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Archive for April, 2011


Patent Allowance Rate up to 46% (4/29/11)

One of Director David Kappos’ first actions was to send out an email to all the examiners at the USPTO (U.S. Patent and Trademark Office) that rejection did not equal quality.  Mr. Kappos has had almost two years to make good on the policy change.  When Mr. Kappos took over the allowance rate had fallen to 39%.  While this shows progress and many parts of the Patent Office have gotten the message there are still several art units where they are still operating under the “rejection equals quality” policy.

The USPTO has a data visualization center, which tracks many usefl statistics.  For instance, the overall allowance rate is 62.9% from a low of around 56.4%.  The overall allowance rate does not consider RCEs as a new case.  For companies that can afford to fight indefinitely with the PTO this is a better measure, but for companies on a limited budget this is small consolation.  Despite the rhetoric that companies file multiple patents willy-nilly, the extreme cost and length of time it takes to obtain a patent means that even the wealthiest of companies are discerning in their patent filings.  As a result, an overall allowance rate near its historical average of 70-75% makes more sense.

It now takes on average 25.2 months from the date of filing a patent application until you receive an Office Action.  This varies significantly from one art unit (technology) to another.  In addition, Congress stole another $100M in user fees, which has caused this delay to increase.  Unfortunately, our Congress is not serious about their Constitutional duty to secure the rights of inventor.

 

According to the Milwaukee Journal Sentinel http://www.jsonline.com/business/120673029.html, Congress, has just decided to steal another $100 million from the Patent Office, which is really stealing from US inventors.  We don’t need financial reform or Sarbanes Oxley for the private sector we need if for Congress and the President.  All of them would be in jail if they pulled this stunt in the private sector.  The morality of the public sector has fallen to a new low.  One result appear that the USPTO will have to impose a hiring freeze.  This is just more evidence that Congress is not serious about its Constitutional duty of protecting the Rights of Inventors.

 

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.

 

Dear fellow patent attorney:

I need your immediate assistance to help defeat a particularly bad patent bill now in its final stages of consideration by the U.S. Congress.  You have seen the blogs and emails explaining how the America Invents Act (formerly the Patent Reform Act of 2011) will dismantle our carefully-balanced patent system, the system that has made America the innovation engine for the world.  The bill is bad forAmerica, bad for your clients, and bad for you as a patent attorney.  Other countries innovate at half our rate.  The multinationals want to “harmonize” our laws with those unsuccessful systems for their own convenience.  This bill imposes about $1 billion in costs by taking away options that domestic American businesses use, to save a comparatively trivial amount for the Patent Office and a small number of multinational corporations.

The appendix to this letter outlines the proposed law and how it will significantly damage our clients, our profession, and our country.

Because this bill has passed the full Senate and the House Judiciary Committee, it could be enacted within weeks.  The big multinational corporations have plowed untold sums of money into lobbying, and have the bill they want.  It’s essential that Congress hear from domestic American businesses and inventors, and hear from them now. Congress desperately needs to learn from small businesses and startups how they actually use the patent system to create new products, jobs, and wealth.

Congress is on recess until May 2, and your Representative will be in your district.  This is your best opportunity to inform your Representative that this bill will destroy American jobs by making it impossible for startups, small companies, and university spinoffs to protect the inventions they create, to obtain the funding they need to commercialize their inventions, and to earn the profits they need to grow new R&D-intensive businesses.

The “Asks”

Go to www.house.gov to find your Representative’s contact info.  To schedule a meeting, many offices will want you to FAX in a request letter.   Second best is a phone call to your district office (not the D.C. office).   Third best—and far less effective, but better than nothing—is an email.  www.reformaia.org can help you with some of these contacts.

Ask your clients to join you at a meeting, or at a minimum, to call or write.  This letter is accompanied by a “script” you can give to clients for them to make their calls.  Your representative should simply vote the bill down—overall, the bill does more harm than good, regardless of any other changes that might be incorporated.

If you live in Ohio, call Governor Kasich’s office, (614) 466-3555.  Point out that the governor’s $700 million Ohio Third Frontier jobs program cannot work, and that the Innovation Ohio Loan Fund will be not be repaid, if the federal Patent Act is changed to deter investment in university spin-offs and startups, and to make it harder for new businesses to succeed.

Please take the opportunity to meet or phone, or at least email your Representative. (A phone call has several times the weight of an email, and a meeting will have many times the impact of a phone call). You will be more likely to get a personal meeting, and you will have far more impact, if you as an attorney bring one or two of your clients with you.  Stay away from patent jargon, because the person you talk to will almost certainly know nothing about patent law.   It’s crucial that you discuss the effects of the bill in terms of destruction of innovation, jobs, start-up businesses, and the like, issues that a Representative or staffer can relate to.  Urge your clients to join you for a meeting.

