State of Innovation

Patents and Innovation Economics

GAO Report on Patent Litigation Confirms No “Patent Troll” Litigation Problem

The whole patent litigation explosion/troll sham was created by large companies that do not want to compete with startups.

Truth on the Market

This was previously posted to the Center for the Protection of Intellectual Property Blog on October 4, and given that Congress is rushing headlong into enacting legislation to respond to an alleged crisis over “patent trolls,” it bears reposting if only to show that Congress is ignoring its own experts in the Government Accountability Office who officially reported this past August that there’s no basis for this legislative stampede.

As previously reported, there are serious concerns with the studies asserting that a “patent litigation explosion” has been caused by patent licensing companies (so-called non-practicing entities (“NPEs”) or “patent trolls”). These seemingly alarming studies (see here and here) have drawn scholarly criticism for their use of proprietary, secret data collected from companies like RPX and Patent Freedom – companies whose business models are predicated on defending against patent licensing companies. In addition to raising serious questions about self-selection and other biases…

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December 17, 2013 Posted by | Uncategorized | Leave a comment

Good News on Patents From the Supreme Court

In two cases this week, the Supreme Court preserved the integrity of our patent system.  In the Stanford University v. Roche Molecular Systems, case the ownership of three patents for a diagnostic test used worldwide to measure the concentration of HIV in patients’ blood plasma was at issue.  The Court emphasized that U.S. patent law is based on the concept that the inventor is the first owner of his invention.

“Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor,” Chief Justice John G. Roberts Jr. wrote for the court’s majority. “Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not.”

This would seem to strike a blow to America Invents Act, which is trying to change the law so that the first person to file a patent application is the owner of the invention.

The second case was Microsoft Corp v i4i Limited Partnership, in which Microsoft argued that prior art not considered by the Patent Office should only have to meet the “preponderance of evidence” test to invalidate a patent.  The court disagreed and upheld the CAFC (Court of Appeals for the Federal Circuit) in requiring “clear and convincing” evidence.  If Microsoft had prevailed it would have significantly weakened patent rights.

These two cases taken together seem to signal a change in the Supreme Court towards patent cases.  For the last 3-5 years the Supreme Court has ruled on a number of patent cases that all weakened the patent right.  For instance, the KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398 (2007), made it easier to find a patent invalid for obviousness.  The eBay Inc v. MercExchange, L.L.C., 547 U.S. 388 (2006) case made it more difficult to obtain an injunction against an infringer, even after winning a case showing that there was infringement.  The In re Bilski, 545 F.3d 943, 88 U.S.P.Q.2d 1385 case narrowed the scope of patentable subject matter.  The Medimmune, Inc. v. Genetech, Inc., 549 U.S. 118 (2007), case overturned a long-standing rule that a licensed patent user cannot file a declaratory judgment action when they have not breached the license terms.  These cases showed a Supreme Court that had become hostile to patents and was willing to ignore or rewrite the law to weaken patent rights.  While neither of these cases strengthens the rights of inventors, at least they did not undermine patent rights.  The timing of the Stanford case appears to be a way for the Supreme Court to weigh in on the Constitutionality of the America Invents Act before it passes.

June 10, 2011 Posted by | Uncategorized | Leave a comment

Wall Street is Un-American

Over half of the earnings of the S&P 500 companies are derived from foreign operation, according to Stuart Varney.  As a result, the financial returns of these companies are not directly related to the UnitedState’s economy.  This is part of the reason why the stock market is no longer a good a leading indicator of the American economy.  There are a number of other differences that have led to a decoupling between main street and wall street.  For instance, large companies have been able to tap the Federal Reserve for short term loans – see Federal Reserve Discloses $2.3 Billion Short-Term Loan to Harley-Davidson – $3.3 Trillion in Total to Others.  Note that some of the companies the Fed bailed out were not even American companies.  Wall Street was not only able to obtain short term loans from the Federal Reserve, they received TARP funds, and they have been able to use these funds to make money on carry trades.[1]  It is clear that the interests of Wall Street banks and large multinational companies are not aligned with America’s.

