The paper, Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer assumes that NPEs are enforcing patents of questionable validity. However, the paper offers no proof of this and does not even try to justify this position. Once you start with that position, it is a foregone conclusion that any litigation is unjustified and wastes resources. However, the initial assumption is not proven and in fact many papers have shown the opposite. If you do not start with this assumption then the paper’s whole argument falls apart. Litigation losses by operating companies are a justified return to the inventor and their investors. The operating companies are not victims, but victimizers and the return to inventors and their investors encourages more inventive activity.
The paper’s big conclusion is:
“Specifically, in the years following litigation, firms against whom cases are dismissed produced spent on average $211 million (t = 1.96) more on R&D expenditures than firms that lost to NPEs. These firms also spent on average $49 million more (t = 2.95) to acquire more in process R&D from outside.30 Furthermore, in the years following litigation, firms against whom cases are dismissed produced 63.52 more new patents (t = 2.96), and these new patents received 723.98 more citations (t = 3.45), relative to the group of firms that suffered the cost of NPE litigation.31 These large differences in R&D expenditure, patent production and in the quality of produced patents do not appear until after NPE litigation.”
Inherent in this statement is that anytime an operating firm that loses a patent litigation case to a NPE is a bad result. If the firm was stealing an invention, then the fact that they lost is a good thing.
The companies that lost in litigation spend less on R&D according to the paper. Perhaps that is because they were not as inventive to start with, perhaps it is because they decided to focus on manufacturing and purchasing their R&D from outside inventors, and perhaps it is because they lost a substantial amount of money. These are not dire results or unexpected results or necessarily bad results.
The paper implies that NPE lawsuits result in less spending on R&D, but just because firms that lose patent lawsuits spend less on R&D in the years immediately following, does not mean that total R&D is down. When inventors see their rights are upheld then they are encouraged to spend more time inventing. Unless you measure the amount spent by independent inventors or inventive firms who now see their rights upheld, you cannot draw that conclusion. These comments also apply to the citation differences. The authors are only looking at the microeconomic system that they care about, but you cannot draw the macroeconomic conclusions they do, because they don’t consider all the macroeconomic effects.
The paper does not define what a NPE is. It starts with this surprising conclusion, “We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks).” They needed a study to tell them that? Of course NPEs focus on companies with cash on hand, why would they waste their time suing companies that could not pay them? Especially after the eBay decision, in which they are unlikely to get an injunction.
The paper goes on to state:
“A new organizational form, the non-practicing entity (hereafter, NPE), has recently emerged as a major driver of IP litigation. NPEs amass patents not for the sake of producing commercial products, but in order to prosecute infringement on their patent portfolios.”
Edison, Tesla, Bell, Amstrong ‘amassed patents.’ In fact, most of the US’s greatest inventors were just inventors. They did not create patents ‘for the sake of producing commercial products.’ They specialized in being inventors and let manufactures concentrate on manufacturing. All of them were involved in numerous lawsuits. The difference between them and today’s inventors is that the courts were much more likely to uphold their rights to their inventions. As a result, manufacturers were much quicker to license inventions. In fact, one study showed that in the late 1800’s an inventor’s chance of monetizing their invention if they received a patent was around 85%. In other words they made money specializing as inventors. Today that figure would be less than 2%. Because courts allow companies like Google, Microsoft, Samsung, etc. to get away with stealing other people’s inventions, they make the calculated risk that it is better to go to court than pay an inventor a licensing fee. As a result, inventors often have to team with someone with a deep pocket in order to get large corporations to pay them the licensing fees they deserve. In fact, large companies such as IBM, Microsoft and others will also often team with people who are experts in licensing or litigation.
Division of labor is generally considered a positive in economics. The fact that this paper is arguing against it means that it has to give extraordinary proof for its extraordinary claim. The attack on NPEs is really an attack on the profession of inventing. A uniquely American profession.
This is not an academic paper, it is a propaganda paper pretending to be science.
Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer
The paper, The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons, has a number of errors that show its conclusions are flawed. The author’s errors in a related article, entitled How Many Jobs Does Intellectual Property Create? were well documented by Adam Mossoff and Mark Schultz in Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong. This paper’s title purports to show the Court of Appeal for the Federal Circuit has been captured by patent attorneys, but never actually provides any evidence to support this assertion. Below I will detail a number, but not all the other errors in this paper.
1) The article states. “Just as other property rights internalize the social benefits of improvements to land, automobile maintenance, or business investment, patents incentivize the creation of new inventions, which might otherwise be undersupplied.”
This is the utilitarian model of property rights. The US was not founded on the Utilitarian model it was founded on natural rights, which are incorporated the Declaration of Independence and into Blackstone’s Commentaries which formed the basis of US common law for the first century of the US. In fact, Blackstone specifically states that patents and copyrights are property rights based on Locke’s formulation. See The Second Treatise of Civil Government; 1690; John Locke; CHAP. IX., Of the Ends of Political Society and Government.
There is no such thing as balancing test for property rights as implied by the author, this is a Utilitarian formulation of property rights.
2) The article states. “A single, politically captured circuit court with exclusive jurisdiction over patent appeals has consistently expanded the scope of patentable subject matter. This expansion has resulted in an explosion of both patents and patent litigation, with destructive consequences.”
The myth of an explosion in patent litigation has been debunked many times. As pointed out in the article The “Patent Litigation Explosion” Canard,
“First, it’s simply untrue. Award-winning economist, Zorina Khan, reports in her book, The Democratization of Invention, that patent litigation rates from 1790 to 1860 fluctuated a lot, but averaged 1.65%. Today’s patent litigation rates are around 1.5%. As Yoda would say: patent litigation explosion this is not, hmm, no. In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. From 1840-1849, for instance, patent litigation rates were 3.6% —more than twice the patent litigation rate today.”
Second there has not been an explosion in the number of issued patents. The number of patents issued to US inventors in 1980 were 37,355 and in 2011 there were 108,626 that is a 3.5% increase in the number of patents per year, hardly an explosion in the number of issued patents.
The research and development cost per patent has increased from around $1.2 Million per patent to around $4 Million per patent from 1955 to 2005 and GDP per patent over the same time period in constant dollars has increased from 60 million per patent to around 170 million per patent. According to a paper by the Federal Research Bank of San Francisco, real industrial R&D has been growing at 3.7% per year between 1953 and 2000, while the number of patents per capita has been growing at 1.7% per year over the same period. The number of citations per patent increased 3.3% per year over the 25 year period from 1975-1999.
3) The article states. “As early as 1951, Simon Rifkind, a former federal judge in New York City, warned in a prescient essay that then-current proposals to create a specialized patent court would lead to “decadence and decay.”
This was the time period in which a Supreme Court Justice in 1948 would write “the only patent that is valid is one which the Court has not been able to get its hands on.” Jungerson v. Ostby and Barton Co., 355 US 560. This was also when the Supreme Court was applying its “flash of genus standard to patents.” If Rifkind meant that it would result in courts that did not have this utter disdain of patents he was right. However, this is hardly an objective measure.
4) The article states. “Using a dataset of district and appellate patent decisions for the years 1953–2002, economists Matthew Henry and John Turner find that the Federal Circuit has been significantly more permissive with respect to affirming the validity of patents.”
Well given the Supreme Court’s attitude the only patent that is valid is one which the Court has not been able to get its hands on that is hardly a surprise. One of the first things that Reagan did upon becoming president, was to create the Court of Appeals for the Federal Circuit. This court does hear all patent appeals and actually had about half the Justice that were actually trained in patent law. In order to be legally or factually competent as a patent attorney you have to have a technical background in science or technology, which none of the present Supreme Court justices have. In addition, patent attorneys have to pass a separate bar exam that has one of the lowest pass rates in the US. Patent law is a highly technical and specialized area, just like quantum mechanics is highly specialized and technical. You would not ask an English professor how to solve a problem in quantum mechanics and expect anything sensible. The same is true for patent law.
5) The chart in the article is a lie. It shows the number of patents linearly, which would show any compound growth as an exponential. In fact the number of issued patents has grown at a rate 3.5% from 1980 to 2011, hardly an explosion.
6) The article states. “They estimate that patentees are three times more likely to win on appeal after a district court ruling of invalidity in the post-1982 era. In addition, following the precedents set by the Federal Circuit, district courts have been 50 percent less likely to find a patent invalid in the first place, and patentees have become 25 percent more likely to appeal a decision of invalidity.”
The 1970s was a period of time in which several appeals circuits had not upheld the validity of a patent in 25 years. The FTC had a policy of nine no-nos of what you could not do with your patent without running afoul of the antitrust laws. It is hardly surprising that Reagan and Congress wanted to strengthen the property rights of inventors.
7) The article states. “The U.S. Supreme Court reversed the Court of Customs and Patent Appeals, holding that mathematical algorithms (and therefore software) were not patentable subject matter.”
Here the Supreme Court showed their complete ignorance of what a computer is and what software does. Any electrical engineer knows that any device implemented in software can be implemented in hardware. In fact, software just wires an electronic circuit (computer) to create an application specific device. Engineers choose between these options based on the need for flexibility and lower cost (software) and speed (hardware) and have several choices in between.
In order to be logically against software patents, one has to be against all patents for electronic circuits. This is the sort of nonsense you get from a court that does not understand the underlying technology.
8 ) The article states. “State Street Bank v. Signature Financial Group (1998), the Federal Circuit broadened the criteria for patentability of software and business methods substantially, allowing protection as long as the innovation “produces a useful, concrete and tangible result.”
35 USC 101 states “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” A computer implemented invention is a new and useful machine and useful process. Seems like the Federal Circuit got it right.
9) The article states. “The GAO estimates that more than half of all patents granted in recent years are software-related.”
The GAO counted any invention that includes some sort of software, firmware, or related. Let’s see, a procedure to sequence DNA would probably use a machine that had software or firmware and therefor met the GAO’s definition. A chemical patent that used any computer controlled machinery would count as a software patent under this definition. Today most transmission systems are computer controlled and therefore meet this definition. This standard is so loose as to meaningless.
10) The article states. “While more patents have not resulted in faster economic growth, they have resulted in more patent lawsuits.”