It’s crucial to act now.  Please help preserve our gold standard patent system, one of the biggest engines of job growth in the U.S., and part of the reason U.S. attorneys can create so much more value for their clients than our counterparts in the countries to which Congress proposes to “harmonize.”

David Boundy

Vice President, Assistant General Counsel Intellectual Property at a well-known financial services firm, in Boston MA

APPENDIX:  HOW THE AMERICA INVENTS ACT CHANGES PATENT LAW

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 expense 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.

 

I have been wondering about the number judges on the Court of Appeal for the Federal Circuit who were practicing patent attorneys.  I was surprised that I could not easily find this information.  Here is what I found (I believe this information is accurate, but if I am mistaken please let me know).  According the CAFC’s website there are 16 judges and five of them are patent attorneys.  Six of the judges have technical backgrounds.  I think this is pitiful.  However, all six of the judges on senior status do not have technical backgrounds and are not patent attorneys.  Thus, among the active judges five of 10 are patent attorneys and six of ten have technical backgrounds.  It appears that the court is moving in the right direction.  The newest judge is Kathleen M. O’Malley who does not have a technical background and is not a patent attorney.  The CAFC website plays up her experience with patent cases, but I am skeptical that this makes up for the right technical background or real experience in patent prosecution for the reasons stated below.

The CAFC has jurisdiction over most patent appeals.  According to the CAFC website 39% of its cases relate to intellectual property – 36% of which are patent cases.  It might be argued that since only 36% of their cases are related to patents, then it makes sense that only 36% (50% of active) of the judges should be patent attorneys.  I would argue this is incorrect.  First of all, we have plenty of federal judges without technical backgrounds.  It is not necessary to populate the CAFC with judges that do not have technical backgrounds to provide balance to the makeup of our federal judges.  In fact, the exact opposite is true.  Second, it is easy for a judge with a technical background to pick up and new area of law, but it is almost impossible for a judge without a technical background to understand the technical concepts associated with genetic engineering, XML, spread spectrum, organic chemistry or numerous other areas of technology.  We perpetuate a myth that the facts are decided at the trial level, so the judges at the appeal level do not have to understand the underlying technology to reach a correct decision.  However the judges on the Supreme Court prove over and over again that their ignorance of basic technology and science results is bad decisions.  See Bilski: The Good, the Bad, and the Ugly http://hallingblog.com/2010/06/29/bilski-the-good-the-bad-and-the-ugly/ and KSR: Supreme Ignorance by Supreme Court http://hallingblog.com/2010/01/19/ksr-supreme-ignorance-by-supreme-court-2/.  As a result, I believe that we need significantly more patent attorneys as judges on the CAFC.

Judge Patent Attorney Technical Background
Rader No No
Friedman* No No
Newman Yes Yes – Ph.D
Archer* No No
Mayer* No No
Plager* No No
Lorie Yes Yes – Ph.D
Clevenger* No No
Schall* No No
Bryson No No
Gajarasa Yes Yes – BSEE Patent Examiner
Linn Yes Yes – BEE
Dyk No No
Prost No Yes – BS
Moore Yes Yes – MSEE
O’Malley No No

* Senior status.

The following additional information was provided by stepback.

PAULINE NEWMAN, Circuit Judge: … She served as patent attorney and house counsel of FMC Corp. from 1954 to 1969 and as research scientist, American Cyanamid Co. from 1951 to 1954. Judge Newman received a B.A. from VassarCollegein 1947, an M.A. from ColumbiaUniversityin 1948, a Ph.D. from YaleUniversityin 1952 and an LL.B. from New York University School of Law in 1958.  From http://www.cafc.uscourts.gov/index.php?option=com_content&view=article&id=126:pauline-newman-circuit-judge&catid=1:judges&Itemid=24.  Not surprisingly I have often believed Judge Newman is the most intelligent judge on the CAFC.

KIMBERLY A. MOORE, Circuit Judge: … was an Associate at Kirkland & Ellis from 1994 to 1995. From 1988 to 1992, Judge Moore was employed in electrical engineering with theNavalSurfaceWarfareCenter. Judge Moore received her B.S.E.E. in 1990, M.S. in 1991, both from the Massachusetts Institute of Technology, and her J.D. (cum laude) from theGeorgetownUniversityLawCenterin 1994.

