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Archive for October, 2012


CLS Bank v. Alice Corp: Abstract Ideas

This is another case looking at subject matter jurisdiction (35 USC 101) of patents.  Alice Corp sued CLS Bank for infringement under four patents.  The patents are directed to eliminating the risks associated with financial transactions. Specifically, something called settlement risk.

The Federal Circuit has ordered a rehearing of the case en banc.  In the previous opinion of the court, they found the claims were directed to an abstract idea and therefore not patent eligible.  35 USC 101 states:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

First of all let’s acknowledge that this is bad legislative drafting since section 101 talks about new and section 102 of the patent statute is directed to what is new (novelty).  Of course the AIA did not correct this poor legislative drafting, because it was too busy handing out goodies to special interest groups.

Because the “new” requirement of 35 USC 101 is redundant with that more clearly defined in 35 USC 102 we are going to ignore it and assume that the new requirement of 101 is met if the invention meets the requirements of section 102.

Second of all let’s notice that “abstract idea” is never mentioned in the statute.  Where does this theory that an abstract idea is not patent eligible come from?  It comes from the Supreme Court.  See LeRoy v. Tatham, 55 U.S. 156, 14 How. 156, 14 L.Ed. 367 (1852) and the most recent history starts with Gottschalk v. Benson, 409 U.S. 63 (1972).  Does it make any sense?  Before we can answer that we need to define what we mean by an “abstract idea.”  Some of the potential definitions of “Abstract” from Dictionary.com are provided below:

1. Considered apart from concrete existence: an abstract concept.

2. Not applied or practical; theoretical. See Synonyms at theoretical.

3. Difficult to understand; abstruse: abstract philosophical problems.

4. Thought of or stated without reference to a specific instance: abstract words like truth and justice.

5. Impersonal, as in attitude or views.

6. Having an intellectual and affective artistic content that depends solely on intrinsic form rather than on narrative content or pictorial representation: abstract painting and sculpture.

 

Clearly the first or second definitions appear to be the closest to what the Supreme Court means when speaking of patents.  Now here are some of the definitions of “idea” from the same source.

 

1. Something, such as a thought or conception, that potentially or actually exists in the mind as a product of mental activity.

2. An opinion, conviction, or principle: has some strange political ideas.

3. A plan, scheme, or method.

4. The gist of a specific situation; significance: The idea is to finish the project under budget.

5. A notion; a fancy.

 

The first definition appears to be the most appropriate.  So what we end up with is a thought or conception that is separate from concrete existence or not applied to the practical.  None of the judges using the “Abstract Idea” standard have bothered to define what they mean by these words.  In the broadest sense of the word abstract, every patent defines an invention that has been abstracted.  An invention by definition is an abstraction or a category of things.  If this is what the judges mean, then the standard is complete nonsense, since it negates every patent.  Not defining your terms leads to an Alice in Wonderland world, where words mean whatever the person using them wants them to mean and the reader/listener has no idea what they are talking about.  Failure to define one’s term is the province of charlatans.

If we use the definition of an Abstract Idea given above “a thought or conception that is separate from concrete existence or not applied to the practical”, then every invention that meets the requirements of 35 USC 112 first paragraph is not an Abstract Idea, since this section requires that the invention be described in a manner so one skilled in the art can practice the invention.  Something that can be built and used (practiced) is concrete and applied, therefore it is not an abstract idea.  The ABSTRACT IDEA exclusion to 35 USC 101 should be dropped, because any logical definition of an abstract idea is excluded by 35 USC 112, first paragraph.  It should also be dropped, because, Judges should not read into statutes things that are not there.

A truly Abstract Idea is not a “process, machine, manufacture, or composition of matter” under 35 USC 101.  The Court need proceed no farther.  But the real thrust behind the Abstract Idea exclusion is to provide a broad (arbitrary) basis for Judges who do not like patents or do not like software patents or patents directed to financial transactions or directed to medical technology to rule patents invalid.  This turns patent law into nothing more than glorified politics.  It is shameful act by a bunch of charlatans and they are getting away with it, because litigants have not demanded terms be defined.

The CLS Bank v. Alice Corp case is nothing more than an attempt to steal the invention of Alice corporation, by a Kangaroo Court methods. 

