State of Innovation

Patents and Innovation Economics

CATO on Software Patents

The CATO Institute attacks patents in an article entitled What Is a Software Patent?, by Christina Mulligan.  The article argues that the word “process” in the patent statute should be limited to those processes that have an effect on matter.  The article suggests that this would eliminate the “wrong” kind of patents.  Software is not patentable, per se, software is a set of written instructions and are just bad prose.  When people use the term “software inventions” they are talking about executing the software in hardware (electronic circuits).  What the software does is define the connections or wire the general purpose electronic circuit that we call a computer.  This special purpose electronic circuit consumes energy, generates heat, causes electrons to move – in short, it has an effect on matter.  The whole premise of the article is based on a lack of understanding of what software is.  Logically, the article has to address the issue that all “software inventions” are electronic circuits and therefor the article’s position requires that it explain why certain electronic circuits should be patentable and other electronic circuits should not be patentable. It should be noted that the author is not a patent attorney, has never written a patent or a claim, nor does she appear to have a technical background.  While this is not absolutely required, it leads to the obvious mistakes made in this article.

The Constitution requires Congress to protect the rights of inventors to their inventions.  There is no justification for the distinction made in this article.  An invention is a human creation with an objective and repeatable result.  For instance, the incandescent light bulb always puts out light when electricity of the right voltage and current is applied.  Art is a human creation with a subjective result.  Software enabled inventions are clearly a human creation and they have a repeatable, objective result.  The first patent ever issued in the US was for a Method of making potash and it was a method of doing business.  The inventor was not making potash as a hobby, he planned to make a business of it.  The label of “business method patent” is thrown around commonly, but never defined as it is not in this article.  All patents are about a method of doing business.

The article ends with praise for Mark Lemley.  Another law professor who is not a patent attorney, is not legally or factually competent to be a patent attorney, has never written a patent, has never written a patent claim, but somehow knows that we should not use “functional claiming.”  Mr. Lemley does not even know what functional claiming is.  What he appears to mean is that the claims should have to include every little step or element in the invention.  This would mean that if you were writing a patent about cell phones, you would have to claim the individual transistors.  Patent law had determined that this made no sense and as long as, for instance, heterodyne receivers were well known you could claim the heterodyne receiver without claiming the individual transistors or even explaining the invention to this level of detail.  Patent law is right on this point and Lemely and the author are clearly wrong.

As a patent attorney, with a BSEE, an MS in Physics and twenty years of practicing patent law, it would be nice if CATO, when discussing patents and patent policy would actually include those who are factually and legally competent to be patent attorneys in technical discussions about patent law, including defining what software is.

 

Disappointed

Dale B. Halling

 

What Is a Software Patent?, by Christina Mulligan.

September 30, 2014 Posted by | -Philosophy, News, Patents | , , | 4 Comments

Hurricane Odile and Inventions

I have had the fortune or misfortune to be dealing with the aftermath of Hurricane Odile.  I have a client that has an invention that would have been able to restore power in just two days.  His invention is described in patent number 7589640. It senses the force load on a power pole and if it exceeds a certain level, the invention lowers the cross bars and power lines gently to the ground and turns off the sector switch (power).  Once the electrical lines and cross bars are on the ground, the wind loads are almost eliminated, which means the power pole is standing at the end of the storm.  Utility workers then remove the debris and use a winch type mechanism to raise the power lines and cross bars.

This invention cannot only save billions of dollars in utility repair damage per year, get power up in a tenth the time of present techniques, eliminate billions in lost business per year lost business, it also reduces the risk of injury to utility workers who are no longer required to climb utility poles and bystanders.  But that is not all, the inventor has engineered his poles so that they are less expensive to install originally than present utility poles.

GUESS WHO is opposing the inventor?  Unions.  Their members make a lot of money working storms and they don’t want any system that allows less skilled workers to setup utility poles.  Utility companies are ambivalent, because they are regulated and only allowed a certain return on capital.  Thus, all the money they save using the inventor’s system will not improve their bottom line one iota.  This is just another example of how regulation stifles inventions and makes our lives worse, more expensive and less safe.

