State of Innovation

Patents and Innovation Economics

NYT How Did We End Up in a Low Growth World?: $#^@!

The New York Times published one of their standard obscure, rambling articles entitled “We’re in a Low-Growth World. How Did We Get Here?” by Neil Irwin.  The author rings his hands over the slow growth of the last 15 years and concludes that we (he) has no idea why we are in this situation, but if it does not change we are in for a gloomy 21st century.

The article is a perfect illustration of the economic professions’ ignorance of what causes economic growth.  What is interesting is that most economists do not really consider this an important question of economics.  They waste an almost infinite number of bits on price theory with its supply and demand curves, while ignoring the most important question in economics.

The article meanders from the statement that like most things in economics it all boils down to supply and demand, ignoring that supply and demand curves are about equilibrium, not growth.  Then it jumps to into a discussion that blames technology as being less effective than in the past and vaguely ties this to a slowdown in the supply side of the equation.  Next it jumps to the favorite crutch of Keynesian-socialists, a lack of demand.  It provides the standard Keynesian/socialists’ answers of loose money policies and fiscal stimulus that have worked in the past ,according to the article, but just do not seem to be working now, all the while ignoring the fact that neither of these have worked in the past.  In the end, the article admits it has no idea why we have slow growth now.

The article illustrates that the economics profession has no idea what causes economic growth.  The Keynesians argue that increasing demand creates economic growth (or at least lack of demand causes recessions), while the rest of the economics profession argues that it is increasing levels of capital.  So called free market economists know what kills economic growth and their economic freedom surveys provide overwhelming evidence in this case.  The US has fallen from 6th in the world to 11th in the world in economic freedom under President Obama (The downward trend started under Bush, showing this is bipartisan effort) according to this article.  Correcting this is a great place to start, however this does not explain what causes economic growth.

Our level of technology is what defines (i.e., provides the upper bound on) our level of wealth.  As a result, the only way to increase real per capita econgrowth.smallwealth over the long term is to invent (i.e., increase our level of technology).  The book the Source of Economic Growth provides overwhelming evidence for this.  Since 2000, when the slow-down started according to the New York Times, we have undermined our inventors, by undermining their property rights in their inventions.  The US has also undermined the three foundations on which technology startups are built: 1) Intellectual Capital, 2) Financial Capital, and 3) Human Capital.  The US has undermined the intellectual capital pillar by weakening the patent system, which leftists and libertarians continue today (see the Venue Act).  The financial capital side has been undermined by Sarbanes Oxley and other financial regulation.  The human capital leg has been frontcoverundermined by accounting changes to stock options.  I discuss how these little known changes in US law and regulations resulted in economic stagnation starting in 2000, while the US had real economic growth in the 1990’s, in my book The Decline and Fall of the American Entrepreneur.

If the US is serious about increasing its long range economic growth it needs to:

Protect the rights of inventors by significantly strengthening our patent system’

Repeal all financial regulation;

Repeal regulatory rules that lock-in specific technologies, such as the FDA, the EPA, and building codes.

These changes would increase the US’s economic freedom score.  We do not have to accept the low growth new normal, however nature to be commanded must first be obeyed.

 

 

 

We’re in a Low-Growth World. How Did We Get Here?” by Neil Irwin

August 11, 2016 Posted by | -Economics, Innovation, News, Patents | , , , , | 2 Comments

VENUE ACT: An Open Letter

This is a posting of an open letter sent to Congress about the Venue Act, which is another attempt to deny the rights of inventors.

 

Dear Chairman Grassley, Ranking Member Leahy, Chairman Goodlatte, and Ranking Member

Conyers:

 

As legal academics, economists, and political scientists who conduct research in patent law and policy, we write to express our concerns about the recent push for sweeping changes to patent litigation venue rules, such as those proposed in the VENUE Act. 1 These changes would vastly restrict where all patent owners could file suit—contrary to the general rule that a plaintiff in a civil lawsuit against a corporate defendant can select any court with jurisdictional ties to the defendant. 2

mossoffGiven the recent changes in the patent system under the America Invents Act of 2011 and judicial decisions that have effectively weakened patent rights, 3 we believe that Congress should adopt a cautious stance to enacting additional changes that further weaken patent rights, at least until the effects of these recent changes are better understood.