This statement will take some unpacking. First of all the 1980s and 1990s saw significantly faster growth than the 1970s, which had a significantly weaker patent system. Second of all the patent laws were weakened starting in 2000 with the Patent Act of 2000. This trend has continued to this day. In 2002, we passed Sarbanes Oxley which made it almost impossible for startups to go public, which starved startups and VCs of capital. Economic growth did not start to fall off until around 2000. So actually the data is consistent. Weaker patent laws are associated with weaker economic growth. Third, the patent system cannot function in a socialist system. The US by CATO’s estimate takes 60% of the GDP today. What does it mean to own your patent in a world where the EPA can take your land at any time, in which the eminent domain can be used to take your property for a project that promises higher tax revenue, a world in which the government publishes your invention for the whole world to see before they provide you any patent protection, a world in which the government does not accept any limits to tax you or regulate you? The author is right that a patent system cannot cause economic growth in the USSR, which tried to implement a patent system. A patent system is based on a system of property rights. Since 2000 we have created a patent system that supports crony socialism (capitalism), not surprisingly our inventors and entrepreneurs are not creating economic growth.
The macroeconomic evidence is overwhelming for patent systems creating growth. Those countries with the strongest patent systems are the most inventive and have the greatest technological dispersion and are the wealthiest in the world. While those with the weakest patent systems do not contribute any inventions and have very poor technological dispersion and are some of the poorest countries in the world.
I for one am very disappointed that the CATO Institute would publish such a poorly researched and reasoned article.
 Wilson, Daniel, “Are We Running Out of New Ideas” A Look at Patents and R&D”, FRBSF Economic Letter, Number 2003-26, September 12, 2003.
The long awaited decision by the Supreme Court in Alice v. CLS Bank came out on June 19, 2014, while I was away giving a talk at Atlas Summit 2014, which is why this post has been delayed. Even in the statement of the question presented in the case the Court got it wrong:
The question presented is whether these claims are patent eligible under 35 U. S. C. §101, or are instead drawn to a patent-ineligible abstract idea.
Abstract ideas are not an exception to section 101, despite a long line of nonsense by the court. Every invention is an abstract idea in that it describes a class of things, not a specific instance. The failure (purposeful) of the Court to define what they mean by an “abstract idea” has resulted in an incomprehensible standard.
An abstract idea is a thought or conception that is separate from concrete existence or not applied to the practical. From this definition, it is clear that if an inventor were to describe an “abstract idea” it would be a section 112 issue, not a 101 issue. In this case, Alice describes and claims a concrete existence that is applied to the practical problem of settlement risk that saves billions of dollars a year. Note using any rational definition of abstract idea, means it would not be a “process, machine, manufacture, or composition of matter.” Therefore the abstract ideas exception is just redundant. But the Court is unable to think logically, so instead of applying the statute, they make up the law as they go along.
In any event, we need not labor to delimit the precise contours of the “abstract ideas” category in this case. It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of “abstract ideas” as we have used that term.
Biliski did not claim or describe “risk hedging” and Alice did not describe “intermediate settlement” any more than the patent for the LASER described “light making.” The Court’s characterization of these inventions with two word tag lines is intellectually dishonest.
Note the Court admits that they refuse define what they mean by abstract idea. Failure to define one’s terms is the hallmark of charlatans and tyrants. The Court’s statement means that no one can know what will be considered an abstract idea until the Supreme Court rules. This is a judicial power grab.
Below the Court tries to justify what is clearly an absurd position.
The fact that a computer “necessarily exist[s] in the physical, rather than purely conceptual, realm,” Brief for Petitioner 39, is beside the point. There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.
But what petitioner characterizes as specific hardware—a “data processing system” with a “communications controller” and “data storage unit,” for example, see App. 954,958, 1257—is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims.
A computer is a machine and those are covered by 101. The Court is intellectual dishonest or just plain stupid when they state “an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.” Alice never said any such thing, but because the Justices are incompetent in reading claims and computer technology, they ignore the claims and description, and come up with their own characterization.
Here they again prove they cannot read the claims and instead paraphrase them, of course ignoring any part they find inconvenient.
The representative method claim in this case recites the following steps: (1) “creating” shadow records for each counterparty to a transaction; (2) “obtaining” start-of-day balances based on the parties’ real-world accounts at exchange institutions; (3) “adjusting” the shadow records as transactions are entered, allowing only those transactions for which the parties have sufficient 8resources; and (4) issuing irrevocable end-of-day instructions to the exchange institutions to carry out the permitted transactions. See n.2, supra.
The Court then proceeds to suggest that there is some sort of balancing test to 35 USC 101.
The former “would risk disproportionately tying up the use of the underlying” ideas, id., at ___ (slip op., at 4), and are therefore ineligible for patent protection. The latter pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.
Balancing tests are inherently unconstitutional. A nation of laws is based on Natural Rights and clearly delineated laws. A balancing test turns that into a nation of men. Judges like them because they are the “men” so it is an inherent power grab. The Constitution requires the Rights of Inventors be secured. It does not allow for judicial balancing of inventors’ rights.
The Court then ignores the 1952 Patent Act and deconstructs the claims, which not only violates 35 USC 103, but is illogical (every invention is a combination of existing elements – conservation of matter and energy). In addition, it brings back the discredited idea of “inventive concept”, which the 1952 Patent Act specifically was directed at eliminating.
To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. Id., at ___ (slip op., at 10, 9). We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id., at ___ (slip op., at 3).
It would be nice if the Justices could actually read a statute.
The following statement shows the intellectual dishonesty of the court.
A claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea].” Id., at ___ (slip op., at 8–9). Mayomade clear that transformation into a patent-eligible application requires “more than simply stat[ing] the [abstract idea] while adding the words ‘apply it.’” Id., at ___ (slip op., at 3).
Alice’s patent application never said any such thing. The Justices should be impeached for this sort of outrageous characterization.
Here again, the Justices prove they have no idea how to read a claim.
On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is “ ‘a fundamental economic practice long prevalent in our system of commerce.’” Ibid.; see, e.g., Emery, Speculation on the Stock and Produce Exchanges of the United States, in 7 Studies in History, Economics and Public Law 283, 346–356 (1896) (discussing the use of a “clearing-house” asan intermediary to reduce settlement risk).
The claims are not drawn to anything. This is just an attempt to ignore the limitations of claims to smear the invention. The LASER is a part of the fundamental practice of creating light that has been known before for millions of years. Does that mean it should not have been patentable?
The bottom line on this case is the Court is opposed to patents that cover financial products. Alice and Biliski are Wall Street protection act decisions. It is impossible to draw any conclusions broader than the Court will not allow patents on financial products. This is not logic and it is not law. It is time that we withdraw the Supreme Court’s jurisdiction over patent cases. Not one of the Justices or their aides are legally or factually competent to be patent attorneys, and the consequences of their incompetence are just too high.
An academic paper claims that the cost for royalties ($120 per phone) is about the same as the cost of the components in a smartphone. This was accompanied by a number of articles suggesting this was outrageous and unsustainable. For example see:
* The $120 Smartphone Patent Tax: Patent Royalties Cost More Than The Actual Hardware In Your Phone: This one from my favorite patent Luddite site, Techdirt.
The logical flaw underlying all these articles is that the value of products is determined by the amount of physical labor and/or the cost of the underlying materials. On this basis, the actual material costs of a cell phone are probably less than $5 and the labor (unskilled labor in the US is worth perhaps $10/hr) involved in making the phone might be worth $5, let’s throw in $10 for distribution and the hard costs of a smartphone are about $20.[i] The rest of the costs are the result of intellectual property, much of which is in the form of patents, but some is in the skilled labor, copyrights and trademarks. The actual cost of the intellectual property in a smartphone is closer to $380.00. Much of these costs are hidden. For instance, when Intel sells a microprocessor they charge you $50, for example, but the labor cost and material cost of the microprocessor is pennies. The reason they can charge $50 is because of the intellectual property, which means patents. From an economic point of view you are paying a dollar or so for the manufacturing and $49 in patent royalties.
Another logical flaw in these articles is that this is an unsustainable business model. First of all the underlying paper points out that sales of smartphones and tablets is now bigger than all the rest of the consumer electronics space, with over a billion smartphones sold in 2013. Clearly the business model is not falling apart. Second of all, the cost of Microsoft Office Home and Business 2013 is $219.00 and none of that is manufacturing cost. The cost of Microsoft Office is essentially all IP (Patents, Copyrights, etc.). Solidworks, which is 3D CAD software, cost $4000.00 and also has essentially no manufacturing costs, which means you are paying the equivalent of $4000 in royalties. The argument that the model is unsustainable is absurd.
The paper that started this economic stupidity is The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones. The paper is clearly designed to sway public and Judicial opinion in a manner that will be beneficial for Intel. Namely, Intel wants a patent system that emphasizes manufacturing, not inventing. Another goal of the paper is to get courts to reduce the amount of royalties that inventors receive.
“In particular, there has been significant recent focus on “royalty stacking,” in which the cumulative demands of patent holders across the relevant technology or the device threaten to make it economically unviable to offer the product.”
This statement is absurd on its face, as the paper itself points out.
“The market for smartphones has exploded. Smartphones sales for 2013 topped one billion units globally for the first time ever. In addition, global revenues for smartphone and tablet sales in 2013 are estimated to have surpassed for the first time revenues for the entire consumer electronics markets (e.g., televisions, audio equipment, cameras, and home appliances).”
Here is the real point that this paper is pushing:
“Further, the available data demonstrate a need for licensees to advocate and courts to rigorously apply methodologies for calculating royalties that focus on the actual value of a claimed invention put in context of the myriad other technologies in a smartphone and the components in which the technologies are implemented.”
I will admit that having courts set royalty rates is not ideal and the results can be squirrelly, which is why eBay should be reversed. The courts used to just prohibit the infringer from using the patented technology and then the parties had to work out a deal. But the Supreme Court decided that enforcing the only right you get with your patent is an injunction – actually it is not an injunction it is an exclusion order requiring the infringer to not trespass on (use) the patent owner’s property.
The paper admits that its methodology is limited and the actual cash cost going to pay royalties could be higher or lower. For instance, the paper does not track cross licensing, pass through, or patent exhaustion, all of which could significantly reduce the actual royalties paid. They clearly made an error if they did not account for patent exhaustion. If patent exhaustion was part of the royalty costs, then almost every high value component’s price is mainly due to patents. Correctly accounting for patent exhaustion would show a royalty per smartphone closer to the $380.00 per phone as explained above.
