State of Innovation

Patents and Innovation Economics

Singapore and the US Divergent Patent Policies

While the US continues to weaken its patent laws, Singapore is taking a different path.  Singapore has just announced that it is developing a plan to be an Intellectual Property Hub, according to Channelnewsasia.com.  They believe that intellectual property is a key part of the global economy and they want their country to be primed to take advantage of this trend.  According to the article:

 With well-developed legal and financial systems and a workforce comfortable with science and technology, Singapore is poised to ride on this trend. Still, the country has a small domestic market, but Singapore can get around this by becoming Asia’s IP Hub.

 A spokesman for this initiative stated:

 Mr Shanmugam said: “The committee will recommend strategies to develop Singapore as a marketplace of choice to transact IP, and attract international firms and professionals who provide IP transactional services. For example, licensing and brokerage. The committee will also incentivise the creation, management and exploitation of IP in Singapore.”

While Singapore is trying to encourage IP transactions our government and intellectuals are trying to kill them by disparaging inventors as trolls.  The article also explains that Singapore will grow its court system in tandem with the growth of it intellectual property.  They are focusing on training judges who are experts in patents.  In the US we cannot even fully fund the Patent Office and now there is an effort to sideline the ITC, which is one of the few courts with real patent expertise.

Singapore’s emphasis on technology and intellectual property has faulted it past the United States in per capita income.  Singapore ranks third in the world with a per capita income of $59,936, while the US lags with a per capita income of $48,147.  Singapore’s per capita income keeps growing, because they are focused on the only thing that makes people wealthier – increases in our level of technology.  In the United States we have a President and his economic advisors telling us that we will get wealthier by consuming more, or by transferring more wealth from productive people to people on welfare, or by giving free money to the largest Wall Street Banks and large corporations.  If the US does not wake up it is likely that Singapore will have double the per capita income of the US by 2020 (see chart).

March 17, 2012 Posted by | News, Patents | , , , | 1 Comment

The Great Patent Debate: The Untold Story

There are zillions of stories complaining about how some innocent multinational company is being sued for patent infringement by some evil company that does not even make a product.  However, you never hear of the story of the start-up company that has filed for a patent, gotten the run around by the Patent Office and could not raise funding because their patent has not issued.  Well here is one of these stories, which are much more numerous than the supposed lawsuit problem.

This company was founded in 2003 by a cardiothoracic surgeon and two engineers.  Their invention is a product and service that could save the U.S. as much as a $1 Billion a year in heart related procedures.  The inventors filed a patent in 2004 probably spending as much as $10K of their limited capital.  They then performed various experiments including arranging animal trials with a major veterinarian university.  The animal trials were overwhelming successful and most cardiothoracics surgeon would have thought their results impossible.  In 2007, the company filed a continuation-in-part to incorporate their new information.  The company waited two years for the patent office to finally examine their patent application.  The patent office’s rejection showed that they did not understand the basic concept behind the invention.  Despite numerous interviews with the examiner and the supervisor, they continued to cite even more outrageous prior art references that taught away from the company’s invention or were just plain irrelevant.  A key insight of the invention is that it did not cauterize or damage the tissue near a puncture.  Every other reference showed this feature.  The patent office provided absurd definitions for words in order to reject the claims.  For instance, they suggested the word “punch” meant rotation.

The company raised these issues with the examiner, the examiner’s supervisor, and the head of the group art unit.  None of these people was willing to listen to reason.  Finally, the company filed four affidavits.  Two were from medical doctors who treat heart conditions, one was a veterinarian who performed the experimental surgery and one was from a professor of communications who specializes in technical and scientific communications.  All the doctors stated that the company’s invention was revolutionary, was not at all like the prior art, and likely to lead to tremendous improvements in heart procedures.  The professor of communications explained that the patent office’s interpretation of the terms in the patent did not pass the laugh test.  Finally, the examiner relented and allowed four of the claims, while citing new prior art against the other claims. This new art was introduced after two years and five responses and one preappeal, which cost the company its start-up capital and lost time.

