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Archive for July, 2009


            It is important to understand what is meant by innovating or inventing and what its properties are before embarking on how to encourage or measure technological innovation.  Innovating is creating something new.  What do we mean by new?  Was the light bulb invented by Edison new?  There were other electric light bulbs before Edison.  Some people suggest that Edison did not really invent the light bulb.  One website states “Contrary to what schools have taught for years, the American icon, Thomas Edison, neither invented the light bulb, nor held the first patent to the modern design of the light bulb.”[1]  Most of Edison’s detractors point to Joseph Wilson Swan as the inventor of the incandescent light bulb.  Swan was an English physicist and chemist and applied for a patent on his light bulb before Edison.  However, Swan’s light bulbs were low resistance light bulbs.  If you tried to setup an electrical power system to power Swan’s light bulbs, it would have required such a large copper conductor as to make the system economically unfeasible.  Edison created the first high resistance light bulb, which made it possible to create a commercially feasible electric light system. 

 

A study commissioned by the Manufacturing Alliance on Patent Policy suggests that expanding the admistrative challenges to patents will:

1. Increase Patent Pendency

2. Significantly increase the cost of defending the validity of patents

and will not increase the quality of patents.  See the full report.

 

Conservation Law of Innovation:

All innovations are combinations of existing/known elements.

Conservation of matter (and energy) means that you cannot create something from nothing.  As a result, all innovations must be a combination of existing or known elements.

Causality Law of Innovation:

Invention precedes production, production precedes consumption and discovery precedes invention.

 

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.” 

 

New York, NY, July 9, 2009 – Dr. Pat Choate, a prominent economist, best-selling author, former vice presidential candidate and noted intellectual property expert, has joined the Board of Directors of American Innovators for Patent Reform (AIPR). Dr. Choate, currently director of the Manufacturing Policy Project, a Washington, DC-based policy institute, has thrown his support behind an organization that represents American innovators – inventors, scientists, engineers, researchers and intellectual property service providers – in the ongoing struggle to enact meaningful patent reform.

 

President Obama has prioritized reducing patent application pendency times.  What are your top three suggestions to achieve this goal?  Here are my mine.

One: Change the way examiners are evaluated.  According to my understanding, productivity count or points are a major part of an examiner’s performance review.  The examiner gains points for reviewing a new case, when an applicant files a RCE (Request for Continued Examination) and if the case is allowed or abandoned, among other activities.  This system encourages “churning” where an examiner will force the applicant to file a RCE in order to obtain an allowance to increase their points.

 
Is Innovation the Key to Growing the U.S. Economy?

Traditional Explanation of Economic Growth

What causes economic growth?  One of the common explanations is consumer spending.  As a headline on Minnesota Public Radio’s website in October 30, 2008 stated “Consumer Spending Accounts for Two-Thirds of U.S. Economy.”  If consumer spending is such a big part of the economy, then all that is necessary to stimulate economic growth is to get consumers spending more.  The other one-third of the U.S. economy is government spending, so perhaps by having the government spend more money we can stimulate the economy.  The theory of spending causing economic growth is commonly associated with Keynesian economics. 

 

This podcast explains that the U.S. economy revolved around the housing market and easy credit in the last decade and that the U.S. failed to innovate.  Innovation is the key to economic growth and the only mechanism for increasing per capita income.  The podcast discusses the new field of “innovation economics.”  Traditional economics gives lip service innovation, but has not studied its causes and effects.

 

This comment was posted by an Patent Examiner at Patent Prospector.  The Examiner explains why he thinks the allowance rates are so low and his explanation is consistent with my post, Patent Allowance Rate Falls to 42%.

ALLOWANCE RATE

I believe that the allowance rate is artificially low, although not due to churning…at least not exactly.

I am a current examiner. Under Dudas, the PTO pursued a policy of “increased patent quality”. The way that the PTO enforced this quality initiative was by reviewing office actions. Not reviewing all office actions, mind you, but only reviewing allowances.

Unfortunately, the PTO failed to see the problem that they were setting up. An examiner is then left with two choices:

1) An examiner could generate rejections without ever incurring quality review, or
2) An examiner could generate an allowance that would be scrutinized by quality review and possibly find themselves assessed a quality review error.

So, it has been safer for an examiner to always reject…at least until very recently. There has been some loosening of the allowance quality review rules in recent weeks as it appears that “reduced pendency” is the new key motivation under Obama.

 

            Intellectual capital, financial capital and human capital were the three pillars of the incredible innovation of the 90s.  Human capital in the form of scientists, engineers, management, etc. was typically lured into a risky start-up company with stock options.  According to the online accounting dictionary an option is a right given the holder to buy a specified number of shares of stock at a certain price by a particular date.  Stock options were the prize if the venture worked out for talented individuals to forego better paying, less stressful positions with established organizations that often had better benefits.  The strike price of the stock option was always set at or below the fair market value of the stock at the time option was issued, meaning the option had no inherent value.  The promise was that if the venture succeeded the employees would be able to cash in their stock options and receive a large reward.  If the venture failed, these stock options would end up being worthless.  Some accountants believed that stock options should have an associated expense at the time of the option grant.  The Financial Standards Accounting Board (FASB) implemented a rule requiring expensing of options in December 2005. 

 

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