Proponents of amending the venue rules have an initially plausible-sounding concern: the Eastern District of Texas handles a large percentage of patent infringement lawsuits and one judge within that district handles a disproportionate share of those cases. The reality is that the major proponents of changing the venue rules are primarily large high-tech companies and retailers with an online presence sued in the Eastern District of Texas that would rather litigate in a small number of more defendant-friendly jurisdictions.  Indeed, the arguments in favor of this unprecedented move to restrict venue do not stand up to scrutiny. Specifically:

 

  • Proponents for the VENUE Act argue that “[t]he staggering concentration of patent cases in just a few federal district courts is bad for the patent system.” 4 As an initial matter, data indicates that filings of patent lawsuits in the Eastern District of Texas have dropped substantially this year—suggesting a cautious approach until trends have stabilized. 5

 

  • Contrary to claims by its proponents, legislative proposals like the VENUE Act would not spread lawsuits throughout the country. In fact, these same proponents have found that restricting venue in a manner similar to the VENUE Act would likely result in concentrating more than 50% of patent lawsuits in just two districts: the District of Delaware (where most publicly traded corporations are incorporated) and the Northern District of California (where many patent defendants are headquartered). 6 Instead of widely distributing patent cases across numerous districts in order to promote procedural “fairness,” the VENUE Act would primarily channel cases into only two districts, which happen to be districts where it is considered much more difficult to enforce patent rights.7

 

  • Proponents for the VENUE Act have argued that the Eastern District of Texas is reversed more often by the Federal Circuit than other jurisdictions, claiming that in 2015 the Federal Circuit affirmed only 39% of the Eastern District of Texas’s decisions but affirmed over 70% of decisions from the Northern District of California and District of Delaware. 8 These figures are misleading: they represent only one year of data, mix trials and summary judgment orders, and fail to take into account differences in technology types and appeals rates in each district. In fact, a more complete study over a longer time period by Price Waterhouse Coopers found that the Eastern District of Texas affirmance rate is only slightly below the national average for all districts.9

 

  • The Federal Circuit recently confirmed in In re TC Heartland (Fed. Cir. Apr. 29, 2016) that 28 U.S.C. § 1400(b) provides that a corporate defendant in a patent case—like corporate defendants in nearly all other types of cases—may be sued in any district in which personal jurisdiction lies. Constitutional due process requires a “substantial connection” between the defendant and forum. 10 Thus, contrary to its title and the claims of its proponents, the VENUE Act does not re-establish a “uniform” litigation system for patent rights by requiring substantial ties to the forum. Instead, the Act thwarts the well-established rule that plaintiffs can bring suit in any jurisdiction in which a corporate defendant has committed substantial violations of the law.11

 

  • The VENUE Act would raise costs for many patent owners by requiring them to litigate the same patent against multiple defendants in multiple jurisdictions, increasing patent litigation overall. In recent years, the America Invents Act’s prohibition on joinder of multiple defendants in a single lawsuit for violating the same patent has directly resulted in increased lawsuits and increased costs for patent owners.12 Moreover, the VENUE Act would also result in potentially conflicting decisions in these multiple lawsuits, increasing uncertainty and administration costs in the patent system.

 

  • The VENUE Act encourages the manipulation of well-settled venue rules across all areas of law by the self-serving efforts of large corporate defendants who seek to insulate themselves from the consequences of violating the law. By enacting the VENUE Act, Congress would send a strong signal to corporate defendants that they can tilt the substantive playing field by simply shifting cases to defendant-friendly jurisdictions.

 

Innovators and their investors have long been vital to a flourishing innovation economy in the United States. Startups, venture capitalists, individual inventors, universities, and established companies often rely heavily on patents to recoup their extensive investments in both R&D and commercialization. We urge you to exercise caution before enacting further sweeping changes to our patent system that would primarily benefit large infringers to the detriment of these innovators and, ultimately, our innovation economy.

 

Sincerely,

 

Christopher A. Cotropia                                University of Richmond School of Law

Gregory Dolin                                    University of Baltimore School of Law

Richard A. Epstein                            New York University School of Law

Chris Frerking                                    University of New Hampshire School of Law

Shubha Ghosh                                  Syracuse University College of Law

Richard Gruner                                                 John Marshall Law School

Stephen Haber                                                 Stanford University Department of Political Science

Hugh Hansen                                     Fordham University School of Law

Chris Holman                                     UMKC School of Law

Gus Hurwitz                                       Nebraska College of Law

Zorina Khan                                     Bowdoin College Department of Economics