 

The CPB (Corporation for Public Broadcasting) receives $445M a year in federal taxpayer money.  While this represents only 12% of CPB, it is still real money that arguably could make a HUGE difference in job creation.  Try this on for size- while Jim Henson Productions and the puppeteer/actor portraying Elmo are worth multi-millions (I guess I am a little confused how Sesame Street the show has a net yearly loss), The Patent and Trademark Office has lost $1B over the last decade in user fees diverted to other Congressional pet projects, including CPB.  The Patent and Trademark Office is the only self-funded agency within the Federal Government.  The diverting of these fees-some could say for Big Bird- is costing America jobs.  According to the Kauffman Foundation, ALL net new jobs in the US since 1977 have been created by startups, and most of these are high tech startups who rely on patents.  While patent applications languish at the PTO  for 4-10 years awaiting approval (due to the diversion of inventor-paid fees) companies can’t get funded. If they can’t get funded, it takes much longer to increase hiring. The SBA reports most transformative technologies are created by startups and individual inventors (not large, entrenched corporations).  So what do you think is more important – quality, high paying, skilled jobs or Big Bird?

 

Yaron Brook will be speaking at the Pikes Peak Economic Club on Tuesday, October 9, 2012.  For more information click here.  Mr. Brook will be discussing his book Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government and signing copies.

Unfortunately, I will not be able to attend, but I hope someone asks him about Patents and the theoretical basis for Property Rights.  There is quite a split between the Von Mises group and Objectivists.

 
Patents: Monopoly or Property Right a Testable Hypothesis

It is common for people and economists to state that patents are a monopoly.  Because patents are a monopoly, it is argued that they negatively affect the pace of innovation and slow down the diffusion of inventions.  The only redeeming feature of patents they concede is that if provides a profit incentive to invent, but then it inhibits follow on inventions and the dissemination of knowledge.  If this thesis is correct, it should be testable.  Let’s test this hypothesis.

If MONOPOLY

1) Countries with strong patent systems should innovate less than countries with weak patent systems.

2) Countries with strong patent systems should have slower dissemination of new technologies than those countries with weak patent system.

If PROPERTY RIGHTS

1) Countries with the strongest patent systems should innovate more than countries with weak patent systems.

2) Countries with strong patent systems should have faster dissemination of new technologies than those countries with weak patent system.

Let’s take a look at the facts, according to the World Intellectual Property Organization (WIPO),  the top ten most innovation countries and the bottom 10 countries for 2012 are:

Top 10

1. Switzerland

2. Sweden

3. Singapore

4. Finland

5. United Kingdom

6. Netherlands

7. Denmark

8. Hong Kong (China)

9. Ireland

10. United States of America

 

Bottom 10

132. Syrian Arab Republic

133. Pakistan

134. Cote d’Ivoire

135. Angola

136. Togo

137. Burundi

138. Lao PDR

139. Yemen

140. Niger

141. Sudan

 

In a report from National University of Singapore they show a chart of the Fraser index vs. Ginarte-Park index.  The Fraser Index is a ranking of economic freedom and the Ginart-Park index is a ranking of patent strength.  The chart shows an almost perfect correlation between the two.  For those of you who are not familiar with economic freedom indices, there are several and they all show that economic freedom correlates positively with economic growth, wealth, education access, health, longevity, the environment, civil rights, etc.

They also had a couple of charts for the countries with the strongest patent systems for four different years and those with the weakest patent systems.  I do not know all the countries that were included in this survey.

Top countries

1980 1985 1990 1995
U.S.A. 39.30 U.S.A. 39.06 U.S.A. 39.06 U.S.A. 42.75
Netherlands 28.20 Belgium 32.23 Belgium 36.22 Netherlands 41.36
Switzerland 28.12 Netherlands 31.47 Netherlands 35.22 Denmark 41.26
Germany 28.01 Switzerland 30.55 U.K. 33.57 Finland 41.01
Japan 27.14 Germany 28.73 Germany 33.14 U.K. 40.15
       

 

Bottom countries

1980 1985 1990 1995
Nicaragua 2.38 Nicaragua 2.38 Guyana 3.17 Niger 5.38
Peru 2.22 Bolivia 2.30 Pakistan 3.17 Guatemala 5.10
Guatemala 1.90 Guyana 1.69 Jordan 2.95 Nicaragua 5.00
Guyana 1.78 Guatemala 1.50 Guatemala 2.15 Rwanda 4.64
Jordan 1.72 Peru 1.31 Peru 1.73 Zaire 3.51

 

If we examine the first postulate, does it appear the most innovative countries have the strongest patent systems or the weakest patent system?  Which countries do you think have the strongest patent systems – the USA, Singapore, Switzerland or Niger, Pakistan, Sudan?  It is clear that the most innovative countries according to the WIPO survey have the strongest patent systems.  If we look at the charts from the National University of Singapore (NUS) we see those countries with the strongest patent systems are clearly the most innovative.  Although the WIPO data and the NUS data are from different time frames we see some overlap between those countries with the strongest patent systems (NUS) and the most innovative (WIPO) and the same is true for the weakest and least innovative.