The paper is just dishonest when discussing the growth in the number of patents issued and the number of patent lawsuits. It shows in 20 years the number of patents issued in the US has increased from 100,000 per year to 250,000 per year. The implication is that this is an absurd increase in the number of issued patents, but if you do the math this turns out to be a 4.75% annual increase, about the same as the increase in worldwide GDP over the same time period. The paper also shows a graph depicting the number of patent lawsuits exploding around 2011. This increase is due to the America Invents Act, which limited the joinder of defendants in patent lawsuits. This has been well documented, as in the article The America Invents Act at Work – The Major Cause for the Recent Rise in Patent Litigation. The paper’s failure to point this out is just outright fraud. The fraud is perpetrated again when the paper points to the increase in the number of NPE lawsuits. These authors seem to have gotten their training from Al Gore and French economist Thomas Piketty.
[i] In fact you can buy cell phones for less $30.00 on the Internet. The cost of materials in a smartphone and a $30 cell phone is essentially the same. The material costs in a cell phone include the plastic which costs several cents, the metal for the conductors which might be worth a dollar, the silicon which in its raw form is worth almost nothing.
Dale B. Halling, author of Pendulum of Justice (with his wife Kaila) and The Decline and Fall of the American Entrepreneur, will be speaking at the Atlas Summit 2014. The topic of his talk will be “Why did Rand Choose Inventor as Galt’s Profession?” The paper below roughly tracks the talk.
Rand stated that the goal of her writing was to portray an ideal man and Galt was her artistic embodiment of the ideal man. In the famous Galt speech, he says “I was an inventor. I was one of a profession that came last in human history and will be first to vanish on the way back to the sub-human?” What is so important about inventors that Rand would make that the profession of her ideal man and indicate that the profession of inventing was the canary in the coal mine of human progress?
In order to answer these questions, we first have to define what an inventor is: it is a person who makes their living from creating and selling inventions, as opposed to manufacturing, marketing, distribution, etc. We all think we know what an invention is, but actually courts have struggled with this question. In the last couple of years the Supreme Court has heard a couple of cases on this exact question and has provided no clear answer. Dictionary definitions tend to be circular or so vague as to not be helpful. I am going to propose that an invention is a human creation that has an objective result, i.e, the effect of which is demonstrable repetitively, and measurable objectively, and independent of the observer. While art is a human creation that has a subjective result, i.e., whose effect is the reaction of the observer, which not only varies from observer to observer, but may also vary over time in the same observer. Art and inventions together are the complete set of human creations. For instance, the invention of an incandescent light bulb has the objective result of putting out light when the appropriate electrical signal is applied. Note that inventions are always about a class of objects, not an individual object (instance). Art does not have an objective result. How I react upon seeing Atlas Shrugged III will be different than how you react. This can become confusing, because movies are an invention. A specific instance of a movie is a human creation with a subjective result, while the class of objects called movies is an invention, actually a modern movie is a combinations of many inventions.
Manufacturing is the process of recreating an object. If I produce a hundred bikes, I have recreated the invention of a bicycle a hundred times. Standard engineering involves repurposing an invention. For instance, if I am making bikes for adults and I decide to make them for children; I know children are smaller so I will design a smaller frame, I might design the frame out of thinner steel because kids are lighter, I might change the gearing because kids are not as strong, but in the end it is still a bicycle and not a new invention. Neither manufacturing nor standard engineering meet the definition of an invention.
Rand has a scene in Atlas Shrugged between Jim Taggart and his wife that gets to the essence of what an invention is and many of the debates about inventions.
’He didn’t invent smelting and chemistry and air compression. He couldn’t have invented HIS metal but for thousands and thousands of other people. HIS Metal! Why does he think it’s his? Why does he think it’s his invention? Everybody uses the work of everybody else. Nobody ever invents anything.’ (Jim Taggart)
She (Cheryl) said, puzzled, ‘But the iron ore and all those other things were there all the time. Why didn’t anybody else make that Metal, but Mr. Rearden did?”
This scene clearly illustrates that Rand understood that an invention is a combination of existing or known things and it is the combination that is unique. We know this is true because you cannot create something out of nothing and this is James Taggart’s reason for saying Rearden did not invent anything. Cheryl’s responses is also classic in pointing out that all the things necessary to create the invention were available to others, but only Rearden created the metal.
Rand stated, “I seem to be both a theoretical philosopher and a fiction writer. But it is the last that interests me most; the first is only a means to the last.”  She described Galt as, “He too, is a combination of an abstract philosopher and practical inventor.” She illustrates this point in the scene where Dagny goes to talk to Dr. Stadler about the motor. Stadler states, “Why did he want to waste his mind on practical appliances?” Dagny replies, “Perhaps because he likes living on this earth.” For Galt philosophy and theoretical physics are a means to inventing, with inventing being the primary goal. According to the definitions of art and invention above, all of human creation is divided between the two. This makes Galt the mirror image of Rand and together they make a complete set, which is why I think Rand choose inventor as Galt’s profession.
Why are inventors important? Rand stated “Nothing can raise a country’s productivity except technology” and inventors are the ones who create technology. In classical economics we are taught that the inputs to the economy are land, labor, and capital. Robert Solow received the Nobel Prize in economics for an econometric study of whether labor, capital, or technological change had the biggest impact on economic growth. He found that almost all economic growth is due to new technologies, i.e., inventions. Follow up research has found that all real per-capita economic growth is due to inventions. Imagine if we had the same technology as the people living in 1600. Would we be any wealthier than the people at the time?
The cotton gin is an interesting example of the power of inventions. In 1791, the entire output of cotton in the U.S. was 4,000 bales. The cotton gin was invented in 1793 by Eli Whitney. By 1801, the output of cotton in the U.S. was 100,000 bales, over a 25 fold increase. This increase was only possible because of the cotton gin. Note that this is consistent with Rand, who stated “Man’s mind is his basic means of survival.” The way man uses his mind to meet his needs is by creating things, i.e., inventions, and this has been confirmed by econometric research.
Despite the importance of inventing, there have been very few professional inventors throughout history. One time period that we do remember for its professional inventors is the beginning of the Industrial Revolution through the late 1800s with Edison, Tesla, Westinghouse, and others. Why did this time period have so many professional inventors? An inventor is someone who makes his living by selling his inventions. In order to be able to sell an invention, you need to have property rights in your invention. Property rights for inventions are a relatively recent legal concept. The first known patent statute (property rights for an invention) was enacted, in 1474, by Venice. Note that Venice was one of the richest places in the world at the time and home to many great inventors including Leonardo da Vinci and Galileo. England slowly developed an archaic patent system starting with the Statute of Monopolies of 1623. Even this archaic patent system was enough to spur inventors to create the Industrial Revolution. The United States and the Colonies had patent systems roughly modeled on England’s. The (original) US Constitution only mentions one RIGHT and that is the rights of inventors and authors, i.e., patents and copyrights. It was not until the Patent Statute of 1836 that the US created the first truly modern patent system. A modern patent system is characterized by an examination system administered by an independent, technically competent examination core that is readily accessible to all inventors (as opposed to only wealthy or politically connected inventors, see England in 1800s), has a system for widely publishing patents, and provides a freely alienable property right. This is why we do not see the profession of inventing until relatively recently. Before a modern patent system an inventor had nothing to sell, which is why the Middle Ages are characterized by trade secrets passed along by guilds.
I do not find it surprising that property rights for inventors were one of the last to be created. A nomadic society has no need for property rights in land and history shows that the concept of property rights in land is unfathomable to them. For instances, here is a quote by an American Indian that illustrates my point.
“What is this you call property? It cannot be the earth, for the land is our mother, nourishing all her children, beasts, birds, fish and all men. The woods, the streams, everything on it belongs to everybody and is for the use of all. How can one man say it belongs only to him?” -Massasoit
Nomadic people gather, they do not cultivate. As a result, a nomadic people cannot possible understand why they cannot pick an apple from your orchard. Only with the agricultural revolution (and mining) did the concept of property in land make any sense. It would be impossible to have an agricultural revolution in which people who planted and cultivated the crops were not given the rights to the harvest and the land which they turned into a productive asset. Similarly the concept of property rights in inventions is difficult for people who see all wealth as coming from agriculture. For an agricultural people wealth is the result of physical labor, not thought. Sure labor saving devices are great, but they are meaningless until some puts the labor into using them, much like raw land in their minds. Putting this in more modern language, you can own an instance of say a plow, but cannot possibly have an ownership right in an instance of a plow you have never seen and did not build. Note the similarity to Marx’s labor theory of value.
This chart shows the income per capita from 1000 BC to approximately 2000 AD and is most representative of the US, England and the West. It also illustrates the importance of property rights for inventions. Until the Industrial Revolution around 1800, people were stuck in the Malthusian Trap, which means they lived on the edge of starvation. With the advent of relatively effective property rights in inventions, per capita income started to grow exponentially. Note this occurred with an exponentially growing population. This is not surprising. Economic growth is due to inventions and the advent of property rights in inventions spurred people to invent more. The same pattern with real property has been well documented, for instance see the Peruvian economist Hernando de Soto.
Rand stated “Patents and copyrights are the legal implementation of the base of all property rights: a man’s right to the product of his mind.” “What the patent and copyright laws acknowledge is the paramount role of mental effort in the production of material values: these laws protect the mind’s contribution in its purest form: the origination of an idea.” The source of all property rights is creation. It is the legal system’s recognition of the metaphysical fact that but for the creator, the creation would not exist. Not surprisingly those that hate achievement and those who want to live off the efforts of others deny that creation exists or that it is result of individual effort. As Barak Obama put it, “you didn’t build that.” Similarly, one of the popular academic papers on patents today is entitled “The Myth of the Sole Inventor.”
Rand wrote in 1967, “Today, patents are the special target of the collectivists’ attacks …” She was right then and she is right today. In the 1970s the FTC (Federal Trade Commission) published their nine no-nos on patents. These severely limited the patent rights of inventors in the 1970s. Xerox was an example of this attack on patent rights and success. In the early 1970s Xerox was sued by the FTC for monopolistic practices. The inventor of xerography, Chester Carlson, was a patent attorney who started work on his invention in the late 1930s. He pitched his idea to IBM, Kodak, and many others and was turned down until the forerunner of Xerox. They spent years perfecting his idea and in the 1950s the Xerox started developing and deploying a commercial version of the copy machine. By the 1960s Xerox was one of the most successful corporations of all time. Xerox initially thought the FTC allegations baseless, but several years later with mounting private antitrust lawsuits Xerox decided to settle with the FTC. In 1975 when Xerox agreed to the FTC consent decree, which required them to license their patents for next to nothing to all comers, they had almost a 100% market share in plain paper copiers. Just four years later, their market share was down to 14% and most of the rest of the market was controlled by Japanese companies. While this was the most dramatic example of the FTC’s and Department of Justice’s (DOJ) abuse of U.S. companies’ property rights in technology, it was hardly an isolated incident. The FTC/DOJ brought more than 100 of these cases and gave away the technology associated with over 50,000 patents. The result was that the U.S. transferred its cutting edge technology to Japan and many U.S. companies found themselves unable to compete with the Japanese, because the Japanese did not have to spend the money on R&D or the large initial cost of marketing for a new product. A MITI study substantiates that most Japanese companies took advantage of this traitorous policy by the U.S. government to catch up with U.S. companies technologically. Once again Rand proved herself prescient.