RICHARD LINN, Circuit Judge: … was a Partner and Practice Group Leader at theWashington,DClaw firm of Foley and Lardner from 1997 to 1999. He was a Partner and head of the intellectual property department at Marks and Murase, L.L.P. from 1977 to 1997. Judge Linn served as Patent Advisor, United States Naval Air Systems Command from 1971 to 1972, was a Patent Agent at the United States Naval Research Laboratory from 1968 to 1969, and served as a Patent Examiner at the United States Patent Office from 1965 to 1968 … He received a B.E.E. from Rensselaer Polytechnic Institute in 1965, and a J.D. from Georgetown University Law Center in 1969.

ARTHUR J. GAJARSA, Circuit Judge: … was a partner in theWashington,DClaw firm of Joseph, Gajarsa, McDermott and Reiner, P.C. from 1987 to 1997. Since 2003, Judge Gajarsa has been an Adjunct Professor at theGeorgetownUniversityLawCenter. From 1980 to 1987, he was a Partner in the law firm of Wender, Murase and White. From 1978 to 1980 he was a Partner in the law firm of Gajarsa, Liss, and Conroy and from 1971 to 1972 … received a B.S.E.E. from Rensselaer Polytechnic Institute in 1962, an M.A. from Catholic University of America in 1968, and a J.D. fromGeorgetownUniversityLawCenterin 1967.

 
Adam Mossoff Lecture: Ayn Rand on Intellectual Property

The Ayn Rand Institute held a lecture on intellectual property (IP).  The talk was given by Adam Mossoff a law professor at George Mason University School of Law.  There are eight parts to the lecture.  I provide a short synopsis/comment about each video with a link below in case you want to skip to a particular section of the talk.  I have previously written on Ayn Rand’s views of intellectual property, see Ayn Rand on Intellectual Property.  My post is more about the issues of patent law, while this lecture is more about how IP is the most fundamental of all property rights.

Part 1 of 8: Introduction

This part is a general discussion of the state of the economy and how Ayn Rand’s ideas apply.  Mossoff argues that intellectual property has risen to prominence and discusses all the new advances in technology that are based on IP.  He explains that Leftists and Libertarians have joined in an all out attack on IP, particularly patents. He also argues that “Net Neutrality” is an attack on IP.  He notes that recent Supreme Court cases have significantly weakened patent rights.  He concludes with the idea that all property is really intellectual property.

Part 2 of 8: All Property is Fundamentally Intellectual Property

From this point forward the lecture focuses on patents and inventions.  Ayn Rand stated that patents are the heart and core of property rights.  The talk is about the moral justification for IP.  All property is based on two concepts: 1) the nature of value, and 2) man as a rational animal and his mind is his basic tool of survival.  It is only life that makes the concept of value possible.  Unlike other animals, man has to first determine what values are necessary to sustain his life using his mind.

Professor Mossoff seems to be making an argument that all products/services we use are/were inventions (products of the human mind).  They may have been invented a long time ago, but they do not exist in nature (separate from man) and therefore they had to be invented by man before they could be produced.  He then points out that human needs do result in the creation of products/services to fill those needs.  First, the solution to the need has to be invented and produced and only then can the need be satisfied.

The birth of Industrial Revolution corresponds with the creation of property rights in inventions, i.e., patents.  I make this point in my post, Source of Economic Growth.

Part 3 of 8: The Industrial Revolution

The Industrial Revolution was an explosion of inventions that occured when patents were created.  Daniel Webster argued that an invention is the product of the inventor’s mind and he has more rights to his invention than any other property.  Mossoff quotes a US judge in the 1800s who states that patents are a natural right.  Mossoff argues that theUSpatent system (first modern patent system) was the key reason theUSsurpassedEnglandas the driving force of the Industrial Revolution.  This explosion of inventive and economic activity in theUSamazed Europeans.

Ayn Rand in Atlas Shrugged refers to machines as the frozen form ingenuity.

Mossoff states that Jeremy Bentham’s ideas are at the root of Libertarian’s attack on IP.  Bentham basic philosophy was Utilitarianism – the greatest good for the greatest number.  Bentham stated that the reason for property rights was because of scarcity and conflict resolution not natural rights.  Mossoff then points out that the followers of Bentham then argue that there is no conflict between people using the same ideas like there is with land.  Ideas can be copied and used endlessly.  This argument fails for two reasons.  One, there is not conflict between ideas, but there is a conflict when a physical embodiment of the idea (invention) is created.  They the copier has clearly limited the return for the inventor.  Second, a specific purpose of patent laws is to spread the knowledge behind the invention so that other inventors can take advantage of this knowledge – so patents do not limit access to knowledge they increase it.  I discuss the fallacies behind the scarcity theory of property at my post Scarcity: Does it Prove Intellectual Property is Unjustified and Scarcity -2 and Scarcity -3.  Mossoff points out that this is the philosophical point of view used by the Cato Institute and the Von Mises Institute to attack patents (IP).