If we examining the second postulate, does it appear that the countries with the most technology diffusion have the strongest patent systems or the weakest patent system?  Which countries do you think have the most technology diffusion – the USA, Singapore, Switzerland or Niger, Pakistan, Sudan?  It is clear that those countries with the strongest patents have the most technology diffusion.

The macroeconomic evidence does not support the thesis that patents are a monopoly.  The data shows the exact opposite of what this theory predicts.

 

The empirical evidence is overwhelming that patents are a PROPERTY RIGHT not a MONOPOLY.

 

I have written extensively on whether the defining characteristics of a patent are consistent with the definition of a monopoly or the definition of property rights.  For instance see:

Monopoly/Rent Seeking vs. Property Rights/Intellectual Property.

This post explains the characteristics of a monopoly and a property right and poses three questions to show the difference.  Patents fit all the characteristics of a property right and none of a monopoly.  Note that professional license, such as a law license has some of the characteristics of a monopoly.

More on the Myth that Patents are Monopolies.

This post contains a number of quotes from philosophers explaining that patents are not monopolies.

 Property Rights, Possession and Objects

This post explains the difference in the concepts of property rights, possession, and objects.  Most economists and patent detractors confuse these concepts.  The origin, definition, and legal basis of property right are explained.

 The Myth That Patents are a Monopoly

This post compares the definition of a monopoly to the rights obtained with a patent.  It shows that the rights obtained with a patent do not confer a monopoly.

 

The only way to suggest that patents are a monopoly is define “market power” so broadly that any property rights confer market power.  I admit that I reject this argument.  A property right is not a monopoly and this is an attempt by people with a political agenda to attack the concept of property rights.

PATENTS are PROPERTY RIGHTS under the law, by definition, and according to all statistically significant macro-economic evidence.  People who suggest otherwise are pushing a political agenda or do not understand the definition of the words monopoly and property rights.

 

 
Why I Quit the AIPLA (American Intellectual Property Law Association)

I received a survey from AIPLA asking my opinion of the organization, but clearly the designers of the survey were not interest in real feedback.  As a result, I will provide it in this blog post.  The AIPLA for patent attorneys has become what the AMA (American Medical Association) is for doctors or what the ABA has become for lawyers.  At one time, the ABA was a well respected organization that focused on attorney education and important legal issues, but then it became leftist lobbying organization and attorneys have been leaving it in droves.  At one time almost every M.D. joined the AMA, but its left wing push, including supporting Obamacare, have caused its membership to decline drastically.  I predict something similar for the AIPLA.

The AIPLA has become nothing more than a lobbying organization for large multinationals and foreign interests.  When I started as a patent attorney in 1993, the AIPLA was the premier professional organization for IP attorneys.  Since I joined, the AIPLA has championed the subversion of US patent law in the form of supporting the American Inventor’s Protection Act of 1999, which requires[1] the publication of patent applications 18 months after they are filed.  The AIPLA did not push for the real solution to the problem of patents issuing years after they were filed, which was to fully fund the Patent Office and demand they examine and issue patents in well under 18 months.  Edison’s patent on the light bulb issued in three months.  Publication is in direct opposition to the defining theory of patents – the social contract, which states that the inventor receives a property right in their invention in return for disclosing their invention (trade secret).  Publication destroys the quid pro quo of patents.  The public/government gets the benefit of disclosure even if the inventor believes the Patent Office has not made a fair deal.

The publication rule was pushed by foreign countries, foreign companies, and large multinationals.  The result of this law has been to double the pendency time for patents.  This has become nothing more than a way to steal American Technology, particularly from our most creative inventors – small companies and independent inventors.  It is no wonder that the US economy was  in a slow decline from 2000 to 2008 and since then has been mired in a depression.

Then the AIPLA decided to actively push the America Inventors Act of 2011.  This is an incredibly corrupt piece of legislation laden with special interest goodies and is un-Constitutional.  The special interest goodies included a special provision for Wall Street that the Data Treasury patent is effectively invalid, a special rule for the law firm Wilmer Hale and The Medicines Company that extended the length of their patent and avoided a huge malpractice suit, a special rule for patents on financial products and services – another Wall Street give away.  Judge Michel, former head of the CAFC, had this to say about the AIA

 Fatal defects of the legislation includes section 18 (business method patent – Wall Street giveaway), section 14 (no patents on tax strategies), parts of section 5 (prior commercial use – trade secret protection system), parts of section 6 (post grant review).