American companies’ response was to forego obtaining patents in the 1970s and this did not change until the 1980s. In the late 1990s there was a renewed attack on inventors. Instead of using antitrust law and going after large corporations, the new attack has been a crony capitalist scheme to create a playing field that only benefits large, politically connected companies. Among the many changes to US patent laws since 2000 are the requirement that all patent applications be published, the change from a first to invent to a first to file patent system, the Supreme Court not allowing patent holders to enforce their rights through an injunction, and the introduction of three different systems to attack the validity of a patent administratively. This is a more focused attack on the profession of inventing than the assault of the 1970s. In the late 1800s 85% of all patents were licensed by their inventors in the US. Late 19th century U.S. inventors increasingly operated as independent inventors who extracted returns from their discoveries by licensing or selling their patent rights. Among these inventors were Edison, Bell, Tesla, etc. “An astonishing two thirds of all America’s great inventors in the nineteenth century were actually NPEs” (Non-Practicing Entities). Today’s system makes the cost and uncertainty of inventing far too risky for all but the most wealthy inventors. Most large companies practice a policy of purposeful ignorance of other people’s patent rights and rely on the fact that litigation is too expensive for independent inventors and small companies to prevail in court. If you asked the success rate for independent inventors (People who just create and sell their inventions) to people in the industry, you would hear somewhere around 2%.
But as Rand pointed out the attack on patents is not limited to socialists. There has been a concerted attack on patents by Libertarians and Austrian Economists. One of the best known proponents of this point of view is Stephen Kinsella. They argue that property rights are not about creation, not about owning yourself and the product of your labor, but about scarcity. According to them, patents and copyrights create artificial scarcity. Their argument fails even if you believe that property rights are based on scarcity, because it takes real resources to create inventions and real resources to distribute these new technologies.
The press has also joined in this all out attack on patents, labeling anyone who does not manufacture their invention a “patent troll.” This attack includes so-called free market media outlets including Forbes and the Wall Street Journal. These attacks ignore Adam Smith’s idea of the division of labor, ignore that many of our most revered inventors in history meet their definition of a patent troll, and ignore that many large manufacturing companies enforce or license inventions that they do not manufacture. But the goal of these articles is not logic, but to create a narrative to eliminate the profession of inventing.
The legal attack on the profession of inventing is not limited to destroying the property rights of inventors, but also includes limiting inventors’ access to capital through laws like Sarbanes Oxley. However, the people who hate human progress and hate humans are not content to just stop inventors, the engine of human progress, they want to roll back the technology of the last two hundred years. For instance, they want to outlaw DDT, they want to outlaw fossil fuels, and they want to outlaw private vehicles. Environmentalists have the stated goal of forcing humans back to the state of “sub-humans”, meaning people without technology.
This is why Galt said his profession, inventor, would be one of the first to disappear on the way back to the sub-human. The first step in this process is to stop new technologies from developing and the second step is to roll back the technology that has already been developed.
All human creations can be divided into art and inventions, with one having a subjective result and the other having an objective result. Rand was an artist and philosopher, while Galt was her mirror image of an inventor and philosopher. Inventions are the result of man’s mind trying to fulfill his needs. Property rights for inventions are a fairly recent development and correspond generally with the escape of mass numbers of people from the Malthusian Trap. This has made patents a key target of those who hate human progress. This presents and opportunity for the Atlas Society and Objectivist to differentiate themselves from other so-called free market organizations and to stand up for the Galt’s of the world.
Suggested Actions and Further Research
This talk is a small part of the work I have been researching in what economists call ‘New Growth Theory.’ This area of economics recognizes the central nature of man’s mind in producing wealth. As a result, it presents the possibility of being able to define a school of economics that is consistent with Objectivism.
 Rand, Ayn, Atlas Shrugged, Introduction to the 35th Anniversary Edition.
 Rand, Ayn, Atlas Shrugged, Introduction to the 35th Anniversary Edition.
 “The Moratorium on Brains,” The Ayn Rand Letter, I, 3, 5
 Evans, Harold, They Made America, Little, Brown and Company, 2004, pp. 49-50.
 Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 130.
 Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 130.
 Lemly, Mark A., “The Myth of the Sole Inventor”, March 2012, Michigan Law Review, http://www.michiganlawreview.org/assets/pdfs/110/5/Lemley.pdf.
 Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 133
 Mark Blaxill, Ralph Eckardt, The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property.
 Mark Blaxill, Ralph Eckardt, The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property.
 Henry R. Nothhaft (Author), David Kline (Contributor), Great Again: Revitalizing America’s Entrepreneurial Leadership
Libertarians and Austrians, including such organizations as the CATO Institute, Von Mises, and the Wall Street Journal, have put forth a number of arguments against patents and intellectual property. These arguments include that ideas (an invention is not just an idea, but I will let that go) are not scarce and therefore patents are not real property rights, patents are monopolies, patents inhibit the growth of technology, patents require the use of force to enforce one’s rights, patents are not natural rights and were not recognized as so by Locke and the founders, among other arguments. I have discussed most of these arguments earlier and will put the links in below. One of their favorite fall back arguments is that patents limit what I can do with my property. For instance, a patent for an airplane (Wright brothers) keeps me from using my own wood, mechanical linkages, engine, cloth, etc. and building an airplane with ailerons (and wing warping). This according to the libertarian argument is obviously absurd. After all it is my property. Here is an article Scarcity, Monopoly, and Intellectual Property on the Von Mises website where you can see almost every variation on the arguments mention above either in the article itself or in the comments.
Can I do whatever I want to with my property, or are there restrictions? Well when I buy a book, a movie, or a song, it does not give me the right to make unlimited copies of them. I have a property right in the physical book, but not the rights (copyrights) to make copies. Of course, many Libertarians think copyrights are absurd also, so let’s look at another example. Let’s assume you own your house and land outright. Does that give you the right to do whatever you want to with you land? Most likely, your land has easements for utility lines, such as water, gas, sewer, electricity. You are not allowed to do anything that interferes with those easements. You might object that I don’t own the easement, so this is a bad example. So let’s say you own a bulldozer, does that give you the right to bulldoze my apple orchard and build a house there? It is your property after all and according to the libertarian argument you are allowed to do whatever you want to with your property. You might object, that of course the libertarians did not mean that you could take advantage of my property to build on. Of course that begs the question, what is property? If a patent and copyright are property rights, then this is exactly the same situation. Another example where you are prohibited from doing something with your property, is in the case of water drainage. In particularly wet areas of the US you are prohibited from moving the earth on your land so water drains onto your neighbors property more freely – and no this is not an EPA rule, this is common law property rights. In parts of the country where water is scarce you are prohibited from damming up water on your land. If you buy land in a residential neighborhood you are prohibited from setting up a pig farm. Just because I own a gun, doesn’t give me the right to go around shooting people. The libertarian argument that patents are not real property rights because they prevent others from doing something with their property fails even the most cursory review.
One of the common themes that runs throughout all Libertarian arguments against patents is that Libertarians’ do not seem to know what property rights are, or how they arise. Here is a post on point, Property Right, Possession, and Objects; this post not only explains the proper basis of property rights, but why the Libertarian point that property requires possession is a fallacy. Libertarians have failed to provide a clear definition of what property rights are and how they arise. In fact, most anti-patent libertarians believe property rights are a useful social convention for distributing scarce resources. This is interesting, because they can become so adamant about what is their property. But nothing in this concept of property has anything to do with RIGHTS. If another, better system comes along for distributing scarce resources, then your property is gone.
Property rights do not give the owner the right to do whatever they want with their property. The source of property rights is creation, not the idea that it is a socially useful convention. Patents recognize the metaphysical fact that the inventor is the creator of his invention and are completely consistent with other property rights in prohibiting an owner of other property from using it to build his invention.
Below is a list of other Libertarian arguments against patents and why they fail.
Inventions are not scarce:
Patents are monopolies
If patents are a monopoly, as some suggest, then it should led to certain outcomes. A close examination shows that none of the supposed monopoly effects result from granting patents.
This post explains the characteristics of a monopoly and a property right and poses three questions to show the difference. Patents fit all the characteristics of a property right and none of a monopoly. Note that professional license, such as a law license has some of the characteristics of a monopoly.
This post contains a number of quotes from philosophers explaining that patents are not monopolies.
This post compares the definition of a monopoly to the rights obtained with a patent. It shows that the rights obtained with a patent do not confer a monopoly.
This post traces the ideas of Locke and William Blackstone to show patents and copyrights are natural rights.
Patents inhibit the growth of technology:
This post shows that those countries with the strongest patent systems are the technological leaders of the world Patents: Monopoly or Property Right a Testable Hypothesis
Patents require the use of force
This is one of the more absurd arguments by libertarians. All property rights are enforced by the government’s use of force. If someone trespasses on your land or steals your car, the government threatens or uses force to get it back. The same is true for patent, which are property rights in inventions.
I often have people say Natural Rights do not exist. Then they point to something like the Earth and state the Earth is a sphere – that is real, the mass of the Earth is real and can be measured, but the Right to Property or the Right of self ownership are not real, they don’t exist in nature and there is nothing natural about them. A similar complaint is that Natural Rights are subjective, while the mass of the Earth is objective.
Objective: (of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts.
Subjective: based on or influenced by personal feelings, tastes, or opinions.
Volition: 1) the act of willing, choosing, or resolving; exercise of willing: She left of her own volition. 2. a choice or decision made by the will.
Note that a choice can be objective or subjective but both are exercising one’s will. One can choose to not believe the world is a sphere (technically a spheroid and not a perfect spheroid). One can choose to ignore the objective facts and contend the Earth is flat. This does not make the decision to understand the Earth is a spheroid subjective. Note the Catholic Church choose to believe the Sun rotated around the Earth, despite the objective facts. Global warming (AGW) prophets ignore the facts every day. It is clear that just because something is volitional does not make it subjective.
