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Archive for March, 2012


Wall Street Journal Proves its Patent Ignorance

In an article entitled “Could Morse Have Patented the Web? Under today’s loose standards, the telegraph inventor might own the Internet” , dated March 26, 2012, the Wall Street Journal demonstrates their incredible ignorance of patent law.  The article states, “The standards for patents are so low that simply having an idea often justifies a patent.”  Obtaining a patent takes at least several years to obtain and tens of thousands of dollars.  It is the most expensive, time consuming, and most examined property right before you obtain title of all property rights.  In addition, when Morse obtained his patent the requirement that a patent cover a non-obvious invention did not exist.  This by itself makes it more difficult to obtain a patent today than in Morse’s day.  The author’s ignorance of patent law embodied in the above statement is monumental.

But the ignorance does not stop with this statement, the article goes on to state that:

 “The patent explosion began in the mid-1990s, when the U.S. Court of Appeals for the Federal Circuit ended the requirement that patents specifically define inventions.”

First of all the U.S. Court of Appeals for the Federal Circuit never did any such thing.  The requirement for specifically defining one’s invention in a patent has not changed since at least the 1952 patent act.  Second there has been no explosion in the number of issued patents in the US to US based inventors.  The numbers of patent issue to US based inventors has been flat for at least a decade, see chart below

 

 

 

 

and by every objective measure (GDP/patent, R&D/Patent, Population/patent) the quality of patents is increasing – see Patent Quality Nonsense.

The article then quotes a forthcoming article from the CATO Institute that it is impossible for a software company to determine if they are infringing an existing patent.

 They estimate that there are 600,000 firms producing patent-eligible software and 40,000 software patents granted each year. They say this comes to “24 billion new patent-firm pairs each year that could produce accidental infringement.

Since the total number of issued patents since 1836 is just over eight million this is complete nonsense and academic fraud.  The exaggeration of the authors from the CATO Institute and Yale Law School is criminal.  Both of the authors of this study should be fired and never given another academic job.  But so low is the state of our academic research no one will question their outrageous assertions.

Companies do market research on competitors in the software space and clearly do not feel overwhelmed by the “24 billion” new pairs of potential products.  Most software companies I know are very good at narrowing down their market research and the same applies to patents.  Companies spend huge sums on market research, but complain about spending a little money to determine if they are violating someone’s property rights.  In fact, most companies never do check to see if their products are likely to infringe a patent.  This is like starting construction on a building without checking that you have clear title to the land.  We would not tolerate or glorify the stupidity in the case of real property, so why should we do so in the case of patents?

Finally, to the point that Morse could have patented the Internet this again shows the author’s ignorance of patent law.  Patents cover an invention.  Anything that incorporates that invention infringes the patent.  For instance, if I have a patent on a microprocessor and you incorporate a microprocessor into your cell phone you infringe my patent.  I am not asserting that I invented the cell phone, I am asserting that I invented the microprocessor and you are infringing my patent by incorporating it into your cell phone.  According the Supreme Court’s decision Morse did invent a system for repeating electromagnetic signals so they could be sent over long distances.  Repeaters are still used to amplify electronic signals, including signals sent over the Internet.  So if Morse’s patent were still valid (they expired around 150 years ago), then yes the Internet would likely have infringed his patent – according to the Supreme Court’s characterization.  This would not mean that Morse was asserting he invented the Internet.  Note that the inventor of the transistor, the inventors of error correction codes, the inventor of microprocessors, the inventor of electronic amplifier circuits, and many, many more would be in the same hypothetical situation – but of course this is meaningless since their patents expired years ago.  All this proves is that all inventions build on earlier inventions and the author of this article’s ignorance of how patents work, knows no bounds.

 

Could Morse Have Patented the Web? Under today’s loose standards, the telegraph inventor might own the Internet” , dated March 26, 2012, the Wall Street Journal

 
JOBS Act a Small Step in Right Direction

The Senate passed the JOBS (Jumpstart Our Business Startups) Act, H.R. 3606 and President Obama is likely to sign it.  The goal of the legislation is to reduce some of the regulatory burdens in raising capital for startups.  The Act exempts small firms from Section 404 of the Sarbanes-Oxley Act for up to five years according to Wikipedia.  It also includes some of the crowdfunding ideas of HR 2930.  This legislation is a positive step in the right direction.  Unfortunately, it is a pebble in Sea of laws, regulations, and taxes strangling technology startups in the US.  My guess is that the reason this legislation is passing has little to do with what is good for the country, but what is good for Wall Street banks.

In my book The Decline and Fall of the American Entrepreneur I show that every academic study of the effectiveness of our Securities Laws shows that they have been either totally ineffective at protecting investors or worse counterproductive. The real answer to the lack of funding for start-ups would be to repeal all Securities Laws and Regulations except the common law requirements under contract and tort law.

 
Supreme Court ‘Only Black Magic Patent Eligible’

The Supreme Court ruling in Mayo Collaborative Services v. Prometheus Labs., Inc. (Supreme Court 2012) was released on March 20, 2012 and they held unanimously against Prometheus and invalidated two patents under 35 USC 101.  My title may be a bit salacious, since the holding in the case does not limit patents to just black magic, it limits them to magic.  The holding on p. 4 states:

 The steps in the claimed processes (apart from the natural laws themselves) involve well-understood, routine, conventional activity previously engaged in by researchers in the field. P. 4

And adds:

 The three steps (of the claim) as an ordered combination adds nothing to the laws of nature that is not already present when the steps are considered separately.  P. 10

Logically, the Supreme Court is saying that known steps or elements in combination with a law of nature is not patent eligible.  First every invention ever made involves steps (elements) that were known individually before the invention, and laws of nature.  You cannot create something out of nothing.  Section 112 means that you have to be able to describe your invention in terms known to those skilled in the art.  Thus the Supreme Court’s holding means that any invention that satisfies 112 is unpatentable under 101.  The only inventions that will satisfy 101 are those that violate laws of nature or involve creating something out of nothing – or magic.

