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Archive for July, 2011


Atlas Shrugged (Ayn Rand) on Patents/Inventions

There has been a lot of confusion about Ayn Rand’s position on patents and intellectual property among her fans.  I have written about this before in Ayn Rand on Intellectual Property.  However, I thought it might be interesting to catalog every case where patents and inventions are mentioned in Atlas Shrugged for people researching this issue and to further illuminate Rand’s position on patents.  The references are to the Kindle edition of Atlas Shrugged, which unfortunately has a large number of typos.

There are three main inventions in Atlas Shrugged, Rearden metal, the static electric motor, and the sonic destruction ray (aka Project X).  The story is intimately woven around these three inventions.

Below are the quotes (bolded) and context where necessary with my commentary.

1) Location 5796-5802  ”…’he didn’t invent smelting and chemistry and air compression.  He couldn’t have invented HIS metal but for thousands and thousands of other people. HIS Metal! Why does he think it’s his? Why does he think it’s his invention?  Everybody uses the work of everybody else.  Nobody ever invents anything.’ (Jim Taggart) She (Jim Taggart’s Wife) said, puzzled, ‘But the iron ore and all those other things were there all the time.  Why didn’t anybody else make that Metal, but Mr. Rearden did?’”

Rand anticipates Open Source socialists.  This idea that no one invents anything is the standard argument of collectivists, but it does not stand up to scrutiny.  Why has inventing been concentrated in the last two centuries in relatively small populations of the U.S. and western countries?

2) James Taggart angry about Rearden’s success

location 5832-      “‘…And Dr. Pritchett, the old fool, is going around saying that he knows Rearden didn’t invent that Metal- because he was told, by an unnamed reliable source, that Rearden stole the formula from a penniless inventor whom he murdered!”

This anticipates the defense of every infringer.

3) location 5808-5810 “I’m not sure it was so great-inventing this new Metal, when so many nations are in  need of plain iron-why do you know the People’s State of China hasn’t even got enough nails to put wooden roofs over peoples’ heads?”

Fast track for green tech at the PTO – Why, except for politics, are so-called green tech inventions more important than other inventions?

4) location 5812-5822     “No sensitive person these days-when there’s so much suffering around us- would devote 10 years of his life to splashing about with a lot of trick metals.  You think it’s great?  Well, it’s not any kind of superior ability, but just a hide that you couldn’t pierce if you poured a ton of his own steel over his head!  There are many people of much greater ability in the world, but you don’t read about them in headlines and you don’t run to gape at them at grade crossings-because they can’t invent non-collapsible bridges at a time when the suffering of mankind weighs on their spirit!”

5)  location 5827 “The country gave Rearden that Metal, now we expect him to give the country something in return.”

Dr. Ferris, State Science Institute response on the Bill Directive 10-289

6) location7042-7046 ” ‘Did you hire any research men of your own?’ ‘ Yes, yes, some- but let me tell you, I didn’t have much money to spend on such things as laboratories, when I never had enough funds to give me a breathing spell.  I couldn’t even pay the bills I owed for the absolutely essential modernizing and redecorating which I had to do- that factory was disgracefully old-fashioned from the standpoint of human efficiency…’”

Lee Hunsaker, owner of 20th Century Motor Co. after a lawsuit forced Midas Mulligan to sell, and then Mulligan Galted

Our accounting rules don’t value inventions.  No accounting system shows any return for an invention.  I and other have written about how our accounting rules inhibits investment in the inventing process.  See Accounting Inhibits R&D http://hallingblog.com/accounting-inhibits-rd/

7) location 7111 “Our aim was not to produce gadgets, but to do good.”

Sounds like President Obama or President Bush’s 1000 points of light.

8)  location 7126 ” Don’t you know any words but ‘engineer’?”

Ivy Starnes, sister of Gerald Starnes, last owners of 20th Century Motors, on their “great plan” to change the factory that caused its failure and response to Dagny’s urgency for the names of the engineers working on the revolutionary motor

Do we value our engineers? Sales people and marketing managers are compensated more than corporate inventors/engineers.  Perhaps this is related to our dysfunctional accounting systems.

9)  location 7300-7302 “‘The secret you are trying to solve involves something greater-much greater-than the invention of a motor run by atmospheric electricity.  There is only one helpful suggestion that I can give you: By the essence and nature of existence, contradictions cannot exist.’”

Dr. Akston, professor of philosophy, speaking to Dagny about why people have Galted

10) location 196 “Anyway, this should be my lead for the character of John Galt.  He, too, is a combination of an abstract philosopher and a practical inventor; the thinker and the man of action together…”

Ayn Rand, forward to Atlas Shrugged

Iillustrating the fallacy of the “tinker-er, mad professor/inventor”

11) Location 152-154 “ [ Galt represents]…For Dagny, the ideal. The answer to her two quests: the man of genius…is expressed in the search for the inventor of the engine.”

Forward to Atlas Shrugged

12) Location 3758- 3763   “He [Rearden] had devised a new type of truss. It had never been made before and could not be made except with members that had the strength and lightness of Rearden Metal.  ‘Hank,’ she [Dagny] asked, ‘did you invent this in two days?’  ‘Hell, no. I “invented” it long before I had Rearden Metal.  I figured it out while making steel for bridges.  I wanted a metal with which one would be able to do this, among other things.’”

Dagny asking Hank about the invention of his new bridge truss

An illustration of advanced inventing: what could I do if…  I have written on this process before, see How to Build a Patent Portfolio that Dominates Your Market Place http://hallingblog.com/how-to-build-a-patent-portfolio-that-dominates-your-marketplace/

Evolutionary vs. revolutionary technologies: how one invention opens up myriad new inventions. This passage illustrates that each invention can open up the possibility of more inventions and there is no finite number of inventions to be created.

