The previous sections of this report examined indicators of invention output and knowledge transfer activities. As described earlier, invention represents a subset of R&D output that includes new and useful processes, machines, manufactures, or compositions of matter, or any new and useful improvements thereof. Knowledge transfer, the second theme of this report, encompasses the activities by which this newly created knowledge is shared with those who can apply it, further develop it, and transform it into new outputs, including innovation outputs.

For measurement purposes, innovation has an internationally agreed upon definition. The Organisation for Economic Co-operation and Development (OECD) defines an innovation as a new or improved product or process that differs significantly from previous products or processes and that the innovator has made available to potential users or brought into use (OECD Eurostat 2018). The implementation of these ideas as products or processes with real-world applications is what separates inventions from innovations. There is broad consensus among countries that policies at the national level should encourage and support innovation because innovation supports economic growth and advances knowledge (OECD 2010). Accordingly, many countries use policies that promote innovation to foster the creation of new products and processes.

This section presents a range of indicators of innovation output, starting with data on the introduction of new or significantly improved products and processes by U.S. businesses, from a joint NCSES and U.S. Census Bureau survey. Examined next are data on the registration of new trademarks from the USPTO and from other national intellectual property (IP) offices collected via WIPO. As described by von Graevenitz, Graham, and Myers (2019), trademark registrations “capture the moment at which products or services are introduced into the market, turning inventions into innovations.” Thus, trademarks represent another direct measure of innovative output by firms. Compared with patenting, trademarking is easier and less costly, and it does not have the same requirements regarding novelty (Millot 2009); consequently, small and new businesses apply for trademarks more frequently than they apply for patents (Greenhalgh et al. 2011; Seip, Castaldi, and Flikkema 2019). Therefore, trademarks can reveal service, marketing, and organizational innovation that would not otherwise be captured because the source of innovation is not always tied to technological advances (Castaldi, Block, and Flikkema 2020).

In addition to these direct measures of innovation output from the private sector, several indirect innovation indicators connected to venture investment and new firm formation are presented. Access to financing is an essential component of the translation of new knowledge into innovations. Entrepreneurs rely on a variety of sources of financing, including their own funds, friends and family, bank loans, government support, angel investment, and venture capital (OECD 2014). Venture capital is a particularly important indicator of innovation because venture investors tend to invest in companies whose products they believe have a significant likelihood of achieving market success. Venture capital firms that become publicly traded are more likely to have recorded R&D expenditures compared to publicly traded firms that were not originally venture-backed (Lerner and Nanda 2020). In this regard, data on U.S. and global venture capital investment trends, provided by PitchBook, can be viewed as leading indicators of the innovative output expected from startups as they use those funds to create innovations. Of particular focus in this chapter is the expanding role of China in the global venture investment landscape.

Annual state-level data on venture capital disbursed relative to state gross domestic product (GDP), available in the National Science Board’s State Indicators Data Tool. At the state level, the highest venture capital/GDP ratios are in California and Massachusetts (NSB 2021c). Data from the U.S. Census Bureau’s Business Dynamics Statistics on firm formation are presented below as a complement to the venture capital data. These additional data provide a view of the total number of small firms in the United States and their associated employment levels. Although they indicate innovative output only indirectly, statistics on new firm formation and employment correlate with overall levels of innovation.

The central role of the business sector in innovation activity has shaped the available data, and most indicators of innovation address the private sector. Notwithstanding the availability of data, however, a diverse set of actors that span the economic sectors of the economy contribute to the creation of innovative output, including universities, government agencies, and citizen scientists. The impact of government and private citizens on innovation is briefly discussed toward the end of this section. As robust indicators are not currently available for evaluation of their innovation output, patent data from the Invention Indicators: Protecting Useful Ideas section that bear on the inventive outputs of these two groups are highlighted.

The section concludes with a sidebar on vaccine development during the COVID-19 pandemic. The sidebar discusses the rapid innovation achievable when a deep basis of scientific knowledge has been created through decades of federally and privately funded research and when knowledge transfer is accelerated through the intensely collaborative activities of academia, government, the nonprofit sector, and private companies.

High rates of innovation activity in the business sector indicate a dynamic economy, whether at the local, regional, or national level (Hall and Jaffe 2018). A key indicator of business innovation activity is the proportion of companies within an industry that introduces new or significantly improved products and processes. In the United States, over 1 million businesses introduced a new or significantly improved product or process from 2015 to 2017, representing 27% (approximately one in four) of businesses, according to the ABS (Figure INV-17).^{​Businesses with one to nine employees are now surveyed on innovation activities with the Annual Business Survey-1 (ABS) questionnaire. Businesses with 10 or more employees are surveyed with the ABS-2, which focuses on innovation, technology, intellectual property, and business owner characteristics but not on research and development.} Compared with the one in six businesses reported in the Indicators 2020 report “Invention, Knowledge Transfer, and Innovation,” this increase in the reported ratio is affected by the evolution of the U.S. business innovation survey to cover innovation more comprehensively (NCSES 2021).

