On Tuesday, the Hawaii Science and Technology Council released a report finding that the state's technology sector now includes some 2,000 companies and contributes about $3 billion to the state's economy.

The report found that the tech sector constitutes 5 percent of the state's economy and is growing at 3.3 percent per year, while the state's economy in general is growing at 2.5 percent. That's great news and worthy of celebration.

At the same time, however, it appears from the U.S. Patent and Trademark Office Web site, www.uspto.gov, that the number of patent applications filed by Hawai'i inventors, a different kind of indicator, is not so impressive.

THE PATENT NUMBERS

The U.S. patent site reports that from 1977 to 2007, roughly 2,000 patents were granted to Hawai'i inventors. We were fifth from the bottom, a spot held down by Alaska, with 1,200 patents. For perspective, compare this to the 370,000 patents granted to California inventors. California, here I come.

The site also reports that in 2007, 82 patents were granted to Hawai'i inventors. This falls between Washington, D.C., with 71, and Montana with 92 (which has less than half our population). We were again fifth from the bottom. In that year, 22,000 patents were awarded to California inventors.

The patent site also provides reports on patent applications that have been published. The site shows that 22 applications by Hawai'i inventors have been published so far in 2008. This is not particularly encouraging — we're almost into September.

DEALING WITH DISPARITY

Looking at Hawai'i's total filings with the U.S. Patent and Trademark Office, we simply don't have that many patents. How do we reconcile this with the success reported by the Science and Technology Council? How direct is the relationship between patents and prosperity? How meaningful are the patent numbers?

It depends on the sector. Dick Cox of the University of Hawai'i Office of Technology Transfer says: "If companies are judicious in their patent filings, the number of filings is a good indicator of the health of the industry. This, of course, depends on the sector — patents are not as important for the (information technology) sector, for example, as for the biotech sector, where they are pursued more vigorously."

Maybe it's a security thing. Post-9/11, every patent application has to be reviewed for national security, and there are undoubtedly some applications, likely relating to defense technology, that are being delayed and are not being published for that reason.

In some situations, maybe it's a pipeline thing. Not all new tech companies have the resources to create intellectual property, much less hire lawyers to prosecute patent applications. It may take a few years for these companies to get up to speed.

And sometimes, again depending on the sector, our tech companies may opt not to develop their own intellectual property. They may decide, for example, simply to license the intellectual property from others. In that case, they don't need to file patent applications or pursue intellectual property strategies to commercialize their products.

At the end of the day, it's better for Hawai'i to have more high quality patents than fewer ones. Over the long term, tourism is not sustainable. In a world where innovation and prosperity are synonymous, those who own the best patents will prevail. This rule operates everywhere, from Butte to Beijing, where they know lots about competition.

PRESERVING FLAGSHIP

The most important factor for developing intellectual property is capital. The number of tech companies filing patent applications is directly proportional to the venture capital available to them. Without capital there can be no deals, and without deals there can be no intellectual property, and probably no tech sector.

Hawai'i's unique mechanism to allow entrepreneurs to raise capital is Act 221. It has provided a certain amount of capital for our startups, but this has been modest compared to California, which gets the lion's share of the $3.5 billion of venture capital invested every year in this country.

Act 221 is designed to stimulate intellectual property development. One of the criteria for your company to be a Qualified High Tech Business is that 50 percent of its activity must be in research and development. You can get a refund for 20 percent of your qualified research expenses. And your royalties are also exempt from state tax.

Act 221 is only 7 years old, and most Act 221 companies were started in recent years. Act 221 is our flagship capital and intellectual property incentive. We need to renew and continue it, to encourage our entrepreneurs and investors, and to tell the world that Hawai'i is serious about tech. This should be our unified message, loud and clear.

MORE WORK TO DO

Most science comes out of universities. In 2002, the University of Hawai'i cut a deal with the UH Professional Assembly to create a sliding scale by which it shares royalties with researchers. It gives 50 percent of the first $100,000 of net royalties, after deduction of university expenses, to the researcher. As the royalties increase, the researcher's share increases.

That deal went in the right direction, but it could be improved. Sometimes the university's expenses are greater than the royalties, so the researcher gets nothing. To provide a more meaningful incentive, the sliding scale could be sweetened to give 100 percent of the first "x" dollars of gross royalties directly to the researcher.

Let's also step up funding for the UH Office of Technology Transfer so they can step up the number of utility patent applications they file for researchers.

This is not all. Let's send a groundswell of prizes, grants and investments to our inventors. Google is giving $10 million to developers who build applications for its new Google phone. Let's do that and much more. Let's treat inventors, big and small, as heroes. Confidence breeds risk-taking, and risk-taking breeds creativity.

There are those who say the Legislature won't do anything and will be focused on cutting costs to feel better about the recession.

Au contraire, ye of little faith. Let's give them credit for recognizing that now is the best time to abandon complacency, to reject the risks of a one-dimensional economy and to move, with alacrity, into diversification.

Yes, the industry has grown and has great prospect. But it's too early to rest — there's lots more work to do.

Jay Fidell is a business lawyer practicing in Honolulu. He has followed tech and tech policy closely and is a founder of ThinkTech Hawaii. Check out his blog at www.honoluluadvertiser.com/blogs.