13) Location 6377   Hank and Dagny find motor

14) Location 7777-7780  “’ A man with the genius of a great scientist, who chose to be a commercial inventor?  I find it outrageous.  He wanted a motor, and he quietly performed a major revolution in the science of energy, just as a means to an end, and he didn’t bother to publish his findings, but went right on making his motor.  He did he want to waste his mind on practical appliances?’ ‘Perhaps because he liked living on this earth,’ she [Dagny] said involuntarily.”

Dr. Stadler speaking with Dagny

France vs England at the beginning of Industrial Rev.  France was just as advanced in science, if not more so, however, their scientists didn’t work on practical applications or with practical inventors.  Only those admitted to the French Academy of Sciences were considered worthy – there was a stiff hierarchy.  In England, practical inventors interfaced with the scientific community aided by a patent law that did not care (as much) if the inventor came from the Academic Community.  For more information see The Most Powerful Idea in the World http://www.amazon.com/Most-Powerful-Idea-World-Invention/dp/1400067057.

15) Location 8968-8972 “Then is money made by the man who invents a motor at the expense of those who did not invent it?  Is money made by the intelligent at the expense of fools?…Money rests on the axiom that every man is the owner of his mind and his effort…”

Francisco d’Anconia response to Money is the root of all evil

Anticipating the absurd arguments of Von Mises economists who want to use the inventions without paying the creator

Man’s mind is the key factor in production for humankind

15) Location11722- 11724     “Point Three.  All patents and copyrights pertaining to any devices, inventions, formulas, processes and works of any nature whatsoever, shall be turned over to the nation as a patriotic emergency gift by means of gift certificates to be signed voluntarily by the owners of such patents…the Unification Board shall then license the use of such patents and copyrights to all applicants, equally and without discrimination, for the purpose of eliminating monopolistic practices…”

Directive 10-289

Rand anticipated the nonsense of considering patents a monopoly.

This anticipates the actions of the Bush administration’s response to the anthrax scare: threatening a drug company to lower their prices on the antidote, or they would compulsory allow other companies to manufacture

It also anticipates Obama proposal to reduce the length of pharma’s patents to 7 years

And anticipates Liberals demanding that the drug companies reduce their costs for elderly, poor, and 3rd world.  Most countries already have made use of these compulsory measures, which leads to higher costs in the US where the inventions originate.

This illustrates people’s lack of understanding about the importance of property rights

16) location 11729  “Point Four. No new devices, inventions, products, or goods of any nature whatsoever, not now on the market, shall be produced, invented, manufactured or sold after the date of this directive.   The Office of Patents and Copyrights is hereby suspended.”

Sounds like the failure to fully fund the PTO and

Dudas’ irrational rationing of issuances of new patents

17) Location 11765  “A man’s brain is a social product.  A sum of the influences that he’s picked up from those around him.  Nobody invents anything, he merely reflects what’s floating in the social atmosphere…”

Dr. Ferris’s view there is no such thing as genius

Of course this begs the question, why are the majority of inventors in this world concentrated in so few countries?

18) Location 11817  “ We won’t have to worry about new inventions upsetting the market”

Explains why large multi-nationals want to pass the America invents act- to stifle disruptive competition

19) 11839  “There’s been enough invented already-enough for everyone’s comfort-why should they be allowed to go on inventing?”

You are either moving forward or moving backwards.  You cannot remain static. The reason why is in post Sustainability isn’t Sustainable http://hallingblog.com/sustainability-isn%E2%80%99t-sustainable/.

20) location13028   “…the boy had cared for nothing but his studies, not for sports or parties or girls, only for the vision of the things he was going to create as an inventor.”

Young genius commits suicide on eve of passage of Directive 10-289

21) Loc 11880  “…Taking over the patents is fine.  Nobody’s going to defend industrialists.  But I’m worried about taking over the copyrights. That’s going to antagonize the intellectuals.  It’s dangerous.  It’s a spiritual issue…”

Lawson responding to Mouch on impact of Directive

See the Copyright Term extension Act vs. America Invents Act- We are constantly weakening patent rights on one hand and strengthening copyrights.

This anticipates that Congress is always concerned about artists but could care less about inventors

22)  loc 15001”… Dwight Sanders? Where was the inventor of her motor?”

23) loc 15237   “…in whose arms? ‘ why the inventor of the motor.’ She gasped, closing her eyes; this was one connection she knew she should have made.”

24) Loc 15318 “The young inventor of the 20th century motor company is the one real version of the legend, isn’t it?”

Dagny on crashing into Galt Gulch

 

25) Loc 15587 “…I ask less of the men to whom I trade it for the things I need.  I add an extra span of time to their lives with every gallon of my oil that they burn.  And since they’re men like me, they keep inventing faster ways ways to make the things they make- so every one of them grants me an added minute, hour, or day with the bread I buy from them, with the clothes, the lumber, the metal…”

 

Wyatt on living in the Galt Gulch

This is a response to the whining about paying inventors or their patents stifling competition is nonsense, unless you want something for nothing

26) Loc 15777  “she was looking at the inventor of the motor, but what she saw was the easy, casual figure of a workman in his natural setting and function…”

 

Dagny observing Galt at work in the Gulch

 

27) Loc15989 “…no more than we consume for our immediate needs-with not a penny nor an inventive thought left over to harm the world.  It is evil to succeed, since success is made by the strong at the expense of the weak?”

 

Galt explaining to Dagny why they are on strike

 

28) Loc 16896 “that sacred fire which is said to burn within musicians and poets-what do they suppose moves an industrialist to defy the whole world for the sake of his new metal, the inventors of the airplane, the builders of railroads, the discoverers of new germs or new continents have done through all the ages?”

This demonstrates the absurd argument that artists are creative but inventors and scientists aren’t creative

 

29) Loc 17033  “…john intended to be an inventor, which meant that he was to be a physicist…”

 

Dr. Akston on the three brilliant students

 

30) Loc 17709  “…fraudulently solemn voice magnified by the microphone inventor’s ingenuity into the sound and power of a giant…”

Mouch getting ready to announce Directive 10-289.

