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Fundamentals of Economic Science: An Objectivist Approach

Ayn Rand stated in, Capitalism: The Unknown Ideal, that

Political economy was, in effect, a science starting in midstream‘

 

Economics has ignored the unique features of its principle resource – Man.[1] We are going to avoid that problem, by first examining the unique nature of homo sapiens.  But before we look into the unique nature of man, let’s examine what it means to be a science.  It is my premise that economics is objective and therefore can be a hard science[2], based on empirical observation, logic, and reason.  There are some who would say that economics cannot be a hard science because we cannot setup isolated experiments to test hypotheses.  However, the same can be said of geology and astronomy, both of which are considered hard sciences.

All science is based on certain fundamental empirical observations.  One of these fundamental observations is that reality is objective.  This means that reality exists independent of any person’s belief, hope, faith, or desire.  The evidence for this proposition is overwhelming and includes all the incredible advances in physics, chemistry, biology, geology and the applied sciences (engineering).

 

Fundamental Observation: Reality is Objective[3]

Ayn Rand would state this fundamental observation as:

 

Reality exists as an objective absolute—facts are facts, independent of man’s feelings, wishes, hopes or fears.[4]

 

The second fundamental observation of science is that reality is understandable or discoverable using observation, logic, and reason.  In science, we follow logic and reason even if it seems counterintuitive.  For instance, the implications of special and general relativity predict that clocks on GPS (Global Position Satellites) satellites will run at a different rate than clocks on earth.[5] This appears counterintuitive, but empirical evidence shows that this is true and failure to account for this difference will result in meaningful navigational errors.

 

Fundamental Observation: Reality is understandable or discoverable using observation, logic, and reason

 

Ayn Rand would state this fundamental observation as:

 

Reason (the faculty which identifies and integrates the material provided by man’s senses) is man’s only means of perceiving reality, his only source of knowledge, his only guide to action, and his basic means of survival.[6]

 

If economics is going to be a science, it must be based on these two fundamental observations/assumptions.  Some people may object that science is based on observations.  All logical systems are based on either observations or assumptions.  For instance, Euclidean geometry is based on the assumption that a line goes on forever and two parallel lines never intersect.  Spherical geometry is not based on these assumptions.  It assumes that a line will wrap around on itself.  In science we do not arbitrarily pick the starting point, we use observations.

 

Definition: Economics is the study of how man transforms things to meet their needs.

 

Keeping Rand’s admonishment about the state of economics in mind, we now turn our attention the unique nature of man.  Aristotle and Rand define man as a rational animal.  The genus is animal.  The unique nature of animals and all life is that it thrives on negative entropy.[7] The species in the definition of man is that he is rational.  In the context of economics, the important part of being rational is that man invents.  No other animal invents.  In Atlas Shrugged invention plays a major role in the story.  The major character John Galt is an inventor as is Hank Reardon.

 

Man’s unique reward, however, is that while animals survive by adjusting themselves to their background, man survives by adjusting his background to himself.[8]

 

The first need of every person is to stay alive.  This means that life is a fight against entropy, the second law of thermodynamics.  Entropy is normally defined as the measure of the disorder of a system.  Entropy was discovered as part of thermodynamics and it explains that a perpetual motion machine is impossible.  Entropy always increases in a closed system.  Luckily for us, the Earth is not a closed system.  For instance, we receive energy from the Sun.  The only way to increase order is by the input of energy.  Life represents increasing order and therefore just to sustain life at its present level requires energy.  Edwin Schrödinger, Nobel Prize winning physicists, proposed this idea in his 1944 book, What is Life.[9]

 

Fundamental Observation: Life is a fight against entropy

 

Plants create this energy by photosynthesis.  They convert carbon dioxide into sugars (energy) using light.  They use this energy to create order.  Animals eat plants or other animals and use the energy to create order.  Note that when animals eat plants or other animals, they are increasing the disorder of the plants and animals they eat.  Thus, there are two general mechanisms that increase the entropy of life forms, 1) internal and 2) external.  Internal mechanisms are those that result from the failure to consume enough calories (energy) and aging.  Animals require oxygen, water, and food in that order to survive.[10] Without oxygen, the animal cannot oxidize enough sugar (fat, protein) to survive – overcome entropy.  Without water, the animal’s cells are unable to absorb energy and expel wastes.[11] As a result, the animal does not receive sufficient energy to overcome entropy.  Aging is a process of increasing disorder – entropy.  This disorder is caused at least in part by disorder in genetic information.[12] External mechanisms include being eaten or attacked by other living organisms, diseases, accidents (for animals), and the elements.