Despite this lack of alignment in the economic interests of the American people and Wall Street, the Bush and Obama administrations and Congress only consult large businesses and Wall Street when setting policy.  For instance, the Senate refused to hear testimony from individual inventors and startups when debating the “America Invents (not) Act.”  This Bill contains a special provision for Wall Street that allows Wall Street banks to attack “business method” patents that they are infringing.  This doesn’t extend to any other industry, only business methods—another Wall Street giveaway.  Wall Street is not interested in competing based on merit, it wants to compete on political connections and pedigree, which is clearly un-American.

Securities laws have consistently skewed the rules to favor large Wall Street firms, including Sarbanes Oxley and Dodd Frank, which are so complex they drive out startup and small investment banking firms.  The law on retirement saving was another big give away to Wall Street.  These laws pretty much restricted IRAs, etc. to investment products sold by Wall Street.  This drove investment dollars from home towns to New York to the detriment of main street and America.  Wall Street also has a vested interest in government debt, since they get a commission for placing government bonds and make commissions every time they are traded.  According to Charlie Munger 25% of the United States GDP is now earned by finance companies.  Finance companies facilitate purchasing and investing transactions the do not make anything and only provide finance services.  When they earn 25% of every dollar in the country, you can be assured that things are seriously out of whack.[2]

The interests and performance of Wall Street are no longer aligned with the interests of the American people.  Wall Street is un-American.


[1] A carry trade is when the Federal Reserve allows banks to borrow money at a lower interest rate than they can loan it out at (risk free).  The most egregious example is when political powerful banks (corporations) can borrow from the Federal Reserve at a lower rate than short term Treasury Bills are yielding.  This takes absolutely no intelligence to make huge amounts of money, as long as the Federal Reserve will loan out money.  This is how the TARP banks have been able to pay back their TARP loans.  However, it is just a fraud and the cost of this fraud is being paid for by the American taxpayer/worker.

[2] This might be okay in a small banking oriented country, such as Luxenburg, but is devastating indictor for a large country like theUnited States, which requires a diverse economy.

June 2, 2011 Posted by | Uncategorized | , , , , , , | 1 Comment

Why the Publication Requirement for Patents Hurts Startups

This case, TEWARI DE-OX SYSTEMS, INC., v. MOUNTAIN STATES/ROSEN, L.L.C., in Texas shows the damage done by the publication rule for patents applied for a patent on a method of extending the shelf life of meat in a retail setting on May 8, 2003.  The patent application was published on April 15, 2004 (earlier than 18 months because it was based on a provisional).  In March of 2005 Tewari approached Mountain States on how they could increase the shelf life of meat products.  Mountain States signed a Non-Disclosure Agreement (NDA) and Tewari explained how their process extended the shelf life of meat.  Subsequently, Mountain States started practicing Tewari’s process.  Tewari sued Mountain States for theft of their trade secrets.  Mountain States claimed no trade secret existed at the time of the NDA because Tewari’s patent application had already been published and the court agreed.

If theU.S.had not adopted the publication rule, Tewari’s process would have been (probably) a trade secret.  It is likely that Tewari eventually found that it was just too expensive to fight the “rejection equals quality” mentality of the Patent Office at the time they would have been arguing their case, although I did not examine the prior art.  But, because of the publication rule Tewari did not have this choice.  (If they did not foreign file, they could have opted out of publication, but the rules make this onerous.)  As a result, Mountain States was free to steal Tewari’s trade secrets.  This allowed a large company to free load off of the efforts of an innovative startup.  Even if Tewari was legitimately denied a patent, it most likely would have had a defensible trade secret.  Note that the Tewari’s patent application was published before they received their first office action.  Tewari had no opportunity to determine if it was going to get a fair deal from the patent office before their invention was publicly disclosed to the world.  The publication rules were sold under the theory that most patent application issue within 18 months.  Now days the pendency time for the first office action is 25.2 months – seven months after the patent application is published.

