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This videoby Alexander Poltorak takes on a number of the myths associated with patent trolls. The video explains the hypocrisy of large companies complaining about “Patent Trolls.” It also makes an interesting point that patents are not a tax on innovation but a tax on copiers (non-innovators). While I do not agree with all the points in the video, it makes a valuable contribution to the discussion about the value of patents.
According to Intellectual Property Watch, the worldwide patent backlog “could impose £7.6 billion (about USD$11.3 billion) in annual expenses on the global economy within the next five years if nothing is done to fix it, according to a new economics study from the United Kingdom released this morning before directors of several top global intellectual property offices.” Personally, I know this significantly underestimates the damage done by dysfunctional patent systems around the world.
The article suggests that patent harmonization is necessary to reduce the backlog. However, harmonization has done nothing to reduce the backlog of unexamined patent applications to date. In addition, all harmonization programs have been attempts to weaken the US patent system and give away our technology. The article suggests that hiring additional examiners has not worked to reduce the patent backlog. Of course, if the US government took its constitutional duties seriously they would prioritize the patent system instead of trying to take over health care, or spending billions on green projects or social engineering projects.
What is needed to reduce the backlog of unexamined patents is a reciprocity system. Under reciprocity if an inventor received a patent in Canada they would obtain some patent rights in the US and vice versa. This does not require harmonization, so it does not hurt the rights of US inventors. “About 50 percent of patent applications seen in the US come from overseas,” according to David Kappos, Director of the US Patent and Trademark Office. The US Patent Office is just repeating the work done in other patent offices of other countries. While not all of these countries can be counted on to perform a thorough examination, many can. It makes no sense that your patent is only valid in one country but can be invalidated by prior art anywhere in the world. It’s as if you lost the rights to your car when you drove it into Canada. Reciprocity would also encourage more investment in technology, which is the only way to increase real per capita income.
March 7 is the anniversary of Alexander Graham Bell’s patent on the telephone. There is a common misconception that Bell received the patent over Elisha Gray because he was first to the patent office by several hours. This is incorrect. The United States has always had a first-to-invent patent system not a first-to-file system. Let’s hope it stays that way. (Congress is considering changing our patent laws to a first-to-file system, which would be disastrous for independent inventors and small companies.) As a result, it was irrelevant who filed their patent application first. 
Eventually a number of patents related to the telephone were all involved in an interference, which is a proceeding to determine who was the first true inventor. According to an article in the New York Times dated October 24, 1884, there were originally fourteen parties involved in the interference but only six remained: William L. Voelker (two patent applications), Thomas A. Edison (five applications), Elisha Gray (four applications), John H. Irwin & James W. McDonough (one application), and Alexander Graham Bell (two applications). These patents appear to have covered eleven patentably distinct aspects (counts) of the telephone. One count was directed to the speaker diaphragm, another count was directed to transmitting reproducing sound by increasing and decreasing the strength of an electric current. Bell did not win on all counts.
There are number of things that are interesting about this article in the New York Times. For instance, the writer did not feel compelled to explain to his audience what an interference was or what a count in an interference was. I cannot image this being the case in any general interest publication today. Only in a publication specifically directed to patent attorneys would this be true today. It is unlikely that any generally interest publication or even industry specific publication would carry an article on a patent interference. Clearly, inventors and patents were held in higher regard in the late 1800s than today.
Another interesting point: there were many patents involved in the invention of the telephone. These overlapping rights had to be resolved to create a functioning telephone system. Any number of patent critics today seem believe we are unique in having multiple patents that apply to a product or system; but at least since the invention of the steam engine it was common to have these overlapping rights. Despite today’s critics , our ancestors were able to deal with these issues and move technology forward. Why is this such a hard concept to reconcile?
There seems to be a lot of confusion about Ayn Rand’s position on intellectual property both by her supporters and her detractors. For instance, the Cato Institute considers it almost a prerequisite to have read Atlas Shrugged to work there. However their position on patents and copyrights is in direct contradiction to Ayn Rand’s position. 
The following quote from Atlas Shrugged, should give you a hint at Ayn Rand’s position on intellectual property:
“Man’s mind is his basic tool of survival. Life is given to him, survival is not. His body is given to him, its sustenance is not. His mind is given to him, its content is not. To remain alive he must act and before he can act he must know the nature and purpose of his action. He cannot obtain his food without knowledge of food and of the way to obtain it. He cannot dig a ditch––or build a cyclotron––without a knowledge of his aim and the means to achieve it. To remain alive, he must think.” Rand 1992, p. 1012.