In general, living organisms use energy to overcome entropy first and then to increase their size.  However, some animals also create simple shelters or seek shelter to ward off the entropy increasing effects of the elements and predators.  Rain, sun, hail, snow, heat, and cold all contribute to the increase in entropy of living organisms (disorder).  A living organism dies when its entropy increases above a certain level.  Life has two main methods of overcoming the effects of the second law of thermodynamics: 1) food (energy) consumption and 2) shelter creation (inhabitation).

A species of life becomes extinct when the species as a whole reaches a certain level of entropy either because it cannot consume enough energy or because external mechanisms increase its entropy to the extinction level.  A species reaches the Malthusian Trap when increases in population of the species results in the total required energy (food) to support the population is greater than supply of food.  Or stated in the laws of physics, the total available energy is less than the energy required to overcome the total entropy of the species’ population.  Most life forms exist in the Malthusian Trap, including humans until the Industrial Revolution.  Evolution is life’s way of determining which species is best at overcoming entropy.

Homo sapiens also consume food and create shelter to overcome the effects of entropy.  Unlike other living organisms, homo sapiens organize their environment to minimize the effects of entropy.  For instance, humans have invented agriculture to increase their supply of food (energy) and therefore order.  Humans also harnessed the physical strength of animals, created internal combustion machines, electric lights, electricity, washing machines, tractors, computers, the internet, email, lasers, fiber optics, etc.  All of these are inventions.  Humans alter their environment by creating inventions.  This is different from every other animal.  This should not be surprising, since the distinguishing characteristic of homo sapiens is their ability to reason.  Man is a rational animal according to Aristotle’s classical definition.[13] Being rational is the distinguishing characteristic of humans.  Man uses his reason to alter his environment (invent) and increase order for himself.  Invention is the unique way in which man is able to create order – this is the fundamental observation of economics.

 

Fundamental Observation of Economics: Man’s unique ability to increase order (wealth) is his ability to invent.

 

Ayn Rand’s way of explaining this is:

 

Nothing can raise a country’s productivity except technology[14]

 

Inventing first results in the increased success of the species.  Homo sapiens populated most of the world in less than 500,000 years because of this unique ability.  As long as the rate of technological progress is slower than the growth in population, man is stuck in the Malthusian Trap.  Sometime around 1800 in Europe and the United States, the rate of invention exceeded the rate of growth in population and man escaped the Malthusian Trap at least in the West.[15] When man escapes, he is no longer subject to biological evolution.  As far as we know, homo sapiens are the only species to ever escape the Malthusian Trap.

Trade enhances man’s ability to invent.  By trading the products of each others’ inventions both trading partners can specialize and end up wealthier.  David Ricardo explained how both parties are better off because of trade using the example of England trading cloth for Portuguese wine:

 

England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time.  England would therefore find it in her interest to import wine, and to purchase it by the exportation of cloth.  To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time.  It would therefore be advantageous for her to export wine in exchange for cloth.  This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced with less labour than in England.[16]

 

Using the example above, if England produces twice as much cloth as it needs, it has invested 200 man hours.  If Portugal produces twice as much wine as it needs it has invested 160 man hours.  Now if England and Portugal trade their excess cloth for the excess wine, England has invested 200 man hours for all its cloth and wine, while Portugal has invested 160 man hours for all its cloth and wine.[17] If England had produced both all its cloth and all its wine locally, then it would have invested 220 man hours for the same goods.  This means that England requires 10% more man hours if it does not trade.  If Portugal had produced both all its cloth and all its wine locally, then it would have invested 170 man hours for the same goods.  This means that Portugal requires 6.25% more man hours if it does not trade.

Trade is a rational activity and humans are the only animals to engage in trade of non-like items and trade between non-related individuals.[18] Classical economics has focused on trade and the related supply and demand curves instead of the role of invention in economics.  This might have occurred because the beginning of classical economics was in reaction to the Mercantile system and its limitations on trade.  Adam Smith’s book, The Wealth of Nations, is often seen as a refutation of the Mercantile system.  Matt Ridley, in his book, The Rational Optimist, has suggested that trade is the key to creating wealth.  This emphasis on trade has been misplaced.  Invention proceeds trade.  If everyone produces the same thing, then there is no reason to trade.  It is only because someone has invented a new product that trade becomes a rational choice.  For instance, one group of people may have invented a process for skinning animals and using them as clothing.  They may have traded this with people who had access to flint and invented a system for making simple axes.  Invention has to proceed production, which has to proceed trade logically.  Of course, without trade the value of invention is severely diminished.

