Empirical Study of the Effect of Process Invention on
Innovation in Manufacturing Industry (*)
Research Fellow: Yuri HIRAI
Under today’s environment of severer international competition, it is necessary for firms toutilize not only internal but also external knowledge. The use of patents applied for by otherorganizations seems to be especially important as a source of external knowledge regarding“process inventions,” because they are basically carried out only within the factories of each firm.
However, whether applied "process inventions" are useful as external knowledge or not is yet to beclarified. Hence, in this study, by empirically analyzing Japanese patents applied by firms in thepharmaceutical, chemical, and food industries, I examined the research question of “whetherapplied ‘process inventions’ contribute to innovation across organizational boundaries or not.”According to the results of regression analysis, it is revealed that compared with “productinventions,” it is difficult for “process inventions” to spill over outside organizations.

I. Introduction
The research question of this study is “whether applied ‘process inventions’ contribute toinnovation across organizational boundaries or not.” In order to examine the question, I empiricallyanalyzed Japanese patents applied for by firms in the pharmaceutical, chemical, and foodindustries.

II. Background and research question
As leaders of innovation, firms traditionally have conducted research & development by utilizing
internal resources (Hirai, 2017). However, under today’s environment of severer international
competition, it is necessary for firms to utilize external resources such as fruits of research,technologies, and ideas outside the organization.
External knowledge is acquired through various means such as technology transfer, reverse
engineering, the use of papers published by researchers and patents applied for by other firms ororganizations, the transfer of expertise through joint research with academic or research institutions
or firms, or relocation of employees (Fujiwara & Watanabe, 2017). Because a “process invention”
is basically carried out only within the factories of each firm (Suzuki, 2013), among the means foracquiring external knowledge above, the use of patents seems to be especially important as a sourceof external knowledge regarding “process inventions.”(*) This is a summary of the report published under the 2017 Industrial Property Research Promotion Project entrusted by the Japan
Patent Office.

iHowever, in Japan, the Intellectual Property Strategy Headquarters (2005) pointed out that a large
number of defensive applications by firms existed, and this caused problems such as delays inexamination and unintentional technological leakage to overseas. According to Nishikawa (2015),
because a “process invention” is often carried out within an infringer’s controlled area, it isimpossible to capture the fact of infringement only by the manufactured product itself orcircumstances judged from outside, and it may not be possible to exercise the right. Therefore,regarding “process inventions,” there are many cases that are not suitable for protection by patentrights (Nishikawa, 2015).
It is very important for firms to appropriately select whether they will protect a result of research& development as a patent or keep it secret. However, as opportunities for firms to keep newly
created technologies confidential increase, opportunities for disclosing new technologies as patents
decrease. Conversely, because the patent system is a social means for externalizing and sharingknowledge (Wada, 2008), disclosure of a “process innovation” by patent application has a positiveeffect from the viewpoint of knowledge spillover (diffusion of technological information) acrossorganizational boundaries.
However, whether an applied "process invention" is useful as external knowledge or not is yet tobe clarified. Hence, in this study, I examined the research question of “whether applied ‘process
inventions’ contribute to innovation across organizational boundaries or not.”III. Previous studies
There are many studies that focused on patents as a source of external knowledge and empiricallyanalyzed innovation across organizational boundaries. A representative example is Rosenkopf &Nerkar (2001). They paid attention to “beyond local search” which is a means to rely ontechnologies developed by other organizations, and they revealed that exploration across bothorganizational and technological boundaries had the greatest impact on subsequent technologicaldevelopment by using patent data in optical disk technology.
On the other hand, there are few empirical studies on “process inventions,” and very few studies
have analyzed the influence of “process inventions” on innovation by using patent data.