Ayn Rand devotes a whole chapter, Chapter 11, in Capitalism: The Unknown Ideal to patents and copyrights. The first sentence makes her position crystal clear. “Patents and copyrights are the legal implementation of the base of all property rights: a man’s right to the product of his mind.”[1] “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.”[2]
After pointing out that intellectual property is the source of all property rights, she clarifies the distinction between the idea and the physical embodiment. “What the patent or copyright protects is not the physical object as such, but the idea that embodies it. By forbidding an unauthorized reproduction of the object, the law declares, in effect, that the physical labor of copying is not the source of the object’s value, that the value is created by the originator of the idea.”[3] “Thus the law establishes the property right of the mind to that which it has brought into existence.”[4] She then points out that “patents and copyrights only pertain to the practical application of knowledge, to the creation of a specific object which did not exist in nature.”[5]
Next, she tackles the whole question of whether a patent is privilege (in the modern sense of a gift)[6] or is a right. According to Rand, the government does not grant a patent, in the sense of a gift, privilege of favor, but recognizes the originator of the idea and protects their rights in the idea.[7]
Rand has a very interesting take on the reason for limited terms of patents and copyrights. She analogies a patent or copyright to a debt owed to the inventor/author by people that copy the inventor’s invention or author’s book. Debts are not and cannot be perpetual, so this is why the term of patents and copyrights are limited according to Rand. I will note that real property rights are actually time limited also. A person only has a property right in real (personal) property during their lifetime. How can someone who is not alive own something – this would be a logical absurdity. However, real property is passed on to the person with the next best title to real property upon a person’s death. In the case of intellectual property, no one person has better title to intellectual property than anyone else so upon the expiration of its term it becomes free for all mankind to use. Or as Rand explains, real property “can be left to heirs, but it cannot remain in their effortless possession in perpetuity: the heirs can consume it or must earn its continued possession by their own productive effort.”[8] In contrast, “Intellectual property cannot be consumed. If it were held in perpetuity, it would lead to the opposite of the very principle on which it is based: it would lead, not to the earned reward of achievement, but to the unearned support of parasitism.”[9]
Rand seems to anticipate the patent thicket discussion and suggests that this is the reason for shorter terms of patents than copyrights.[10] She also suggests that it is very difficult to correctly define the limits of a patent boundary.[11] Here, she is mistaken. There is no evidence of a patent thicket ever existing on a macroeconomic level, only evidence of people who do not want to compensate an inventor for using their technology. The boundaries of patents are no more difficult to define than those of copyrights or land before GPS and title insurance. However, patents will be more useful as the equivalent of title insurance for invention is created.
I will end this post with a particularly prescient quote from Rand:
Today, patents are the special target of the collectivists’ attacks . . .[12]
[1] Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 130.
[2] Id.
[3] Id.
[4] Id.
[5] Ibid. p. 131.
[6] See Adam Mossoff’s excellent paper “Who Cares What Thomas Jefferson Thought About Patents?
Reevaluating the Patent “Privilege”, where he points out that historically a privilege is a right that can only be secured in society, essentially synonymous with what we would call a “civil right” today. http://www.pff.org/issues-pubs/ip/bulletins/bulletin2.2jeffersonprivilege.pdf
[7] Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 131.
[8] Ibid. p. 131
[9] Ibid. p. 131
[10]Ibid. p. 133
[11]Ibid. p. 133
[12]Ibid. p. 133
Creating a Thriving Technology Start-Up Environment
Presented by: Dale B. Halling
Where: Colorado Springs Technology Incubator
Peak Venture Group
Thursday, February 25th, 2010
Presentation at 4:00 p.m.
Pink and Red Social to follow 5:00 – 7:00 p.m.
Location: Colorado Springs Technology Incubator
Petritz Foundation Conference Room
3595 E. Fountain Blvd., Colorado Springs, CO 80910
Creating a Thriving Technology Start-Up Environment
Presented by: Dale B. Halling
Mr. Halling is a physicist, lawyer and an expert on patents and entrepreneurship, all of which is revealed through his book, The Decline and Fall of the American Entrepreneur: How Little Known Regulations are Killing Innovation.
Mr. Halling is also the main author and moderator of the blog “State of Innovation,” www.hallingblog.com.
Space is Limited! Register Early!!
RSVP to PVG at https://www.peakventure.org/Register.aspx
or directly to mary.fox@cstionline.org (719.685.7877 x100)
Directions:
- From I25, take exit 139 (only heads east) on Fountain Blvd. for 2.5 miles. The Incubator’s two-story building is on the right side, just one block west of Academy Blvd., situated on the southwest corner of Fountain and Alvarado Drive, directly across from the US Post Office.
- From the Airport, take Powers Blvd. north to Fountain Blvd. (US 24) west, cross over Academy Blvd. and turn left at the first traffic light on to Alvarado. Immediately turn right into CSTI’s parking lot.