In summary, life is a fight against entropy.  Economics is the study of how man transforms things to meet their needs.  The unique way in which humans meet their needs is to invent.  Only by inventing can humans increase their level of wealth.

 


[1] Rand, Ayn, Capitalism: The Unknown Ideal, Kindle Edition, location 126-128, 2011.

[2] Hard sciences include physics, chemistry, and biology, as opposed to “soft science”, such as psychology, sociology, and political science.

[3] Even the bizarre results of quantum mechanics are repeatable and independent of the observer’s hopes, desires, faith, opinion.

[4] The Ayn Rand Institute, Introducing Objectivism, http://www.aynrand.org/site/PageServer?pagename=objectivism_intro, 2/0/11.

[5] Real-World Relativity: The GPS Navigation System, http://www.astronomy.ohio-state.edu/~pogge/Ast162/Unit5/gps.html, October 3, 2010.

[6] The Ayn Rand Institute, Introducing Objectivism, http://www.aynrand.org/site/PageServer?pagename=objectivism_intro, 2/0/11.

[7] Wikipedia, What is Life?, http://en.wikipedia.org/wiki/What_is_Life%3F_(Schrödinger), Edwin Schrödinger, 10/6/10

[8] Rand, Ayn, For the New Intellectual, p. 15.

[10] There are few exotic life forms that do not need oxygen, but all require energy to overcome entropy.

[11] BNET, Physiological Effects of Dehydration: Cure Pain and Prevent Cancer, http://findarticles.com/p/articles/mi_m0ISW/is_2001_August/ai_78177228/, 10/6/10.

[12] Hayflick, Leonard, Entropy Explains Aging, Genetic Determinism Explains Longevity, and Undefined Terminology Explains Misunderstanding Both, PLoS Genetics, http://www.plosgenetics.org/article/info:doi/10.1371/journal.pgen.0030220, 10/7/10.

[13] The Philosophy of Aristotle, Adventures in Philosophy  http://radicalacademy.com/philaristotle4.htm, 10/7/10.

[14] “The Moratorium on Brains” The Ayn Rand Letter, I, 3, 5.

[15] This should more accurately be stated that the rate of growth in productivity due to the introduction of new technologies exceeded the rate of growth in population.

[16] Ridley, Matt, The Rational Optimist: How Prosperity Evolves, Harper Collins, New York, 2010, p. 75.

[17] This example ignores the cost of transport the wine and cloth, but it illustrates the general concept.

[18] Ridley, Matt, The Rational Optimist: How Prosperity Evolves, Harper Collins, New York, 2010, p. 56.

 

 
Patent Deform Act of 2011: Approved by Senate Committee

So called Patent Reform is a bad idea that just will not die.  This is the sixth year in a row where this idea has been brought to the floor of the Senate or House.  While some of the most offensive provisions have been eliminated, it is still a bill designed to weaken our patent system and help large companies at the expense of startups and individual inventors.  For instance, the bill still contains “First-to-File” provision.  A first to file system will result in many poorly thought out patent applications increasing the PTO’s workload and increasing the number of Continuations-In-Part (CIPs).  The confusion created by this system of filing early and then following up with corrected applications will result in litigation being more expensive and less certain.  In addition, this system will further bias the patent system in favor of large entities.  Large entities will use a first to file system to flood the PTO with patents to overwhelm small entities and individual inventors in the race to the patent office.  Small entities and individual inventors will never be able to compete financially in this race.  According to the SBA, most emerging technologies are created by small entities not large entities.  As a result, we need to make sure that our patent system is friendly for small entities if we want it to encourage innovation.

In addition, the bill expands post grant oppositions.  This again stacks the deck in favor of large corporations who can afford to fight these oppositions.  It is likely that post grant oppositions will be used by large corporations to bankrupt startups.  If we are going to have post grant oppositions we need to make patents incontestable, like trademarks, after a certain period of time.  See Making Patents Incontestable

Real Patent Reform

Here are my suggestions for real patent reform that would not only help small inventors but the US economy.

1) Repeal Publication: This would restore the social contract

2) Repeal KSR: A subject standard of patentability just increases costs and uncertainty associated with the patent process.  KSR makes bureaucrats the ultimate arbiter of what is patentable instead of logic.

3) Repay PTO & End Fee Diversion:  Congress should repay the over $1B it stole from inventors with interest.  It should also end fee diversion, which if Congress was subject to Sarbane Oxley would land them in jail.