Utilitarianism’s “greatest good for the greatest number” always leads to totalitarianism.  It also never leads to the purported goal.  The reason for this is that utilitarianism is merely a justification for short term actions.  Once something has been produced, it always looks like the greatest good is to redistribute the creation.  However, this is clearly only true in the short term.  In the long term it is clear that this always destroys the economy.  This is the theory behind theUSSR,North Korea, and all socialist states.  As Ayn Rand pointed out you only need open your eyes to see that these countries do not produce the greatest good for the greatest number.  This is because stealing the product of one’s mind (mental labor is labor) is no different than banning free speech.  It stifles the mind, which source of all economic progress (values).

Part 4 of 8: Libertarians Assume Resources

Mossoff shows that Libertarians ignores the creation of these inventions.  They just assume they exist.  The Leftists version of this in theUSis the statement “theUSis the wealthiest Nation in the World” and therefore we should be able to afford X (national health care, social security, free education, fill in the blank).  Both groups ignore how and why these resources were created.

Libertarians deny the very foundation of all property rights in their attacks on IP – the rational mind.  Libertarians embrace the anti-mind collectivist premises that Leftist use to attack all property rights.  I made the same point in my book The Decline and Fall of the American Entrepreneur.

Part 5 of 8: Why the Utilitarian Defense of IP Fails

Mossoff points to the ACLU v. Myriad, see my post ACLU – Gene Patent Non-Sense.

Value creation is the source of property rights according to Ayn Rand.  Mossoff states that it is no coincidence thatRandin Atlas Shrugged had the state nationalize all patents in the infamous Directive 10-289.  It was because patents are the most fundamental of all property rights.  Man’s mind is the root of all material value ever produced in the world.

Mossoff argues that Locke’s labor theory of property is incorrect.  He argues that Locke was specifically talking about physical labor.  Note it takes calories and effort to perform mental labor, so the distinction between physical labor and mental labor is not that one involves the physical transform of the world.  (A similar point seems lost on computer programmers).  I would argue that Locke never intended labor to mean “physical labor” but productive effort in modern terms.  However, Locke also never clearly defined that all material values comes from the mind.

Part 6 of 8: Question -1

The question is from a teacher at theHenryGeorgeSchoolwho suggests that Kilby and Noyce’s decision to resolve the interference (who owns the patent) to the integrated circuit by not pursuing a patent resulted in faster development of the IC.  Mossoff points out that this is fallacy.  First, other people would have been inspired to design around the patents or license them and there is no evidence that the development of the IC would have been slowed down.  (Most patent attorneys will tell you that there has never been a patent that cannot be designed around eventually)  Second, the macroeconomic evidence shows that countries with weak patents are slow to adopt new technologies.  Third, Mossoff points to the Bayh–Dole Act, which was enacted because federally funded research was not being commercialized.  The reason it was not being commercialized was that the ownership rights were uncertain.  This is a typical tragedy of the commons problem.  Fourth, Mossoff points out that when the uncertainty about the ability to patent genetically modified life forms was removed in theUSthe biotech industry took off.  Biotech languished inEuropefor another decade because of their resistance to recognize patent rights in genetically modified organisms.

The questioner clearly did not listen to a single thing that was being said during the lecture.

Part 7 of 8: Question – 2 & 3

Another question from a teacher at theHenryGeorgeSchool.  He suggest that land is special.  He argues that the value of land is often enhanced by what is done around your parcel of land and has nothing to do the owner’s labor.  As a result, he argues that people should pay “society” a rent for the use of the land.  The questioner is confusing externalities with property rights.  Externalities and spillover benefits have been used over and over by socialists to justify stealing from producers for the socialists pet projects.  The questioner also confuses luck with property rights.  Just because someone is lucky and becomes wealthy does not justify stealing from them.

Mossoff points out that land has value because people used their mind to create value from land.  Land has no inherent value.

The next questioner asks about multiple people who contribute to the invention of a chair.  In patent law this is why patent are a right to exclude, not the right to make something.  This ensures that all contributors have rights to the invention.  If we did not have a right to exclude, then the final inventor (or first inventor) would be the only one who would receive an economic return.

Part 8 of 8: Question – 4 . . .

Is IP enforcement of copyrights censorship?  Mossoff points out that if a Leftist comes into your house and spouts off socialist nonsense it is not a violation of their free speech rights to force them to either leave or shut up.  The right to free speech does not give you the right to use someone else’s property.  The government’s enforcement of your property rights is not a violation of the 1st Amendment because you do not have a right to free speech while on or using someone else’s property.  Milton Freedman showed that free speech is actually impossible without property rights.

Another question suggests that IP slows down the adoption of new technologies.  There is absolutely no statistically valid evidence for this point of view.  There are anecdotal stories of this happening, but the actual evidence is that countries with weak patent rights have slower adoption rates of new technologies not vice versa.