The Obama administration is proposing a jobs bill or stimulus II bill. The fundamental question is whether the government should create jobs directly or pursue policies that allow private companies to increase employment. If the government were to spend its entire budget on jobs, it could only spend $3.5 trillion. If you eliminate “mandatory spending” which includes Social Security, Medicare, Medicaid, and interest expenses then you are left with only $1.3 trillion. This is essentially the amount of the projected deficit for 2010. Public action could result in $1.3 trillion spending on jobs at best. This spending is unsustainable since it is based exclusively on borrowed money.
How much money could be invested in jobs if the U.S. were to pursue policies that encourage investment in job producing enterprises? The U.S. has a $14.0 trillion economy. If you assume that the U.S. earns 10% on capital, then there is $140 trillion in capital in the U.S. The U.S. represents 20% of the world economy, so there is at least $700 trillion in capital in the world. If the U.S. were to pursue policies that encouraged private investment in the economy, then it would not be surprising if it attracted 1% of the worldwide capital or $7.0 trillion. This would dwarf the $1.3 trillion that the government could spend on jobs. Private investment would create self sustaining jobs unlike government spending. In addition, the government would save the $1.3 trillion it would have otherwise spent so the country would be $8.3 trillion better off. These numbers are not exact but it clearly illustrates the point that private action is much more powerful than public action.
What policies would encourage this avalanche of private investment? The right policies would encourage investment in technology, since the only reason we are wealthier now than in the past is because of our level of technology. New technologies are capable of exponentially increasing our standard of living and create high quality, high pay jobs. The top three policies that would encourage private investment in new technologies are: 1) strengthening our patent laws (intellectual property), 2) repealing Sarbanes Oxley, and 3) repealing the capital gains tax. Patent laws are the method of obtaining title to technology. If a company cannot own its technology, then investors and inventors are unlike to invest in developing new technologies. Property rights (patents) are critical to attracting investment. Sarbanes Oxley makes it almost impossible for companies to go public. Access to public markets is critical for investors to monetize their returns. Capital gains reduce the return to investors and are a form of double taxation. The higher the capital gains the lower the level of investment.
Private action is significantly more effective at creating jobs and stimulating the economy. We need policies that encourage investment in technology, because advances in technology are the only way we increase real per capita income. These policies include strengthening our patent laws and repealing Sarbanes Oxley and capital gains taxes.
I (Dale B. Halling) will be appearing on the Mancow Radio Show Monday, February 8th, between 6-6:30AM, MST. Mancow and Cassidy can be heard around the country including on AM 890 WLS. I will be discussing how to create high quality jobs.
An excellent article, by Allan Sloan, of Fortune states that the next bailout will be Social Security. The article, Next in Line For a Bailout: Social Security, states
Social Security hasn’t been cash-negative since the early 1980s, when it came so close to running out of money that it was making plans to stop sending out benefit checks. That led to the famous Greenspan Commission report, which recommended trimming benefits and raising taxes, which Congress did. Those actions produced hefty cash surpluses, which until this year have helped finance the rest of the government.
Mr. Halling will be giving a talk on his book in Colorado Springs at the Broadmoor Rotary Club’s Thursday meeting.
Grant Thornton has prepare a paper entitled Market Structure is Causing the IPO Crisis . Here is my understanding of
their position. The IPO market, especially for small IPOs started to decline before Sarbanes Oxley. The Manning Rule and Order Handling Rule and decimalization decreased the margin for handling illiquid securities by brokerage houses. Finally, online brokerage accounts have killed quality research and encouraged speculation.
The things that effect the IPO market are the cost of going public, the return for going public, the alternatives to going public, and the willingness of an investment bank to take you public (might be part of the cost). While not stated explicitly in the report, they seem to imply that there is little incentive for investment banks to take small companies public or to create a market in their securities after the fact. If true, I think this would contribute to the IPO downturn, but I do not think they have stated their case very strongly.
It is a sad day in U.S. history. According the Heritage Foundation and Wall Street Journal’s 2010 Index of Economic Freedom the U.S. has fallen to eighth. The U.S. is behind Canada, Ireland, Australia, Singapore, etc. According to the report the U.S. fell further in the index than almost any other country. Please read the full report. http://www.heritage.org/Index/ My only complaint with the report is that they do not rank countries according to their protection of intellectual property. I think this would be a valuable addition.
Under the KSR decision (KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 416 (2007)) by the Supreme Court nothing is patentable under the sun, unless you believe in black magic. The Supreme Court in the Bilski (http://hallingblog.com/2009/11/10/bilski-case-reveals-supremes-ignorance/) oral arguments proved that the justices do not have the competence of a first year patent law associate. KSR shows that the justices do not understand basic physics.