Megan M. La Belle                           Columbus School of Law The Catholic University of America

Kristina M. Lybecker                       Colorado College Department of Economics & Business

Damon C. Matteo                            Fulcrum Strategy Tsinghua University, Graduate School of Economics

and Business

Adam Mossoff                                  Antonin Scalia Law School George Mason University

Xuan-Thao Nguyen                         Robert H. McKinney School of Law Indiana University-Purdue University

Indianapolis

Sean O’Connor                                                 University of Washington School of Law

Seth C. Oranburg                             Duquesne University School of Law

David Orozco                                     Florida State University The College of Business

Kristen Osenga                                                 University of Richmond School of Law

Jillian Popadak                                   Duke University The Fuqua School of Business

Mark Schultz                                      Southern Illinois University School of Law

Ted Sichelman                                   University of San Diego School of Law

David O. Taylor                                  SMU Dedman School of Law

David J. Teece                                   University of California at Berkeley Haas School of Business

Shine Tu                                               West Virginia University College of Law

Saurabh Vishnubhakat                  Texas A&M University School of Law

  1. Polk Wagner University of Pennsylvania Law School

 

 

 

______

 

1 Venue Equity and Non-Uniformity Elimination Act, S.2733, 114th Cong. (2016), https://www.congress.gov/114/bills/s2733/BILLS-114s2733is.pdf.

2 See 28 U.S.C. § 1391(c)(2). See generally Ferens v. John Deere Co., 494 U.S. 516, 527 (1990) (“a plaintiff . . . has the option of shopping for a forum with the most favorable law”).

3 These include, among others: (1) administrative procedures for invalidating patents created by the America Invents Act, which have had extremely high invalidation rates, leading one former federal appellate judge to refer to these procedures as “death squads,” and (2) several decisions by the Supreme Court and the Federal Circuit that have drastically curtailed patent rights for many innovators. See Adam Mossoff, Weighing the Patent System: It Is Time to Confront the Bias against Patent Owners in Patent ‘Reform’ Legislation, WASHINGTON TIMES (March 24, 2016), http://www.washingtontimes.com/news/2016/mar/24/adam-mossoff-weighing-the-patent-system/.

4 Colleen Chien & Michael Risch, A Patent Reform We Can All Agree On, WASH. POST (June 3, 2016), https://www.washingtonpost.com/news/in-theory/wp/2015/11/20/why-do-patent-lawyers-like-to-file-in-texas/.

5 See Michael C. Smith, “Hot But No Longer Boiling“ – EDTX Patent Case Filings Down almost Half; New Case Allocation and Procedures (No More Letter Briefing for SJ motions), EDTexweblog.com (July 21, 2016), http://mcsmith.blogs.com/eastern_district_of_texas/2016/07/edtx-patent-case-filing-trends-new-case-allocation-andprocedures.html.

6 Colleen Chien & Michael Risch, What Would Happen to Patent Cases if They Couldn’t all be Filed in Texas?, PATENTLY-O (March 11, 2016), http://patentlyo.com/patent/2016/03/happen-patent-couldnt.html. This study also finds that 11% of cases would continue to be filed in the Eastern District of Texas, concentrating nearly two-thirds of all cases in three districts. See id. The authors of this study are presently expanding their investigation to an enlarged data set, which will also capture additional aspects of the VENUE Act. Neither the data nor their results are available yet. However, we have no reason to believe that the expanded data or analysis will produce results other than what has already been shown: a high concentration of patent cases in a small number of districts.

7 See PricewaterhouseCoopers LLP, 2015 Patent Litigation Study (May 2015) (“PWC Study”), http://www.pwc.com/us/en/forensic-services/publications/assets/2015-pwc-patent-litigation-study.pdf.

8 Ryan Davis, EDTX Judges’ Love of Patent Trials Fuels High Reversal Rate, LAW360 (Mar. 8, 2016), http://www.law360.com/articles/767955/edtx-judges-love-of-patent-trials-fuels-high-reversal-rate.

9 See PWC Study, supra note 7 (finding an average affirmance rate of 48% for all districts, compared to an affirmance rate of 42% for the Eastern District of Texas)

10 See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).

11 See generally Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947) (“[T]he plaintiff’s choice of forum should rarely be disturbed.”).

12 See Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs), 99 MINNESOTA LAW REVIEW 649 (2014), http://www.minnesotalawreview.org/wpcontent/uploads/2015/02/REVISEDSchwartzetal_MLR.pdf.