 
The Birth of Plenty: Predictions

This book, The Birth of Plenty Predictions: How the Prosperity of the Modern World was Created, purports to explain the conditions necessary for a nation to escape the Malthusian Trap.  The author, William Bernstein, states that four conditions are necessary: 1) property rights (including intellectual property rights), 2) the scientific method, 3) efficient capital markets, and 4) transportation and communication infrastructure.  The first part of the book explains why each component is necessary.  The second part of the book applies this structure to the historical evidence associated with various countries to show that all four components are necessary.  The third part of the book attempts to make predictions based on the thesis.  This is an excellent book.  It is easy to read, full of interesting historical facts, and is well reasoned for the most part.

Unfortunately, the author attempts to defend the welfare state as created by Roosevelt in the USand the mixed economy of Great Britain.  This clearly departs from his thesis.  First of all, the welfare state under FDR was an attack against property rights.  Despite the author’s claim that regulation of capital markets is necessary for them to be efficient, all econometric studies show that they are at best ineffective and most likely damaging.  This means that the regulations FDR created to regulate the financial markets caused the capital markets in the USto be less efficient.  Sarbanes Oxley is present-day example of the damage caused by absurd regulation of capital markets.  The New Deal was not based on scientific method, it was based on emotion and the desire for political power.  (For more information see FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression).   So at least three of the four criteria were undermined by FDR and the “New Deal”, (AKA the bend over and take it deal).  The author’s defense of the New Deal is based on sociological studies that show income disparity between the wealthy and the poor causes social unrest.  These studies are clearly flawed.  Income disparity can occur because of political favoritism (crony capitalism) or because of the opportunities created in a free economy.  These studies do not differentiate between these two very different situations.  As a result the studies cited by the author are contradictory and therefore do not support his thesis.

How do the four factors apply to the UStoday?  Property rights have been under assault in the US., see Kelo v. City of New London .  Patent rights have been weakened since 2000, see Intellectual Property Socialism.  The scientific method has been under attack by both the political right and left, see creationism and global warming – climate gate.  Our capital markets have been significantly compromised by Sarbanes Oxley and now the Frank Dodd financial reform act.  For more information see Sarbanes Oxley the Medicine is Worse than the Disease.   The US transportation and communication infrastructure is slowly deteriorating because funds are appropriated in larger percentages to social welfare programs. The US is regressing in all of the four categories that Bernstein defines as necessary for sustained economic growth.  It is no wonder that the US is on the verge of bankruptcy.

 

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

 
Atlas Shrugged –Movie Review

I just saw the movie Atlas Shrugged, based on Ayn Rand’s book with the same title.  The movie has divided the book into three parts and this was the first of the three parts.  I thought the movie did a very good job and stayed true to the book.  I purposely did not re-read the book before I saw the movie.  Like almost any movie, the book is better than movie.  The way the characters looked in the readers’ mind are never the way they look in the movie.  My wife thought the acting was just okay, but it did not detract from value of the movie.  The theater I saw the movie in was about 75% full (mid day) and there was a hearty round of applause at the end.  As you would expect, some of the speeches and characters will immediately strike you as being based on people in today’s news.  For instance, Wesley Mouch looks like and talks like a Barney Frank.  The speeches about “shared sacrifice” sound like our communist president’s (Obama) speech on the budget, April, 14, 2011. Rand’s rational selfishness and the absurdity of altruism are as clearly delineated,  as in the book.  The movie ends with a very dramatic scene, providing a good ending point, and whetting the appetite for Part II.

One thing that struck me was how the State Science Institute’s propaganda against Rearden Metal is almost exactly like the Global Warming debate today.  While the Luddite attitude toward genetically modified food might seem like a better analogy, it does not have the same political dynamics – at least not yet.  The scientist, Dr. Robert Stadler, justifies his unscientific position (lying) because it is necessary in order for the State Science Institute to continue to receive government funding.  I remember that when I read this passage in the book 25 or so years ago, I was reluctant to accept that science could be perverted by politics.  However, the last 25 years have provided me with numerous examples where so called “science” is really propaganda- funding from the federal government to ensure that the organization continues to receive funding from their political masters.  For instance, the manipulation of data by Climate Change advocates to ignore the medieval ice age (little ice age) among numerous other lies.  This is just one of many examples where these so called scientists ignore or manipulate the data to fit their conclusions.  This is not science, it is propaganda.  Note both sides of the political spectrum behave in this moral depraved activity – see Creationism.  Not surprisingly, the religious right was no more a fan of Ayn Rand than the religious left.