IV. Method
1. Analyzed industriesii

In order to select industries to be analyzed, I used data from the Japan Patent Office’s “Survey ofintellectual property-related activities1.” Because “process inventions” are related to trade secrets
and know-how, I extracted the number of trade secrets and know-how among inventions in eachyear from fiscal 2008 to fiscal 2016. Then, I summed the numbers from fiscal 2008 to fiscal 2016,
and calculated the percentage of the number of trade secrets and know-how in the total ofinventions by industry. I selected the pharmaceutical industry whose percentage was the lowest
among the manufacturing industries, the chemical industry whose percentage was the closest to thatof the total of the manufacturing industries, and the food industry whose percentage was the highest
among the manufacturing industries.
2. Analyzed firms
Next, I selected firms to be analyzed in the pharmaceutical, chemical, and food industries. For theselection, I used the operating profit ranking (updated April 12th, 2017) of the website of Nikkei
newspaper2. Because the present study focused on the spillover of technological information insideand outside organizations, firms that introduced the pure holding company system were hard tohandle. This was why those firms were excluded. In addition, NH Foods Ltd. was excluded, since
the number of its patents to be analyzed was less than 100, and this was too small to analyze
statistically. As a result of extracting the top three firms from each industry in this manner, Astellas
Pharma Inc., Takeda Pharmaceutical Company Limited., and DAIICHI SANKYO COMPANY,
LIMITED in the pharmaceutical industry, Shin-Etsu Chemical Co., Ltd., Kao Corporation, andAsahi Kasei Corp. in the chemical industry, and Japan Tobacco Inc., Ajinomoto Co., Inc., andYakult Honsha Co., Ltd. in the food industry were selected.
3. Analyzed patents
Patents of nine firms above to be analyzed were extracted. PatentSQUARE, a patent searchsystem of Panasonic Solution Technologies Co., Ltd., was used to collect patent data. Patents heldby the nine firms were collected from the Japan Patent Office. The patent search covered the filing1

https://www.jpo.go.jp/shiryou/toukei/tizai_katsudou_list.htm (Date of data acquisition: January 9th, 2018; Last accessed date:
March 8th, 2018)2 Pharmaceutical industry: https://www.nikkei.com/markets/ranking/page/?bd=eigyo&ba=0&Gcode=09&hm=1 (Date of dataacquisition: January 16th, 2018; Last accessed date: March 8th, 2018), Chemical industry:
https://www.nikkei.com/markets/ranking/page/?bd=eigyo&ba=0&Gcode=07&hm=1 (Date of data acquisition: January 16th, 2018;
Last accessed date: March 8th, 2018), Food industry:
https://www.nikkei.com/markets/ranking/page/?bd=eigyo&ba=0&Gcode=01&hm=1 (Date of data acquisition: January 16th, 2018;
Last accessed date: March 8th, 2018.) Details of the ranking: https://www.nikkei.com/help/markets/helpindex.html (Last accessed
date: March 8th, 2018.)

iii

date period from January 1st, 2000, to December 31st, 2009 (for 10 years).
Then, in order to align the conditions of analyzed patents, those of utility model, those ofalteration of application, and those of divisional application were excluded. Also, in this study, as I
focused on the spillover of technological information inside and outside the organizations,transferred patents and patents jointly filed with other organizations were excluded. In addition, I
eliminated patents with missing data. Finally, 1,155 patents in the pharmaceutical industry, 15,280patents in the chemical industry, and 1,689 patents in the food industry were extracted. These
patents were analyzed by each industry.
4. Variables(1) Dependent variables
In this study, I used the numbers of forward citations by examiner as dependent variables. In thebibliometric field, citation between documents is frequently used as an index of “importance” or“impact” of documents (Suzuki & Goto, 2007). In a cumulative research & development
environment, the use of prior technologies is indispensable (Wada, 2008). If patent A is cited bypatent B, there is a probability that inventors of patent B actually utilize the knowledge of patent A,
therefore it can be said that citation of patents reflects knowledge flow (Wada, 2008, 2009). Hence,citation of patents represents the cumulative relationship of innovation, and it can be interpreted
that patents with many citations spill over more to later research & development (Wada, 2008).
In this study, since attention was paid to the spillover of technological information inside andoutside the organizations, the number of forward citations was divided into “the number of forwardcitations inside the firm” and “the number of forward citations outside the firm.” Also, the numberof forward citations was divided into “the number of forward citations inside the group firms” and“the number of forward citations outside the group firms.” “The number of forward citations insidethe firm” was the number of forward citations by the patents filed by the focal firm, including joint
applications, among the forward citations by examiner (domestic only). “The number of forward
citations outside the firm” was the number obtained by subtracting “the number of forward
citations inside the firm” from the forward citations by examiner. Similarly, “the number of forward
citations inside the group firms” was the number of forward citations by the patents filed by thefocal firm and its group firms, including joint applications, among the forward citations byexaminer (domestic only). “The number of forward citations outside the group firms” was thenumber obtained by subtracting “the number of forward citations inside the group firms” from theforward citations by examiner.

