, their worst performance came in 2015, when they experienced an 84% allowance rate (though that’s still above the average 71% USPTO allowance rate in 2015). It is highly likely that this 2015 decline, driven almost entirely by Apple and Google, was a result of the Alice decision which disproportionately affected software patents.
Amazon's consistently high performance during this period is worth noting, for two reasons. First, Amazon seems to have avoided most of the Alice fallout that impacted Google and Apple's allowance rates. Second, Amazon has maintained an extremely high allowance rate, even while significantly increasing the number of patent applications reaching disposition. Compare this to Netflix whose allowance rate is only slightly higher than Amazon's but at just 1.5% the volume.
Turning Up the Volume
While FAANG allowance rates give us an idea of how well the companies fare at the USPTO, the sheer volume of disposed applications alone can be an indication of growth. And looking at the volume of disposed FAANG applications from 2008-2017, it is clear that there has indeed been an explosion of patent activity.
Without even looking at the data, think back on the last decade of FAANG innovation. In 2008 alone, we saw the introduction of Chrome and the popularization of the iPhone and Kindle. Netflix was just one year into its introduction of streaming video. Facebook had only recently opened the site beyond high school and college students (in 2006), and the “like” button didn’t even exist yet. When you consider how much technology, and consumer adoption of it, has changed over the last 10 years, it’s easy to see the connection to FAANG patent portfolios.
From fewer than 500 disposed applications in 2008 to more than 9,000 in 2015, the rate of growth in the FAANG patent landscape has been substantial.
There are, however, initial signs that this extraordinary growth may be slowing. Both 2016 and 2017 show fairly significant declines in the number of disposed patents and preliminary data suggests that this trend may hold for 2018 as well.
From IP to $1T
The FAANG companies collectively share a common investment in new technologies, with consistently high volumes of patents and successful allowance rates. Apple and Amazon may be the first and most recent members of the $1 trillion club, but the rest of the FAANGs are growing quickly – in market capitalization and as players in the patent landscape.
Whether you’re interested in learning from FAANG’s model or you’re competing with them, understanding their patent activity can you help you build a strategy to get closer to that $1 trillion benchmark, too.
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