But what about Natural Rights or ethics, there are no objective facts involved according to these people. As we established above, just because something is volitional (i.e., a choice) does not make it subjective. Euclidean Geometry (EG) is not based on any objective facts. It is a purely logical system and devoid of any empirical facts, does that mean it is subjective? There have never been any two perfectly parallel lines that go on forever and finding or not finding such lines is irrelevant to EG. Does this mean that Euclidean Geometry is subjective? Does it mean it is not real? Well the answer to any problem in EG is not based on personal feelings or opinions, it is based on facts, but not empirical facts. But is EG real? Well certainly the mathematical system of Euclidean geometry exists. You might object that EG is not based on empirical facts, but it is influenced by them. Two perfectly straight parallel lines might not exist in nature, but close representations of them do exist and are used in construction and numerous other area’s every day.
The extreme empiricist wants to deny any higher order concepts exist. So to the extreme empiricist the number four does not exist. Four oranges exist and four nails exist, but four does not exist. This sort of thinking, would deny the existence of gravity. Things fall to the Earth and the Earth rotates around the Sun, but gravity is not an empirical fact; it is a scientific theory. A scientific theory is a model of nature that explains and predicts many different empirical facts.
Locke explained Natural Rights in terms of a “state of nature.” He stated that when man lived by himself, he necessarily owned himself and the products of his labor. Locke’s theory of Natural Rights explains why slavery is illegal, where property rights come from, why theft, murder, and assault, are illegal. Almost all of our common law is based on Natural Rights. It is an extremely powerful theory, much like Newtonian gravity and motion, or evolution. The Marxists attacked Locke based on the idea that people lived in groups. This is an intellectually dishonest sleight of hand. Locke was not making an empirical argument, he was making a logical argument. It is the same as Euclidean Geometry starting with the idea that two parallel lines never intersect. The power of Locke’s ideas is undeniable. The results were the creation of the industrial revolution, unparallel reduction in human suffering, the elimination of slavery and the elimination of force as an accepted method of settling disagreements.
Ayn Rand explained that values are only possible to living things, because life faces the metaphysical choice of life or death. Ethics is the selection of those rules consistent with life. The ethics of a human being are different than the ethics of a tree. Man is the only species that does not have a built in ethical system or instinct. Man is volitional, so he can choose an ethics of death. However, such an ethical system is a contradiction in terms, since only something that is alive can have values. Ethics is based on the fact of life and the only logically consistent ethical system is one that chooses life. Humans are rational animals and therefore must have an ethical system consistent with their nature. Since reason is a personal attribute (not collectivist), ethics is about a set of rules that allow individuals to exercise their attribute that is necessary for survival. Thus any ethical system that limits or undermines man’s reason is inherently an ethics of death, which is a contradiction in terms. This means that man must own himself, because the ability to think without the ability to act is meaningless. Now we are back to Locke.
Natural Rights and ethics are based on objective reality. You can choose to ignore these facts, just as you can choose to ignore gravity, but you cannot escape the reality that to do so is to choose death in both cases.
CLS’s Reply Brief is not only illogical it is filled with intellectually dishonest statements. The lack of logic is not surprising given the Supreme Court’s confused and disorganized thinking on the subject, but the intellectual dishonesty is inexcusable. Despite this a careful reading of CLS’s brief shows that their argument fails on its face. If you don’t have a winning argument, confuse and overwhelm them.
CLS’s arguments boil down to Alice’s patent claims preempt the idea of an escrow account and they are a non-practicing entity to boot.
The claims asserted by Alice recite the fundamental economic practice of intermediated settlement or escrow, in which a “middleman” stands between the counterparties to a transaction and effectuates the transfer of entitlement once all conditions are satisfied.
There are so many problems in this statement it is hard to know where to begin. First of all ESCROW has a definition: it is money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified. The claims do not cover this situation. The term ‘intermediated settlement’ does not have a well defined meaning. You cannot find a definition for this term in the online finance dictionary. So it clearly is not a fundamental economic concept. CLS is using the charlatan technique of purposely blurring the definition of words.
Allowing patent claims like these would effectively foreclose the productive use of economic concepts and other fundamental principles in our increasingly computerized Information Age, in contravention of the Constitution and the Patent Act.
The claims are clear and if CLS wants to computerize an escrow arrangement it can do so. This is just a lie that Alice’s patent preempts a fundamental principle and the lawyers who wrote this should be sanctioned for lying to the court. Second the purpose of the Constitution is to protect the rights of Inventors. No patent forecloses the productive use of any invention. This is an attempt to confuse patent law property rights with anti-trust law. Property rights provide for the owner the right to exclude others from using their property. Ownership of a building or an invention does not foreclose economically productive uses of the property.
Here is another dishonest statement in CLS’s brief.
The economic concept of intermediated settlement is an abstract idea under the approach taken in Bilski and subsequently endorsed by the PTO.
Note the intellectual slight of hand here. Alice did not claim the concept of an intermediated settlement. Instead of dealing with the claims, CLS attempts to provide a broad generalization of the claims and then analyze the abstraction. This is against the law and fundamentally dishonest. The court must deal with the claims, not CLS’s self serving broad categorization of the claims.
Property Rights, Patents, and Monopolies
CLS and some judges are suggesting the blatantly false statement that patents are monopolies. Patents are property rights. Property rights are the result of creation, see John Locke. This was recognized in common law and can be found in Sir William Blackstone’s Commentaries on the Laws of England. For more information see Patents are Natural Rights http://hallingblog.com/patents-are-natural-rights/.
Antitrust law is never applied to a property right. It only can be invoked based on how property rights are used. Enforcement of one’s property rights in court cannot be consider a violation of antitrust law. This whole line of reasoning is straight out of a Marxist text and should not be tolerated. But on top of it Alice’s patents do not give it property rights in electronic escrow accounts.
I have often stated that using loose definition is the handmaiden of charlatans and tyrants and CLS seems to be quite good at it.
Laws of nature, natural phenomena, and abstract ideas are not patent-eligible under this Court’s established construction of 35 U.S.C. § 101. The asserted claims of Alice’s patents are ineligible under that standard because they attempt to monopolize the abstract idea of intermediated settlement.
First of all property rights do not monopolize anything. This line of reasoning by CLS is straight from Marxist dogma. CLS and the courts have thrown around the phrase abstract idea but failed to define it. Perhaps Thomas or Scalia will demand a definition.
Let’s examine what a reasonable definition of an abstract idea would be. Some of the potential definitions of “Abstract” from Dictionary.com are provided below:
1. Considered apart from concrete existence: an abstract concept.
2. Not applied or practical; theoretical. See Synonyms at theoretical.
3. Difficult to understand; abstruse: abstract philosophical problems.
4. Thought of or stated without reference to a specific instance: abstract words like truth and justice.
5. Impersonal, as in attitude or views.
6. Having an intellectual and affective artistic content that depends solely on intrinsic form rather than on narrative content or pictorial representation: abstract painting and sculpture.
Clearly the first or second definitions appear to be the closest to what the Supreme Court means when speaking of patents.
Now here are some of the definitions of “idea” from the same source.
1. Something, such as a thought or conception, that potentially or actually exists in the mind as a product of mental activity.
2. An opinion, conviction, or principle: has some strange political ideas.
3. A plan, scheme, or method.
4. The gist of a specific situation; significance: The idea is to finish the project under budget.
5. A notion; a fancy.
The first definition appears to be the most appropriate. So what we end up with is a thought or conception that is separate from concrete existence or not applied to the practical. In the broadest sense of the word, every patent defines an invention that has been abstracted. An invention by definition is an abstraction or a category of things. If this is what the judges mean, then the standard is complete nonsense, since it negates every patent.
If we use the definition of an Abstract Idea given above “a thought or conception that is separate from concrete existence or not applied to the practical”, then every invention that meets the requirements of 35 USC 112 first paragraph is not an Abstract Idea, since this section requires that the invention be described in a manner so one skilled in the art can practice the invention. Something that can be built and used (practiced) is concrete and applied, therefore it is not an abstract idea. The ABSTRACT IDEA exclusion to 35 USC 101 should be dropped, because any logical definition of an abstract idea is excluded by 35 USC 112, first paragraph. It should also be dropped, because, Judges should not read into statutes things that are not there.
A computer is not an abstract idea, it uses electrical power, generates heat, causes electrons to move. Those are all real world effects.
Another poorly defined term is used by CLS in this statement.
The claims asserted by Alice do not include “significantly more” than the abstract idea of intermediated settlement, such that they could be patent eligible under Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012). Alice fails to come to grips with the analytical approach this Court articulated in Mayo, which requires an “inventive concept.”
First of all the patent statutes do not discuss an inventive concept. Second of all, the phrase ‘inventive concept’ is not defined in the brief, statute, regulations, or by the Supreme Court or any other US court. Courts do not have the right to reinvent statutes. The requirements for a patent are clear and substituting another term for what the statute says is illegal and should cause any judge to be impeached for subverting the Constitution.
Another poorly defined term used to smear patents by CLS.
Petitioner Alice Corporation Pty., Ltd. Contends that the CLS system infringes “business method” patents that broadly claim a computerized form of intermediated settlement.
Every patent is part of a business and any method patent is therefore broadly speaking a business method patent. The first patent issued in the US was a method of making potash. Since making potash is/was a business the very first patent issued in the US was a business method patent. The people who argue against business method patents have failed to provide a consistent, clear definition of what they mean.
CLS tries to paint Alice’s claims as being the same as Bilski. This is nonsense. Bilski admitted that their claims did not require a computer. Alice’s claims specifically require computers and a communication network.
Note that a series of steps performed by hand can definitely be an invention. The first patent issued in the US was for a method of making potash and all the steps were performed by hand.
Other Points Nonsensical Points in CLS Reply Brief
Alice suggests that its claims do not meet its chosen dictionary’s definition of escrow because they “do not prescribe that the electronic intermediary (or any other third party) receives any money or property.” Pet. Br. 47 (emphasis added). Of course, Alice’s claims do not preclude the receipt of money or property and thus would cover such activity. In any event, nothing in the concept of intermediated settlement requires the physical exchange of money or tangible property.