iv

For discrimination of “inside the firm” and “inside the group firms,” “NISTEP dictionary ofcorporate names (ver.2018.1)3” provided by the National Institute of Science and Technology
Policy, Ministry of Education, Culture, Sports, Science and Technology was utilized.
(2) Independent variables
The method to specify “process invention” from the description of patents is not sufficiently
established. According to Shimori et al. (2001, 2004), “product inventions” and “process inventions”
in patent claims in Japanese are described as a noun phrase accompanied by a long modifier thatindicates its content, and there is a constraint that the content of an invention is described in asentence. For example, Suzuki & Oda (2012) searches for “method.” (「方法。」 or 「法。」 inJapanese) to specify “process invention.”With reference to these previous studies, in this study, when a patent claim to be analyzed
included “method.,” “method:,” or “method;” (「法。」, 「法：」, or 「法；」 in Japanese), it wasidentified as a “process invention,” Otherwise, it was identified as “product invention.”
Then, I created three independent variables, “product invention only,” “product invention withprocess invention,” and “first claim of process invention.”“Product invention only” was coded as “1” if all claims of a patent did not include “processinvention.” Otherwise, it was coded as “0.”“Product invention with process invention” was coded as “1” if the first claim of a patent did notinclude “process invention” but “process invention” was included after that. Otherwise, it wascoded as “0.”“First claim of process invention” was coded as “1” if the first claim of a patent included “processinvention.” Otherwise, it was coded as “0.”(3) Control variables
I utilized the firm dummies, the filing date (the number of days from the filing date to January 1st,2010), the number of inventors, the number of claims, the IPC number (the IPC subgroup number),the dummy of request for examination, the dummy of registration number, the dummy of priority
number, the number of family, and the number of inspection requests as control variables.

3

http://www.nistep.go.jp/research/scisip/rd-and-innovation-on-industry (Date of data acquisition: February 16th, 2018; Last
accessed date: March 8th, 2018)v

5. Method of regression analysis
I conducted regression analysis by each industry. It is known that the number of forward citations
by examiner is distributed close to the negative binomial distribution (Yoshioka (Kobayashi) &Watanabe, 2014). Therefore, I conducted regression analysis by utilizing a negative binominal
generalized linear model. However, because “the number of forward citations inside the firm” and“the number of forward citations inside the group firms” as well as “the number of citations outsidethe firm” and “the number of citations outside the group firms” were the same in thepharmaceutical industry, I analyzed only when the dependent variables were “the number offorward citations inside the firm” and “the number of citations outside the firm” in this industry.

V. Results
1. Simple totaling
First, the percentage of “process invention” was calculated by each industry. The percentage of thepatents in which at least one “process invention” was included in all claims was 70.6% in thepharmaceutical industry, 47.2% in the chemical industry, and 56.1% in the food industry. The
percentage of patents in which the first claim was “process invention” was 18.2% in thepharmaceutical industry, 22.0% in the chemical industry and 28.8% in the food industry.
Then, for the patents in which the first claim was “product invention,” the percentage of request for
examination and the percentage of registration were calculated by each industry. The percentage ofrequest for examination was 45.3% in the pharmaceutical industry, 85.6% in the chemical industry,and 63.0% in the food industry. The percentage of registration was 23.3% in the pharmaceuticalindustry, 65.6% in the chemical industry, and 38.8% in the food industry. Among the three industries
subject to analysis, the chemical industry has the highest percentage of request for examination andregistration, and the pharmaceutical industry has the lowest percentage of request for examination
and registration. Also, for the patents in which the first claim was “process invention,” the percentageof request for examination and the percentage of registration were calculated by each industry. The
percentage of request for examination was 51.4% in the pharmaceutical industry, 86.5% in thechemical industry, and 60.8% in the food industry. The percentage of registration was 30.5% in thepharmaceutical industry, 68.9% in the chemical industry, and 37.0% in the food industry. As in thecase of the patents in which the first claim is “product invention,” the chemical industry has thehighest percentage of request for examination and registration, and the pharmaceutical industry has
the lowest percentage of request for examination and registration.