September 28, 2014 Posted by | News, Patents | , , | Leave a comment

Patent Trolls: Evidence from Targeted Firms

The paper, Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer assumes that NPEs are enforcing patents of questionable validity.  However, the paper offers no proof of this and does not even try to justify this position.  Once you start with that position, it is a foregone conclusion that any litigation is unjustified and wastes resources.  However, the initial assumption is not proven and in fact many papers have shown the opposite.  If you do not start with this assumption then the paper’s whole argument falls apart.  Litigation losses by operating companies are a justified return to the inventor and their investors.  The operating companies are not victims, but victimizers and the return to inventors and their investors encourages more inventive activity.

 

The paper’s big conclusion is: 

“Specifically, in the years following litigation, firms against whom cases are dismissed produced spent on average $211 million (t = 1.96) more on R&D expenditures than firms that lost to NPEs.  These firms also spent on average $49 million more (t = 2.95) to acquire more in process R&D from outside.30 Furthermore, in the years following litigation, firms against whom cases are dismissed produced 63.52 more new patents (t = 2.96), and these new patents received 723.98 more citations (t = 3.45), relative to the group of firms that suffered the cost of NPE litigation.31 These large differences in R&D expenditure, patent production and in the quality of produced patents do not appear until after NPE litigation.”

Inherent in this statement is that anytime an operating firm that loses a patent litigation case to a NPE is a bad result.  If the firm was stealing an invention, then the fact that they lost is a good thing.

The companies that lost in litigation spend less on R&D according to the paper.  Perhaps that is because they were not as inventive to start with, perhaps it is because they decided to focus on manufacturing and purchasing their R&D from outside inventors, and perhaps it is because they lost a substantial amount of money.  These are not dire results or unexpected results or necessarily bad results.

The paper implies that NPE lawsuits result in less spending on R&D, but just because firms that lose patent lawsuits spend less on R&D in the years immediately following, does not mean that total R&D is down.  When inventors see their rights are upheld then they are encouraged to spend more time inventing.  Unless you measure the amount spent by independent inventors or inventive firms who now see their rights upheld, you cannot draw that conclusion.  These comments also apply to the citation differences.  The authors are only looking at the microeconomic system that they care about, but you cannot draw the macroeconomic conclusions they do, because they don’t consider all the macroeconomic effects.

The paper does not define what a NPE is.  It starts with this surprising conclusion, “We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks).”  They needed a study to tell them that?  Of course NPEs focus on companies with cash on hand, why would they waste their time suing companies that could not pay them?  Especially after the eBay decision, in which they are unlikely to get an injunction.

 

The paper goes on to state:

“A new organizational form, the non-practicing entity (hereafter, NPE), has recently emerged as a major driver of IP litigation. NPEs amass patents not for the sake of producing commercial products, but in order to prosecute infringement on their patent portfolios.”

Edison, Tesla, Bell, Amstrong ‘amassed patents.’  In fact, most of the US’s greatest inventors were just inventors.  They did not create patents ‘for the sake of producing commercial products.’  They specialized in being inventors and let manufactures concentrate on manufacturing.  All of them were involved in numerous lawsuits.  The difference between them and today’s inventors is that the courts were much more likely to uphold their rights to their inventions.  As a result, manufacturers were much quicker to license inventions.  In fact, one study showed that in the late 1800’s an inventor’s chance of monetizing their invention if they received a patent was around 85%.  In other words they made money specializing as inventors.  Today that figure would be less than 2%.  Because courts allow companies like Google, Microsoft, Samsung, etc. to get away with stealing other people’s inventions, they make the calculated risk that it is better to go to court than pay an inventor a licensing fee.  As a result, inventors often have to team with someone with a deep pocket in order to get large corporations to pay them the licensing fees they deserve.  In fact, large companies such as IBM, Microsoft and others will also often team with people who are experts in licensing or litigation.