 

31) Loc17745  “…Project X would not have been possible, this great invention will henceforth be known as the Thompson Harmonizer!”

 

32) Loc 17785  “..who invented that ghastly thing?”

Dr. Stadler talking to Dr. Ferris about the Thompson Harmonizer (Sonic Destruction Ray aka Project X)

33) Loc 17791  “’ what is the practical purpose of this invention?  What are the ‘epoch-making possibilities’?  ‘Oh, but don’t you see?  It is an invaluable instrument of public security.  No enemy would attack the possessor of such a weapon.”

 

Stadler asking Ferris about Project X, realizing it was his research that led to the invention

 

34) Loc17819   “…voice galloping across the continent with a description of the new invention…”

 

Dr. Ferris on Project X

 

35) Loc 17828 “This great invention was the product of the genius of a man whose devotion to the cause of humanity is not to be questioned…”

 

Wesley Mouch discussing Project X.

 

36 Loc 17836 “…the new invention was an instrument of social welfare, which guaranteed general prosperity… this invention, the product of dr. Robert Stadler…”

 

Announcer to the world on project x

 

37) Loc 17852 “…if people should misunderstand the nature of the new invention, they’re liable to vent their rage on all scientists.  Scientists have never been popular with the masses.”

 

Dr. Ferris talking about Project X

 

38) Loc 17853 “…this invention is a great, new instrument of peace…”

More on Project X

 

39) Loc 17875  “ Dr. Stadler could not believe it at first-that the new invention was to be greeted with particular gratitude by the mothers of the country.”

 

More on Project X

 

40) Loc 17956   “…fraudulent voices talking about some sort of new invention that was to bring some undefined benefits to some undefined public’s welfare.”

 

Dagny overhearing the broadcast

 

41) Loc 18603 “…he is the man who invented the motor we found…”

 

Dagny telling Hank that John Galt exists

 

42) Loc 19113 “wondering whether some invention of his own, some device of rays and lenses, permitted him to observe her every movement…”

Dagny wondering how Galt has followed her progress the past 10 years

 

43) Loc 19403 “They were both performing an expected routine, a routine invented by someone and imposed upon them, performing it in mockery, in hatred, in defiling parody on its inventors.”

 

Taggert with Lillian Rearden

 

44) Loc 20698 “…while you were combing the country for the inventor of my motor…”

 

Galt explaining to Dagny that he was working as a lineman for Taggert Transcontinental all this time

 

45) Loc 21962 “that the alleged short-cut to knowledge, which is faith, is only a short-circuit destroying the mind-that the acceptance of a mystical invention is a wish for the annihilation of existence and, properly, annihilates one’s consciousness.”

 

Galt radio speech

 

46) Loc 22391 “…you would not be able to fulfill or even to conceive your wishes.  You would not be able to desire the clothes that had not been made, the automobile that had not been invented, the money that had not been devised…”

Galt radio speech

 

47) Loc 22396 “just as your mystics of spirit invented their heaven in the image of our earth, omitting our existence, and promised you rewards…”

 

Galt radio speech

48) Loc 22454 “physical objects cannot act without causes. That his organs of perception are physical and have no volition, no power to invent or to distort, that the evidence they give him is an absolute, but that his mind must learn to understand it…”

 

Galt radio speech

 

49) Loc 22495 “a student reading a book understands it through a process of-blank-out.  A scientist working on an invention is engaged in the activity of-blank-out.” [how most  teachers explain the world]

Blank-out is Rand’s way of showing that people refuse to acknowledge the process of reason, of thinking

 

50) Loc22577 “You who have never grasped the nature of evil, you who describe them as ‘misguided idealists’-may the God you invented forgive you!”

Galt radio speech

 

51) Loc 22594 “…when I worked in your world, I was an inventor.  I was one of a profession that came last in human history and will be first to vanish on the way back to the sub-human. An inventor is a man who asks ‘Why?’ of the universe and lets nothing stand between the answer and his mind.

 

It is interesting that Rand points out that being an “inventor” was one of the last professions in human history.  Perhaps the first person to take on the profession of a being an inventor was Galileo, who lived in Venice.  Venice passed the first modern patent laws in 1474.  The U.S. has been the preeminent producer of people who made their living as inventors.  The America Invents Act is another step along the path of ensuring that no one will make a living as an inventor in the U.S. anymore.

 

In fact, whenever you see great periods of prosperity, you see large numbers of new inventions.  Whenever you see a lack of inventors inventing, you can be assured we are stagnating economically

 

52) Loc 22621 “…whether you would be able to invent a wheel, a lever, an induction coil, a generator, an electric tube,-then decide whether men of ability are exploiters who live by the fruit of YOUR labor…”

Galt radio speech

53) Loc 22631  “…dream of enslaving the material providers who are scientists, inventors, industrialists…”

Galt radio speech

54) Loc 22644 “…and to exile from the human race the hero, the thinker, the producer, the inventor…”

Galt radio speech

55) Loc 22875 “you failed to recognize the motor I invented-and it became, in your world, a pile of dead scrap.”

Shows nations and people are wealthy because of their mind-embodied by their inventions and technology-not their natural resources, labor and land.

56) Loc 22947 “…Nor will he give ten years of unswerving devotion to the task of inventing a new product… they will seize his rewards and his invention”

Galt radio speech

57) Loc 22958 “…for the work of the inventor who created the product which you spend your time on making, for the work of the scientist who discovered the laws that went into the making of that product…”

Galt radio speech

58) Loc 22974 “in proportion to the mental energy he spent, the man who creates a new invention receives but a small percentage of his value in terms of material payment, no matter what fortune he makes, no matter what millions he earns.  But the man who works as a janitor in the factory producing the invention, receives an enormous payment in proportion to the mental effort that his job requires of him.”

