State of Innovation

Patents and Innovation Economics

Larry Kudlow: Chinese Economy Relies of Stealing US Intellectual Property

Larry Kudlow in an article titled How to Combat an Arrogant China, suggests that China’s economy is based on the theft of our intellectual property.

They’re stealing our technology, violating all sorts of patent-protection laws, hacking into Google and infringing on intellectual-property rights. In fact, 80 percent of Chinese software is reportedly pirated from American companies.

It is great to see Mr. Kudlow wake up to the value of intellectual property.  Unfortunately, he seems to imply that enforcing intellectual property is not consistent with free trade.

As a strong free-trader myself, I recognize the many benefits free and open trade offers both China and the United States. But like many others, my free-trade patience with China is wearing thin.

If China stole its raw materials from the US, would it be a violation of free trade to then to demand that China pay for its raw materials?  The single most important raw material that China uses to produce it products is intellectual property.

It is nice to see the Larry Kudlow is beginning to wake up to the importance of intellectual property particularly patents.  Note that the US spent a lot of political capital in the 90s to get a mechanism to force other countries to strengthen their intellectual property as part of the TRIPs treaty.  But no president has had the courage to actually use the mechanism to force other countries to live up to their agreements.[1] Perhaps this is because every president since Reagan has been ambivalent about patents at best.  Only Hollywood and the software industry’s copyrights are able to get the attention of Washington.  However, patents are much more important to the US’s economic future.

Perhaps now that Mr. Kudlow has woken up to the fact that the economy is driven by more than Wall Street, tax rates, and the money supply, he will help advance some initiatives that will strengthen patent laws both here an abroad for American inventors.  Here is a short list of suggestions

1) 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”. Unfortunately, the idea died and since then patent rights have been part of the convoluted process of trade negotiations.

Patent reciprocity would significantly increase the value of patents and increase the value of research and development.  As a result, it would spur investment in innovation.  Reciprocity would increase the valuation of technology start-up companies in all countries that participated.  It would also increase per capita income.


2) Repeal the Publication Requirement: This would restore the social contract

3) Repay PTO:  Congress should repay the over $1B it stole from inventors with interest.

4) 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.

5) Repeal eBay:  This decision is 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

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”?


[1] Pat Choate has documented this issue extensively


January 21, 2011 - Posted by dbhalling | -Philosophy |

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1 Comment »

  1. [...] We should also strengthen our patent laws.  For more information see Larry Kudlow: Chinese Economy Relies of Stealing US Intellectual Property. [...]

    Pingback by Unemployment: The Big Lie « State of Innovation | February 4, 2011 | Reply

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