August 1, 2016 Posted by | -Law, News, Patents | | Leave a comment

Conflating Inventions (Technological Progress) with Capital in Economics

Will Thomas and I gave a talk on Austrian Economics at Atlas Summit 2016, where I pointed out that Austrian Business Cycle Theory (ABCT) does not fit the empirical facts.  ABCT claims that increasing savings/capital are the cause of economic growth, which is very similar to what classical and neo-classical economics states.  I pointed out that in fact it is increasing levels of technology (inventions) that are the cause of economic growth not increases in capital.  One of the questioners after the talk stated that inventions (technology) are part of capital.

Many people want to conflate increasing levels of technology with capital, however they are not the same.  Capital as used in economics means those durable goods used in production.

In economics, capital goods, real capital, or capital assets are already-produced durable goods or any non-financial asset that is used in production of goods or services.

Adam Smith defines capital as “That part of a man’s stock which he expects to afford him revenue”.  https://en.wikipedia.org/wiki/Capital_(economics)

The article goes on to explain how to determine if something as capital.

Classical and neoclassical economics regard capital as one of the factors of production (alongside the other factors: land and labour).

This is what makes it a factor of production:

  • The good is not used up immediately in the process of production unlike raw materials or intermediate goods. (The significant exception to this is depreciation allowance, which like intermediate goods, is treated as a business expense.)

  • The good can be produced or increased (in contrast to land and non-renewable resources). https://en.wikipedia.org/wiki/Capital_(economics)

Technological change is not a good, it is the process of inventing.  It is true that when these new inventions are reproduced (manufacturing) then AtlasSocietywhen purchased they become capital, but that is several steps removed.  If we treat technological change as just part of capital then going out and purchasing capital goods is the same thing as inventing.  However, the results are not the same.  Purchasing (acquiring) capital without invention results in no real per capita increases in wealth over the long run.  As a simple example assume that every farmer in the U.S. has the latest most up to date tractor their land can use.  Adding more tractors (capital) does not increase the output of these farms.  The same is true for capital in general.

A number of economists have pointed out that increasing levels of capital are not responsible for the tremendous economic growth experienced in the West since the Industrial Revolution.  Among these economists are Robert Solow, Paul Romer, and Deirdre McCloskey.  They all point to increasing levels of technology as the cause for our increased wealth.  Our standard of living is defined by our level of technology.

On the other hand inventing at a faster rate does produce real per capita increases in wealth.  Inventions can produce returns that are staggering.  For instance, Eli Whitney’s invention of the cotton gin allowed a forty times increase in the output of cotton in the U.S. in one decade.

In science it is important to isolate the factors effecting an experiment.  For instance, if you conflate wind resistance and gravity then you end up with the nonsense that heavier objects fall faster than lighter objects.  This means you will never be able to create a parachute or an airplane.

In economics if we conflate inventions with capital, we make the mistake that third world countries will become wealthy if we provide them capital.  In fact, this is exactly what Development Economics has said for years despite overwhelming evidence to the contrary.  Conflating these two concepts will cause us to ignore the role of property rights for invention as being the biggest long term driver of wealth and instead focus on capital gains taxes or increasing the savings rate or increasing comsumption.

Inventions are the cause of real per capita increases in wealth, not capital.  Conflating the two is illogical and results in nonsensical economic policies.

 

July 22, 2016 Posted by | Innovation, News, Patents | , , , , , | 2 Comments

Another Anti-Patent Myth Debunked: The Selden Automobile Patent

There is a myth by the anti-patent crowd that “overly broad” patents inhibit the development of new technologies.  One of the classic examples they like to cite is the Selden Patent (US Pat. No. 549,160), which supposedly inhibited the development of the automobile around the turn of the century.  A new paper ‘The “Overly-broad” Selden patent, Henry Ford and Development in the Early US Automobile Industry’ By John Howells and Ron D. Katznelson, shows that in fact the automotive industry prospered and inventiveness accelerated despite the Selden patent.

According to the paper:

First, neither the ALAM-adopted restrictive licensing policy based on the Selden patent, nor the public liability threats to purchasers of unlicensed vehicles (see sections 2.2.3-2.2.4) restricted entry into the automobile industry as shown by Figure 1.