See if you can spot the errors in physics in the following statements. “The combination of familiar elements according to known methods is likely to be obvious when it does no more than yield predictable results.” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 416 (2007). “A court must ask whether the improvement is more than the predictable use of prior art elements according to their established functions.” Id. at 417. While the Supreme Court’s writing is not the model of clarity, the Court thinks these statements are equivalent. The Court is saying that a patent for an invention made of known elements (prior art elements, familiar elements) and connections (according to known methods) is likely to not be patentable.
Every real invention is a combination of known elements, unless you can violate the conservation of matter and energy – black magic. The fact that the Supreme Court does not know this basic application of the laws of physics demonstrates that it is incompetent to rule on patent matters. Another flaw in their logic is that if an inventor filed for a patent with an element that was completely new, then the Patent Office would reject the application, appropriately, as failing to clearly and distinctly claim their invention under 35 USC 112, second paragraph. The fact that the Supreme Court does not understand the legal contradictions of their opinion, demonstrates that they do not understand the basics of patent law.
This is a copy of Pat Choate’s review of The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation. Dr. Pat Choate, economist, former Vice Presidential running mate of Ross Perot 1996, Director of the Manufacturing Policy Institute, Phd. Economics University of Oklahoma.
I do not review books on the Net unless I find them well-written and especially informative, which certainly applies to Dale B. Halling’s The Decline and Fall of the American Entrepreneur.
Nonetheless, I do have a criticism directed towards the publisher. My copy did not contain a vita of the author, which in this case is a major omission. Mr. Halling is a physicist, lawyer and an expert on patents and entrepreneurship, all of which comes through in his book. This author delivers the goods. A vita in subsequent printings would be useful.
Mr. Halling combines two topics — the impediments to entrepreneurship that have been created by the U.S. government as an unintended consequence of its pursuit of other goals and the systemic weakening of the U.S. patent system by the U.S. Supreme Court and the Congress.
The resulting technological stagnation is a major reason the U.S. has gone from producing 25 percent of the World’s Gross Product in the mid 1990s to about 20 percent today. The loss is significant – about $3 trillion of U.S. GDP in 2009 alone.
He demonstrates in clear terms the linkages between economic growth, productivity, and income. And he lays out how technological advancement has always been the American advantage in global competition, an advantage that the U.S. is squandering.
He explains how the Sarbanes Oxley Act cut off the waves of venture investment that did so much to stimulate U.S. growth in the 1980s and 1990s, and he also explains how shifts in accounting rules as per stock options directed many of our most creative people into less than innovative activities.
His final chapter contains some straight forward recommendations that involve no direct-cost regulatory changes that would once again stimulate more innovation, investment and job creation in America. Amazingly, Congress is now considering a so-called “patent reform” legislation that would further diminish U.S. innovation. The author convincingly explains how this would damage U.S. innovation. He also explains the consequences of recent Supreme Court decisions on patent law. My observation is that the Roberts Court is the most anti-patent set of Justices in U.S. history. Once Congress understands what the Court has done, their decisions need to legislatively overturned.
In sum, this is well-written, jargon-free, 137-page book that is a quick read. It evidences smart and practical thinking by an author with real world experience. I highly recommend it.
Terratec’s AggreScreed was named one the top innovations by the magazine Equipment World . The AggreScreed allows a contractor to lay a gravel road of a set depth without the cost and time of placing survey stakes. This invention saves contractors time and money by eliminating survey costs, reducing wasted aggregate, and eliminating rework. This is exactly the sort of technological innovation for which the patent system was designed. Unfortunately, it took Terratec around four years to obtain its patent. This in not untypical and it points out that the US patent system is broken, but not for the reasons suggested by those people pushing patent reform. The Patent Office is hopelessly backlogged but Congress will not fully fund it. The Supreme Court’s recent decision have increased the uncertainty over whether a patent will be held valid or approved by the patent office. We need real patent reform that provides the Patent Office the funding they need to do their vital job and provides an objective standard for which inventions are patentable.
In one of my earlier posts, Patent Quality Non-Sense , I pointed out that the R&D (Research and Development) per patent ratio, GDP per patent ratio, and number of citations per patent have all increased over the last fifty years. These were all statistically significant changes. Based on this evidence I concluded that the quality of patents (or threshold for obtaining a patent) has increased over the last fifty years.
I was fortunate enough to have an academic economist send me a message pointing out that there were several papers by academic economists that have been debating why the R&D per patent and GDP per patent ratio have been increasing. One of these papers suggested the reason for this phenomena was that as technologies are explored they become mined out – the cost of obtaining a new invention keep increasing. Of course this issue had been explored in the 1950s by the famous economist, Jacob Schmookler, in his book “Inventions and Economic Growth.” Professor Schmookler showed that across multiple industries the amount of R&D per patent was essentially the same. See figure 2, page 46, figure 22, page 138, figure 23, page 139.
Since these industries included both new industries and mature
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