Division of labor is generally considered a positive in economics.  The fact that this paper is arguing against it means that it has to give extraordinary proof for its extraordinary claim.  The attack on NPEs is really an attack on the profession of inventing.  A uniquely American profession.

This is not an academic paper, it is a propaganda paper pretending to be science.

 

 

 

Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer

September 14, 2014 Posted by | -Law, -Philosophy, News, Patents | , , | Leave a comment

CATO and Mercatus Center: Another Flawed Study on Patents

The paper, The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons, has a number of errors that show its conclusions are flawed.  The author’s errors in a related article, entitled How Many Jobs Does Intellectual Property Create? were well documented by Adam Mossoff and Mark Schultz in Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong.  This paper’s title purports to show the Court of Appeal for the Federal Circuit has been captured by patent attorneys, but never actually provides any evidence to support this assertion.  Below I will detail a number, but not all the other errors in this paper.

 

1) The article states.  “Just as other property rights internalize the social benefits of improvements to land, automobile maintenance, or business investment, patents incentivize the creation of new inventions, which might otherwise be undersupplied.”

This is the utilitarian model of property rights.  The US was not founded on the Utilitarian model it was founded on natural rights, which are incorporated the Declaration of Independence and into Blackstone’s Commentaries which formed the basis of US common law for the first century of the US. In fact, Blackstone specifically states that patents and copyrights are property rights based on Locke’s formulation.  See The Second Treatise of Civil Government; 1690; John Locke; CHAP. IX., Of the Ends of Political Society and Government.

There is no such thing as balancing test for property rights as implied by the author, this is a Utilitarian formulation of property rights.

 

2) The article states.  “A single, politically captured circuit court with exclusive jurisdiction over patent appeals has consistently expanded the scope of patentable subject matter. This expansion has resulted in an explosion of both patents and patent litigation, with destructive consequences.”

The myth of an explosion in patent litigation has been debunked many times.  As pointed out in the article The “Patent Litigation Explosion” Canard,

“First, it’s simply untrue. Award-winning economist, Zorina Khan, reports in her book, The Democratization of Invention, that patent litigation rates from 1790 to 1860 fluctuated a lot, but averaged 1.65%. Today’s patent litigation rates are around 1.5%. As Yoda would say: patent litigation explosion this is not, hmm, no. In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. From 1840-1849, for instance, patent litigation rates were 3.6% —more than twice the patent litigation rate today.”

Also see Massive Litigation Spike in Response to America Invents Act and The America Invents Act at Work – The Major Cause for the Recent Rise in Patent Litigation

Second there has not been an explosion in the number of issued patents.  The number of patents issued to US inventors in 1980 were 37,355 and in 2011 there were 108,626 that is a 3.5% increase in the number of patents per year, hardly an explosion in the number of issued patents.

The research and development cost  per patent has increased from around $1.2 Million per patent to around $4 Million per patent from 1955 to 2005 and GDP per patent over the same time period in constant dollars has increased from 60 million per patent to around 170 million per patent.  According to a paper by the Federal Research Bank of San Francisco[1], real industrial R&D has been growing at 3.7% per year between 1953 and 2000, while the number of patents per capita has been growing at 1.7% per year over the same period.  The number of citations per patent increased 3.3% per year over the 25 year period from 1975-1999.

 

3) The article states.  “As early as 1951, Simon Rifkind, a former federal judge in New York City, warned in a prescient essay that then-current proposals to create a specialized patent court would lead to “decadence and decay.”

This was the time period in which a Supreme Court Justice in 1948 would write “the only patent that is valid is one which the Court has not been able to get its hands on.”  Jungerson v. Ostby and Barton Co., 355 US 560.  This was also when the Supreme Court was applying its “flash of genus standard to patents.”  If Rifkind meant that it would result in courts that did not have this utter disdain of patents he was right.  However, this is hardly an objective measure.