The human cost to this bureaucratic inefficiency (ineptitude) included the fact that one of the people the company hired to find financing died of a heart attack while waiting on the patent office.  The surgeon-inventor’s daughter, who had helped out with the company, died in surgery while waiting on the patent office, and the surgeon had a couple of heart related procedures.  If the surgeon could have substituted his invention for the standard treatments, he would not have had to undergo multiple procedures.  However, this just scratches the surface of the cost of this bureaucratic nightmare.  If this company had received its patent efficiently and timely, it would have created tens of hundreds of jobs and saved the lives of thousands of heart patients and saved millions of dollars spent on medical care.

This is just one example of the problems created by underfunding the patent office and politicizing the patent process.  There are hundreds of thousands of these stories – at least ten times as many as the legitimate complaints about frivolous patent lawsuits.  These cases are much more damaging to our economy, but the press and open source anarchists have captured all the attention.  We need to focus on the real problems with the patent system, which includes underfunding the patent office and a non-objective standard for what is patentable.  That is untold story of the Great Patent Debate.

 

 

 

August 19, 2011 Posted by | Patents | , , | 6 Comments

Why the Publication Requirement for Patents Hurts Startups

This case, TEWARI DE-OX SYSTEMS, INC., v. MOUNTAIN STATES/ROSEN, L.L.C., in Texas shows the damage done by the publication rule for patents applied for a patent on a method of extending the shelf life of meat in a retail setting on May 8, 2003.  The patent application was published on April 15, 2004 (earlier than 18 months because it was based on a provisional).  In March of 2005 Tewari approached Mountain States on how they could increase the shelf life of meat products.  Mountain States signed a Non-Disclosure Agreement (NDA) and Tewari explained how their process extended the shelf life of meat.  Subsequently, Mountain States started practicing Tewari’s process.  Tewari sued Mountain States for theft of their trade secrets.  Mountain States claimed no trade secret existed at the time of the NDA because Tewari’s patent application had already been published and the court agreed.

If theU.S.had not adopted the publication rule, Tewari’s process would have been (probably) a trade secret.  It is likely that Tewari eventually found that it was just too expensive to fight the “rejection equals quality” mentality of the Patent Office at the time they would have been arguing their case, although I did not examine the prior art.  But, because of the publication rule Tewari did not have this choice.  (If they did not foreign file, they could have opted out of publication, but the rules make this onerous.)  As a result, Mountain States was free to steal Tewari’s trade secrets.  This allowed a large company to free load off of the efforts of an innovative startup.  Even if Tewari was legitimately denied a patent, it most likely would have had a defensible trade secret.  Note that the Tewari’s patent application was published before they received their first office action.  Tewari had no opportunity to determine if it was going to get a fair deal from the patent office before their invention was publicly disclosed to the world.  The publication rules were sold under the theory that most patent application issue within 18 months.  Now days the pendency time for the first office action is 25.2 months – seven months after the patent application is published.

Tewari was denied the rights to their intellectual property because of the publication requirement.  A large, lazy, non-innovative company was the benefactor of this theft.  This undermines investment in start-up technology companies that create most emerging technologies and provide high quality, high paying jobs.  The publication requirement should be abolished.

May 11, 2011 Posted by | -Law, Patents, Uncategorized | , , , , , , , , | 4 Comments

HOW THE AMERICA INVENTS ACT CHANGES PATENT LAW

This is a guest post by David Boundy directed to fellow patent attorneys.

The bill tilts the playing field in favor of multinational corporations and market incumbents.  The bill shifts from today’s emphasis on disclosure and disruptive innovation to favor trade secret and market incumbency, in the following ways.