Hear, Hear

59) Loc 23002 “…they deliver their science to the service of death, to the only practical purpose it can ever have for looters: to inventing weapons of coercion and destruction.”

This is not about self-defense, it is about the policies we pursue that force us to spend so much time and talent and money on defense

60) loc 24304 “I’m Robert Stadler- he had thought-it’s my property, it came from my discoveries, they said it was I who invented it…”

Stadler on seizing Project X under his control and rule the country

61) Loc 24400 “’I invented it! I created it! I made it possible!’ ‘You did?  Well, many thanks, but we don’t need you any longer.  We’ve got our own mechanics.’ ‘Have you any idea what I had to know in order to make it possible?  You couldn’t think of a single tube of it!  Not a single bolt!’…’What claim do you have to it?’ Meigs patted his holster. ‘This.’”

 

 
When This American Life Attacks Patents

This American Life presented a story entitled “When Patents Attack.”  This is a rambling story that touches on many points.  I will review some of issues raised in this story below.   I will suggest some other stories that would have been more relevant than the ones they chose to tell.

Issues

FotoTime, Due Diligence and Property Rights: They start out by telling the story of a company called FotoTime.  This business was started in the late 90s and provides a service for sharing photos.  According to the podcast, it took until 2005 or 2006 before the founders of this struggling company were able quit their day jobs.  Shortly thereafter they were sued for patent infringement in a mass lawsuit for infringing USPN 5771354.  The story then suggests that this is unfair to FotoTime.  However, they never ask whether FotoTime did their due diligence to determine if they might be infringing anyone else’s property when they started building their product.  It is common advice to not do a patent search because it might make you subject to 3X damages if sued.  However, if I build a building, I first have to make sure I own the rights to the underlying land.  The failure of companies to undertake even basic due diligence, hiding behind the 3X damages issue, is negligence.  They should be vilified for this failure, but instead, everyone acts as though this is too onerous.  In a time when we have to comply with numerous tax regulations and numerous other government regulations just to start a business, it is absurd to complain that you should have to actually worry about whether you are infringing someone’s property rights.  During this segment, at no time does the producer interviewing Fototime, ask why Fototime didn’t explore if someone else had already patented what they were building a business around.

Prior Art

The producers suggest that the patent, USPN 5771354, should never have been issued.  The reporters talk to some company (EmCam?? – could not locate it on the Internet) that is supposed to be an expert on patents.  The company purports to have software that can analyze a patent and determine how many other people created the same invention.  According to their software, over 5000 patents cover the same invention.  This appears to even stretch the credulity of the reporters, who suggest that this might be overstating the case.  Then the show talks to another patent attorney who also concludes after looking at the claims, that the patent is clearly invalid because of prior art.  A quick review of the patent shows over two pages of prior art were cited (hopefully reviewed) as prior art.  There are broad statements about how the patent seems to cover everything to do with the Internet.  However, the reporters of This American Life are not patent attorneys.  Do they know how to read claims?  Far too many people read patents as if they are reading prose, including some patent attorneys.  Reading a patent claim is like reading an equation, every word has meaning.  The first claim has seven steps and is over 200 words.  That does not meet the normal definition of an overly broad claim.  Claim 25,the second independent claim, is also over 200 words.  There are only two independent claims.  For This American Life to suggest that this patent is overly broad and there are 5000 other patents on the same invention is just plain absurd.

 

Explosion in the Number of Patent Lawsuits

The story then suggests that there has been an exponential increase in the number of patent lawsuits.  However, Judge Michel,  former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based economy with over 300 million people and 1 million active patents this is trivial.  The show failed to even undertake a basic fact check on this propaganda.

 

Software Patents

The story says basically all (80%) of software programmers believe that software should not be patentable and it was a mistake when the courts allowed patents on software.  I’m not sure where they came up with the 80% number- my practice must represent all of the 20% remaining right here in Colorado Springs.  Arguments against software patents have a fundamental flaw.  As any electrical engineer knows, solutions to problems implemented in software can be realized in hardware, i.e., electronic circuits.  The main reason for choosing a software solution is the ease in implementing changes, the main reason for choosing a hardware solution is speed of processing.  Therefore, a time critical solution is more likely to be implemented in hardware.  A solution that requires the ability to add features easily will be implemented in software.  As a result, to be intellectually consistent, those people against software patents also have to be against patents for electronic circuits.

The show also argues that software patents inhibit progress.  However, they do not examine the number of programmers who recreate products and code that has already been created.  The purposeful ignorance of what has already been created results in a huge waste of creative talent and a resulting lack of innovation.  Once the courts made it clear that software was patentable, there was an explosion in  the amount of investment in software startups, an explosion in the number of software products, and an explosion in the number of software programmers.  Only with the attack on software patents, starting around 2000, has there been a slowdown in these three parameters.

 

Intellectual Ventures

The show attacks IV as a patent troll and suggests that none of their inventions are actually in the marketplace as real products.  They suggest that the fees IV has collected are equivalent to  “a tax on innovation”.  They deride IV for demanding payment for people using their property rights.  Adam Smith wrote that the division of labor is a critical way of increasing a nation’s wealth.  Only if inventors can be paid for inventing, can they specialize in their profession.  The only way inventors can be paid just for their inventing is if people respect their property rights.  Note that Edison almost never practiced his inventions.  He licensed almost all of his inventions and sued if people would not pay.  Edison was not paid even a small percentage of the value he created in this world.

The show suggests that there is no evidence of inventors not getting paid for their inventions by attacking whether IV has successfully licensed any independent inventor’s patents.  This is an attempt to go from the specific to the general, while ignoring that IV does not represent the whole cross section of independent inventors.

If This America Life had broadened their research, at one point they say they were chasing down ONE inventor for 5 months, they might have found the Data Treasury story, where Wall Street has stolen the check clearing invention of its founder.  See the Data Treasury story.  They could also have looked at the story of the inventor of the intermittent windshield wiper which inspired the movie Flash of Genius.  There are numerous other examples that the show could of found with broader and impartial research.