More than half of the businesses in 11 industries reported innovation activity, above the national average for all industries of 27% (Figure INV-17). Many of these companies are in manufacturing industries; 45% (99,847) of manufacturing companies surveyed reported the release of new or significantly improved products or processes. Nine of the eleven industries reporting innovation rates above 50% were manufacturing industries, confirming the overall high prevalence of innovation in that sector (Figure INV-17).

The manufacturing industry with the highest proportion of innovative companies was communications equipment (66%) (Figure INV-17). Chemical companies also had high innovation rates (55%) due to the inclusion of the pharmaceutical industry, which is R&D- and patent-intensive (Figure INV-17).

Two information industries—data processing and related services (56%) and software publishers (66%)—were among the 11 industries reporting high rates of companies with new products or processes (Figure INV-17). Overall, innovation rates in the United States are relatively high for parts of the manufacturing and information industries.

Looking at absolute numbers, the retail trade industry reported the most companies (152,920) introducing a new or significantly improved product or process from 2015 to 2017 in the United States (Figure INV-18). The only other industries reporting more than 100,000 companies introducing product or process innovations during this period were construction (112,877) and health care services (111,310) (Figure INV-18). However, the ranking of retail trade and health care services as two of the top industries is partly explained by those industries accounting for the largest share of firms; nearly half a million of all the surveyed companies were in each of those two industries (545,440 and 447,069, respectively).

The ABS includes new demographic data on innovation rates of firms that are majority-female-owned and majority-male-owned. From 2015 to 2017, majority-female-owned firms reported slightly higher innovation rates (27.5%), compared with majority-male-owned firms (26.2%) (Figure INV-19). That said, these majority-female-owned firms represent only 20% of all firms (NCSES 2018). Newly available survey data also show that firm owners who identify as Black (or African American) or Hispanic (or Latino) report slightly higher process and product innovation rates. From 2015 to 2017, 28.0% of firms whose owners reported their race as Black or African American introduced a product or process innovation compared to 26.5% of firms who reported their race as White (Figure INV-19). For business owners who reported their ethnicity as Hispanic or Latino, 28.7% reported an innovation compared to 26.3% for those who reported their ethnicity as non-Hispanic (Figure INV-19). However, Black or African American owners account for only 2% of all firms, and Hispanic or Latino firms account for only 5% of all firms. Overall, this suggests that women and underrepresented minorities, while underrepresented as business owners, are making above average contributions to innovation in business.

Trademarks provide legal registration and protection to commercially used symbols, images, and names. The application and registration of a trademark is a way to announce to the market that the firm has introduced a new product, thus making a useful indicator of innovative output. Trademarks also signify when newly registered products are different from others in the market (Castaldi, Block, and Flikkema 2020). For companies in the United States that either perform or fund R&D, trademarks are considered as important as utility patents as an intellectual property protection strategy, as shown in the Invention Indicators: Protecting Useful Ideas section of this report (Figure INV-5).

Trademark registration is a significant and lower-cost way, compared to patents, for startups to signal the potential value of their innovative assets. Firms often wait until a successful product has been developed before registering a trademark (Castaldi, Block, and Flikkema 2020). Trademark registration is typically associated with later stages of the innovative process than are patents, signaling those new products and processes are ready for introduction to the market. Trademark ownership increases the probability of venture capital investment (Zhou et al. 2016), suggesting trademarking is a signal to venture capital firms of the commercial readiness of startup technology.

Along with other indicators of the disruption of economic activity in 2020, the number of USPTO trademarks registered dropped 9% from 2019 to 283,479 in 2020, breaking a decade of consistent growth (Table SINV-84). Products receiving trademark protection provide an indication of industries with high innovation activity. Across product types, knowledge-intensive products and services account for high numbers of trademarks. For U.S.-registered USPTO trademarks in 2020, the top product categories were leisure and education, research and technology, and business services (Figure INV-20).

Geographic clustering of knowledge creation and innovation are well established features of innovation systems. As an indicator of the introduction of new products, innovation may well have more potential to affect economic growth at the regional level compared with inventions that may never be implemented (Carlino and Kerr 2015). County-level trademarks issued by the USPTO are shown per 1,000 residents, revealing that trademark activity is unevenly spread across the United States with more intensive activity along the coasts, the Rocky Mountain region, parts of Texas, and the Great Lakes region (Figure INV-21).^{​Trademarks are assigned to geographic locations based on the county of residence of the trademark holders. To avoid double counting, this report uses fractional counts for trademarks shared by holders in multiple locations; a county receives partial credit for a trademark based on the number of trademark holders who reside in that county divided by all the holders of that trademark. Less than 3% of trademarks are assigned to more than one county.} In 2020, 25.7% of all counties had zero trademarks issued, making trademark activity more geographically disbursed across the interior of the United States compared with the regional patenting described in the Invention Indicators: Protecting Useful Ideas section of this report, in which 41.6% of counties had zero patents. The top three counties in 2020 for trademark intensity are Sheridan County in Wyoming, followed by Fairfax City in Virginia, and New York County in New York (Figure INV-21).