If you approach this movie as a separate artistic piece from the book you will find it highly entertaining and enlightening.  I hope that people in their 20s and 30s can transcend the focus on industrial technologies opposed to  the information age.

You will love this movie if you understand the value of freedom and reason.  If you are an intellectual or economic leech, you will hate this movie.

 
Are Transaction Costs for Patents Too High?

I was confronted with the statement that there are “Hugh transaction costs related to patents.”  This statement implies the assumption that these transaction costs are unjustified.  I disagree with the premise, but since all systems can be improved I will provide a number of specific proposals to reduce the transaction costs.

The alternative proposed by the author of this statement, was to shorten the length of patents and increase government funding of R&D.  The proposed system of government funding for research is not effective substitute for patents.  The history of government funding for research is mixed at best and much more expensive than patents.  The US patent system is completely funded by user fees (in fact Congress has been stealing user fees to pay for their pet projects).  The patent system has been significantly more effective at stimulating innovation than government funded projects – see Zorina Khan’s work including her book The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920 (NBER Series on Long-Term Factors in Economic Development) also see The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention, by William Rosen.

Assumptions

Litigation Costs:  There has been a very effective propaganda campaign to suggest that the patent litigation is out of control.  The implication is that there is an explosion in patent litigation.  This is just not true.

“The real facts of the so called litigation crisis are that for the past two decades the number of patent lawsuits commenced annually has been about 1.5 percent of all patents granted. In 2006, it was 1.47 percent. This is business as usual. Most patent lawsuits, moreover, settle before trial. In 1979, some 79 percent of patent cases settled before trial, while in 2004 almost 86 percent did. Matters are actually improving.

Also, the U.S. has few patent trials. For instance, in 2001 only 76 patent lawsuits were tried and only 102 went to trial in 2006. By no measure can 102 patent trials be considered a national litigation crisis. The annual report of Federal Judicial Caseload Statistics, which is on the Internet, provides the factual antidote to false claims of a litigation crisis (www.uscourts.gov/ caseload2006/contents.html).” see http://www.manufacturingnews.com/news/07/0629/art2.html

Even though this data is a little old nothing has changed in the last several years.  In a $14.4 trillion economy built on technology this is anything but a litigation crisis.

There is also a myth that there is a patent quality issue in the US.  This is not supported by the facts.

“As to the massive numbers of “unworthy patents” argument, the real-world test is how many patents are challenged and the outcome of those challenges. Between 1981 and 2006 the USPTO issued more than 3.1 million patents. In that period, 8,600 were challenged at the Patent Office through inter partes and ex parte reexaminations. The number challenged amounts to less than three-tenths of one percent. Of those challenged, about 74 percent resulted in claims narrowed or cancelled. In addition, almost 60 percent of the relatively few patents challenged in a court trial are sustained.

My point is that the USPTO’s work is certainly not perfect, but the Patent Office is also not pouring out a stream of bad patents.” http://www.manufacturingnews.com/news/07/0629/art2.html

By every objective measure: R&D per patent, GDP per patent, and number of citations per patent patent quality is increasing.  See http://hallingblog.com/2010/01/07/patent-quality-nonsense/ and http://hallingblog.com/2009/08/18/patent-quality-myth/.

Cost and Time to Obtain a Patent: When Edison applied for his light bulb, he received a patent in 3 months.  The reason it takes so long to obtain a patent today is because Congress has been stealing money from the Patent Office.

I have an angel investor friend who was a highly successful entrepreneur who complained that when he invested in a company he did not know about hidden prior art and this created a large amount of uncertainty.  He supported the idea of publication of patents.  However, the answer was not publication of patents, which breaks the social contract, but fully funding the patent office – as the Edison example above proves.

Disingenuousness of Libertarian Argument about Costs of Patents:  All property rights systems have some costs involved in them.  GE employs 600 attorneys to comply with tax laws, it probably employs another 600 to comply with SOX, discrimination laws, environmental laws, health and benefit laws.  However, it probably employs less 100 patent attorneys.  Their patent costs are a drop in the bucket compared to dealing with tax and other regulatory laws.  The Libertarian attack on patents in light of all the other burdens imposed on business is disingenuous.

Patents are property rights and companies’ purposeful infringement of other people’s property rights is not a regulatory burden, it is the result of purposeful belief that they can get away with the theft.  It is called efficient infringement.  See “Technology Theft as a Business Strategy”  http://hallingblog.com/2010/03/24/pat-choate-technology-theft-as-a-business-strategy/

Solutions

Patent Litigation: While patent litigation costs are similar to litigation costs generally, there are a number of things that can be done to make the system more efficient.  Some are changes to government and some are private sector initiatives.