  • The § 102(a) grace period is totally repealed.  Every inventor will be in a race against all other possible disclosures—no inventor will have the time to perfect and test an invention before filing.  All companies will be forced to file before an invention is fully understood or tested.  That will be expensive for your clients and trouble for you as an attorney, and reduce patent quality.
  • Inventors, entrepreneurs, and startups use the grace period of § 102(a) to meet with investors, do the trial-and-error of R&D, and test their inventions. Under today’s law, the implied obligations of confidentiality in conversations with investors and early-stage partners give sufficient protection to permit these ordinary business activities.  The bill repeals all these protections, and replaces them with a flimsy grace period that creates unacceptable risk of loss of patent rights, that no business can rely on—though adds strong protections for large companies that can raise all their financing, and do all their manufacturing and testing in-house.  Inventors won’t be able to talk to investors without a patent, and won’t be able to file an application without an investor.
  • The bill states that an inventor can recover patent rights if he can prove that all other disclosures originated with the inventor—but the bill neglects to create a procedural forum for showing derivation in cases where the leak is not embodied in a patent application, or where the leak neglects to attribute the original inventor.  As a practical business matter, the bill leaves no commercially-feasible grace period, an integral part of U.S. patent law since 1839.—you will have to file every application as soon as possible, often long before the invention is ready.
  • Today’s law gives Americans several advantages over foreign inventors (under the “Hilmer rule”).  The bill removes these advantages, and instead places American inventors at a disadvantage to foreign inventors.   Consider this fact pattern:
  • A German inventor files a patent application in Europe, and later in the U.S. under a bilateral treaty
  • Shortly after the German’s first filing, an American files a patent application in the U.S. on a similar (not identically the same) invention, and then under the same treaty in Europe

Under the proposed legislation, the German’s patent application will be prior art that blocks the American in the U.S.  If we switch them around, so that the American files first, then the American does not block the German in Europe.  The bill does not “harmonize” the law, and the difference disfavors Americans.

  • The bill provides that all disclosures within and by a single company do not create bars.  This is great for multinational companies, with large in-house staffs, but totally useless for a startup or small company that has to partner with outsiders.  Startups use and need the options and protections of current law, but the new bill cuts them away.
  • A single offer for sale or public demonstration one day before filing a patent application will irretrievably destroy patent rights, if the poorly-drafted language is interpreted literally.
  • The § 102(b) grace period is cut back—it no longer protects against activities by third parties, but only the inventor’s own activities.
  • A new “post grant review” procedure allows a competitor, at a time of his own choosing, to start a half‑million dollar proceeding against a patent holder that has threatened no one.  Existing, more modest versions of this procedure have already put companies out of business.
  • As a patent attorney, you will no longer have time to do a good job preparing a patent application, you’ll be “forced to file” prematurely.  This will expose you to risks and destroy your weekends.  Poor initial applications will drive up post-filing prosecution costs.   The stricter and earlier filing deadlines will place you at a blocking point for many of your clients’ business activities, harming your client relationships.  Where good patent attorneys are allies in creating value for businesses today, the bill will move you to being a cost—at a much lower billing rate.

The bill destroys commercial certainty and corrupts the incentives in the system:

  • Various statutory requirements that an applicant act “without deceptive intention” are repealed—in the future, applicants will have incentive to act with deceptive intent.
  • Key terms of art are redefined—you’ve spent a career learning the meaning of “on sale” and “public use,” but the legislative history fundamentally redefines these terms.  It will take decades for courts to establish new precedent to provide any meaningful commercial certainty.
  • The Metallizing Engineering “secret commercial use” bar is repealed—a company will be able to use an invention as a trade secret, and then spring a patent on the public years later.  That favors market incumbents, but makes innovation harder for everyone else.
  • The “best mode” requirement is reduced to a sham: a patentee will be permitted to disclose only a fictitious embodiment, while holding the best as a trade secret.
  • The bill gives companies the right to patent and repatent inventions for years, to keep them locked up, neither using them nor permitting them to be used, for far longer than 20 years.
  • Several aspects of the “first-inventor-to-file” provision—the ones that give patents to second inventors, and to companies that kept inventions in secret for years before filing patent applications—violate constitutional limits on Congress’ authority—years more litigation and commercial uncertainty.
  • The Act allows Wall Street banks to attack “business method” patents that they are infringing.  This doesn’t extend to any other industry, only business methods—another Wall Street giveaway.