4) Regional Offices for PTO:  This would ensure steady funding of the PTO, increase examiner retention, and ensure that the PTO is not so Washington biased.

5) Repeal eBay:  This decision is a logical absurdity.  If a patent gives you the right to exclude, then if you win a patent infringement case you must be able to enforce your only right – the right to exclude.  This is not an issue of equity, it is an issue of enforcing the right associated with a patent.

6) Eliminate “Combination of Known Elements”:  The fact that the Supreme Court does not understand that every invention in the history of the world is a combination of known elements is pinnacle of ignorance.  Have they ever heard of “conservation of matter and energy”?

7) Patent Reciprocity:  If you drive your car across the border into Canada you do not lose title to your car.  If you take your manuscript across the border into Canada you do not lose the copyright to your manuscript.  But, if you take your invention across the border into Canada, you lose your patent protection and anyone can steal the invention – not the physical embodiment, but the underlying invention.

Patent reciprocity would automatically provide patent rights in a foreign country when you obtained a patent in the US and vice versa.  This idea was first proposed by the US in the mid 1800s according to B. Zorina Kahn’s book “

The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920 


 
More Evidence that Stealing Inventions is a Business Strategy

I was reading a post on the myth of the first mover advantage, which intrigued me because I have argued essentially this point in my post, Invention – A Financial Analysis .   One of the responses suggested the book, Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge.  The description of the book on Amazon states:

In the business world, imitation gets a bad rap. We see imitating firms as me too players, forced to copy because they have nothing original to offer. We pity their fate: a life of picking up crumbs discarded by innovators striding a path paved with fame and profit.

In Copycats, Oded Shenkar challenges this viewpoint. He reveals how imitation the exact or broad-brushed copying of an innovation is as critical to prosperity as innovation.

Shenkar shows how savvy imitators generate huge profits. They save not only on R&D costs but also on marketing and advertising investments made by first movers. And they avoid costly errors by observing and learning from others trials. (Emphasis Added)

I show in my post that without intellectual property rights that copycats will “save on R&D costs” and “marketing and advertising costs” compared to inventing firms.  This book clearly argues for stealing the inventions and marketing efforts of inventors.  There is nothing wrong with being a copycat firm, if you pay the inventor for their intellectual property.  However, this is not what the author is suggesting.  He is suggesting stealing the inventing and marketing efforts of innovators.  According to the description of the book, the author suggests that copying is as critical to prosperity as innovation.  Since you cannot copy an invention until it has been created, invention always proceeds copying.  It is impossible for the effect, copying, to be as important as the cause, invention.  This book may be providing good business advice in the present environment of weak patent rights, but it is dead wrong that imitation is as important invention for the economy.  The only way to increase real per capita income is by increases in our level of technology.  Only by properly protecting the rights of inventors can we encourage (private) invention and therefore increase our real per capita income.  This book is sad statement on the US economy and its willingness to protect property rights.

 

 
Non-Obviousness: A Case Study in Judicial Activism

The genesis of the non-obviousness standard (Inventive Step in Europe) was the Supreme Court’s decision in Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248 (1851).  This case first articulated the idea that the improvement that was the subject of a patent had to be more than “the work of the skilful mechanic.”  The case involved making door and other knobs of all kinds of clay used in pottery, and of porcelain.[1]The invention according to the patent holder was:

This improvement consists in making said knobs of potter’s clay, such as is used in any species of pottery; also of porcelain; the operation is the same as in pottery, by moulding, turning, and burning and glazing; they may be plain in surface and color, or ornamented to any degree in both; the modes of fitting them for their application to doors, locks, furniture, and other uses, will be as various as the uses to which they may be applied, but chiefly predicated on one principle, that of having the cavity in which the screw or shank is inserted, by which they are fastened, largest at the bottom of its depth, in form of a dovetail, and a screw formed therein by pouring in metal in a fused state.[2]

The Supreme Court upon reviewing the case made the common error of pointing out that each of the elements in the invention were known.

But in the case before us, the knob is not new, nor the metallic shank and spindle, nor the dovetail form of the cavity in the knob, nor the means by which the metallic shank is securely fastened therein. All these were well known, and in common use, and the only thing new is the substitution of a knob of a different material from that heretofore used in connection with this arrangement.[3]

All inventions are combinations of known elements since conservation of matter and energy means that you cannot create something from nothing, for more information see KSR: Supreme Ignorance by Supreme Court.  As a result, this analysis by the Supreme Court is meaningless and sheds no light on whether the invention should have obtained a patent.