 

Stories the Show Could Have Done

 

Underfunding Patent Office/Pendency Time

This American Life could have done a story on how Congress has stolen over $1B in user fees over the last decade.  They could have told the story of companies that waited for years to obtain a patent, which caused them to not be able to obtain funding.  However, the failure to obtain funding meant that they were unable to hire employees.

 

Data Treasury Story

They could have told the bizarre story of how Wall Street banks stole this company’s check processing technology that saves banks billions of dollars a year.  They could have focused on how Wall Street used their lobbyists to change patent laws in anticipation for losing the court battle  for infringement so they will not have to pay Data Treasury for stealing this invention.

 

Not Invented Here Syndrome

They could have done a story about how large companies are unwilling to license patents from independent inventors.  This is completely different than the 19th century when most patents were licensed or assigned to manufacturing entities.  For more information see Great Again.

 

Patents and the Industrial Revolution

They could have done a story on how the advent of the patent system and the advent of the Industrial Revolution not only coincide but are related.  Increases in our level of technology is the only way to increase our standard of living.  Property rights in inventions provide the incentive and security to invest in creating new technologies.

 

Theft of Our Inventions by Foreign Companies

They could have done a story of how companies in foreign countries steal American inventions.  They do this legally because we publish our patent applications and patents are only enforced in the country in which they are granted.  However, the value of the invention is not geographically limited.

 

Summary

This American Life’s story clearly was incorrect on several of the facts and it appears they started with the Open Source community’s bias against patents.

 

This American Life, “When Patents Attack” originally aired 7/22/2011.

 

 

 

 

Gary Lauder runs Lauder Partners LLC in Silicon Valley.  The firm is a private venture capital firm.

This page is not dedicated to the idea that our patent system can’t be improved; but rather that the specific changes in the “America Invents Act” would be bad for entrepreneurs and small companies.

Summaries:

One word: Bad

 

One sentence:

Due to the willful exclusion of small companies from the process, congress and the administration have crafted a bill that might mildly benefit big companies, but would drastically harm technology entrepreneurship/start-ups.

 

One paragraph:

There are many things wrong with our patent system, and many ways in which it might be improved, but this bill does not materially improve it, and would make it much harder for start-ups to obtain and enforce patents.  Unlike the Senate bill passed in March, the bill passed by the House (HR1249) in June does not fix the problem of the patent offices’s fees being diverted to help cover our federal deficit.   The change to First-to-file would be a benefit to those who would like to steal others ideas, and consequently will force entrepreneurs in the USA to have to follow the same advice that exists in Europe: file for your patents BEFORE talking with investors, potential customers or even potential co-founders.  This will stifle the open innovation model that has flourished in America.  Other changes will make it easier to accidentally lose the ability to obtain a patent (e.g. if you offer your invention for sale or publicly use it), will more easily enable an infringer to defend themselves by showing such actions prior to the plaintiff’s application, and will enable infringers to postpone the issuance of other’s patents by filing expensive post-grant review procedures…which can also cost a company more than they can afford.  The proponents have sold this bill based on superficial talking points that sound plausible, but are deceptions.  Every well-known US inventor opposes this, as does Judge Paul Michel, the US’s #1 patent judge who resigned early from his lifetime appointment in order to speak out against this.

 

Longer pieces are linked below.  URL’s are visible for ease of copying & forwarding.  Related articles are lumped together.

 

Requested action:

Please call your senators (and any others) to express your disapproval of this bill.  Their phone #’s can be found at:

http://www.reformaia.org/call

 

Gary Lauder’s writing and publications on patent reform:
One page article = 650 words: “Patently Absurd Changes Threatening Patent System” in Venture Capital Journal, 6/1/11: Reprint at: http://files.parsintl.com/eprints/23039.pdf
Magazine at: http://www.vcjnews.com/story.asp?sectioncode=32&storycode=5824547 (subscription required (free trial available))
4.7K words and most current and complete: Unpublished: “Patently Absurd: Or How to Go From the World’s Best Patent System to Worst-Than-Most in One Easy Step” 7/11/11: http://www.lauderpartners.com/PatentReform/HorrorsOfPatentReform.pdf
2K words: The Huffington Post, 3/7/11, “Patently Absurd or: How to Go From the World’s Best Patent System to Worse-Than-Most in a Single Step” http://www.huffingtonpost.com/gary-lauder/patently-absurd-or-how-to_b_832703.html (Note: comment function no longer works)
4.3K words (and a bit dated): “Venture Capital: “The Buck Stops Where?” in Medical Innovation & Business, Summer 2010, Volume 2, Issue 2, p.14 – 19 http://journals.lww.com/medinnovbusiness/Fulltext/2010/06010/Venture_Capital___The_Buck_Stops_Where_.4.aspx

Gary’s 4-minute speech at the Aspen Ideas Festival in early July:

Audio only: https://s3.amazonaws.com/ai-video/aif11_179_lauder.mp3

It’s also on YouTube, but the visuals don’t add much:

http://www.youtube.com/watch?v=d2UWz_CkiqI

 

The main reason why the administration favors it: they hired the main proponent of patent reform and made him the head of the PTO:

http://www.politico.com/news/stories/1109/29002.html

Here’s his testimony in favor of patent reform while at IBM on 3/10/09:

http://judiciary.senate.gov/pdf/09-03-10Kappostestimony.pdf

Kappos’s ongoing promotion of patent reform was in violation of Obama’s Revolving Door Ban which Kappos signed:

“I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.”

http://www.whitehouse.gov/21stcenturygov/actions/revolving-door

 

Why the “America Invents Act” is Bad for Startups and Bad for America by David Boundy (a patent attorney)

http://www.reformaia.org/news/why-”america-invents-act”-bad-startups-and-bad-america-david-boundy

