By Richard Poynder
Patents have attained an unprecedented popularity. The
number of applications filed increases each year, and
new technologies for filing, searching, managing, and
mining patent documents are constantly growing in sophistication.
Who wouldn't want to work in the patent information industry?
However, there are thorns among the roses.
Ask Bob Stembridge, customer relationships manager
at Thomson Scientific, how the patent information industry
looks today, and he replies: "It's pretty exciting,
both for customers and service providers. For users,
there is a rich variety of services on offer, both commercial
services and services from the public sector. And for
providers, advances in technology promise the opportunity
of reducing production costs and penetrating new and
The message from MicroPatent president Dan Videtto
is similarly upbeat. "The patent information industry
is experiencing a period of exciting change and opportunity,"
he says. "We see IP [intellectual property] strategy
becoming much more central to corporate strategy. As
a result, more and more IP-related consulting firms
are in the marketplace—a clear sign that companies
are seeing value from IP management."
Certainly, patenting is growing. According to Stembridge,
the U.S. Patent and Trademark Office's (USPTO) most
recent statistics (from 2002) show a 2.3-percent increase
in patent applications over 2001, with 333,688 applications.
During the same period, the European Patent Office saw
a 4.4-percent increase to 165,100 applications.
But is there money to be made from selling patent information
these days? After all, the current patent fever comes
at a time when patent and trademark offices (PTOs) are
themselves taking an increasing role in the distribution
of patent information, thereby threatening vendors with
a bad case of disintermediation blues.
Balanced against the excitement is concern over PTOs
providing no-cost access to patent information on the
Web, acknowledges Stembridge. "Commercial revenues
are under pressure," he concedes.
Indeed, despite vendors' bullish public pronouncements,
signs of industry distress are plentiful.
For instance, companies that offer little more than
copies of patent documents have been severely sideswiped
by the free services offered by the PTOs. "A number
of companies that were focusing on document delivery
don't exist any more," reports Willem Geert Lagemaat,
CEO of Dutch-based vendor Univentio. "They have
gone away because the documents are available on the
Web for free."
This is not surprising. Roy Zimmermann, principal patent
information specialist at medical technology company
Medtronic, points out, "When one can download full-image
documents in little time, at high resolution, for little
or nothing in cost, then it is no longer possible to
make money selling copies, via fax or rapid shipment,
for $1 to $2 a page, as was the case just 5 or 6 years
In other instances, companies that are mesmerized by
visions of making large profits from today's obsession
with intellectual property have overreached themselves,
developing, for example, overpriced products of interest
to too small a market segment. The most spectacular
casualty here was patent analytics company Aurigin Systems,
which collapsed into bankruptcy 2 years ago.
Further proof of market turbulence is evident in the
wave of consolidation that has engulfed the industry—an
invariable sign that too many companies are chasing
too few customers. The two main predators are MicroPatent,
which has snapped up companies like Faxpat, Optipat,
and Aurigin, and Thomson Scientific, which has acquired,
among others, Delphion, Current Drugs, and Wila Verlag.
For MicroPatent, which started out as a document delivery
company, the first priority was to buy direct competitors.
But in order to broaden its offering, it has also acquired
other IP-related businesses. And with the PTOs chipping
away at its primary business, it has also sought to
move up the value chain, most notably by buying the
remnants of Aurigin. Videtto explains, "MicroPatent
acquired Aurigin Systems in 2002, adding advanced patent
analytics to our growing portfolio of services, which
now includes patent and trademark data, IP analytics,
file histories, professional research, and consulting."
Meanwhile, Thomson, which historically sold its value-added
bibliographic products via third-party hosts like Dialog,
Questel•Orbit, and STN, desperately wanted to
forge a more direct relationship with its customers.
It also wanted to get into the full-text business. Having
failed to achieve these aims with Patent Explorer (Thomson's
own Web-based product that was abandoned in 2000 after
significant investment), the company acquired Delphion.
"This acquisition fills an important strategic
gap for Thomson," explained former Thomson Scientific
CEO Mike Tansey at the time. "It allows us to integrate
a global full-text patent research, analysis, and delivery
platform into our array of value-added information solutions."
Acquisitions provide quick fixes. But vendors know
that survival also requires continuous product development.