Based on this analysis the Supreme Court then reasons:

for unless more ingenuity and skill in applying the old method of fastening the shank and the knob were required in the application of it to the clay or porcelain knob than were possessed by an ordinary mechanic acquainted with the business, there was an absence of that degree of skill and ingenuity which constitute essential elements of every invention. In other words, the improvement is the work of the skillful mechanic, not that of the inventor.[4] (underlining added)

This ruling states the well known idea that for an invention to be patentable, it must be more than just the work of a skillful mechanic.  Today this is stated as the invention must have taken more than just the work of “one skilled in the art.”

There are a number of problems in the Supreme Court’s ruling in Hotchkiss v. Greenwood. First, where did the Supreme Court get the authority to add an additional requirement above novelty in order for an invention to obtain a patent?  The statute at the time did not contain any such additional requirement.  It was judicial activism to add a requirement not found in the statute.  Another error in the Supreme Court’s reasoning is the use of hindsight.  All inventions are obvious in hindsight and must be described in enough detail that they can be practiced by one skilled in the art (ordinary mechanic) to meet the requirement of the social contract of patents.[5] Another error in the case was the failure to recognize that copying by competitors of the invention or success of the invention tend to show that it was non-obvious.  Finally, the Supreme Court failed to understand the implications of the laws of physics as they apply to inventions, specifically that conservation of matter means all inventions are combinations of known elements.

Despite these errors, it is reasonable to ask did the Supreme Court’s judicial activism result in any lasting problems?  According to Gale R. Peterson, Cox Smith Matthews in their paper, “Obviousness / Non-Obviousness Of The Novel Invention: Hotchkiss v. Greenwood to KSR v. Teleflex 35 U.S.C. § 103 – 1851 to 2006.”[6]

The cases decided after Hotchkiss in 1851, both by the Supreme Court and the lower courts, were chaotic. There was no statute governing the additional hurdle an otherwise novel invention must cross before being deemed a patentable invention.[7]

The Supreme Court’s decision in Hotchkiss v. Greenwood resulted in an unworkable standard of patentability, because it was inherently subjective.  This increased the uncertainty whether an inventor would obtain a patent for their invention and increased the risk that their patent might be held invalid.  It also caused the standard of patentability to vary in different Circuits and the Patent Office.  Today this is widely understood to increase the cost of obtaining a patent and decrease the amount of resources invested in inventions.  The Supreme Court’s judicial activism in Hotchkiss v. Greenwood resulted in numerous problems that haunt us today.  Including the complete nonsense opined by the Supreme Court in the KSR v. Teleflex[8] decision, see KSR: Supreme Ignorance by Supreme Court.

Is there any logical reason for the additional requirement of non-obviousness for patents?  The definition of invention according to Free Dictionary online is “to produce or contrive (something previously unknown) by the use of ingenuity or imagination.”[9] While Merriam Webster (online) defines invention as “a device, contrivance, or process originated after study and experiment.”[10] I will ignore how and invention is created as a criteria and suggest the following definition, “to create something new” as a common sense definition.  This definition differentiates production or manufacturing from invention.  Production is creating something, but it is not creating something new it is creating something old.  If you argue that it is creating something new, then the word new has no meaning in the definition.  This definition does not do a good job of differentiating an invention from a new book or painting.  It might be argued that a new book is not creating something new, but it is not the same as other books.  So I believe this simple common sense definition has to be supplemented.  Specifically, I suggest that invention is “to create something new that has an objective result.”  By an objective result I mean that goal of an invention is an objective result that can be tested as opposed to a subjective result that is the result of a song being played or a book being read or a painting be viewed.  An objective result distinguishes an invention from a new artistic creation.