This shows a lack of understanding of patent law. Either these lawyers should be fired as incompetent or they should sanctioned for lying to the court. No patent claim precludes the use of something outside of the claim. Alice’s claims do not cover the use of an electronic escrow. Claims don’t preclude things, they define what is covered by the claim. If my patent claim on a bicycle includes a shock absorber in the fork, it does not preclude having a solid fork. It also means you can build a bicycle with a solid fork. Here CLS is admitting that Alice’s claims do not preempt an escrow arrangement. But like all charlatans they state it in such a convoluted way that it is hard to untangle the mess to see what it really means.
CLS quotes two Mark Lemley papers. Mr. Lemley is not a patent attorney, has never written a patent claim in his life, is not legally or factually competent to practice patent law. Mr. Lemley is a charlatan who spouts off recycled Marxist ideology applied to patents.
Adam Mossoff takes on the common claim that patent are too vague in his paper THE TRESPASS FALLACY IN PATENT LAW, by Adam Mossoff, 65 Fla. L. Rev. 1687. The argument is often framed as patents are not like real property where you know if you are trespassing another person’s property. This analogy is flawed, he points out, because property rights in land are not limited physical trespass. Property rights include time (future interest), use, and physical boundaries. The proper analogy would be with the estate or all the property rights associated with land. Then he points out that critics of patents actually have no empirical data on litigation involving all aspects of ‘real property’. He also points out that real property disputes often turn on the meaning of arcane terms and arise because legal drafting in not an exact science or math.
I would add that most of the commentators on patents are not legally or factually competent in reading claims. In addition, neither are most judges. (See Is the Supreme Court Competent to Rule on Patent Cases?) This is not because patents are vague or purposely obscure or overly formalistic. Drafting claims is a skill that takes several years to become proficient with. The same is true of being able to interpret a paper on electromagnetics or quantum mechanics and these are very precise sciences.
Most of the people complaining that patents are too vague are not interested in the truth, logic, or reason. They want to destroy all property rights or they are crony capitalists that want a patent system that favors them, particularly against individual inventors and startups.
I have been particularly critical of the whole notion of business method patents. Every patent is part of a business and any method patent is therefore broadly speaking a business method patent. The first patent issued in the US was a method of making potash. Since making potash is/was a business the very first patent issued in the US was a business method patent. The people who argue against business method patents have failed to provide a consistent, clear definition of what they mean.
I have also defined an invention as a human creation with an objective result, while art is a human creation with a subjective result. By objective result I mean that the invention has a repeatable result. For instance, a patent for an incandescent light bulb always produces light when the correct electrical signal is applied to the light bulb. Just because a person performs one of the steps in a claim does not make it invalid. For instance, in the patent for the method of making potash a person performed many if not all the steps. However, if the person is making a non-objective evaluation or decision as part of the method, then the process does not have a repeatable or objective result. This is why most management theories are not patentable. For instance, the popular SWOT (Strengths, Weakness, Opportunities, Threats) analysis relies on experts to define each of these points. If you put different experts into the process then you get a different result. On the other hand double entry accounting yields the same results no matter who is performing the process (as long as they apply it correctly), so it has an objective or repeatable result.
Using this standard I have found that a number of ‘business method’ patents that are invalid. These patents rely on the use of subject matter experts to evaluate something and then provide input in the middle of a process. This does not result in an objective, repeatable result. Now if these experts’ subjective opinions are at the beginning of a process, then this may still provide an objective result. For instance, if the SMEs provide a subjective 1-10 evaluation of certain Strengths in a SWOT analysis and the invention then processes these to determine the mean or rank them is some way, then this is an invention, because if the process receives the same inputs it will provide the same output, i.e, it is repeatable and objective. Alternatively, if the SMEs are provided with processed information at the end of the process, then this is an invention.
This paper explores the philosophy of science. The philosophy of science is mainly concerned with metaphysics and epistemology, but it is not completely divorced from ethics. This paper defines the necessary philosophical underpinning of science. At the end of this paper I will show that the Copenhagen Interpretation of Quantum Mechanics is inconsistent with the philosophy of science. Note that I am not suggesting that every scientist holds or held this philosophy.
Identity: The fundamental principle of science is that A is A (Identity), meaning that things exist; they have certain properties; they always act in accordance with these properties; A does not suddenly become B without a reason. Aristotle had three laws of thought: 1) Law of Identity, 2) Law of non-contradiction, and 3) Law of excluded middle. It seems to me that the second and third laws follow from the Law of Identity. Note for the present discussion we will assume that A is an inanimate object.
Causality is the second tenant of science meaning things happen for a reason or for every effect there is a cause. This means that A is always A unless acted upon by another object/force. For example, gold is always gold unless it is acted on by another object/force. It means a body at rest stays at rest unless acted upon. Causality and Identity result in repeatability. In other words things in the same situation will act in the same way. A mass acted upon by a certain force will accelerate in a consistent way. Identity and causality provide the justification for experimentation. If an experiment is correctly setup to exclude other factors (object/forces) then it will result in the same result, excluding measurement and experimental errors. If any of these tenants were not true, then there would be not point to experimentation. If a lead ball’s mass could suddenly change without any cause, then experimentation would never lead to repeatable results. When we find out experiments are not repeatable, then we know that we have failed to account for a variable. Note the Identity and Causality tenets are the rejection of superstition.
Experimentation: The goal of experimentation is to isolate causes and effects. For instance, if we are to determine if the gravitational effect of an object on Earth is the same, independent of mass, we have to ensure that our experiment does not include other factors. For example, we cannot allow wind resistance in our experiment. This means the objects have to have an equal wind resistance, or better yet, we need to eliminate wind resistance in our experiment.
Since no experiment or measurement can be perfect, we take into account measurement/experimental errors. Note that if these errors are truly random (Gaussian), then they will average out for a continuous random variable and significantly reduce for a discrete random variable. If they are not random, then we have not properly setup of the experiment, meaning we have failed to account for a variable. Note the experimental tenet of science requires that we can trust our senses. This does not mean that our senses give us perfect information, but that the information we receive from our senses is also ruled by the Identity and Causality laws.
Theories: Identity and causality allow us to use logic and reason to categorize and predict results, or form hypothesis and theories. Experiments are used to verify or disprove these theories. Smaller theories can be built upon using logic to create broader theories. For instance, inertia and Galileo’s law of falling can be applied to planets and tides, which is what Newton did in creating his ideas of motion and gravity.
A good scientific theory is one that explains and predicts many individual facts. Every theory so far is incomplete and it is where experiment does not agree with theory that leads to the next big leaps in science. Thus if we assume that heavier object are subject to a greater gravitational acceleration than lighter objects, but we find that lead balls of differing masses fall at the same rate, we know we need to revisit this hypothesis/theory. This also means that there is an evolutionary or expanding nature to scientific theories. Newton’s laws of motion and gravity refined and expanded upon Galileo’s theory of inertia and his law of fall. Einstein’s relativity did not disprove Newton, it just refined and expanded on them at speeds near the speed of light and in regions of very large gravity. Part of how we know that Einstein’s theory of relativity is ‘correct’ is that it is consistent with Newton in certain regions and with the body of facts that Newton physics explained. There is a similar thing in mathematics, where we define over what range a statement is true. For instance, if a*b=c, then b=c/a, where a is a non-zero real number.
This evolutionary, expanding nature of scientific theories is the difference between a real science and pseudo science (or at least a poorly formed science). In a pseudo science a new theory can come along and predict totally different results. For instance, under classical economics printing money (counterfeiting) has a negative effect on the economy. Along comes Keynes and suddenly if the government prints money it causes an increase in wealth (GPD).
Perfect Knowledge: Does knowledge have to be perfect knowledge in order to be knowledge? Often scientific theories are attacked because as being incomplete. Every scientific theory so far is incomplete, because we don’t know everything about everything. I am going to postulate that we cannot ever know everything because there is always a deeper layer of knowledge. For instance, Newton explains the effects of gravity but not how it works. In fact, Newton was greatly disturbed that his best explanation of gravity required action at a distance without some intermediate (corpuscle). Knowledge is certainty that a fact or theory is correct within certain limits and therefore repeatable in science. For instance, if a builder assumes that Earth is flat or described by Euclidean geometry will this inaccuracy cause any problems? Even if the builder is constructing a building with a mile long foundation, the error of assuming the Earth is flat is less than two inches or much less than the underlying variation in the terrain. On the other hand if I am sailing across the world or launching a spaceship and I assume that the Earth is flat, then I have a problem. This is like the bounds in mathematics and as long as we know the bound of our knowledge it does not cause any problems. On the other hand, discovering the bounds of our knowledge is where the really interesting science and engineering occur and how we expand the bounds of our knowledge. The idea that knowledge has to be perfect seems to come from Plato’s idea of pure forms. Physics makes it clear that Plato’s ideal forms do not exist and are not necessary for science or realism. Attacking a scientific theory for failure to explain everything is meaningless, it is just saying we have not learned everything. It is only a valid attack on a scientific theory if it predicts something that turns out to not be so – a contradiction. Even then the contradiction may only occur within certain bounds or only matter within in certain bounds, in fact any well tested scientific theory will only be meaningfully incorrect within certain bounds.
In keeping with this idea of imperfect or lack of absolute knowledge, I am sure my thesis (philosophy of science) is not ‘perfect.’ As a result, I have tried to define the minimum requirements for the philosophy of science. I have not for instance included Locke and Newton’s corpuscular ideas, which are really about their philosophy of how physics works.
Statistics as applied to physical sciences is not in conflict with the Law of Identity or Causality. Statistics are a way of bounding our lack of knowledge about certain factors. For instance, if you know all the initial conditions of a coin flip, you can determine whether it will land on heads or tails exactly. In grad school in physics I had to solve a similar problem of a quarter slightly tilted to one side and given an initial velocity, will it land on heads or tails. There is an exact solution, it is not random. Statistics also deal with measurement errors and uncertainty in the conditions of the experiment. None of this in anyway suggests that the Law of Identity or Causality is suspended.
Curve fitting: There has been a popular theory in physics that all we are doing is curve fitting and understanding is illusory and wrong. Curve fitting is something engineers do when working from first principles is too complex. For instance, we know that the resistance of a thermistor varies with temperature, but we cannot solve the relationship from first principles. In this case we will take a number of measurements (experiments) and then just fit a curve so that we can covert an output resistance, actually voltage to a temperature. Curve fitting is useful, but it does not provide an understanding of the underlying phenomena and is generally limited to very specific situations. It is not the goal or what science does. Science looks to understand underlying physical phenomena, not just model it. Curve fitting can tell you the rate that an object will fall to Earth, but not why and it can’t tell you why this is related to planetary orbits.