 

Intellectual Property Watch Interview With Chief Judge Paul R. Michel On US Patent Reform, July 14, 2011

http://www.ip-watch.org/weblog/2011/07/14/interview-with-chief-judge-paul-r-michel-on-us-patent-reform/

 

This presentation is by Steve Perlman, an entrepreneur whom I have backed twice who also is an inventor in >100 patents:

http://www.rearden.com/public/110319_Patent_Reform_Isnt_1.pdf

House bill took out the PTO funding part (which was the only thing good about the bill that he referred to)

 

History of broken promises regarding fee-diversion (why the present bill doesn’t fix the problem):

http://us2.campaign-archive1.com/?u=3341ca33e54ce6ceeeb33f5a4&id=5543db524f&e=e04d76df78

 

The problem with First-to-File (FTF) for start-ups as well-described by Senator Diane Feinstein:
YouTube (20 minutes): http://www.youtube.com/watch?v=xTWTpbIx4tE
Text of her speech: http://www.patentdocs.org/2011/03/senator-feinstein-opposes-the-first-to-file-provisions-of-s-23.html
Senator Cantwell’s speech in favor of the Feinstein Amendment (7 minutes): http://www.youtube.com/watch?v=cz8BjsTZ-lc&feature=related
There is a cyber-security problem w/FTF that has been completely ignored. The best description of this threat is in the attached letter from the Inventors Network of the Capital Area to Speaker Boehner: http://www.scribd.com/doc/57945178/Letter-from-INCA-to-Rep-John-Boehner

America Invents Act (formerly Patent Reform Act of 2011) – so big business can more easily steal inventions

http://www.burdlaw.com/blog/?p=96#comment-1450

America Invents Act – the erosion of inventors’ due process protections and a legislative cover for theft of patent rights

http://works.bepress.com/cgi/viewcontent.cgi?filename=2&article=1057&context=rkatznelson&type=additional

 

Op-Ed against by Rep. Manzullo

http://washingtonexaminer.com/opinion/op-eds/2011/06/patent-reform-proposal-threatens-american-jobs

 

WP: “Patent reform measure ignited fierce lobbying effort” (exposes the vast sums the proponents are spending)

http://www.washingtonpost.com/capital_business/2011/03/25/AFzD9VkB_story.html

 

National Venture Capital Association position (against):

http://nvcatoday.nvca.org/index.php/policy/nvca-sends-letter-on-house-patent-reform-bill.html

 

Judge Paul Michel: “Rein in the Big Bank Bail-Out” 7/7/11

http://www.patentlyo.com/patent/2011/07/guest-post-rein-in-the-big-bank-bail-out.html

Andrew Ross Sorkin/DealB%k: “In a Bill, Wall Street Shows Its Clout” 7/4/11

http://dealbook.nytimes.com/2011/07/04/in-a-bill-wall-street-shows-clout/
Jonathan Massey: Section 18 of H.R. 1249 Would Bail Out Banks and Expose the Treasury to Billion-Dollar Liability
http://www.scribd.com/doc/57945157/Jonathan-Massey-Section-18-of-H-R-1249-Would-Bail-Out-Banks-and-Expose-the-Treasury-to-Billion-Dollar-Liability

 

Judge Paul Michel on Post-Grant Review (PGR): “Torpedoing Patent Rights” 7/11/11

http://ipwatchdog.com/2011/07/10/torpedoing-patent-rights/id=18022/?

 

Former Senator Birch Bayh on the misuse of EXISTING post-grant review procedures (7/11/11):

http://thehill.com/blogs/congress-blog/labor/170659-patently-unjust

 

The most comprehensive coverage even though it under-represents the proponents’ views:

http://en.wikipedia.org/wiki/America_Invents_Act

 

Small Business Organizations Urge Substantial Amendments to House Version of Patent Bill

http://www.businesswire.com/news/home/20110621005690/en/Small-Business-Organizations-Urge-Substantial-Amendments-House

http://j.mp/SB-Objection

 

Several Universities Oppose Pending “Patent Reform” Legislation

http://chronicle.com/blogs/ticker/several-universities-oppose-pending-patent-reform-legislation/34091

Detailed letter from one of those universities:

http://www.warf.org/uploads/media/WARF__HR_1249_Disfavors_Innovators_06-01-11.pdf

 

Two former Chairs of the House Judiciary Committee

http://thehill.com/blogs/congress-blog/lawmaker-news/167549-patent-reform-is-long-overdue

 

Article on how the bill won’t solve the backlog and will probably worsen it:

http://www.lexology.com/library/detail.aspx?g=aa2f3083-8e03-422c-b7b3-e13e2e5a56cf

 

Article by Chinese IP judge on prior bill that is mostly the same as this one.  Last page is perfect summary:

http://www.reformaia.org/resources/china

 

Source of information on the monies that flowed to congress associated with the bill:

http://maplight.org/us-congress/bill/112-hr-1249/990582/total-contributions

http://maplight.org/us-congress/bill/112-s-23/897262/total-contributions

 

National Small Business Assoc. (NSBA) opposition:

http://www.nsba.biz/content/4012.shtml

 

Inventor of MRI: Ray Damadian’s critique: “Patents Shrugged Redux” 6/16/11

http://www.ecommercetimes.com/rsstory/72680.html?wlc=1308294830

 

Foreign Policy Magazine: “The Prevent American Invention Act” by Clyde Prestowitz, 5/16/11

http://prestowitz.foreignpolicy.com/posts/2011/05/16/the_prevent_american_invention_act

 

Another overview article: Patent Reform Favors Corporations, Multinationals

http://www.theepochtimes.com/n2/index2.php?option=com_content&task=view&id=58714&pop=1&page=0&Itemid=1

 

Brookings article on bill that does not take a position but is revealing: “Balancing Disclosure, Protection of Trade Secrets, and Patentability in Light of Patent Reform”

http://www.brookings.edu/opinions/2011/0627_patents_villasenor.aspx

 

