State of Innovation

Patents and Innovation Economics

Edison was a Patent Troll

The excellent book Great Again by Henry R. Nothhaft with David Kline points out that in the middle 19th century:

Foreign observers attributed much of the country’s (U.S.) rapid technological progress to its distinctive patent system.  Quite revolutionary  in design at inception, the U.S.patent system came to be much admired for providing broad access to property rights in new technological knowledge and for facilitating trade in patented technologies.  These features attracted the technologically creative, even those who lacked the capital to directly exploit their invention  . . . and also fostered a division of labor between the conduct of inventive activity and the application of technical discoveries to actual production.  It is no coincidence that Britain and many other European countries [later] began to modify their patent institutions to make them more like those of the Americans. (emphasis added)

They point out that in the U.S 85% of all patents were licensed by their inventors, while only 30% of patents in Britain were licensed.  In the late 19th centuryU.S. inventors were increasingly operating as independent inventors who extracted returns from their discoveries by licensing or selling their patent rights.  Among these inventors were Edison, Bell, Tesla, etc.  “An astonishing two thirds of all America’s great inventors in the nineteenth century were actually NPEs” (Non-Practicing Entities).  But today’s modern Luddites would call these great inventors trolls.  They claim all value is created by production and marketing or if they are economists they claim all value is create by manipulating monetary instruments and deny the source of all human values, the mind.  They denigrate inventors who demand a return on their efforts as imposing a tax on innovation.  Invention is the only source of per capita increases in wealth.

The book asks:

 Does it really make sense to consider Edison a “patent troll” just because he licensed most of his inventions rather than commercializing them himself?  As the inventor of electric light and power, the phonograph, and many other world-changing new technologies, his contributions toAmerica’s economic progress are beyond dispute.

Is there any evidence of a patent litigation (troll) explosion?

Judge Michel former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based economy with over 300 million people and 1 million active patents this is trivial.

The reality is the Patent troll/ litigation crises is a very clever marketing ploy by large multinational companies that want to be able to steal U.S.inventors’ technology.  The America Invents Act will put the final nail in the coffin of U.S.innovation if it passes, by making it even easier to steal U.S. innovation.  It is a product of these same multinational companies that are not interested in vitality of the U.S.economy, but in their short term profits.

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May 8, 2011 Posted by | Patents | , , , , , , , , , | 3 Comments

Could Apple Get Funded Today?

This intriguing question and its implications for US economic policy are tackled in the groundbreaking book Great Again, by Henry R. Nothhaft with David Kline.  They answer the above query with a series of questions:

Could a twenty-year-old college dropout, just back from six months in an ashram somewhere, attract funding for a capital-intensive venture based on the manufacture (yes, the manufacture) and sale of a $2,500 consumer product unlike any that had ever been bought by consumers before?  One whose potential uses were at best unknown, and possibly nonexistent?  And one for which the total current market size was exactly zero?

Not only could Apple not get funded today, it probably could not go public. Nor would Apple have received its first patent (USPN 4,136,359) in only 20 months.  The book asks “how many of today’s Apples are not getting a chance?”

The authors use the above example to make a broader point that theUSis failing economically and technologically because of the policies we are pursuing.  They show that all net new jobs created in theUSsince 1977 (and possibly longer) were created by startups like Apple.  All increases in real per capita income are due to new technologies and most revolutionary/disruptive technologies are created by startups and individual inventors.  So what are the policies that have undermined our economy, by undermining technology startups?

The book examines five areas:

1.Role of regulations.  The Authors show that our tax policies, Sarbanes Oxley and our indifferent (some might say arrogant) regulators’ application of well meaning regulations to startups is driving them either overseas or out of business.

2. Underfunding the patent office. This is costing theUS millions of jobs and billions in GDP.  According to the authors, each issued patent is worth 3-5 jobs on average, particularly patents issued to startups.

3. Manufacturing policies in the US.  Manufacturing is key, particularly in a world that does not respect property rights in inventions, to ensuring that theUS profits fromUS innovation and not other countries.  TheUS is also losing the global battle for human talent.

4. Battle for global talent. Our restrictive immigration policies are depriving theUS of talented entrepreneurs such as Andy Grove, founder of Intel.

5. Funding for research.  The book shows that our spending on basic science and engineering is not only declining as a percentage of GDP, but the system has become short-term oriented and bureaucratic.

While this book tackles complex issues, it is a quick easy read.  It is full of interviews from entrepreneurs, venture capitalists, and technologists who built America’s technology startups over the last three decades.  Great Again provides numerous real life examples to illustrate its points.

This pioneering book shows how the US can create jobs and increase per capita income.  The policy prescriptions are based on solid science.  Just cutting government spending (balancing the budget) will not cause theUSeconomy to grow vigorously, we need pro-growth policies.  The authors are some of the few people that understand what policies are needed for the US to be GREAT AGAIN.

Great Again: Revitalizing America’s Entrepreneurial Leadership, by Henry R. Nothhaft and David Kline

April 18, 2011 Posted by | Innovation, Patents | , , , , , , , , , , , , , , , | Leave a comment