Secondary Market/Title Insurance for patents.  Before the advent of title insurance it was very expensive to buy a piece of land.  You had to pay an attorney for a title report that did not come with any insurance.  Lawsuits over the boundaries of real property were epidemic before the advent of modern survey tools.  Patents are in the same position where no title insurance has been created.  Unfortunately, antitrust law undermined the first efforts to create a title insurance/secondary market for patents.  Patent pools were a way to determine the validity of patents, enforce patents, and widely license the patents in a cost efficient manner.  But the antitrust idiots said that they were illegal.  Today, Luddites are using the rallying cry of “patent troll” to kill off the beginning of a secondary market – see http://hallingblog.com/2009/09/18/in-defense-of-patent-trolls/ For more information see Jump Starting a Secondary Market for Patents http://hallingblog.com/2009/11/16/jump-starting-a-secondary-market-for-patents/.

Accelerated Patent Court:  A new court similar to the ITC that has expertise in patents and accelerates the patent litigation process is needed.  The court should be sufficiently funded and have procedures that allow patent cases to be resolved in under a year.  Perhaps the court would be limited to issuing injunctions as a remedy as opposed to economic damages.  The goal of this new court is to establish the US as the premier arbiter of patent rights.  The US is the best positioned country to protect patent rights, despite our recent history.  This would increase the US’s standing as a technological leader in the world and draw innovative companies and people to the US.

Judges:  Appoint judges with technical backgrounds and who have passed the patent bar to adjudicate patent cases.  Judges without these qualifications make silly mistakes, such as stating that any invention that is just a combination of known elements is suspect whether it should obtain a patent.  All inventions are combinations of known elements – it is called conservation of matter and energy.  You cannot create something from nothing.  (For more on the Supreme Court’s ignorance see http://hallingblog.com/2010/01/19/ksr-supreme-ignorance-by-supreme-court-2/ )

Patent Acquisition

Patent Reciprocity: One of the largest costs of obtaining patent protection is foreign filing.  Patent reciprocity would significantly reduce this cost.

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.

Eliminate Maintenance Fees: Maintenance fees are the major cost associated with a patents filed outside the US.

Maintenance fees are a backhanded way of introducing a “working requirement” to patents.  Working requirements for patents have always been rejected in the US.  These fees favor large entities and reduce the effective life of patents.

A strong patent system pays for itself several times over in increased tax revenues from increased economic activity.  The supply side returns from a strong patent system probably exceed the return resulting from lowering the capital gains tax.

Reduce Formalism in Patents:  A large part of the cost of obtaining and litigating a patent is overly formalistic requirements.  The Non-obviousness requirement should be repealed.  It is not logically a part of the definition of an invention and is the source of uncertainty, and increases the cost of both obtaining and enforcing/defending patent lawsuits.  For more information see Non-Obviousness a Case of Judicial Activism http://hallingblog.com/2010/06/18/non-obviousness-a-case-study-in-judicial-activism/.

Some of the other overly formalistic requirements include the rules on restrictions, the inequitable defense, and the silly requirements related to section 101.  Restrictions are required for trivial differences that are embodiments of the same inventive idea.  The doctrine of equivalents has been dead for over a decade.  Formalism over logic rules in the realm of inequitable conduct.  USC 101 issues related to software inventions also place form over function that require absurd recitations to computer hardware.  All of these formalistic requirements favor patent thieves at the expense of real innovators.

 
Monopoly/Rent Seeking vs. Property Rights/Intellectual Property

Here are three easy questions for Libertarians, Socialists, and Economists to determine if a right is a monopoly or a property right.

 

1) Does the right arise because the person created something?

Creation is the basis of all property rights.  The law is just recognizing the reality that the person is the creator and without that person the creation would not exist.  This is consistent with Locke’s Natural Rights and Ayn Rand’s Objectivism.

 

2) If someone else was the creator would they have received the right in the creation?

This ensures that the right does not arise from political favoritism.

 

3) Is the right freely alienable?

Freely alienable means that right can be sold, transferred, divided, leased, etc.  This is a key feature of property rights.

 

Let’s see how this applies to some common property rights, some monopolies, and rent seeking systems.

 

Land: 1-yes, 2-yes, 3-yes.

Some people may be confused about why question 1 is a yes with respect to land.  Clearly no one created land.  That is true, but the reason that the person owns the land is because they improved it.  This was the major criteria for receiving land under the Homestead Act.

Now some people may complain that most of us do not obtain title to land because we improved it.  This is true, but we had to create something and trade this for money.  This money was then used to buy the land.  Because property rights are freely alienable, they can be transferred for other property.  As a result, creation is still the reason we own the land.

Thus a right in land is a property right.

Note in the modern world land is usually not completely alienable because of various regulations.  However, this is an encroachment on property rights but does not change the underlying fact that rights in land are property rights.