Animate objects present additional challenges. For instance, a tad pole turns into a frog. Does this violate the law of Identity? The answer is no because a tadpole never turns into a cat or something else. But with animate objects it is necessary to apply the law of identity at a finer granularity. For instance, are you the same person you were ten years ago? Well all the cells in your body have completely changed and you are older, so probably you have some wrinkles and of course ten years of experience you did not have ten year ago. The difficulty with animate objects is that they can use internal energy to change their position or state. But when we look inside of the animate object we see that it acts according (sometime very complex) to the law of Identity and Causality.
Ethics: The philosophy of science does include an ethics, which is that we must report (record) data accurately. Fudging the data in science is the greatest sin in science. This is one of the reasons the proponents of Anthropomorphic Global Warming (AGW) cannot be taken serious. Not only have they repeated lied and fudged the data but their advocates suggest this is okay in fact required. It also why much of economic data can no longer be taken seriously.
The Copenhagen Interpretation (CI) of Quantum Mechanics (QM)
There was a great fight at the beginning of QM over how to interpret Schrodinger’s wave equation. Einstein, Schrodinger and others never accepted the point particle statistical model (PPSM) of QM. Nothing in the mathematics or experimental evidence required the PPSM of QM and certainly nothing required the CI model. The main justification for the statistical approach to QM is the Heisenberg uncertainty principle. If we can only know the location and momentum of a particle with certain precision then we cannot know the original state of a system exactly or the final state of the system exactly. This is how I resolved the statistical nature of QM while I was in grad school in physics and I would bet that this is how most physicists think about this issue. Note new research has shown problems with the uncertainty principle. However, the CI does not resolve the issue this way. The CI has never actually been well defined, but here is a rough sketch of their ideas:
a) negation of causality
b) negation of realism and
c) involvement of infinite and imaginary velocities or masses.
Note that part (a) directly contradicts one of the fundamental tenants of science. You may think I am exaggerating, so here are some quotes:
Heisenberg states clearly:
“The law of causality is no longer applied in quantum theory.”
In order to be coherent, physicists today should no longer try to find the cause of a physical phenomenon. According to Heisenberg’s statement, there is no cause, it is simple magic. Greenberger uses the same expression and states simply, “Quantum Mechanics is Magic”.
Much more recently, following the use of the Copenhagen interpretation, Feynman concludes:
“The theory of quantum electrodynamics describes Nature as absurd from the point of view of common sense. And it agrees fully with experiments. So I hope you can accept Nature as she is – absurd.”
Even worse, Mermin states that the results of those absurd interpretations are enjoyable. He writes:
“The EPR experiment is as close to magic as any physical phenomenon I know of, and magic should be enjoyed.” (Whole section)
You may think the rejection of realism is also not true. But here is another quote by Heisenberg.
“The next step was taken by Berkeley. If actually all our knowledge is derived from perception, there is no meaning in the statement that the things really exist; because if the perception is given it cannot possibly make any difference whether the things exist or do not exist. Therefore, to be perceived is identical with existence.”
Clearly, the CI rejects the fundamental tenants of the science of philosophy. We know that without causality the whole point of experimentation is meaningless – if anything can happen what is the point of an experiment. The only logical result is that even the proponents of CI did not believe what they were saying. However, the problems with the PPSI of QM keep compounding. Below is a list of some of those problems.
1) Requires infinite velocities
2) Spin makes no sense for a point particles.
3) Point Particles: “Because point particles are assumed to occupy no space, they have to be accompanied by infinite charge density, infinite mass density, infinite energy density. Then these infinities get removed once more by something called “renormalization.” It’s all completely crazy.. But our physics community has been hammering away at it for decades. Einstein called it Ptolemaic epicycles all over again.”
4) The Laser: “At the heart of laser action is perfect alignment of the crests and troughs of myriad waves of light. Their location and momentum must be theoretically knowable. But this violates the holiest canon of Copenhagen theory: Heisenberg Uncertainty. Bohr and Von Neumann proved to be true believers in Heisenberg’s rule. Both denied that the laser was possible.”
Carver Mead, who studied under Feynman and worked closely with him had this to say about the CI. “It is my firm belief that the last seven decades of the twentieth will be characterized in history as the dark ages of theoretical physics.”
 Heisenberg, Werner, Physics and Philosophy, the Revolution in Modern Science, New York, Harper and Row, 1966, p. 88.
 Greenberger, Daniel, Discussion remarks at the Symposium on Fundamental Questions in Quantum Mechanics, Albany, SUNY, April 1984.
 Feynman, Richard P., The Strange Theory of Light and Matter, New Jersey, Princeton University Press, 1988, p. 10.
 Mermin, N. David, “Is the Moon There when Nobody Looks? Reality and the Quantum Theory”, in Physics Today, April 1985, p. 47.
 Marmet, Paul, Absurdities in Modern Physics: A Solution, http://www.newtonphysics.on.ca/heisenberg/chapter1.html#1.6
 Heisenberg, Werner, Physics and Philosophy, the Revolution in Modern Science, New York, Harper and Row, 1966, p. 84.
 The Paradoxes of Quantum Mechanics, http://www.physics.oregonstate.edu/~stetza/ph407H/Quantum.pdf
 American Spectator, Sep/Oct2001, Vol. 34 Issue 7, p68, Carver Mead, The Spectator Interview, http://freespace.virgin.net/ch.thompson1/People/CarverMead.htm
 American Spectator, Sep/Oct2001, Vol. 34 Issue 7, p68, Carver Mead, The Spectator Interview, http://freespace.virgin.net/ch.thompson1/People/CarverMead.htm
 American Spectator, Sep/Oct2001, Vol. 34 Issue 7, p68, Carver Mead, The Spectator Interview, http://freespace.virgin.net/ch.thompson1/People/CarverMead.htm
The authors (Sven Bostyn and Nicolas Petit) of this paper, PATENT=MONOPOLY – A LEGAL FICTION, argue that patents are not a monopoly based on standard antitrust analysis. It is very unusual for an academic paper to take such an unpopular position. They must have not got the memo that the goal of all academics is to vilify inventors, patents, and property rights. Below are some the lines I thought were interesting and my comments are below.
No other property right is so expensive, time consuming and expensive to obtain title to.
“In 2011, approximately 1,000,000 patents were granted across the globe. This would mean that 1,000,000 monopolies would have been created worldwide. This clearly, cannot be true.”
“Competition is very valuable, but innovation is probably equally, if not more, valuable.”
My main critique is that they did not explain how patents are a property right or the history of property rights and patents. Under Locke’s theory of property rights, patents and copyrights are property rights – they are granted because of the creative effort (labor) of the inventor/author. This was picked up by Sir William Blackstone in his Commentaries, where he affirms that patents and copyrights are property and therefore natural rights. This was enshrined in the constitution as “securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
Patent legislation is in the works right now that is a greater threat to independent inventors than any legislation we have seen in the past.
The bill is the Innovation Act, HR 3309, which passed in the House on Thursday, December 5th. I don’t know everything that is wrong with it, but there are two particular things that really stand out. One is Loser Pays. According to this bill, if a patent owner sues someone for infringement and doesn’t win, he automatically has to pay the other party’s legal expenses. This will end the ability of the typical independent inventor to defend his property. Historically, an inventor could hire an attorney on contingency. Loser Pays creates a huge financial risk that totally changes the playing field. Under Loser Pays, An independent inventor would have to risk financial ruin to defend a patent.
The Innovation Act also undoes provisions that were intended to prevent serial challenges to patents. Under the present law, someone challenging a patent must put their best case forward rather than withholding information and bringing multiple cases in an effort to bankrupt the patent owner. This bill enables vested interests to use serial challenges to bankrupt patent holders and eliminate competition.
The stated reason for this legislation is patent trolls – companies that don’t produce products (NPEs – non-practicing entities), and that buy patents and allegedly sue companies frivolously for infringement. This situation has been hyped up way beyond any actual harm simply to enact legislation that will 1) make it harder for large corporations to be sued successfully for infringement, and 2) eliminate the independent inventor as a threat to the vested interest.
Is there a better example of America and the American Dream than an independent inventor, burning the midnight oil, working toward success with a new invention? This is what the American Patent System was designed to spur, and it did so. It is no accident that America became the most innovative and most prosperous country in the world. But multinational corporations have been using politics to weaken our patent system. The America Invents Act hurt us, but the Innovation Act is the nail in the coffin.
This bill will be voted on in the Senate. It could happen at any time. It got pushed through in the House very fast. Please forward this information to anyone who can help defeat it. Senators need to hear how the Innovation Act will harm independent invention. 99% of the political effort is from large corporations whose interests are directly opposed to independent invention. Please contact your Senators and forward this information to anyone who can help. Time is of the essence.
I have often pointed out that patents are a natural right under Locke’s theory of property rights. Locke stated, in modern language, that you own yourself so you have the right to those things you create. Many detractors have suggested that this absurd. According to Locke the three chief natural rights are life, liberty, and property. Locke states that protecting property rights is the main reason for forming governments.
Sec. 124. The great and chief end, therefore, of men’s uniting into commonwealths, and putting themselves under government, is the preservation of their property.
Inventions are the result the inventor’s labor and therefore property under Locke. Property is a natural right, so patents are natural rights. Despite this logical connection, many people have continued to deny that patents (property rights in inventions) are a natural right.
Locke’s ideas were incorporated in the law of the United States by William Blackstone’s Commentaries on the Laws of England. This treatise became the basis of common law in the US. Here is what Blackstone said about patents and copyrights (intellectual property). Note that he cites Locke’s ideas on property rights for his explanation for why intellectual property is Property.
There is still another species of property, which (if it subsists by the common law) being grounded on labour and invention is more properly reducible to the head of occupancy than any other; since the right of occupancy itself is supposed by Mr. Locke, and many others, to be founded on the personal labour of the occupant. And this is the right, which an author may be supposed to have in his own original literary compositions; so that no other person without his leave may publish or make profit of the copies. When a man by the exertion of his rational powers has produced an original work, he seems to have clearly a right to dispose of that identical work as he pleases, and any attempt to vary the disposition he has made of it, appears to be an invasion of that right.