The bill is out of committee—further amendments are unlikely. It is literally impossible to alter the bill to meet the needs of startups through an amendment strategy at this late date.  The multinationals and their congressional allies smell victory.  They see no reason to allow any weakening of their preferred bill through amendments favoring small businesses.   The only option at this point is to vote it down.

Typical inventor activities that no longer “work”

Most startups, and many inventions at established companies, go through at least one of two “stories.”  They’re reasonable commercial practice under today’s law, but not under the bill:

  • An entrepreneur with nothing but an idea typically has to present his idea to dozens of venture capitalists and potential manufacturing or marketing partners, without formal confidentiality agreements, to get a company started. (VC’s never sign confidentiality agreements for first meetings.)  This works under today’s law, because of the implied obligation of confidentiality and the protection of § 102(a), but under the bill, these conversations will create commercially-unacceptable risks to the investor and partner.  U.S. inventors will be under the same “Catch-22” as European inventors—unable to talk to potential investors until a patent application is filed, but unable to file a patent application without an investor.  Startups will die before being born.
  • Companies that need a long “invention incubation” period—trial and error, conceive, test and discard, until finding the “magic combination” of techniques—use the § 102(a) grace period to do their R&D in confidence, and file patent applications only when it’s clear which inventions are valuable, and how they work.  Under the bill, a company will have to file a continuous stream of patent applications, many directed to inventions that are dumped under current law.  This will increase patent costs remarkably.

Almost every startup goes through one of these two, many through both, as new companies create new wealth and new jobs under today’s law.  Inventors wait to file quality patent applications until they have quality inventions.  America’s unique and strong right to file in the future, after the inventor and investor know whether the invention is valuable, makes business easy, and prevents wasted costs for inventions that prove worthless.

The “America Invents Act” revokes this historic right.  Property rights turn on non-business legal technicalities created to satisfy bureaucrats, technicalities that will cost $1 billion annually. The bill requires a company to file premature, hasty, and expensive patent applications on every baby-step idea to preserve rights against third parties who are dabbling in the field without intent to develop a commercial product.  The America Invents Act makes these two stories nonviable for startups—because the authors “didn’t think” about them, or didn’t want to.

In 2010, the Kauffman Foundation and Census Bureau released two studies on job creation.  Both found that “net job growth occurs in the U.S. economy only through start up firms.”  If creating new jobs is Congress’s Job One, then killing the America Invents Act is a good place to start.

The proponents’ arguments do not survive scrutiny

Proponents suggest that the bill does away with complex and costly interferences.  That’s true, but irrelevant.  Under 100 applications per year end up in interferences.  In contrast, the change to today’s “§ 102(a)” grace period affects commercial decisions and raises costs for hundreds of thousands of inventions per year, during the time before filing, by giving inventors and patent attorneys time to get it right the first time.  Because the Patent Office has no insight into the pre-filing process of invention, it simply hasn’t taken into account the realities of invention incubation and the costs of its proposal.  Further, the proposed replacement, “derivation proceedings,” are the most costly disputes in patent law in those jurisdictions where they exist.

Second, proponents argue that provisional applications will be a cheap way to preserve rights.  But that isn’t true under the new law.  Under current law, a cheap provisional is useful to show conception and diligence.  But under Patent Reform, a provisional application only provides legal benefit if prepared with full § 112 ¶ 1 care and completeness.   For a typical startup invention, the cost in attorney fees and inventor time for a provisional application is $10,000 or more—a formidable barrier to an entrepreneur’s first conversation with an investor.

Third, proponents argue, “The bill locks in rights if you publish a disclosure of the invention.”  But all companies rely on secrecy for their future plans.  No company publishes its most sensitive and advanced technology years before introduction.  This argument ignores business reality.