vi

2. Descriptive statistics
The correlation coefficients of each variable in patents subject to analysis by each industry werecalculated. There was no conspicuous correlation between the independent variables and control
variables.
3. Regression analysis(1) Pharmaceutical industry
In this section, I conducted regression analysis of the patents in the pharmaceutical industry byutilizing a negative binominal generalized linear model. In the models where the dependent
variables were “the number of forward citations inside the firm” and “the number of forward
citations outside the firm,” the independent variable “product invention only” was significantly
positive at the p<0.01 level. Although the independent variable “product invention with process
invention” was not significant in the model where the dependent variable was “the number offorward citations inside the firm,” it was significantly negative at the p<0.05 level in the model
where the dependent variable was “the number of forward citations outside the firm.” The
independent variable “first claim of process invention” was significantly negative at the p<0.1 levelin the model where the dependent variable was “the number of forward citations inside the firm,”
and significantly negative at the p<0.05 level in the model where the dependent variable was “thenumber of forward citations outside the firm.”(2) Chemical industry
Here, I conducted regression analysis of the patents in the chemical industry by utilizing anegative binominal generalized linear model. In the models where the dependent variables were“the number of forward citations inside the firm,” “the number of forward citations outside thefirm,” “the number of forward citations inside the group firms,” and “the number of forwardcitations outside the group firms,” the independent variable “product invention only” wassignificantly positive at the p<0.001 level. Although the independent variable “product invention
with process invention” was not significant in the models where the dependent variables were “thenumber of forward citations outside the firm” and “the number of forward citations outside thegroup firms,” it was significantly positive at the p<0.05 level in the models where the dependent
variables were “the number of forward citations inside the firm” and “the number of forwardvii

citations inside the group firms.” The independent variable “first claim of process invention” wassignificantly negative at the p<0.001 level in the models where the dependent variables were “thenumber of forward citations inside the firm,” “the number of forward citations outside the firm,”“the number of forward citations inside the group firms,” and “the number of forward citations
outside the group firms.”(3) Food industry
In this section, I conducted regression analysis of the patents in the food industry by utilizing anegative binominal generalized linear model. Although the independent variable “product invention
only” was not significant in the models where the dependent variables were “the number of forward
citations inside the firm” and “the number of forward citations inside the group firms,” it wassignificantly positive at the p<0.1 level in the models where the dependent variables were “thenumber of forward citations outside the firm” and “the number of forward citations outside thegroup firms.” While the independent variable “product invention with process invention” was not
significant in the models where the dependent variables were “the number of forward citations
outside the firm” and “the number of forward citations outside the group firms,” it was significantly
positive at the p<0.05 level in the models where the dependent variables were “the number offorward citations inside the firm” and “the number of forward citations inside the group firms.” The
independent variable “first claim of process invention” was significantly negative at the p<0.1 levelin the models where the dependent variables were “the number of forward citations inside the firm”
and “the number of forward citations inside the group firms,” and significantly negative at thep<0.01 level in the models where the dependent variables were “the number of forward citations
outside the firm” and “the number of forward citations outside the group firms.”

VI. Discussion
The results of regression analysis above reveal that when “process invention” is included in patentclaims, especially when “process invention” is included in the first claim, the number of forward
citations by examiner is fewer. This tendency is stronger when the dependent variables are “thenumber of forward citations outside the firm” and “the number of forward citations outside the groupfirms,” and it indicates that compared with “product inventions,” it is difficult for “process inventions”
to spill over outside organizations. For this reason, there is a possibility that “process inventions” aremore sticky as information than “product inventions.” The concept of “stickiness of information” wasproposed by von Hippel (1994), and the stickiness of a given unit of information in a given instanceviii