 

4) The article states.  “Using a dataset of district and appellate patent decisions for the years 1953–2002, economists Matthew Henry and John Turner find that the Federal Circuit has been significantly more permissive with respect to affirming the validity of patents.”

Well given the Supreme Court’s attitude the only patent that is valid is one which the Court has not been able to get its hands on that is hardly a surprise.  One of the first things that Reagan did upon becoming president, was to create the Court of Appeals for the Federal Circuit.  This court does hear all patent appeals and actually had about half the Justice that were actually trained in patent law.  In order to be legally or factually competent as a patent attorney you have to have a technical background in science or technology, which none of the present Supreme Court justices have.  In addition, patent attorneys have to pass a separate bar exam that has one of the lowest pass rates in the US.  Patent law is a highly technical and specialized area, just like quantum mechanics is highly specialized and technical.  You would not ask an English professor how to solve a problem in quantum mechanics and expect anything sensible.  The same is true for patent law.

 

5) The chart in the article is a lie.  It shows the number of patents linearly, which would show any compound growth as an exponential.  In fact the number of issued patents has grown at a rate 3.5% from 1980 to 2011, hardly an explosion.

 

6) The article states.  “They estimate that patentees are three times more likely to win on appeal after a district court ruling of invalidity in the post-1982 era. In addition, following the precedents set by the Federal Circuit, district courts have been 50 percent less likely to find a patent invalid in the first place, and patentees have become 25 percent more likely to appeal a decision of invalidity.”

The 1970s was a period of time in which several appeals circuits had not upheld the validity of a patent in 25 years.  The FTC had a policy of nine no-nos of what you could not do with your patent without running afoul of the antitrust laws.  It is hardly surprising that Reagan and Congress wanted to strengthen the property rights of inventors.

 

7) The article states.  “The U.S. Supreme Court reversed the Court of Customs and Patent Appeals, holding that mathematical algorithms (and therefore software) were not patentable subject matter.”

Here the Supreme Court showed their complete ignorance of what a computer is and what software does.  Any electrical engineer knows that any device implemented in software can be implemented in hardware.  In fact, software just wires an electronic circuit (computer) to create an application specific device.  Engineers choose between these options based on the need for flexibility and lower cost (software) and speed (hardware) and have several choices in between.

In order to be logically against software patents, one has to be against all patents for electronic circuits.  This is the sort of nonsense you get from a court that does not understand the underlying technology.

 

8 ) The article states.  “State Street Bank v. Signature Financial Group (1998), the Federal Circuit broadened the criteria for patentability of software and business methods substantially, allowing protection as long as the innovation “produces a useful, concrete and tangible result.”

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.”  A computer implemented invention is a new and useful machine and useful process.  Seems like the Federal Circuit got it right.

 

9) The article states.  “The GAO estimates that more than half of all patents granted in recent years are software-related.”

The GAO counted any invention that includes some sort of software, firmware, or related.  Let’s see, a procedure to sequence DNA would probably use a machine that had software or firmware and therefor met the GAO’s definition.  A chemical patent that used any computer controlled machinery would count as a software patent under this definition.  Today most transmission systems are computer controlled and therefore meet this definition.  This standard is so loose as to meaningless.

 

10) The article states.  “While more patents have not resulted in faster economic growth, they have resulted in more patent lawsuits.”

This statement will take some unpacking.  First of all the 1980s and 1990s saw significantly faster growth than the 1970s, which had a significantly weaker patent system.  Second of all the patent laws were weakened starting in 2000 with the Patent Act of 2000.  This trend has continued to this day.  In 2002, we passed Sarbanes Oxley which made it almost impossible for startups to go public, which starved startups and VCs of capital.  Economic growth did not start to fall off until around 2000.  So actually the data is consistent.  Weaker patent laws are associated with weaker economic growth.  Third, the patent system cannot function in a socialist system.  The US by CATO’s estimate takes 60% of the GDP today.  What does it mean to own your patent in a world where the EPA can take your land at any time, in which the eminent domain can be used to take your property for a project that promises higher tax revenue, a world in which the government publishes your invention for the whole world to see before they provide you any patent protection, a world in which the government does not accept any limits to tax you or regulate you?  The author is right that a patent system cannot cause economic growth in the USSR, which tried to implement a patent system.  A patent system is based on a system of property rights.  Since 2000 we have created a patent system that supports crony socialism (capitalism), not surprisingly our inventors and entrepreneurs are not creating economic growth.