So how does this common sense definition of invention, “to create something new that has an objective result,” match up with the requirements of patent law (101, 102, 103, 112)?  This definition is generally consistent with section 35 USC 101, statutory subject matter.  It excludes scientific and mathematical discoveries since these are not creations.  Notably it clearly does not exclude software patents.  A software enabled invention is clearly a new creation and it has an objective result.  The same is true of business methods patents (for more on the nonsense associated with business method patent see – Bilski, Software Patents and Business Method Patents.  This definition is clearly consistent with section 102 – new equals novel.  Is this definition consistent with section 35 USC 103?  No this definition is not consistent with section 103.  There is nothing in the definition that suggests a standard above novelty or new.  The general reason given for section 103 is that we do not want trivial inventions that just change the size or the weight or some other trivial feature of an existing invention to obtain a patent.  If a change in size or weight or color does not make a difference in the objective result, it is not new and it is not an invention.  So I believe the definition of invention I have offered covers this issue and therefore there is no reason for an addition standard above novelty.  My suggested definition is neither consistent nor inconsistent with section 35 USC 112, since this section does not define what is an invention.  Section 112 defines the requirements an inventor must meet to obtain a patent for their invention.  Section 112 deals with the social contract between the inventor and society.  Overall the common sense definition I suggested for invention fits nicely with patent law, but there is absolutely no logic for a nonobviousness criteria for patents based on this definition.  The creation of the nonobviousness standard was judicial activism on the part of the Supreme Court without any statutory justification.  The standard has proven to be completely unworkable and completely subjective.  Only the CAFC’s jurisprudence before KSR provided any measure of a stability and logic to the section 103.  The nonobviousness standard has resulted in increase costs to inventors without any benefit.  It has increase the cost of ligation, helped technologies thieves to steal inventions, and decreased the amount invested in new technology.

I suggest the radical notion that logically the nonobviousness standard, 35 USC 103, should be repealed.  If it is not repealed then we should demand a statutory definition that is as objective as possible.  One objective solution would be to codify the CAFC’s teaching, suggestion, motivation (TSM) test.  I have proposed an alternative standard for 35 USC 103 that I believe is even more objective, clearer, and more consistent with reality than the TSM test – see Obviousness Flow Chart .  By adopting any of these solutions we will reduce the cost and uncertainty of obtaining a patent and litigating patents.  This will increase the value of issued patents and increase the investment in new technologies, which are the only way to increase real per capita income – see The Source of Economic Growth.

PS

As an interesting intellectual exercise I attempted to use ordinary definitions of novelty and obviousness to determine if the Supreme Court’s seminal decision in Graham v. Deere[11] had any basis in logic and was in anyway consistent with the statutory language.  The non-obviousness standard was added to U.S. patent law in the 1952 Patent Act.  The Courts’ job is to interpret the statute.  The key portion of the non-obviousness statute states:

A patent may not be obtained though the invention is not identically disclosed or described as set forth in section 102 of this title, if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.  (underlining added)

While many lawyers will want to immediately jump to the legislative history to interpret the statute, this is only appropriate if the statute is not clear on it face.  Based on the wording and the fact that section 103 was added later than the novelty requirement, logically 103 is intended to be an additional requirement above the novelty requirement.  According to Dictionary.com, novelty means “of a new kind; different from anything seen or known before: a novel idea.”  The nonobviousness requirement logically requires something more than an invention be novel.  In order to understand what nonobvious means, lets find out what obvious means.  Then anything that does not meet the definition of obvious is nonobvious.  According to Dictionary.com obvious means, “easily seen, recognized, or understood; open to view or knowledge; evident.”  It is axiomatic to patent law that whether an invention is nonobvious has to be determined at the time the invention was made, in other words before the invention was known.  How can an invention that has not been made be easily seen, recognized, or understood; open to view or knowledge; evident (obvious)?  Clearly, an invention that has not been made cannot be open to view and how can you have knowledge of something that does not exist.  Evident means, according to Dictionary.com, plain or clear to the sight or understanding, which cannot be true of something that does not exist.  Unfortunately, this line of examination does not lead to any useful results.  No wonder the 1952 Statute has not lead to meaningful clarification of what is patentable!


[1] Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248, 249 (1851)

[2] Ibid 250-251

[3] Ibid 266

[4] Ibid 268

[5] 35 USC 112, first paragraph (Modern)

[6] Gale R. Peterson, Cox Smith Matthews, “Obviousness / Non-Obviousness Of The Novel Invention: Hotchkiss v. Greenwood to KSR v. Teleflex 35 U.S.C. § 103 – 1851 to 2006.” 11th Annual Advanced Patent Law Institute, October 26-27 2006.

[7] Ibid 3.

[8] KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (2007).

[9] http://www.thefreedictionary.com/inventor (6/16/10).

[10] http://www.merriam-webster.com/netdict/invention (6/16/10).

[11] Graham v. John Deere Co. of Kansas City, 86 S.Ct. 684 (1966)

 
Voices on the Net a Session with JJ

I had an excellent interview with JJ on a Session w/JJ on Voice on the net.  For the full interview click here.

 
Robert’s Rules of Innovation: Book Review

This book is a well laid out, logical book on how to ensure that your company continues to innovate.  This is not a touchy feely book or a feel good cheerleader book like so many business books.  If you want practical advice from a person who has been there then this is the book for you.  As the book subtitle states this book is “A 10-Step Program for Corporate Survival.”