Get out your cauldrons-

For the lawyers in the audience this case reintroduces the point of novelty test nonsense.

I have written extensively about this case in the following posts and will not reiterate my earlier points.

Justice Breyer: Patent Ignorance 

Mayo v. Prometheus: An Update

Mayo v. Prometheus – Supreme Court Grants Cert (Again) 

 

But for those not familiar with the case here is a little background

The patents (6,355,623 and 6,680,302) claim methods for determining the optimal dosage of thiopurine drugs used to treat gastrointestinal and non-gastrointestinal autoimmune diseases. Thus, the questions in this case are whether determining optimal dosages of thiopurine drugs to treat autoimmune diseases exists in nature separate from man and whether this solves an objective problem? Clearly, determining optimal dosages does not exist in nature for any drug and the patent solves the objective problem of determining the optimal dosages of thiopurine drugs for autoimmune diseases.

Ayn Rand discussed this exact issue in Atlas Shrugged.  James Taggart is discussing Rearden Metal with his wife:

”…’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?’”  Kindle Location 5796-5802

These exact questions could be asked of the Supreme Court.  All these other steps were available to other people, but no one else discovered how to use thiopurine to safely treat Crohn’s disease.  In fact, the Supreme Court admits as much.

 . . . and it has been difficult for doctors to determine whether for a particular patient a given dose is too high, risking harmful side effects, or too low, and so likely ineffective.  p. 4

The reality is that this Supreme Court is anti-patent and anti-property rights.  The opinion states patents are monopolies in three spots and mentions rent seeking in one spot, but it does not mention that the Constitution clearly states that inventors have a RIGHT to their invention and it does not state that patents are property rights.  This case is just another example that the anti-property rights and anti-Natural Rights crowd is in control of our government.  This case will have long term negative ramifications for the US economy.  The US is losing its technological advantage because it believes that inventors should work for free.  Note that Singapore is taking another path and trying to figure out how to strengthen their patent laws (see Singapore and the US Divergent Patent Policies)

 
Singapore and the US Divergent Patent Policies

While the US continues to weaken its patent laws, Singapore is taking a different path.  Singapore has just announced that it is developing a plan to be an Intellectual Property Hub, according to Channelnewsasia.com.  They believe that intellectual property is a key part of the global economy and they want their country to be primed to take advantage of this trend.  According to the article:

 With well-developed legal and financial systems and a workforce comfortable with science and technology, Singapore is poised to ride on this trend. Still, the country has a small domestic market, but Singapore can get around this by becoming Asia’s IP Hub.

 A spokesman for this initiative stated:

 Mr Shanmugam said: “The committee will recommend strategies to develop Singapore as a marketplace of choice to transact IP, and attract international firms and professionals who provide IP transactional services. For example, licensing and brokerage. The committee will also incentivise the creation, management and exploitation of IP in Singapore.”

While Singapore is trying to encourage IP transactions our government and intellectuals are trying to kill them by disparaging inventors as trolls.  The article also explains that Singapore will grow its court system in tandem with the growth of it intellectual property.  They are focusing on training judges who are experts in patents.  In the US we cannot even fully fund the Patent Office and now there is an effort to sideline the ITC, which is one of the few courts with real patent expertise.

Singapore’s emphasis on technology and intellectual property has faulted it past the United States in per capita income.  Singapore ranks third in the world with a per capita income of $59,936, while the US lags with a per capita income of $48,147.  Singapore’s per capita income keeps growing, because they are focused on the only thing that makes people wealthier – increases in our level of technology.  In the United States we have a President and his economic advisors telling us that we will get wealthier by consuming more, or by transferring more wealth from productive people to people on welfare, or by giving free money to the largest Wall Street Banks and large corporations.  If the US does not wake up it is likely that Singapore will have double the per capita income of the US by 2020 (see chart).

 
Only 2% of Patents Ever Pay Off

I often hear something like ‘only 2% of patents every pay off’ or are commercialized.  This comment is quoted as if it is gospel and often is said in a snide or cynical way.  This comment came to my mind as I was preparing a list of patents and associated products for one of my clients.  This client has seven or eight patents and every single patent covers a product my client is producing and selling.  While I certainly have clients that have filed for patents that are not licensed or being practiced, these are the exception not the rule.  The economist Jacob Schmookler in his 1966 book Invention and Economic Growth, investigates this issue and his survey showed that over 50% of patents are commercialized.  Economists Lamoreaux and Sokoloff investigated the rate at which independent inventors were able to sell their patents around 1900 and at that time it was around 30%.  Clearly, the myth that only 2% of patents are ever commercially successful is without basis in fact.

I believe this myth about the success rate of patents is part of an attempt to devalue patents and inventors in general.  Large companies that do not want to pay for using other people’s inventions (patents) use this myth to paint inventors who sue them as crackpots.  In addition, these companies use this myth to pay their employee inventors less.  The anti-patent crowd has an interest in perpetuating this myth, because it demonstrates that patents are economically unimportant.  However, the evidence shows that patents are successful financially at a much higher rate than the myth suggests and this shows the importance of patents and inventors to our economy.

 

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