At MicroPatent, there's currently a strong focus on
products that are designed to help companies integrate
patent information with other types of data and embed
it into corporate work-flow processes. The ultimate
goal, says Videtto, is to provide "enterprisewide
patent solutions [so that] patent and nonpatent information
can be effectively managed as well as quickly and efficiently
shared across the organization."
Also keen to get into the data-mining business—but
having lost out to MicroPatent in the auction of Aurigin—Thomson
developed Derwent Analytics. Launched in 2002, Derwent
Analytics is a data-mining and visualization tool based
on Search Technology's VantagePoint data-mining software.
And to exploit the benefits of being part of a large
and diverse information business, Thomson is currently
working on a range of subject-based portals. These will
aggregate different Thomson content through a common
front end. "The aim is to extend the value chain
by developing a service that leverages different kinds
of content across Thomson," explains Stembridge.
"Not just patents and scientific information."
The first portal, due to be launched by the end of
the year, will be targeted at the life sciences market.
Others are expected to follow.
Given the speed with which patent documents are now
available via PTO Web sites, currency has also become
a significant issue for Thomson. Today, for instance,
it can take several weeks for a patent to be processed
before entering Thomson's flagship patent database,
Derwent World Patents Index (DWPI)—the time it
takes to incorporate Derwent's unique value-added A&I
To make the patents available to users more quickly,
Thomson recently launched Derwent World Patents Index
First View, a continuously updated database of newly
published patents that are yet to enter DWPI.
"With the availability of all the raw data from
the PTOs—pretty much on the day of publication—user
expectations are for faster information," says
Stembridge. "First View will be a companion file
to DWPI. We will add a little bit of value-add upfront
and make that available very rapidly after publication,
allowing users a sneak preview of the patent information
that is in our internal processes."
The problem, of course, is that however quickly commercial
providers update their files, they can never match the
currency of the PTOs.
But there's a more serious issue than currency. With
basic patent data now a commodity, the pressure is on
commercial providers to offer more and more—and
better and better—added value, including increasingly
sophisticated A&I services and ever more complex
search and analytical tools.
While Stembridge may talk optimistically about how
technology enables a decrease in production costs, the
reality is that creating premium patent information
costs money. For vendors whose products require a high
degree of manual indexing (Derwent, IFI, CAS, et al.),
these costs are particularly daunting since this process
requires highly skilled indexers.
And as patent applications continue to rise, the cost
burden grows. This burden is further increased by the
USPTO's decision to start publishing patent applications
as well as granted patents. With users demanding that
more and more jurisdictions get covered, increased patent
activity is just the tip of the cost iceberg.
The size of the challenge the latter factors pose for
database producers can be gauged by comparing the increase
in patent applications quoted earlier (2.3 percent in
the U.S., 4.4 percent in Europe) with the number of
new inventions added to DWPI. In 2002, this was 760,198,
an increase of 14.6 percent over 2001. In 2003, nearly
903,000 new inventions were added, an increase of 18.7
To add to the pain, new International Patent Classification
codes will be introduced next January. This will mean
many more codes and greater frequency of updating. Not
only will these additional codes need to be added to
new records, but existing records will have to be updated
too. All in all, says Stembridge, it will have a "major
impact on patent information database providers"
and incur additional cost.
As if that weren't enough to contend with, the bread-and-butter
business of commercial providers is simply melting away
as their core user base of professional searchers turns
increasingly to the PTO sites for first-level data.
"You go to a PIUG [Patent Information Users Group]
meeting and you will hear the experts saying, 'Oh, we
don't use free services. You can't get quality searches
from the free searches,'" complains David Dickens,
director of Questel•Orbit's patent business. "But
they do use them."
The consequent loss of revenue, he adds, makes it harder
to invest in new products, better services, and additional
value-added features. Unfortunately, says Dickens, patent
searchers appear to be oblivious to the problems this
poses for database producers and online hosts. "My
feeling is a lot of these core users have blinders on
when it comes down to [understanding what commercial
suppliers of patent information] have to do to survive
and what kind of threat they are under."
This gap in understanding was evident when Dialog launched
First View in March. Patent searchers responded to the
news by immediately criticizing Thomson's decision to
create a new file rather than incorporate the partially
indexed records into DWPI. This was done, complained
Nancy Lambert, a senior information analyst at ChevronTexaco,
in a posting to the PIUG mailing list, "despite
our urgings that the current (not yet abstracted or
indexed) records be merged into DWPI."