Robert F. Brands, the author, headed the highly successful company Airspray.  Airspray makes consumer products, particularly the highly successful instant foam dispensers.  These dispensers foam soap products without an aerosol and are found almost everywhere today.

The book has a number of metrics to determine if your company is truly innovating or only giving inventing lip service.  He suggests that companies should track new product sales.  New products are generally defined as those introduced in the last five years, however this depends on your industry.  If new product sales are less than 15% of total sales then your company is at risk of becoming extinct.  Note line extensions are not new products.  In Chapter 3 the book describes a complete innovation audit to determine if your company is truly committed being a technology leader.  He points out that most companies make the fatal mistake of cutting R&D and new product development budgets when time are tough.  If you want your company to survive, this should be the last budget item cut.

Creating successful new products is not enough to survive in the marketplace.  Your company must protect its new products with strong IP particularly patents to have sustainable advantage.  In addition, you company must understand the patent landscape of your marketplace.  “It is proven that those companies with a strong patent portfolio creates much more value to their stakeholders than companies without. Airspray, the case study focused on in the book (the company that brought instant foaming dispensers like hand soap to market) was sold at 15 times EBIT, which proves the point.”  This 15 EBIT was twice the going EBIT for similar companies and the main reason for this high valuation was Airspray’s patent portfolio protecting its innovative products.

Robert’s Rules of Innovation is a must read for anyone who wants practical, real world advice on how to ensure that their company does not go the way of the dinosaurs.

 
Another Confused Libertarian on Intellectual Property

Timothy Sandefur is another Libertarian confused about intellectual property – see his article.  He suggests that Adam Mossoff’s article on Natural Copyrights and Ayn Rand’s thoughts on intellectual property are incorrect.  Mossoff and Rand have the better argument.  First of all it is clear that intellectual property rights are consistent with Locke’s view of property rights.  You own yourself and therefore you own the product of your labor mental or physical.

Portuguese Claim to Sea

The argument about the Portuguese claim to the sea is an attempt to condemn Locke by a misapplication of Natural Rights theory.  The Portuguese did not improve the sea.  According to the Portuguese argument when I drive over the road I own the road or if I walk over land I own the land.  Using a misapplication of Natural Rights theory is a red herring argument.

Non-Exclusive Nature

Patents do not keep you from thinking about the invention and in fact it is a purpose of patent law to encourage the dissemination of knowledge associated with inventions so that other inventors can improve upon these inventions.  Patents only restrict you from making a physical version (or threatening to do so – offer for sale).  An infringer of a patent is no longer making a non-exclusive use of the invention when they make it.  They have taken a part of the potential market for the invention.  This market is neither unlimited or non-exclusive.

Your argument about two people having two separate copies of the invention ignores the property right involved in patents.  The property right is not in the physical item.  When you steal my invention by making an unauthorized copy, you have initiated force not the patent holder.  This is similar to me stealing apples from your orchard.  I have not initiated any force against you, it is only when you call the police or come out with your shotgun that force is initiated.

The exclusive nature of real property is illusionary at best.  You only occupy and exclude the space you are presently in.  You do not occupy your whole apple orchard all the time.  If I take an apple from your orchard that you are not presently holding or eating then there is nothing “naturally” exclusive about your ownership of that apple.  If you own more land than you can farm or otherwise take advantage of and I decide to plant crops on that land I have not hurt you.  You have initiated force against me when you kick me off your land and you inhibit productive enterprise.

The non-exclusive nature of intellectual property is a confused argument.  If you are talking about physical exclusion then you should only own real and personal property that you are presently using, which would destroy the concept of  property rights generally.  If you are talking about the legal right to exclude others from using your property, then you have to be consistent with your definition of the legal right involved.  Intellectual property is not about physical ownership, so making a copy of another invention is a clear breach of the property right.

Simultaneous Invention

In your statement about “innocent” simultaneous inventors that, “but because you make it to the patent office first, you get the patent on that thing, and can therefore forbid the other person from making or selling his thing” is wrong.  The US is a first to invent country (at least so far) not a first to file country.  So just because someone beats you to the patent office does not mean they receive the patent.  However, you do make a strong point for why we should not change our patent laws to a first to file system.

More generally, the definition of an inventor is the first person to discover a new invention.  Only the first person adds to the store of human knowledge.  The second person is just clever.  If a person living in India rediscovers Calculus he is not the discoverer of Calculus because he did not add anything to the store of human knowledge.  In addition, there are an infinite number of potential inventions and increases in technology are the only way to increase our standard of living.  As a result, we want people to invent not to copy other people’s inventions.

