Still, the number of patent applications for nanotechnology continued to increase in 2005 , growing by 52 percent to 2,714 applications.

Bottlenecks at the U.S. Patent & Trademark Office center on crowded patent domains with overlapping claims. Pendency rates—the time from the submission of a nanotech patent application to issuance—grew to nearly four years on average, up from two and half years in 1993.

The report by Lux Research and Foley & Lardner LLP, entitled "Nanotech IP Battles Worth Fighting," warns that "when the dust settles from this influx of inventions, many patent holders will be wondering just how valuable their innovations are in densely crowded and overlapping areas."

The report reviewed 2,738 patents covering 52,148 relevant claims crossing seven application categories. It identified applications worth fighting over and those with relatively low payoff.

Among the report's highlights are that carbon nanotube and quantum dot applications in electronics, where many crowded and vulnerable patents indicate a high likelihood of legal wrangling, are worth defending. Large potential markets for nanomaterials justify the cost of navigating the unfavorable patent outlook, the report found.

Dendrimers along with ceramic and metal nanoparticles are also promising for their potential applications.

According to the report, opportunities also exist in energy applications for ceramic nanoparticles like high-performance cathodes in the $48 billion battery market. Nanowires are also expected to have electronics applications.

The report also warns that "patent trolls" are starting to invade the nanotechnology market. Patent trolls are companies that buy patents for the sole purpose of enforcing them, rather than developing the technology into products.