Second, measures of automobile development show it to have been most rapid during the Selden patent term; Raff and Trajtenberg’s analysis of real, quality adjusted prices for the American Automobile Industry show that the fastest rate of price decline for a given automobile quality occurred between 1906 and 1911, within the term of the Selden patent prior to its 1911 adjudication: the rate of quality improvement was greatest in the 1906 – 1911 period and more than half of the quality gain for a given price observed to have occurred by 1980, had been attained in the period 1906 – 1911 (Raff and Trajtenberg 1996, p85, 91).

Third, rather than Ford being slowed down through patent litigation with the ALAM, from the foundation of the Ford Motor Company in 1903, Ford grew sales at an exponential rate faster than that of the total industry during the period of litigation. A serial developer of five major automobile models, which gained tenfold increase in sales every four years, can hardly be considered to have been “stifled.” The Ford Motor Company became the leading manufacturer of automobiles produced in 1906, a position the company retained until 1927; see Figure 2.

econgrowth.smallThe paper provides overwhelming evidence that the Selden patent did not inhibit the automotive industry or the development of new technologies in the automotive industry.  This should have been apparent to anyone familiar with the history of the automotive industry.  The United States led the world in developing and manufacturing automobiles at the turn of the century and beyond.  Selden had a U.S. patent and it was enforced in the U.S., so the facts do not square with the anti-patent narrative.

Another interesting part of the paper is that Ford knew that they would prevail in a lawsuit over the Selden patent.  This is the value of well-defined laws and courts who stick to the law.

Selden’s patent was issued by the US Patent Office in 1895 and eventually was assigned to the Association of Licensed Automobile Manufacturers (ALAM) in early 1903. The ALAM publicly asserted that the Selden patent claims should be broadly construed, meaning that the entire automobile industry was within their scope. In October 1903 suit was brought against the Ford Motor Company under the Selden patent and when finally adjudicated on appeal in 1911 the Ford Motor Company was found not to infringe because although the patent was held valid, it was construed narrowly to cover an improvement to the obsolete Brayton engine. This was the embodiment with which Selden had experimented prior to 1879, the year he applied for a patent. Columbia Motor Co. v. CA Duerr and Co. 184 F. 893, 896 (2nd Cir. 1911). The narrow Brayton-based construction saved Selden’s claims, but they were not infringed since all gasoline engines in commercial use were Otto engines by 1911, rendering the patent economically worthless

Another anti-patent lie bites the dust.  When a group or a movement consistently lies and promotes lies to support their position over and over again, as the anti-patent crowd has done, they should not be taken seriously by rational people.

July 11, 2016 Posted by | -Economics, -Law, Innovation, Patents | , , , , | Leave a comment

The ‘Great Ideas are Dime a Dozen’ Myth

There is a popular myth that great ideas are a dime a dozen (see here, here, and here).  I don’t know what a great idea is.  Is a Dick Tracey watch or a nuclear powered rocket a great idea?  No, not if you don’t know how to implement them, then it is just a fantasy and unless you have plot with it, it is not even a good fantasy story.  However, I do know what a great invention is and they are not a billion dollars a dozen.  A great invention takes incalculable intellectual skill, years of training, years of hard work, and significant resources.

Pendulum of Justice, the first Hank Rangar Thriller, discusses this exact point.

“Hey Mike—we’ve heard your ‘good ideas are a dime a dozen’ speech before. The electric light bulb, the cotton gin, the polio vaccine, the microcontroller, hell, the CAT scan, were all a dime a dozen”

It is my opinion that this sort of nonsense is usually spread by people in finance, who are looking to improve their negotiation position or are just too intellectually challenged to really know when an invention is great.  It also inflates their self-importance.

SchumpterThe reality is that most people do not create much more than they consume in their lifetimes and this includes many people in finance, even if they personally get rich.  It is only by raising our level of technology that we increase our per capita wealth and only inventors increase our level of technology.  Great inventors create incalculable wealth and even if they become wealthy, what they receive in payment is a pittance to what they provided.

I think this nonsense of “great ideas are a dime a dozen” is a spin out from the Austrian Economist Joseph Schumpeter who made a nonsensical distinction between innovation and invention, while denigrating inventions and inventors.

According to Wikipedia:

Following Schumpeter (1934), contributors to the scholarly literature on innovation typically distinguish between invention, an idea made manifest, and innovation, ideas applied successfully in practice

There is nothing inherently wrong with the distinction above, but the way it is applied blurs together a number of different skills.  Blurring skills together shows a  misunderstanding of the process of innovating.  Broadly speaking, innovation can be broken into two distinct sets of skills: creation and dissemination.  By creation I mean creating something new, not production – creating something old.