is defined as “the incremental expenditure required to transfer that unit of information to a specified
locus in a form usable by a given information seeker.” When this cost is high, information stickinessis high. With respect to the impact of the nature of the information to be transferred, tacit information
is more sticky than explicit information (von Hippel, 1994; Ogawa, 1997).
In order to carry out the “process invention,” many cases need know-how coded into a personsuch as skill or technique not shown in the patent description. When such tacit knowledge isnecessary, it is difficult to transfer contents of invention described in a patent. Therefore, a “processinvention” may be apt not to spill over outside organizations. In addition, there is also a possibility
that firms may apply for patents in a manner that makes it difficult to transfer “process inventions”
outside the organizations or selectively conceal “process inventions” that are less sticky and easilytransferred outside organizations, and the results in this study may reflect such firms’ intellectual
property strategies.
Thus, by using patent data, this study reveals the influence of “process inventions” on innovation.

References
Fujiwara, A., & Watanabe, T. (2017). Knowledge management using external knowledge.
International Journal of Innovation Management, 21(04), 1750031.
Hirai, Y. (2017). The empirical analysis of meaning observed in the patent documents for effective
utilization of patented technology. Fiscal Year 2015 (2015-2017) Report of the Industrial Property
Research Promotion Project entrusted by the Japan Patent Office, Foundation for IntellectualProperty, Institute of Intellectual Property. [In Japanese].
Intellectual Property Strategy Headquarters. (2005). Promotion program for intellectual property.
https://www.kantei.go.jp/jp/singi/titeki2/kettei/050610.html (Last accessed date: March 11th, 2018).
[In Japanese].
Nishikawa, Y. (2015). Intellectual property strategies for choosing between acquisition of patentrights and protection of trade secrets. Patent Studies, 59, 56-64. [In Japanese].
Ogawa, S. (1997). イノベーションと情報の粘着性. Organizational Science, 30(4), 60-71. [InJapanese].
Rosenkopf, L., & Nerkar, A. (2001). Beyond local search: Boundary-spanning, exploration, andix

impact in the optical disk industry. Strategic Management Journal, 22(4), 287-306.
Shinmori, A., Saito, S., & Okumura, M. (2001). 特許請求項の可読性向上のための自動言い換えについての考察. In-house workshop of the 7th annual meeting of the Association for NaturalLanguage, 「言い換え/パラフレーズの自動化に向けて」. [In Japanese].
Shinmori, A., Okumura, M., Maruyama, Y., & Iwayama, M. (2004). Structure analysis of Japanese
patent claims using cue phrases. （手がかり句を用いた特許請求項の構造解析.） Journal ofInformation Processing Society of Japan, 45(3), 891-905. [In Japanese].
Suzuki, H. (2013). The patent system for protection of know-how and protection strategy of theprocess invention - The legal interpretation of prior user rights and proposal of protection strategy
matrix of process invention-. Ritsumeikan University, Doctoral thesis. [In Japanese].
Suzuki, H., & Oda, T. (2012). 日本 MOT 学会による査読論文 (2012-3) The framework about
the protection strategy of know-how. Technology and Economy, 548, 54-63. [In Japanese].
Suzuki, J., & Goto, A. (2007). Innovation research using JPO patent data (特集 知的財産のダイ
ナミクスを捉える--実証研究の方法論). Journal of Intellectual Property Association of Japan,3(3), 17-30. [In Japanese].
von Hippel, E. (1994). “Sticky information” and the locus of problem solving: Implications forinnovation. Management science, 40(4), 429-439.
Wada, T. (2008). Number of backward patent citations as a quantitative indicator of prior art. RIETI
Discussion Paper Series 08-J-038, The Research Institute of Economy, Trade and Industry (RIETI).
[In Japanese].
Wada, T. (2009). Backward patent citations and inventors' recognition of differential influences.
RIETI Discussion Paper Series 10-J-001, The Research Institute of Economy, Trade and Industry(RIETI). [In Japanese].
Yoshioka-Kobayashi, T., & Watanabe, T. (2014). 研究コンソーシアムの効果: 公的研究開発プ
ログラムにおける成果特許の実証研究. In proceedings of the annual meeting of the Japan
Society for Science Policy and Research Management, 29, 905-908. [In Japanese].

x