April 26, 2011 Posted by | Patents | , , , , , , , | 3 Comments

Could Apple Get Funded Today?

This intriguing question and its implications for US economic policy are tackled in the groundbreaking book Great Again, by Henry R. Nothhaft with David Kline.  They answer the above query with a series of questions:

Could a twenty-year-old college dropout, just back from six months in an ashram somewhere, attract funding for a capital-intensive venture based on the manufacture (yes, the manufacture) and sale of a $2,500 consumer product unlike any that had ever been bought by consumers before?  One whose potential uses were at best unknown, and possibly nonexistent?  And one for which the total current market size was exactly zero?

Not only could Apple not get funded today, it probably could not go public. Nor would Apple have received its first patent (USPN 4,136,359) in only 20 months.  The book asks “how many of today’s Apples are not getting a chance?”

The authors use the above example to make a broader point that theUSis failing economically and technologically because of the policies we are pursuing.  They show that all net new jobs created in theUSsince 1977 (and possibly longer) were created by startups like Apple.  All increases in real per capita income are due to new technologies and most revolutionary/disruptive technologies are created by startups and individual inventors.  So what are the policies that have undermined our economy, by undermining technology startups?

The book examines five areas:

1.Role of regulations.  The Authors show that our tax policies, Sarbanes Oxley and our indifferent (some might say arrogant) regulators’ application of well meaning regulations to startups is driving them either overseas or out of business.

2. Underfunding the patent office. This is costing theUS millions of jobs and billions in GDP.  According to the authors, each issued patent is worth 3-5 jobs on average, particularly patents issued to startups.

3. Manufacturing policies in the US.  Manufacturing is key, particularly in a world that does not respect property rights in inventions, to ensuring that theUS profits fromUS innovation and not other countries.  TheUS is also losing the global battle for human talent.

4. Battle for global talent. Our restrictive immigration policies are depriving theUS of talented entrepreneurs such as Andy Grove, founder of Intel.

5. Funding for research.  The book shows that our spending on basic science and engineering is not only declining as a percentage of GDP, but the system has become short-term oriented and bureaucratic.

While this book tackles complex issues, it is a quick easy read.  It is full of interviews from entrepreneurs, venture capitalists, and technologists who built America’s technology startups over the last three decades.  Great Again provides numerous real life examples to illustrate its points.

This pioneering book shows how the US can create jobs and increase per capita income.  The policy prescriptions are based on solid science.  Just cutting government spending (balancing the budget) will not cause theUSeconomy to grow vigorously, we need pro-growth policies.  The authors are some of the few people that understand what policies are needed for the US to be GREAT AGAIN.

Great Again: Revitalizing America’s Entrepreneurial Leadership, by Henry R. Nothhaft and David Kline

April 18, 2011 Posted by | Innovation, Patents | , , , , , , , , , , , , , , , | Leave a comment

Forbes Jumps on the Anti-Patent Anti-Intellectual Bandwagon

Steve Forbes, publisher of Forbes Magazine, was a strong defender of the US patent system.  He followed in the footsteps of one of his hero’s, Ronald Reagan, who made strengthening the US patent system a major part of his economic reform.  For more information see Reagan’s 100th Birthday.

Now Forbes (the magazine) pushes an anti-intellectual, anti-free market, anti-patent point of view as evidenced in the opinion piece Google’s Conundrum: Buy The Patents Or Pay The Lawyers? The author belongs to that Luddite group that wants to categorize patents as monopolies.  Patents are property rights.  Property rights derive from the act of creation or more specifically invention in the case of patents.  Monopolies are the result of political calculations and have nothing to do with creation.

The author then goes on to state:

When Prime Minister Tony Blair and President Clinton suggested imposing restrictions on patents in the field of genetics, publicly traded bio-tech firms experienced a predictable mini-crash. The impact of their recommendation would not have been as violent if the patents had shorter lives than twenty years.