To add to user frustration, First View records include
valuable classification and reference data currently
unavailable in DWPI. When the records are migrated to
DWPI, however, this information is lost.
Responding to the criticism on the PIUG mailing list,
Thomson's Neil Larque regretted the loss of the First
View data and agreed that a merged file would have been
preferable. However, he explained: "[T]echnical
constraints in our current DWPI production system have
made this impossible at this time. We are making significant
investments in a new editorial system, which will remove
these technical constraints."
Investments, alas, that may never be recovered.
Vendors now find themselves in a vicious circle of
rising costs and falling revenues. Their hope is that
they can break out of this by significantly growing
the market for patent information. Videtto says, "Patent
analysis and patent portfolio management open up the
use of patent information for making business decisions
to a much larger audience, including economists, business
leaders, licensing executives, analysts, and policymakers,
and it encourages the incorporation of patent trend
indicators into many decision-making arenas."
But can the market really be grown? Ann Chapman, director
of the small London-based patent information vendor
Minesoft, doubts it. The fact is, she says, that patent
information is a niche market. "It does have limits,
so perhaps [the] growth expectations [of vendors] are
unrealistic and can only be achieved through acquisition."
A niche market, however, implies a limited number of
potential customers. Consequently, further acquisitions
would be unlikely to increase market size. Whatever
Stembridge and Videtto may say about new and broader
markets, it's difficult to see how this can be achieved.
Moreover, even if large numbers of new—inevitably
unsophisticated—users were to acquire a taste
for patent information, they would surely turn to the
simpler services of the PTO sites, not the premium-priced
and (for them) over-engineered products of commercial
Besides, says Philip Leith, a professor at Queen's
University in Belfast, Northern Ireland, commercial
vendors lack the right mind set for broadening their
customer base. "I tried, as part of my research,
to get access to one or two of the patent-analysis packages
(Derwent Analytics, for example)," he complains.
"They told me that it wasn't worthwhile bothering
with me because 'I wouldn't be able to afford it.'"
Put simply, the problem is this: Basic patent data
is now available for free, and the market for value-added
information is saturated. But given the increasing costs
of producing value-added products, simply standing still
is no longer an option for commercial providers.
Unfortunately, standing still is what the patent information
industry appears to do best—financially, at least.
Consider, for instance, the performance of Derwent Information
over the last 10 years. In 1991, the company made a
profit of $12 million on sales of $62 million. By 2002,
profits had risen to just $14 million on sales of $121
million. If this is the best the industry's recognized
market leader can achieve despite regular injections
of cash from parent Thomson, what hope can there be
in today's far more challenging environment?
"From a purely financial perspective, it's hard
to see the traditional patent information industry thriving
in the short run under the current competitive pressures,"
concludes Medtronic's Roy Zimmermann.
And if patent database producers don't prosper, how
can online hosts—who rely to a considerable extent
on sales from premium patent information—hope
to survive? "I'm quite concerned about the long-term
viability of some of the online traditionals: the Dialogs
[and the] Questel•Orbits of the online information
industry," adds Zimmermann.
Some view the predicament of the "traditionals"
(online hosts and database producers) as a tragedy.
Others take a more Darwinian view. "When I look
at the 'traditional vendors,' I see bloated organizations
like Derwent and Delphion with really archaic products
sold by sales forces with the budget of the GDP of some
small countries," says Ron Simmer, proprietor of
PATEX, a Canadian search and consulting service. "The
other day, I paid a lot for some Derwent records that
were missing data that was free on esp@cenet [the European
Patent Office Web site]."
Or as Leith puts it, "I don't have much sympathy
for [them] since they have to a very large extent actively
encouraged a complex system of accessing raw data and
failed to develop new markets."
Indeed, for the Darwinists, the disappearance of the
traditional players is not only inevitable but even
desirable. Were it to happen, however, could it have
a greater impact on the distribution of patent information
than people realize? In part two of this article, I'll
look more closely at the activities of the PTOs and
consider the long-term impact they could have on the
patent information market.
Richard Poynder is a U.K.-based freelance journalist
who specializes in intellectual property and the information
industry. His e-mail address is email@example.com.