A subset of creation is invention.  An invention is a creation with an objective repeatable result.  A creation that is not an invention has a subjective result, such as the effect of a painting on a viewer, or the effect of a book on a reader.  Many activities combine both a subjective creation and an invention, such as architecture.  However, we can separate out the invention from the other creative elements and this helps our understanding of the process.

Dissemination may include a number of processes, such as education (marketing, sales), manufacturing, finance, and management.  This is not to say that marketing cannot be creative, it clearly often is very creative.  However, the creative part of marketing can be separated out from the dissemination or execution part of marketing.  The same is true of manufacturing, which can definitely include inventing.  But an invention related to manufacturing is part of the creation step not part of the dissemination step.

Finance can also have inventions.  For instance, the invention of a fractional reserve bank is clearly an invention.  It has the objective result of securitizing assets and turning them into loans and currency.  A fractional reserve bank will securitize land and turn it into a loan and currency.  Despite this, it is important to understand that the first person to develop the fractional reserve bank is inventing and the person operating the fractional reserve bank is disseminating.

All real per capita economic progress is the result of inventing.  This is not to say that it is unnecessary to disseminate inventions, but if there were no new inventions there would not be any economic progress. We would be stuck in static world once all the inventions had been completely disseminated.  Of course, if we stop all dissemination activities we will quickly starve to death.

It is my opinion that business and economic professors have focused on “innovation” instead of “invention” because they have no idea how to invent or how the process of inventing works.  They concentrate on what they know, i.e. business and economic practices.   As a result, the focus is on dissemination,  under-appreciating the importance of inventing.  In addition, it results in misleading business theories, such as:

– Management teams are more important than the quality of the invention.

– Execution is everything; patents and other IP do not matter.

– Get Big Fast.

The truth-test of these theories is directly related to the strength of the patent laws at the time the company is created.  When patent laws are weak, these theories are more true and when patent laws are strong, these theories are less true.  Unfortunately, when patent laws are weak these theories do not overcome the disincentive to invest in risky new technologies.  Management teams do not build revolutionary or disruptive technologies, they just disseminate these technologies. These sorts of teams are like large companies and generally can produce a return with less risk by NOT developing high-risk technologies.  They tend to focus on incremental technologies or on stealing someone else’s technology.  While this may be good business advice in a period of weak patents, it is bad for our country’s competitiveness and our standard of living.

Technological progress (i.e., inventing), in the long run, is the only competitive business advantage.  The best management team in the world selling buggy whips at the turn of the century could not overcome the technological advance of the automobile and stay a buggy whip company.  The best management team in the world selling vacuum tubes in the 1940s, could not overcome the advance of transistors and semiconductors and stay a vacuum tube company.  This country is littered with companies that had great management teams that were overwhelmed by changes in technology.  For instance, Digital Computers had a great management team, but they could not overcome the advance of the personal computer.  Digital Computers, Inc. failed to invent fast enough to overcome the onslaught of small inexpensive computers.  US steel was not able to overcome the onslaught of mini-mills, aluminum, and plastics.  This was not because they did not have a good management team, it was because the management team under- prioritized invention and over-prioritized execution or dissemination skills.  Ford & GM have not become walking zombies because they did not have strong management teams, but because they have not invented.  As a result, they have antiquated production systems and weak technology in their products.  86% of the companies in the Fortune 500 in 1959 are no longer there.  Some of these companies disappeared because of bad management, but most companies disappeared because they did not keep up with changing technology.  In other words, they did not invent.

Inventions(i.e., advances in technology) are the ONLY WAY to increase real per capita incomes and the only long term business advantage.

 

Schumpeter – another Austrian School of Economics Failure.

 

June 30, 2016 Posted by | -Economics, -History, Innovation, Patents | , , , | Leave a comment

Adam Mossoff on the VENUE ACT

Law professor Adam Mossoff examines the latest patent deform bill, the Venue Act, in his editorial in the Washington Times entitled Weighing the Patent System.  This ACT makes it more difficult for patent owners to select the venue of their choice.  The legislation would not change the venue rules for any other class of plaintiffs or defendants, which shows the Act is arbitrary and makes patent owners second class citizens.

Aside from these concerns, the more fundamental problem is that the VENUE Act reflects ongoing bias against patent owners in the policy debates.