Of course if the property rights in one’s invention was weaker before you suggested making it even weaker, it would have less impact on the value of the companies owning these assets.  This is like saying the value of a company will decrease less when nationalization is proposed if the tax rate were higher.  For instance, if the tax rate were 100% then it would not affect the value of company at all if politicians proposed nationalizing the company.  The author Reuven Brenner, is an economics professor at McGill University according to Wikipedia.  You would think that a professor would not make these obvious logical errors – the sort of errors that would make even an undergraduate paper on the topic receive a C or lower.

As if this gaff were not enough the professor then asks:

What would happen if the life of patents was shortened?

Prices of patented goods would decline and there would be less piracy

Yes and the price of all goods would decline if we would just get rid of property rights.  Of course, no one would produce anything and the same is true of weakening patents.  Innovation will come to a virtual standstill.  History shows that without secure property rights in inventions, innovation grows so slow that humans are stuck in the Malthusian Trap.  See The Source of Economic Growth.

As for there being less piracy that is like saying there would be less car theft if we did not give people title to their cars.  This is not Alice in Wonderland Mr. Brenner.  Words have meaning and even if there is not a law against piracy, it is still piracy.

Mr. Brenner continues with his Socialist line of reasoning by arguing, “Phillips’ initial success in Holland and throughout Western Europe was due to copying Edison’s lamps without paying any royalties to the Edison interests.”  Stealing always enriches the thief, but it does not create wealth it redistributes it and destroys it.  How many invention was Edison or some other inventor unable to fund because Phillips stole Edison’s inventions?

Mr. Brenner should be aware that since Robert Solow’s famous paper on economic growth it is clear that all per capita growth is due to increases in technology.  Most new technologies are created by start-ups that require property rights in their inventions (patents) in order to secure capital.  (See SBA Study).  In addition, all net new jobs in the US are created by start-ups according to the Kauffman Foundation.  If the US wants to create high quality, high paying jobs it needs strong property rights for inventions.

April 10, 2011 Posted by | -Economics, -Law, Innovation, Patents | , , , , , , , , , , , | 1 Comment

America Invents Act Will Increase Patent Application Backlog and Will Not Encourage Innovation or Job Creation!

This is a Press Release from American Innovators for Patent Reform and Eight Other Organizations Send Letter to Congress Stating Objections to House Version of America Invents Act:

 

New York, N.Y. − April 1, 2011American Innovators for Patent Reform (AIPR) joined eight other national organizations in a letter sent to all members of the House of Representatives and the staff of the House Judiciary Committee on March 29. The letter details the organizations’ objections to the House’s version of Senate bill S. 23, the America Invents Act, H.R. 1249. The letter explains why this proposed legislation will increase the cost of securing a patent, reduce access to the patent system for inventors and small businesses, increase the current 700,000 patent application backlog at the Patent Office, and decrease the ability of patent holders with limited resources to enforce their patents.

The organizations object to a weakening of the grace period as proposed by the Senate bill and the House’s version of the bill.  As stated in the letter, a weakening of the grace period granted to inventors under current law − during which they can refine and improve their inventions, build working prototypes, or secure financing or manufacturing for their inventions − would put inventors and small businesses at a distinct disadvantage as they might not be prepared to bear the costs of filing a patent application while large corporations can file their patent applications sooner and more frequently.

The letter recognizes that some of its signatories are opposed to the establishment of a post-grant review provision that creates yet a third process by which the infringer of a patent can challenge the validity of a patent and force patent owners to abandon their patents rather than enforce them.

The letter strongly recommends that Congress take a more targeted approach and shift its attention away from the broad and technically difficult America Invents Act, and instead pass a streamlined, targeted bill that focuses only on long-term funding for the Patent Office.

“We hope the House will seriously consider our objections to this legislation,” says Alexander Poltorak, founder and President of AIPR. “We need legislation that truly promotes innovation and investment in new technologies. Such a system will create new industries and new jobs. The America Invents Act, as now proposed, will likely have the opposite effect.”