Judge Michel also pointed out that the AIA does not solve the fee diversion issue which was its main selling point.  If the AIPLA was not pushing an agenda for large corporations, Foreign companies and countries, you would never expect to see so a large split between it and one of the leading judges of patent law.  But in its infinite wisdom the AIPLA decided to push forward with this pork barrel legislation.

As if this is not enough, the AIA’s first to file rule and its fee setting authority are un-Constitutional.  See One Year Anniversary of Patent Reform: Two Reasons Why it is Un-Constitutional.  The AIPLA has become a lobbying organization that hides its true agenda, while putting forward a different public relations face, just like the ABA and the AMA.  I predict the AIPLA will go the same way as these organizations – declining membership, declining revenue, and disgust by patent attorneys and the general public.


[1] It did not require publication of all patent applications, but does require this if you are going to foreign file and made it difficult to change your mind after filing.  This was clearly the first step requiring publication of all patent applications.

 
Eliminate the EPA: Stop Environment Thugs

The Environmental Protection Agency has been a disaster from the beginning.  It is anti-technology, anti-science and anti-reason, from its attack on DDT, to its attack on Nuclear Power, to its attack on carbon dioxide.   It pushed the disastrous ban on DDT that has resulted in the death of more people than Hitler, Stalin, and Moa combined.  It’s public relations department takes credit for reduced air pollution and improved water, but its actual record on these issues is mixed bag at best.  This would be bad enough, but now the EPA has been given the right to fine, imprison, and prosecute people without having to bother with pesky issues, such as due process, obtaining a warrant, or having a factual basis for their case.

Rand Paul’s book, Government Bullies, documents the brown shirt behavior of the EPA.  He documents the case of Mr. Pozsgai, who was thrown in jail for three years and fined $200,000 for cleaning up a dump with old tires and other trash.  The EPA argued it was a wetland despite overwhelming evidence to the contrary.  In another case the Sacketts were accosted by an EPA brown shirt for trying to build on a subdivision lot that had houses on the lots next to it.  The EPA brown shirt presented no credentials, nothing in writing, but demanded they stop work or face a $75,000 per day fine for placing fill dirt (no dirty chemicals, just dirt) on a wetland.  The EPA refused a hearing and denied that the Sacketts had any right to a hearing.  The EPA also argued they were not subject to due process, or the fourth Amendment, or the fifth Amendment – these would inhibit their ability to carry out their policy objectives.  The Sacketts demanded a review under the Administrative Procedure Act (this is the law that is suppose to make Administrative Agencies Constitutional) but the EPA essential said that would interfere with their mission and the fourth and Sixth circuits agreed.  These judges should be impeached and put in jail for HIGH CRIMES and MISDIMENORS.  The EPA administrators and the US Attorney Generals involved should be thrown in jail and the key thrown away for this abuse of power.  The Supreme Court sided with the Sacketts, but it was a narrow decision that also failed to uphold the Constitution.  In another EPA BROWN SHIRT case, the EPA could not prove that Wrigley, Lucas and Thompson actually violated any nonsense wetland legislation, so they prosecuted them for conspiracy to violate a wetlands and mail fraud.  This is nonsense.  You cannot be convicted for conspiracy to commit something you never did.  If you did not commit a crime, there can be no mail fraud.  This makes thought into a crime.

These are just three of many outrageous actions by the EPA.  The EPA is a disaster.  It is a thug, it has shortened human life, it is responsible for every death by West Nile in the US, it is responsible for at 300,000 deaths because of their policy of killing off Nuclear Power plants.  It is time we quit pretending the EPA and the Environmental movement are just misguided.  The former head, Al Armendariz, of the EPA summarized their Brown Shirt tactics, “it is kind of like how the Romans used to, you know, conquer villages in the Mediterranean. . . .  They’d go into a little Turkish town somewhere, they’d find the first five guys they saw, and they’d crucify them.”  See the video.

As I document in my post How the Environmental Movement is Killing Innovation and Destroying Our Environment, the environmental movement is responsible for more deaths that Hitler, Stalin and Moa combined.  The Environmental movement is anti-human and evil and the EPA is the BROWN SHIRTs of the Environmental movement.  TIME TO ELIMINATE THE EPA and throw the administrators in jail.

 

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