The macroeconomic evidence is overwhelming for patent systems creating growth.  Those countries with the strongest patent systems are the most inventive and have the greatest technological dispersion and are the wealthiest in the world.  While those with the weakest patent systems do not contribute any inventions and have very poor technological dispersion and are some of the poorest countries in the world.

 

I for one am very disappointed that the CATO Institute would publish such a poorly researched and reasoned article.

 

 

 

[1] Wilson, Daniel, “Are We Running Out of New Ideas” A Look at Patents and R&D”, FRBSF Economic Letter, Number 2003-26, September 12, 2003.

September 10, 2014 Posted by | -Law, -Philosophy, News, Patents | , | 1 Comment

What are the Foundations of Quantum Mechanics?: Video

This is an excellent video that discusses four theories on the foundations of quantum mechanics and it is some of the best explanations I have seen and it is not a dry video.  I have pointed out that there are a number of problems with the Copenhagen Interpretation of QM.  The video presents four alternatives to the Copenhagen Interpretation.  They are the De Broglie–Bohm theory, the many-worlds theory also known as the Everett interpretation , the spontaneous collapse theory, and the QBism theory.  These ideas were presented with respect to the famous double slit experiment.  The video mentions that Einstein was unhappy with the CI, but so was Schrodenger.  Here are my thoughts on them, what are yours?

 

1) De Broglie–Bohm theory

I think this is better than the Copenhagen Interpretation (CI).  However, it does not appear to provide any significantly different predictions and requires an additional equation, which makes it problematic.

 

2) Many-Worlds theory

The other panelists point out a number of problems with this interpretation, but my problem is that it violates conservation of matter and energy, because it requires an infinite number of universes and each event requires infinitely more universes.

 

3) Spontaneous collapse theory

I did not think this was very well explained.  It does appear to solve the measurement problem however, but other than that I do not think it is promising.

 

4) QBism

I think this may actually be worse than the CI.

 

 

Other Thoughts:

In the double slit experiment when we are shooting one electron at a time, we do not consider that the detector is made up of atoms that also have a wave function and therefor a probability of interacting with the free electron. I am not exactly sure how this would change the interpretation of the double slit experiment with single electrons at a time, but it would suggest that the position of the electron may not be as localized as the experiment suggests.  Another problem with the single electron double slit experiment is how do we know we are shooting a single electron at a time?  If we know this for sure, then we must be measuring it in some way which would affect the experiment.  If we don’t know this then we don’t know that one of the free electrons does not make two dots on the screen or no dots on the screen.  Again going back to the limits of our detector.  In order for a dot to occur, the free electron has to cause an electron in an atom to change state.  If the free electron is truly a wave then it might cause a single dot, because of the atomic nature of our detector.  However, you would also expect that a single electron might cause two, three, or more dots if it were a wave or no dots at all.

Personally I think we will eventually find that all matter is really waves.  We will find that the probabilistic side of QM is a result of these waves being spread out.  Point particles of charge cause all sorts of problems, including infinitely intense electrical fields.

Feynman did some work on the wave nature of matter.  Carver Mead has done some work in this area as have many others and I am not talking about string theory, but as yet there is no comprehensive ideas in this area.

September 4, 2014 Posted by | Featured Videos | 1 Comment

Halling's Talk at Atlas Summit 2014: Why John Galt is an Inventor

I spoke at Atlas Summit 2014 in June in New Hampshire.  Click here to see my talk.  I have a related blog post Why Rand Choose Inventor as Galt’s Profession.

September 3, 2014 Posted by | News, Patents | , , , | 2 Comments

   

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