Tewari was denied the rights to their intellectual property because of the publication requirement.  A large, lazy, non-innovative company was the benefactor of this theft.  This undermines investment in start-up technology companies that create most emerging technologies and provide high quality, high paying jobs.  The publication requirement should be abolished.

May 11, 2011 Posted by | -Law, Patents, Uncategorized | , , , , , , , , | 5 Comments

Galileo “Invention Theft Worse Than Murder”

According to Stephen Hawkins:

As a cosmologist, you may be interested to know that my illustrious predecessor Galileo Galilei had his design for a compass stolen, by his one time protege Baldassar Capra.  I know that patent theft is one of the big issues that innovative SMEs face today.  Galileo described such theft as ‘worse than murder, the victim feels the loss of fame, honour and merited glory, obtained not by nature, fate or chance… but from studies, hard work and long vigils

May 10, 2011 Posted by | Uncategorized | , , , | 2 Comments

Galileo "Invention Theft Worse Than Murder"

According to Stephen Hawkins:

As a cosmologist, you may be interested to know that my illustrious predecessor Galileo Galilei had his design for a compass stolen, by his one time protege Baldassar Capra.  I know that patent theft is one of the big issues that innovative SMEs face today.  Galileo described such theft as ‘worse than murder, the victim feels the loss of fame, honour and merited glory, obtained not by nature, fate or chance… but from studies, hard work and long vigils

May 10, 2011 Posted by | Uncategorized | , , , | 2 Comments

SOX: Shooting Ourselves in the Head

Hear is an excellent article, IT’S OFFICIAL: The IPO Market Is Crippled — And It’s Hurting Our Country  in the Business Insider, on the damage we have done to our capital markets.  The article starts out by showing that many of our biggest companies went public when they were very small.  At the time there were numerous underwriters and often the main inventors were individual investors.  For instance, the article explains:

As recently as 1986 Adobe had an IPO raising $6M.   None of these companies could have gone public in today’s environment even adjusting for inflation.  Virtually all the buyers at the time were individuals and there was a robust “over the counter” after market for young companies.

The article then explains that a company has to have a market valuation of $250M or more to be viable in today’s market.  My estimates are higher.  The article points out that a major reason for this change in the market is because of Sarbanes Oxley or SOX, which imposes onerous accounting requirements on companies.  The article then discusses some attempted solutions to this problem.  (I have suggested an alternative in my post Circumventing Sarbox and the IPO drought)

This has been a disaster for the venture capital industry.  As a result, VCs are looking for companies that can exit by M&A at earlier states.  VCs are also not investing in capital intensive companies.

Unfortunately, the article calls for half measures of curtailing but not eliminating SOX.  They suggest this course of action despite the fact that they do not single benefit provided by SOX.  The authors point out that:

The number of annualU.S.issuers listing IPOs onU.S.exchanges has declined since 1996 from 756 to a low of 36 in 2008 and 50 in 2009 and 120 last year according to Dealogic.  By contrast, there have been 346 Chinese issued IPOs listed onChinaexchanges in 2010 even though the U. S. GDP is 3x larger thanChina’s.

This is just one more example of how were are exporting our innovation and jobs overseas.

The insane thing about our securities laws is that in the U.S. you have to hire a lawyer to invest in a non-public company, but you can blow your money in Vegas, Atlantic City, etc freely.  One activity creates jobs and wealth and creates value.  The other is a less than zero sum that destroys wealth.

May 6, 2011 Posted by | Uncategorized | , , , , , , , | Leave a comment

Atlas Shrugged the Movie Opens April 15th

Ayn Rand’s ground breaking novel Atlas Shrugged has been made into a movie.  The movie is tackling the book in three parts.  The first part opens on April 15th – how appropriate.  Click here for a voice mail from Francisco d’Anconia.

A number of movie theaters appear to be boycotting the movie.  If you want to demand that they bring the movie to your town click here.

March 31, 2011 Posted by | Uncategorized | , | 2 Comments