This bill is being pushed by a coalition of large companies.  These companies do not think they should ever have to pay to use other peoples’ intellectual property.  In other words they want to be legal thieves and they are willing to destroy the U.S. economy for their short term economic advantage.

It is widely recognized that the PTAB is incredibly biased against patents in both its procedural and substantive rules.

These new rules and procedures for challenging patents were pushed by the same coalition that is pushing the Venue Act.

mossoff

March 25, 2016 Posted by | -Law, Patents | , | Leave a comment

Adam Mossoff on Property Rights: A Must Read for Capitalists and Patent Attorneys

Why Intellectual Property Rights? A Lockean Justification, by Professor Adam Mossoff, is probably one of the most important papers written on property rights in over a century.  The point of the paper is to show Locke’s labor (physical and especially mental) theory of property rights provides the moral justification for intellectual property (copyrights and patents).

One of the strengths of the Lockean property theory is that it recognizes that IP rights are fundamentally the same as all property rights in all types of assets—from personal goods to water to land to air to inventions to books.

The paper clearly shows that Locke understood that it takes both mental and physical effort to obtain those things man needs to live.  Anything that man makes valuable through his efforts, he obtains a property right in.

Locke himself expressly justifies copyright as “property” and approvingly refers to “Inventions and arts” in his summation of his theory that property arises from value-creating, productive labor that supports the “conveniences of life” in § 44 of the Second Treatise. In 1690, the legal concept of patents (property rights in inventions) did not exist yet,[10] and so this is an explicit indication of Locke’s willingness to include what would later become the legal concept of patents within his property theory.

Locke explains that the world exists for “the use of the Industrious and Rational.”

Interestingly Locke distinguishes between copyrights (and patents by extension) and monopolies something that many modern critics of patents are unable to do.

In an essay on the statutory printing monopoly granted to the Stationers Company by Parliament, Locke condemns such monopolies as violating the “property” in creative works that “authors” rightly claim for themselves. In what might be a further surprising claim for many today who think copyright terms are too long, Locke writes in this 1695 essay that authors should have their property rights secured to them for their lifetimes or after first publication plus “50 or 70 years.”

I have argued that the term of a patent should be 35-40 years for the same reason.  As I have explained here, no property right is eternally.  Dead people do not have property rights.

Another misconception about property rights is that they are the same for every object or value created by man.  As Mossoff explains Locke did not make this mistake.

As Locke first explained, property is fundamentally justified and defined by the nature of the value created and secured to its owner … To wit, different types of property rights are defined and secured differently under the law.

This naturally leads to a final observation: Given differences in produced values in the world, such as a water well, domesticated animals, a fecund farm, the desert sand used to make silicon for computer chips, air, broadcast spectrum, corporations, stock, credit, future interests, inventions, business plans, books, paintings, songs, and the myriad others, the specific legal doctrines that protect these values will vary.

It is amazing how many people miss this point, which leads to all sorts of erroneous ideas about what property rights are.  This is perhaps the most important point in the whole article.

Property rights are highly misunderstood in today’s world by both lay people and academics.  They are even misunderstood by many supporter of capitalism, particularly libertarians and supporters of Austrian Economics, but also by Objectivists and supporters of Ayn Rand.

Libertarians and the economics profession in general have accepted the utilitarian justification for property rights, which is a misnomer and turns property “rights” into arbitrary government grants.  In addition, it fails to explain how property rights are acquired, who they belong to and why, among other problems.

Ayn Rand appears to be in basic agreement with Locke.  She states:

Any material element or resource which, in order to become of use or value to men, requires the application of human knowledge and effort, should be private property—by the right of those who apply the knowledge and effort.

Capitalism: The Unknown Ideal “The Property Status of the Airwaves,” Capitalism: The Unknown Ideal, 122

Rand also discusses property rights in the chapter Patents and Copyrights in Capitalism: The Unknown Ideal.  While she has some keen insights, she never developed a fully articulated theory of property rights.

mossoffIn my limited research into the history of property rights theory there was excellent research and work starting around Locke and the Enlightenment.  Before that property rights were derived from the King (government).  In many ways the economics profession, particularly the Austrians have gone backwards to the idea that property “rights” are whatever the government says they are.  Scholarship continued on property rights particularly in the United States at least until the first Homestead Act, which showed a clear understanding of property rights.  However, that research had died by the time the FCC was created in 1934.

