Jobs, the Economy and Patents
The book The Invisible Edge, in chapter 8, makes a compelling case that the recession of the 1970s was largely due to the Federal Trade Commission’s (FTC) antitrust policies that limited the value of patents owned by U.S. companies. The book describes in detail the shameful abuse of government power by the FTC to force Xerox to license all its technology to all comers for a pittance. Xerox spent millions of dollars and over a decade to perfect the plain paper copier. They held numerous patents on the technology that made the plain paper copier possible. In 1975 when Xerox agreed to the FTC consent decree to license their patents, they had almost a 100% market share in plain paper copiers. Just four years later, their market share was down to 14% and most of the rest of the market was controlled by Japanese companies.
While this was the most dramatic example of the FTC’s and Department of Justice’s (DOJ) abuse of U.S. companies’ property rights in technology, it was hardly an isolated incident. According to the book, the FTC/DOJ brought more than 100 of these cases and gave away the technology associated with over 50,000 patents. The result was the U.S. transferred its cutting edge technology to Japan and many U.S. companies found themselves unable to compete with the Japanese. The book cites a MITI study that substantiates that most Japanese companies took advantage of this traitorous policy by the U.S. government to catch up with U.S. companies technologically. This suicidal policy resulted in other U.S. companies being reluctant to enforce their patent rights and in licensing their technology freely for fear of being hit with an antitrust lawsuit. It also resulted in reduced research and development spending and a reduction in the number of patents filed for over a decade.
How do we know that this anti-patent policy was a key factor in the economic slowdown of the 1970’s? Modern economics has shown that most of the economic growth of the U.S. is due to increases in technology. For more information on this see “Is Innovation the Key to Growing the U.S. Economy?” The government’s antitrust action erased the value of research and development and resulted in a significant slow down in the rate of innovation in the U.S. Contemporary reports showed that the U.S. public and government were concerned with the dearth innovation.
We are again facing a situation where the U.S. is falling behind technologically and economically. While the attack on the patent system has not come from antitrust law this time, it is having the same effect on the U.S. The attack has been lead by the former director of the patent office Jon Dudas. Under his direction, quality examination of patent applications meant rejecting them. Under his negligent stewardship, the allowance rate for patents fell from 70% down to 41%, click here for more information. Mr. Dudas displayed the same government arrogance and ignorance that the FTC so ably demonstrated in the 1970s. Mr. Dudas was assisted by the Supreme Court, whose recent rulings on patents have made it easier for technology thieves to escape prosecution. Finally, Congress also contributed to the problem by breaking the social contract between inventors and society. For more information see Intellectual Property Socialism (). The present patent reform proposals before Congress are all designed to further weaken our patent laws. This is bad news for the economy and bad news for America’s position in the world.
In addition to this excellent chapter that should be required reading for members of Congress, the President, and members of the Supreme Court The Invisible Edge is a wonderful book about using intellectual property as part of a company’s business strategy. The book has numerous examples of how intellectual property is the key to creating a sustainable competitive advantage. It describes the open innovation movement and what the trades are between open innovation and closed innovation business models. The IBM PC is used to illustrate many of these points. In addition, the book describes the open source model, how it differs from open innovation and what the limitations of this model are. This book is a must read for business executives.
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