Now the identity of a literary composition consists entirely in the sentiment and the language: the same conceptions, clothed in the same words, must necessarily be the same composition: and whatever method be taken of exhibiting that composition to the ear or the eye of another, by recital, by writing, or by printing, in any number of copies, or at any period of time, it is always the identical work of the author which is so exhibited; and no other man (it hath been thought) can have a right to exhibit it, especially for profit, without the author’s consent.
This consent may perhaps be tacitly given to all mankind, when, an author suffers his work to be published by another hand, without any claim or reserve of right, and without stamping on it any marks of ownership; it being then a present to the public, like building a church or bridge, or laying out a new highway: but, in case the author sells a single book, or totally grants the copyright, it hath been supposed, in the one case, that the buyer hath no more right to multiply copies of that book for sale, than he hath to imitate for the like purpose the ticket which is bought for admission to an opera or a concert, and that, in the other, the whole property, with all it’s exclusive rights, is perpetually transferred to the grantee.
On the other hand it is urged, that though the exclusive property of the manuscript, and all which it contains, undoubtedly belongs to the author, before it is printed or published; yet from the instant of publication, the exclusive right of an author or his assigns to the sole communication of his ideas immediately vanishes and evaporates; as being a right of too subtile and unsubstantial a nature to become the subject of property at the common law, and only capable of being guarded by positive statutes and special provisions of the magistrate.
The Roman law adjudged, that if one man wrote any thing on the paper or parchment of another, the writing should belong to the owner of the blank materials meaning thereby the mechanical operation of writing, for which it directed the scribe to receive a satisfaction; for in works of genius and invention, as in painting on another man’s canvas, the same law gave the canvas to the painter. As to any other property in the works of the understanding, the law is silent; though the sale of literary copies, for the purposes of recital or multiplication, is certainly as antient as the times of Terence, Martial, and Statius. Neither with us in England hath there been (till very lately) any final determination upon the right of authors at the common law.
But whatever inherent copyright might have been supposed to subsist by the common law, the statute 8 Ann. c. 19 hath now declared that the author and his assigns shall have the sole liberty of printing and reprinting his works for the term of fourteen years, and no longer; and hath also protected that property by additional penalties and forfeitures: directing farther, that if, at the end of that term, the author himself be living, the right shall then return to him for another term of the same duration: and a similar privilege is extended to the inventors of prints and engravings, for the term of eight and twenty years, by the statute 8 Geo. II. c. 13, and 7 Geo. III. c. 38, besides an action for damages, with double costs, by statute 17 Geo. III. c. 57. All which parliamentary protections appear to have been suggested by the exception in the statute of monopolies, 21 Jac., I. c. 3, which allows a royal patent of privilege to be granted for fourteen years to any inventor of a new manufacture, for the sole working or making of the same; by virtue whereof it is held, that a temporary property therein becomes vested in the king’s patentee. (emphasis added)
The idea that patents are a natural right is incorporated in early American law as the quote below shows.
“we protect intellectual property, the labors of the mind, productions and interests as much a man’s own, and as much the fruit of his honest industry, as the wheat he cultivates, or the flocks he rears.” (Davoll v. Brown, 7 F. Cas. 197, 199 [C.C.D. Mass. 1845].)
It is just obstinance or disingenuousness to suggest that patents are not part of natural rights.
 The Second Treatise of Civil Government; 1690; John Locke; CHAP. IX., Of the Ends of Political Society and Government.
Here is another confused and confusing academic paper, The US, China and the G-77 in the era of responsive patentability Queen Mary Journal of Intellectual Property, Vol. 2 No. 4, pp. 315–328. The paper seems to suggest that it will be bad news for the US and the West if China and other BRIC nations create successful patent systems that result in their technological leadership. The solution according to the paper appears to be aggressive use of anti-trust law. However, the paper is far too incoherent to be sure exactly what the author’s point is.
The paper starts with some telling lines.
It appear that “‘anything made under the sun by man’” is patentable, but it is also clear that the sun never sets on the patent system.
Responsive patentability means that anything is patentable anywhere. Restrictions on patentable subject matter are read down or circumvented through clever claims drafting.
Most citizens in poor states cannot afford to pay patent prices for access to needed medical and food technologies.
Responsive patentability is unresponsive to the preferences of poor people.
The author, Mr. Drahos, is a professor of law and heads the Chair in Intellectual Property at Queen Mary University of London. Interestingly, Mr. Drahos is not a patent attorney and in fact does not have the technical background necessary to be a patent attorney or to sit for the patent bar. How universities think that it makes sense to have a professor who is incompetent to be a patent attorney teach patent law is beyond me.
The paper is full of broad unsupported statements such as those above. Why should the sun set on the patent system? Should the sun set on the criminal system, on the property rights system? Mr. Drahos offers no explanation. Why should there be a restriction on patentable subject matter? If so what should those restrictions be? Again Mr. Drahos offers no explanation.
What is the point of stating that poor people cannot afford patented foods or medicines? Poor people cannot afford many things. That is the definition of being poor. So what is Mr. Drahos point?
Finally, the statement that responsive patentability is unresponsive to the preference of the poor is totally unsupported. Should the criminal law system be responsive to the preferences of the poor? Why should the poor’s input be more important than anyone else? Is physics, algebra, chemistry, calculus responsive to the preferences of the poor? Should they be?
Patent law should be based on logic and reason. It should be firmly grounded in property rights and it should not deviate from this logic for the poor, the rich, or socialists like Mr. Drahos.
Ignoring the obvious bias of the paper it appears to be making a point about China becoming a technological leader and how the US and West should respond to this challenge. The paper explains:
China’s market socialism may yet evolve into a close variant of US knowledge monopoly capitalism. This ending to China’s development story would not surprise readers of Animal Farm.
For a patent wealth maximization strategy to succeed a country’s innovation system must generate core technologies.
Under this criterion the system can be said to work if one country is able to use it to extract monopoly rents from other countries, thereby making it an overwhelming net winner from the system.
From these statements it appears that Mr. Drahos is concerned that China might become a creator of technologies, particularly core technologies, instead of just a consumer. The paper appears to imply this would be bad. I cannot see how the world will be worse off if more people are inventing important technologies that make everyone’s life better. Again the paper fails to explain this assumption, but there are clues to why Mr. Drahos is so concerned with this outcome, for instance, the ominous reference to Animal Farm.
After setting out this dire situation, Mr. Drahos proposes at least a partial solution.
Let us assume for the sake of argument that a succession of five-year plans turn China into a patent superpower with control over many core technologies. How might the US respond to such a situation? One possibility is that it would simply issue compulsory licences over those foreign technologies it believed were vital to its national interests. Over the course of the twentieth century, antitrust law has been intellectual property’s constant regulatory shadow. For significant periods of the twentieth century it was a shadow that loomed over intellectual property owners to check the exclusionary uses of their monopoly powers. There is a resilience to antitrust principles in the US that should never be underestimated.
Mr. Drahos solution to an inventive China is to ignore property rights either with compulsory licensces or antitrust law. Modern antitrust law is anti-property rights and turned the law against monopolies on it head. The Statute of Monopolies of 1623 limited the power of the Crown (government) to interfere with private property rights. The Statute of Monopolies excluded patents for inventions because they result from the creative effort of the inventor and therefore are property rights. On the other hand modern antitrust law increases the power of government to interfere with private property rights. The underlying theory of antitrust law is the efficient market hypothesis. This hypothesis postulates that wealth is created by falling prices for existing goods and services and this is the result of competition to sell existing goods and services. However, this is incorrect and inconsistent with modern economic research. Increases in per capita income are the result of increases in technology – inventions. Antitrust law undermines the incentive to create and invest in new technologies and therefore hurts our economic health.
When the US was facing an economic and technological challenge from Japan in the 1970s, the answer was to strengthen US patent law. It worked spectacularly. The US regained both its economic and technological leadership in the 1980s and 1990s. Then the US started weakening its patent laws around 2000 and has continued to do so. Once again the US is stagnant technologically and economically. The clear answer to a technological challenge by China is for the US to strengthen its patent rights and all property rights not to resort to antitrust law, which is what the US did in the 1970s.
Let’s deconstruct Mr. Drahos paper. He hates patents and does not think they should exist. His citation of Michele Boldrin and David K Levine, who have written a book suggesting the elimination of patents, demonstrates this point. Mr. Drahos has argued elsewhere that patents are not “property”, which is consistent with his ‘monopoly’ analysis. But Mr. Drahos isn’t just against patents, he is against property rights generally. For example he quotes Fidel Castro with approval.
Fidel Castro in a speech at a G-77 Summit in Havana in 2000 claimed that developed countries ‘control 97% of the patents the world over and receive over 90% of the international licenses’ rights’. He went on to observe that the ‘new medications, the best seeds and, in general, the best technologies have become commodities whose prices only the rich countries can afford’. Castro finished with a strong appeal for unity and cooperation amongst the G-77.
Castro as a communist is against all property rights. Mr. Drahos concern in this paper is not that the US might fall behind technologically, it is that other countries might adopt a strong property rights legal system that including patents. The patent discussion in this paper is just a crutch from Mr. Drahos to push a radical Marxist ideology. It is an embarrassment that this paper is considered academic or scholarly research and that Mr. Drahos has a job as a professor of law and chair in intellectual property.
The US, China and the G-77 in the era of responsive patentability Queen Mary Journal of Intellectual Property, Vol. 2 No. 4, pp. 315–328.
- dbhalling on Halling’s Talk at Atlas Summit 2014: Why John Galt is an Inventor
- step back on Halling’s Talk at Atlas Summit 2014: Why John Galt is an Inventor
- Halling's Talk at Atlas Summit 2014: Why John Galt is an Inventor | Blog of Dale B. Halling, LLC - Intellectual Property & Patent Innovation, Attorney - Powered by Clvr.Tv on Why did Rand Choose Inventor as Galt’s Profession?
- dbhalling on Excellent Article by Adam Mossoff: Do IP Rights Promote Economic growth
- step back on Excellent Article by Adam Mossoff: Do IP Rights Promote Economic growth
- Patent Trolls: Evidence from Targeted Firms
- CATO and Mercatus Center: Another Flawed Study on Patents
- What are the Foundations of Quantum Mechanics?: Video
- Halling’s Talk at Atlas Summit 2014: Why John Galt is an Inventor
- Rebirth of Reason Website Attacks Patents
- Intellectual Property, Innovation and Economic Growth
- Excellent Article by Adam Mossoff: Do IP Rights Promote Economic growth
- Interesting Infographic – Computer Science Zone
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