Joining AIPR in co-signing of this letter were:

  • CONNECT, an organization entrepreneurs and investors dedicated to innovative technology and life sciences
  • IEEE-USA (Institute of Electrical and Electronic Engineers) in the U.S., the largest organization of technical professionals in the world
  • IP Advocate, a group that represents and assists the academic research community
  • NAPP (National Association of Patent Practitioners), the trade association for patent attorneys and patent agents
  • National Congress of Inventor Organizations representing independent inventors and entrepreneurs
  • National Small Business Association, an organization reaching 150,000 small businesses
  • Professional Inventors Alliance USA, a group that promotes the interests of inventors and entrepreneurs
  • U.S. Business and Industry Council, an association representing small to mid-size businesses

“The fact of the matter is the America Invents Act is an infringer’s dream-come-true,” claims Alec Schibanoff, Executive Director of AIPR. “It was pushed by lobbyists for the large corporations that are the most notorious infringers of patents. If enacted, this bill would tilt the U.S. patent system in favor of the large corporations and put inventors, small businesses and universities at a distinct disadvantage.”

 

About American Innovators for Patent Reform

American Innovators for Patent Reform (AIPR) represents a broad constituency of American innovators and innovation stakeholders, including inventors, engineers, researchers, entrepreneurs, patent owners, investors, small businesses, and intellectual property professionals such as patent attorneys, technology transfer managers and licensing executives.
AIPR opposes any patent reform that weakens the U.S. patent system, which is a driving force behind American innovation. AIPR advocates a multi-tier patent system, automation of the patent application process and synchronization of patent and copyright laws.

For more information about AIPR, please visit www.aminn.org.

 

April 2, 2011 Posted by | Patents | , , , , | 4 Comments

Intellectual Property’s Great Fallacy: Another Rambling Diatribe for Open Source Marxist Utopia

Intellectual Property’s Great Fallacy,by Eric Johnson

This paper starts with a bold statement that the theoretical underpinning for intellectual property (patents & copyrights) “has been washed away.”  Shortly thereafter it states “it’s hard to imagine big-budget Hollywood movies being made without copyrights.  And many new pharmaceuticals would not have been brought to market without the inducement of the patent laws.”  The paper never attempts to resolve this contradiction.  But this is far from the only problems and errors with the paper.

Property Rights:  Mr. Johnson does not seem to understand the basis of property rights or the difference between property rights and monopolies.  He incorrectly states that patents and copyrights are monopolies.  Patents and Copyrights are property rights and any definition of monopoly that includes patents also includes all property rights.  This of course leads to the nonsense that all property rights are monopolies.  For more information see The Myth That Patent are Monopolies.

Mr. Johnson tries to denigrate patents and copyrights by showing that their origin is from arbitrary government grants.  In the case of patents this was reformed by the Statue of Monopolies.  The exact same thing can be said of all property rights.  All land was considered to be owned by the King and he arbitrarily gave monopolies over certain areas of land.  This usually included the right to profit from the peasants on the land.  If the noble who received this arbitrary grant of land crossed the King, the King could and did take back the grant.  This practice continued at least until the U.S. Revolutionary War.  For instance, most of the colonies were arbitrary grants of land and President Washington was given large tracts of land for his service in the French and Indian War.  It was not until Locke that the theoretical basis for property was established, which is productive effort.  Patents and copyrights are property rights given for the inventor’s or author’s productive effort.  This theory of property rights acknowledges the reality that but for the creator the property would not exist and therefore the creator is the owner.