Fair Use

Copyrights protect the artistic expression of an idea.  They do not protect every component of a written work for example.  Fair use is just a statement of this fact.  So copying a small portion of work is not a violation of the owner’s copyright because you have not taken their expression of the idea.  This is why one of the factors of fair use is how much of the work did you copy.

Intellectual Property and Free Markets

You state, “natural copyright is very dangerous to the free market, in that it proposes to forbid entrepreneurs from legitimate and praiseworthy uses of their liberty.”  Actually, the exact opposite is true.  By undermining intellectual property you are undermining the very basis of property rights and liberty.  The empirical evidence also shows that whenever a government refused to protect intellectual property rights they also do not respect other property rights or the mechanisms of a free market.

Locke’s Natural Rights

Natural rights theory is not only the historical and logical basis for property rights but explains most common law crimes.  The natural rights labor theory of property explains why slavery is immoral.  If you own yourself, then no one else has the right to own you.  It also explains why murder and manslaughter are immoral, why stealing is immoral, why assault and battery are immoral and why we have laws against all these actions.  The natural rights labor theory defines how property should be allocated and how people come into possession of property morally and legally.  The labor theory explains all of our basic criminal law and all of our basic property laws.  What does scarcity explain?  It offers no justification for why slavery, murder, manslaughter, assault and batter and theft are immoral, except that they are inefficient at allocating resources.  Thus, all of these crimes would be allowed if they were efficient at allocating resources.  Scarcity does not explain who has ownership in property or why they should have ownership in property.  It merely explains that private property ownership is an efficient manner in allocating scarce resources.

In science, the theory that has the greatest ability to explain the widest number of facts is considered to be the correct or better theory.  Here the “scarcity” theory of private property requires the additional assumption that it is preferable to have efficient allocation of resources.  However, it fails to explain how the resource should be initially distributed, it does not explain how property law determines ownership and has no power to explain criminal law.  Trading scarcity for the labor theory of property is like trading the theory that “what goes up must come down” for Newton’s Law of gravity.  The fact of the matter is that the proponents of scarcity have confused cause with effect.  A system of private property results in efficient allocation of resource, but it is not the reason for private property – it is the effect of private property.

For more information see Scarcity – Does it Prove Intellectual Property Rights are Unjustified? http://hallingblog.com/2009/06/22/scarcity-%E2%80%93-does-it-prove-intellectual-property-is-unjustified/

 

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.

 
Book Review By Pat Choate: Understanding How to Get the U.S. Economy Moving Again

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.

 

There is a great post in IPBiz, “Mentioning Innovation with Mentioning Patents“, how CBS Sunday Morning had a whole show about the lack of innovation but never discussed patents or inventors.

One of my colleagues is always pointing out the people who use the word innovation discuss it in a disembodied way.  They never discuss inventors or patents.  Specifically, he states:

Say yes to inventors. Say no to “ignore-&-evasion”.

The full-truth word is “invention”, not inno-evasion.

He makes excellent points – at least on how the word innovation has been perverted.

 

In order to obtain a patent your invention has to be useful (35 USC 101), novel (35 USC 102), and non-obvious (35 USC 103).  The goal of this post is to explain the non-obviousness requirement in terms that are clear to engineers and scientists.

 

            The U.S. has been the most innovative country in the history of world.  “Virtually every major development in technology in the twentieth century – which was far and away the most important century in the history of technology – originated in the United States or was principally industrialized and turned into consumer products here.”[1]  The economic success of the U.S. is due to its technological innovation.  The first colony was only possible because of two new technologies – the full-rigged sailing ship and the joint-stock company.  This inventive spirit has continued to the present with the Information Age, which was founded in the U.S. and based on the internet (ARPANET) invented in 1969. 

 

In order to obtain a patent your invention has to be useful (35 USC 101), novel (35 USC 102), and non-obvious (35 USC 103).  The goal of this post is to explain the novelty requirement in terms that are clear to engineers and scientists.

 

What do we mean by innovation?  We mean the creation of something new.  Because of conservation of matter (and energy), new does not mean creating something out of nothing.  As used here innovation means a new combination of elements and connections that has positive value to a human being.  Combinations of elements and connections that are new but have no value to any human being are generally noise.  However, in the case of failed attempts to solve a problem the new combination may have value in what does not work.  For instance, Edison considered his attempts to create a light bulb as having negative value.  He told a reporter, “I now know definitively over 9,000 ways that an electric light bulb will not work.” 

 

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