Two papers on the problem w/the Grace Period by Dr. Ron Katznelson:

http://bit.ly/Grace-Period-USA

How we got here: “Section 2 of America Invents Act: the undisclosed story of legislative obfuscation”:
http://works.bepress.com/cgi/viewcontent.cgi?filename=1&article=1057&context=rkatznelson&type=additional&sei-redir=1

Last year the ENTIRE issue of Medical Innovation & Business magazine was devoted to patent reform – against it.  I have never before seen an entire issue of magazine dedicated to stopping bad legislation:

http://journals.lww.com/medinnovbusiness/Fulltext/2010/06010/

(I wrote one article in it)

 

URL’s are self-explanatory:

http://gametimeip.com/2011/03/04/can-we-have-an-intellectually-honest-patent-reform-debate-in-the-house/

http://gametimeip.com/2011/04/07/patent-reform-boosters-invent-facts-to-combat-real-arguments/

http://gametimeip.com/2011/05/30/america-invents-act-un-american-patent-reform/

http://www.patentlyo.com/files/the-big-government-patent-bill.pdf

 

Hoover Institution:  6/7-13/11

The Perils of Patent Reform http://www.hoover.org/publications/defining-ideas/article/81446

Welcome to Patent Purgatory http://www.hoover.org/publications/defining-ideas/article/81626

Patent Reform Goes Haywire http://www.hoover.org/publications/defining-ideas/article/81961

File First, Invent Later? http://www.hoover.org/publications/defining-ideas/article/82096
NY Times, “Two Views of Innovation, Colliding in Washington” By John Markoff, 1/13/08 It is still quite relevant, particularly as it applies to the law of unintended consequences:http://www.nytimes.com/2008/01/13/business/13stream.html?pagewanted=print

Other relevant info on bill:

http://www.opencongress.org/bill/112-h1249

 

Congressional Research Service’s 35-page report on the bill.  One of the authors (John Thomas) was on IBM’s payroll and has shown a pattern of bias in favor:

http://pub.bna.com/ptcj/HR1249CRSJun30.pdf

http://www.bna.com/crs-updates-report-n12884902369/

John Thomas’s long association with IBM:

http://www.google.com/search?client=safari&rls=en&q=%22Thomas,+John+R.%22+or+%22John+R.+Thomas%22+IBM&ie=UTF-8&oe=UTF-8

His decade-old backgrounder on international patent law (interesting, but not opined on here):

http://wikileaks.org/wiki/CRS-RL31132

http://assets.opencrs.com/rpts/RL31132_20010831.pdf

 

Unfortunate Statement of Administration Policy

http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/112/saphr1249r_20110621.pdf

 

Bill itself: http://pub.bna.com/ptcj/HR1249VotedJun23.pdf

The bill’s Grace Period language is quite confusing. Compare the bill section 102 (p. 5-9) with the existing Grace Period law:
http://www.uspto.gov/web/offices/pac/mpep/documents/appxl_35_U_S_C_102.htm

See if you can figure out the double/triple negatives.  The proponents created a deception that takes advantage of the confusion to state that the bill means the opposite of what it really says.  The colloquies on this claim the bill means the opposite of what it actually says.  Courts hold that the bill always supersedes the colloquies.
Senate Colloquy:
http://works.bepress.com/cgi/viewcontent.cgi?filename=1&article=1057

 

Web sites against:

http://www.noonhr1249.org/ (Links to excellent articles on the bill’s constitutional problems)

http://www.reformaia.org/

http://www.patentreformact.org/

http://sanepatentreform.org/

http://inventionsarejobs.org/

http://www.inventsact.org/

http://truereform.piausa.org/
http://inventorsvoice.com/

 

Hall of shame: Organizations who should have stood up for start-ups/tech entrepreneurs but have, in the words of Dante “retained their neutrality”:

The Kauffman Foundation

http://www.kauffman.org

 

The Small Business Administration

http://www.sba.gov/about-sba

 

The movie, “Flash of Genius” was based on a book about Robert Kearns, who invented the intermittent windshield wiper, and his struggle w/Ford to get paid after they ripped off his invention.  It is a perfect example of what entrepreneurs face and what we are fighting to keep.  If you have not seen it, I recommend it.

DVD: http://www.amazon.com/Flash-Genius-Greg-Kinnear/dp/B001LM64S8/

iTunes: http://itunes.apple.com/us/movie/flash-of-genius/id300387673

Amazon Instant Video: http://www.amazon.com/Flash-of-Genius/dp/B001O514F0/

Roger Ebert review (3 stars our of 4): http://rogerebert.suntimes.com/apps/pbcs.dll/article?AID=/20081002/REVIEWS/810020303/1023

Book: Flash of Genius: And Other True Stories of Invention (by John Seabrook Paperback - Sep 2, 2008)

http://www.amazon.com/Flash-Genius-Other-Stories-Invention/dp/B003R4ZHTK/

New Yorker article that tells the story (also by John Seabrook)(about 23 pages when printed out):

http://www.newyorker.com/archive/1993/01/11/1993_01_11_038_TNY_CARDS_000363341?printable=true

 

Please call your senators (and any others) to express your disapproval of this bill.  Their phone #’s can be found at:

http://www.reformaia.org/call

 

Thanks,

 

-Gary

 

 
Did Midas Mulligan Run a Fractional Reserve Bank?

Was Midas Mulligan, the hero banker in Atlas Shrugged, running a fractional reserve bank?  There has been much criticism of the Federal Reserves’ handling of our money supply and its effect on the economy.  Much of this criticism has been led by Ron Paul and the Austrian school of economics.  Some critics, including Ron Paul and Thomas E. Woods, author of Meltdown, have further argued that fractional reserve banking should be outlawed.  Fractional reserve banking is how all modern banks (since at least 1750s) operate.  Wikipedia defines a Fractional-reserve banking as a type of banking whereby the bank does not retain all of a customer’s deposits within the bank. Funds received by the bank are generally on-loan to other customers. This means that available funds (called bank reserves) are only a fraction (called the reserve ratio) of the quantity of deposits at the bank. As most bank deposits are treated as money in their own right, fractional reserve banking increases the money supply, and banks are said to create money.