Extrinsic vs. Intrinsic Rewards:  The main thesis of the paper is that creative activities do not need extrinsic rewards.  In fact, the author argues that extrinsic rewards actually reduce the amount of creativity.  His evidence appears to be survey data.  However, survey data tends to be subject to a number of bias errors.  The paper ignores the actual empirical evidence.  The industrial revolution was an outpouring of new inventions.  As explained in the book The Most Powerful Idea in the World “For a thousand centuries, the equation that represented humanity’s rate of invention could be plotted on an X-Y graph as a pretty straight line.”[1] “Then during a few decades of the eighteenth and nineteenth centuries” in England and the US that equation changed.[2] Michael Kremer published a study (Population Growth and Technological Change: One Million B.C. to 1990) that argued that inventive talent and motivation are randomly distributed throughout the population.  His model works well until the industrial revolution.  Then England and other common law countries significantly out invent the rest of the world and their GDP per capita also grows much faster than the other countries in the world.[3]

Mr. Johnson also repeats the myth of the First Mover Advantage.  Even the author of the seminal paper on the first mover advantage has admitted that he overstated the case.  There are numerous business books that have argued that it is better to be a copier, including In search of Excellence and more recently Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge.  For more information see More Evidence that Stealing Invention is a Business Strategy.  My post Invention – A Financial Analysis, show that an inventor is always disadvantaged compared to a copier without property rights in his invention.

The paper argues that R&D managers at large corporations believe there are plenty of incentives for companies to invent aside from patents.  First of all this survey data is selective.  There are plenty of studies that show patents are critical for the success of start-ups.  See Patent Signaling, Entrepreneurial Performance, and Venture Capital Financing .  Once again Mr. Johnson’s data is selective at best.  Large corporations are not highly inventive.  According the SBA most emerging technologies are created by individual inventors and startups.  See An Analysis of Small Business Patents by Industry and Firm Size.

Free Markets and Patents

Mr. Johnson makes a number of statements like “While intellectual property entitlements are conceded to be modes of interfering in a free market, they are nonetheless understood to be necessary to address a problem of “market failure.”  This statement is based on the “Efficient Market Hypothesis.”  This hypothesis has been an major excuse for interfering with markets and property rights by statists, while pretending to support free market capitalism.  For instance, it is used to justify government involvement in education, labor markets, and limiting property rights through antitrust laws.  Free market capitalism is not based on the efficient market hypothesis.  It is based on property rights and contracts and the right of individuals to exercise these rights without government interference.

Value of Patents

Mr. Johnson makes the outrageous and completely unsupported statement that, “Patents have turned to be largely worthless to own, and, even worse, costly to defend against.”  As shown above Patents (property rights for inventions) were essential for humans in escaping the Malthusian Trap.  Patents have been shown to be critical for startups, see Patent Signaling, Entrepreneurial Performance, and Venture Capital Financing.  IBM makes over $3B a year from licensing fees.  Once again Mr. Johnson’s assertion is selective at best and perhaps purposely misleading.

Open Source

Mr. Johnson argues that the low cost of inventing has opened up opportunities for most people to be inventive and they are doing so in increasingly large numbers.  Again his data is selective at best if not outright misleading.  Since the advent of the open source and anti-patent movement the U.S. has faded from the clear technological and innovation leader of the world to being a second tier country according to most observers.  People in the US are not talking about the explosion of innovation, but the implosion.  Mr. Johnson seems to live in an academic fantasyland.

Conclusion

This paper may pass for an academic paper in today’s world, but it is not science.  At best is a selective survey of existing research in this area.  It does not add any new data, informatio, or conclusions.  If it were a patent application, it would not pass the novelty test.  However, this appears to be the norm for most of what is considered academic research today.

 

Intellectual Property’s Great Fallacy, by Eric Johnson

 


[1] Rosen, William, The Most Powerful Idea in the World”: A Story of Steam: A Story of Steam, Industry, and Invention, Random House, Kindle Version, location 258-264,  2011.

[2] Rosen, William, The Most Powerful Idea in the World”: A Story of Steam: A Story of Steam, Industry, and Invention, Random House, Kindle Version, location s64-270,  2011

[3]Kremer, Michael, Population Growth and Technological Change: One Million B.C. to 1990, Quarterly Journal of Economics, Vol 103, p. 681-716, 1993.

 

March 5, 2011 Posted by | -Philosophy, Patents | , , , , , | Leave a comment

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