For the first time in U.S. history more patents were issued to foreigners than U.S. residents, by the U.S. Patent and Trademark Office (USPTO). According to the USPTO, foreigners received 80,271 patents while U.S. inventors received 77,501 in 2008. Six of the top ten patenting companies in 2008 were foreign.
|1||INTERNATIONAL BUSINESS MACHINES CORPORATION||4169|
|2||SAMSUNG ELECTRONICS CO., LTD.||3502|
|3||CANON KABUSHIKI KAISHA||2107|
|8||MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.||1469|
|10||HEWLETT-PACKARD DEVELOPMENT COMPANY, L.P.||1422|
What does this say about innovation in the U.S.? Perhaps this just means that foreigners are becoming more innovative and catching up with the U.S.? Unfortunately, this is not true. As the chart below shows the number of patents issued to U.S. inventors has essentially been flat since 1998.
Some people might point out that even though the number of patents has not increased, the number of patent applications by U.S. inventors has increased from 2000-2007. These people would argue that this shows the U.S. is continuing to innovate. This argument fails for a number of reasons. First, the number of patents filed by U.S. inventors declined in 2008. Second, investing in research and development and filing patent applications without ever receiving a patent is like a contractor building a house without receiving title to the house. The contractor may have created some value, but since he has not profited from his effort he cannot justify continuing this business. This situation has been exacerbated by the new policy of publishing patent applications in the U.S., even if they never receive patent protection. Before 2000, an inventor could decide to keep their invention a trade secret if the USPTO denied them a patent and therefore capitalize on their R&D that way. This avenue is now closed. Numerous other changes have also weakened our patent system. For more information see Intellectual Property Socialism.
Interestingly, U.S. median household income has been stagnant since 1998 as has the number of patents issued to U.S. inventors.
While the median income chart only extends to 2006, according to Niall Ferguson as of 2008 it is still no higher than in 1998.
Surely, you are not suggesting that the reason for the stagnation of median income and the economy are due to the stagnant number of patents? How do you know that the cause for the stagnation in the number of patents is not the result of the poor economic performance? While I am not suggesting an exact one-to-one correspondence, yes, these phenomena are linked. Based on modern economics we know lack of innovation is the cause of the economic and per capita income stagnation. Robert Solow won the Noble Prize in economics for showing that the major determinant for increased productivity is innovation. This demonstrates that the cause is lack of innovation and the result is economic and income stagnation. For more information see: Is Innovation the Key to Growing the U.S. Economy.
Is there any historical precedence for a stagnating number of patents correlating with a weak U.S. economy? Yes, the economic weakness of the 1970s correlates with a stagnate period in the number of patent issued to U.S. inventors.
As you can see in the chart above, the number of patents were essentially stagnate from 1963 to 1985. The increase in the number of patents from 1963 to 1966 was associated with a strong economy. Starting around 1971, the number of patents start to consistently decline. This period of time correlates with a weak U.S. economy. A big reason for the declining number of patents was a FTC’s (Federal Trade Commission) antitrust attack on patents. In 1975, the FTC forced Xerox to license its entire patent portfolio to all comers for a measly 1.5% royalty. Xerox’s market share of plain paper copiers went from almost 100% to 14% in four years. Xerox lost most of its market share to Japanese companies. This was not an isolated incident. According to the book The Invisible Edge (see Chapter 8), the FTC and DOJ brought more than 100 antitrust cases against companies because their patent portfolio gave them a competitive edge. They forced U.S. companies’ to give away the technology associated with over 50,000 patents. This had a chilling effect on patents and R&D. Note that one of the prongs of Reagan’s economic program was to strengthen U.S. patent laws.
The present patent reform proposals are all designed to weaken our patent laws by reducing damage awards, by changing our patent laws from a first-to-invent to a first-to-file, and by forcing all patent applications to be published within 18 months of being filed. The change in how damages are calculated favor technology thieves at the expense of technology creators. The publication and first-to-file rules favor large corporations at the expense of start-up companies and individual inventors. The publication rule makes it easier for foreign companies to steal our technology.
We must strengthen our patent laws to encourage innovation, if we want to create real sustainable jobs, increase per capita income, and jumpstart our economy.
 Patent origin is determined by the residence of the first-named inventor, see http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#by_geog.
 An applicant can ask that their patent application not be published, but this comes with other restrictions. As a result, most U.S. inventors allow their patent applications to be published.
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