Locke, the Founders, and Ayn Rand understood that property rights are the cornerstone of freedom.  Modern libertarians often think property rights can be replaced with contracts.  This is confusing cause with effect.  Contracts rely on property rights not the other way around.  Some Objectivists undermine property rights by rejecting Locke, the Founders, and Rand’s understanding that each individual has a property right in themselves (Self Ownership or Self Sovereignty).  This is also based on a misunderstanding of what property rights are and how they are derived.

Let’s hope that Adam Mossoff will continue his excellent work in this important area.

December 18, 2015 Posted by | -Philosophy, Patents, philosophy | , , , | Leave a comment

Is Capitalism a game of the Survival of the Fittest?

It is quite common to be in a discussion about economics and proposing a capitalist solution when someone pipes-in “that’s just survival of the fittest.” What they are talking about is “Social Darwinism” and the image they mean to conjure up is that capitalism is like a bunch of gladiators fighting it out to the death until there is just one winner. Unfortunately, this tends to trip many of us because we often say that capitalism is about competition and that competition is what makes America great. In fact some economists (e.g. University of Chicago– see Pure and Perfection Competition: By What Standard?) have gone so far as to say the very definition of capitalism is ‘perfect competition.’ George Reisman has shown that perfect competition is really collectivism in the article Platonic Competition. The idea of unrestrained competition also is used by Libertarians and others to attack the property rights of inventor (patents).

econgrowth.smallSocial Darwinism refers to a group of ideas that relate to sociology, economics, and eugenics that are supposedly extensions of Charles Darwin’s ideas on evolution. Herbert Spencer is considered the father of Social Darwinism and he was the one, not Darwin, who coined the term ‘survival of the fittest.’ Spencer defended capitalism based on Social Darwinism. However, plenty of socialists including the National Socialist Party in Germany also used the ideas of Social Darwinism to support their version of eugenics.

Is Social Darwinism, especially as portrayed by the image of gladiators slugging it out, good biology or good economics? If evolution were a process in which the ‘goal’ was to destroy other species and then destroy all competitors within the species, life would have burned out long ago. The ‘goal’ of life and evolution is to convert as much energy into life as possible. By ‘goal’ here I mean the logical end result of the natural process of evolution, not that there is a conscious objective of individuals. Evolution is an optimizing system that selects those life forms that are best at converting energy in life in a variety of different environments. This results in a variety of different life forms. Even within a relatively uniform environment, the way to optimize the total amount of life is to have a variety of organisms that can exploit different sources of energy.

In economics the goal is not to have 500 firms creating model Ts, it is to have 500 firms all creating unique high value items (If everyone produced the same thing, what would be the point of trade?).  Human life, and then wealth, as we escape the Malthusian Trap, increases as we create more inventions that allow us to live in different climates for instance, or exploit new resources, just as different species maximize the amount of life. I do not want to make the same thing as my neighbor. I want him to make something that is of incredibly high value to me and I want to make something that is of incredibly high value to him.  We want competition to flourish because we don’t want to allow someone to become lazy (rent seeking), and freeride on the efforts of others. But competition is not what makes us wealthy.  We also need property rights to ensure that people do not free ride on the work of inventors.

I think the 100 meter dash is a good example of what competition (pure competition or competition for the same product) can accomplish. In 1891 the world record was 10.8 seconds. Today it is 9.57 or about a 13% gain. This kind of gain would not support the quadrupling of human population over the same period of time.

The goal of an economy is to increase the total wealth. A person’s wealth is not increased by destroying other people’s productive capacity. In fact, the wealthiest countries are those in which people are engaged in a wide variety of high-value activities and the poorest countries are those in which people are competing in a small number of industries. The way these high-value positions are created is by inventions that create whole new industries and can only exist in a legal environment in which inventor’s rights to their creations are protected by property rights (patents).

Interestingly, AvidGamerRants has shown that a number of games that appear to be setup with a ‘winner take all’ goal can often be ‘won’ most successfully, by rational cooperation rather than by eliminating other players  Game theory seems to support this  as this article, New take on game theory offers clues on why we cooperate, explains. For instance, in both Minecraft and Monopoly your chances of being successful increase, if instead of trying to kill off your fellow players, you collaborate with other players.

Social Darwinism as encapsulated in the statement ‘survival of the fittest’ is bad biology and bad economics; it’s even a poor gaming strategy in competitive games.

December 8, 2015 Posted by | -Economics, Patents, philosophy | , , , | Leave a comment

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