Ayn Rand clearly would have been against the Federal Reserve system, which her protégé Alan Greenspan headed for over a decade.  The Federal Reserve is a government institution that prints money at will and manipulate the money supply for the benefit of government looters and Wall Street looters.  In Atlas Shrugged, Rand rails against paper money and in Galt’s Gulch they use gold for their currency.  However, to the best of my knowledge she never addressed the issue of fractional reserve banking directly.  The history of fractional reserve banking starts with the concept of an exchange bank.  I explain in my book, The Decline and Fall of the America Entrepreneur: How Little Known Laws and Regulations are Killing Innovation:

Modern banking started in the early 1600s with the Bank of Amsterdam.  Merchants could deposit coins with the Bank of Amsterdam and use this account to pay for transactions.  Using checks, a merchant’s account was debited and another merchant’s account was credited.  This meant that coins did not have to be transported from one merchant to another with the attendant risk of theft and loss or the cost of transportation.  The Bank of Amsterdam was just an exchange bank that facilitated transactions between merchants.  Next came the Swedish Riksbank established in 1656.  The Riksbank was not only an exchange bank, it also lent money making it the first modern fractional reserve bank.  Fractional reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.  Commonly, loans are made against collateral such as land or jewelry.  … Some people believe fractional reserve banking creates money out of thin air, but what really happens was the money for these loans were backed by some collateral other than coins or bullion.  The downside of other types of collateral is they are not as liquid as species (coins, bullion).  As a result, if large numbers of customers of a fractional reserve bank wanted species (currency) at the same time, the bank would not able to fulfill all its customer’s demands.  This is a classic run on a bank.  A run on a bank is a cash flow issue.  A sound bank may have plenty of collateral and performing loans, but if most of its customers demand species at the same time it will not be able to fulfill these requests.  Fractional reserve banks free up capital from low performing assets so that they can be invested in higher performing assets.  For example, if you owned a large tract of ranching land that was not highly profitable but represented a large amount of capital and you want to invest in an oil well, without fractional reserve banking you would have to sell some of the land in order to invest.  With fractional reserve banking you could convert your land into a generally accepted form of money, by pledging your land as collateral to a bank for a loan.  In the modern world, the loan to you is just a computer entry in your bank account.

It is clear from history that fractional reserve banks are not some sort of government institution, like the Federal Reserve.  Rand’s philosophy was that people are free to contract with each other for anything that does not involve fraud or the use of force.  A fractional reserve bank meets this requirement, with the one possible caveat that a bank should disclose this information to depositors so that the customer understands and assents to the use of his money this way.  Since most people do not know what a fractional reserve bank is, including many bank employees, I am not sure that this caveat is met.  I assume that when you open a new account banks provide you with information that they are a fractional reserve bank, but I have not been able to prove this.  Without fractional reserve banking it is would be very difficult to securitize (Collateralize) many assets, such as houses and land.  This would significantly impede the economic growth of a country.

 

 
Phil the Expatriate: How the U.S. is Driving Technical Talent Away

I met Phil in a restaurant in Belize.  Phil spent the first seven years of his life in Belize, but then moved to California.  He got a degree(s) in biochemistry and worked in a number of medical diagnostic startups in California until about eleven years ago.  He moved back to Belize because of some health issues with his parents.  Phil now teaches yoga, owns a fitness center, and plays in a band.  He is happy in Belize and appears to do nothing with his background in biochemistry.

It is often said that the U.S. needs to increase the number of H-1B visas in order to increase our innovation.  An H-1B visa allows employers to bring in foreigners with special talents that they cannot otherwise fill.  However, Phil’s example shows that the economic environment is driving away highly skilled technical workers already in the U.S.  While I am sure that Phil genuinely is enjoying his new life in Belize, it is also likely that he became a yoga instructor because the cost, stress, and return for working as scientist or engineer in the U.S. no longer felt like a good return on his efforts.

Phil’s example is not unique.  I know of many technology entrepreneurs who have left the field.  For instance, I know one successful serial entrepreneur who has taken pseudo government jobs since around 2001.  I know that he would have jumped into another startup if he had seen good prospects for startups.  I know another successful serial entrepreneur who recently decided to hang it up and get a regular programming job with a military contractor.  The risk reward ratio did not make sense to him anymore.  These are not isolated examples.  Both my own experience and the macroeconomic data show that there are fewer startups and most technology startups are focused on creating evolutionary technologies in a small business and selling out to a larger company or running it as a cash flow business.  What we need is startups focused on revolutionary or disruptive technologies that will create large business and go public.  The U.S. economy is stagnating (or worse) without these sort of startups.

The reasons for our. economic and technological stagnation are clear.  We have weakened the most important property rights, patents, which are the foundation for companies creating emerging technologies.  The America Invents (not) Act, (H.R. 1249 & S. 23) will further weaken our patent system.  Sarbanes Oxley and now Dodd Frank make it almost impossible to go public in the U.S.  This makes it very difficult to fund technology startup companies.  It is easier for someone to gamble in Vegas than to invest in a technology startup company today.  This is INSANITY.  Do we want people gambling or do we want them to invest in companies that create jobs and raise everyone’s standard of living????

 

 
Halling to Appear on Ed Jones Radio Show

Dale B. Halling will be discussing the America Invents Act (H.R. 1249 & S. 23) on the Ed Jones Show on 740 KVOR .  The show runs from 7:00AM (MDT) to 8:00AM on July 2nd.  Here is the audio of the show in two parts 1edjones and 2edjones

 

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