 

Utility Grants: 1-yes, 2-no, 3-no

Utility grants includes electric utilities, water utilities, cable television, etc.  In all cases, the company that receives the right has to build something (electrical power system, water purification and distribution system, or cable system.  As a result, the answer to question one is yes.  However, if someone else created a utility system in the same geographic area they would not receive the same right.  Utilities receive their legal rights not because they created something, but because a political entity selected the particular organization.  The grant is generally not alienable.  If the present holder of the utility right wants to sell, lease or subdivide their utilities rights, they have to get permission from a political entity.

Thus utility grants are monopolies not property rights.

 

Patents: 1-yes, 2-yes, 3-yes

You obtain a patent because you created an invention.  If someone else had created the invention, they would have received the patent to the invention.  Patent rights can be sold, leased and subdivided.

Patents are property rights.

Note that you have to apply for a patent in order to obtain it.  The same was true for land under the Homestead Act.

 

Mineral Rights: 1-yes, 2-yes, 3-yes

You obtain mineral rights because you discovered minerals at a particular location.  Much like land in the modern world most mineral rights are purchased, but this is still the result of creation.  If someone else had discovered the minerals they would have received the right.  Mineral rights can be sold, leased, subdivided etc.

Mineral rights are property rights.

 

Professional licenses: 1-no, 2-yes, 3-no

Professional licenses include medical licenses, legal licenses, cosmetology licenses, etc.  You obtain a profession license because you proved a mastery of certain knowledge and fulfilled other bureaucratic requirements.  You do not obtain a professional license because you have created something.  If someone else proved mastery of the subject matter and fulfilled the other bureaucratic requirements they could also receive a license.  Professional licenses are not alienable at all – they cannot be transferred, sold, subdivided, etc.

Professional licenses are pseudo monopolies or rent seeking devices.  They clearly do not limit the market to one provider, but they do limit the number of providers in a market.

 

 

Antitrust Law

Modern antitrust law turned the law against monopolies on it head.  The Statute of Monopolies limited the power of the Crown (government) to interfere with private property rights.  The Statute of Monopolies excluded patents for inventions because they result from the creative act of the inventor and therefore are property rights.

On the other hand modern antitrust law increases the power of government to interfere with private property rights.  The underlying theory of antitrust law is the efficient market hypothesis.  The hypothesis postulates that wealth is created by falling prices for existing goods and services and this is result of competition to sell existing goods and services.  However, this is not true.  Increases in per capita income are the result of increases in technology – inventions.  Antitrust law undermines the incentive to create and invest in new technologies and therefore hurts our economic health.

 

 
The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention

This book has an extremely intriguing title.  The book’s goal is to explain why the Industrial Revolution happened and how it happened.  The book explains that there are over two hundred theories for why the Industrial Revolution occurred.  The author points out that most of these theories miss the most obvious point, “which is that the Industrial Revolution was, first and foremost, a revolution in invention.” (Italics in the original)  It further explains, “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.  . . .  Then during a few decades of the eighteenth and nineteenth centuries, in an island nation with no special geographic resources” it changed.  Ultimately, the Industrial Revolution was a perpetual innovation machine.

The author explains that England’s patent laws democratized invention and this combined with the advent of limited liability companies and the new capital markets resulted in an explosion of new inventions that created unimaginable wealth.

“The best explanation for the preeminence of English speakers in lifting humanity out of its ten-thousand-year-long Malthusian trap is that the Anglophone world democratized the nature of invention.

In England, a unique combination of law and circumstances gave artisans the incentive to invent.  . . .  Human character (or at least behavior) was changed, and changed forever, by seventeenth-century Britain’s insistence that ideas were a kind of propertyThis notion is as consequential as any idea in history.” (emphasis added)

The United States went on to create the first modern (non-archaic) patent system that was considerably more democratic (this is small d democrat) than England’s.  This was a major reason why the U.S. became a world economic power in less than 100 years.  Unfortunately, the U.S. is presently considering legislation, the America Invents Act (aka Patent Reform), that will again make inventing undemocratic and the province of the wealthy.

The book explains the history of patent law, the history of the science of steam (thermodynamics) as well as the history of the technology and economics of steam engines.  The writing style is easy to read and very informative.  Despite the bold initial statements in the book, it really focuses on the story of the Industrial Revolution instead of supporting its thesis.

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention, by William Rosen.

 

According to Reuters:

PIMCO has shifted to a short position in U.S. government-related debt in the world’s largest bond fund, while also raising cash holdings in a sign of the asset manager’s serious concerns about the U.S. fiscal outlook.  Read the full story.

 
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.

 
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.

 

 

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