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Posts Tagged ‘Innovation’


96% of Americans Believe Innovation is Critical

According to the BBC article “Governments stifle hi-tech innovation, says trade group” , American believe innovation is critical to the US’s success as a world economic leader.  The article states:

The weakening financial markets meant that in 2009 America was overtaken as the most competitive economy by Switzerland.

As regular readers of this blog know, In my opinion since 2000 we have passed a number of laws and regulations that are killing innovation in the US.  The incredible innovation of the 90s was based on technology start-up companies built on intellectual capital, financial capital, and human capital.  All three of the pillars have been under attack since 2000.  Our patent laws have been weakened reducing the value of intellectual capital.  Sarbanes Oxley has made it impossible to go public reducing financial capital for start-ups and the FASB rules on stock options have made it harder to attract human capital to start-ups.  The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation, explains these problems in more detail.

 
Do Individual Inventors and Start-ups Invent Anything Important?

According to the SBA report An Analysis of Small Business Patens by Industry and Firm Size,

Small firms have three times as many patents in emerging technologies as would be expected based on the overall percentage of patents for which they are responsible.  Specifically, small firms account for just 8 percent of all patents in the database (firms with 15+ patents), but 24 percent of the patents of U.S. firms in the emerging technology clusters.

In addition, the report states that small firms tend to patent in different areas of emerging technology than large firms.

But are small firms patents of high quality?  The report states:

Small firm patents outperform large firm patents on a number of impact metrics including growth, citation impact, patent originality, and patent generality. These metrics have been used for decades to measure the innovativeness of firms, labs, and agencies. The metrics have been validated and shown to correlate with increases in sales, profits, stock prices, inventor awards, and other positive outcomes. This suggests that the patents of small firms in general are likely to be more technologically important than those of large firms.

In addition, firms with fewer employees out patent firms per employee with more employees across all cross section firms.  Specifically,

Small firms obtain many more patents per employee than do large firms. This result is quantified to show that this is not a small-firm large-firm phenomenon, but is actually a firm size issue at all levels. In particular, even within the small firm domain, companies with fewer than 25 employees will have a higher patent-to-employee ratio on average than firms with 50 employees, which will in turn have a higher patent-to-employee ratio than firms with 100 employees, and so on.

Despite the fact that small firms and individual inventors are key drivers for technological innovation, Congress and the Supreme Court are trying to make our patent system less accessible for small inventors.  For instance, Congress is trying to change the patent laws from first-to-invent to a first-to-file system.  This would be similar to Europe’s system, which has proven to be very unfriendly to independent inventor and small firms.  The Supreme Court has made it harder for inventors to obtain an injunction (eBay decision) if their patent is violated and made it more uncertain and expensive to obtain a patent and uphold it validity (KSR decision).

 
Patent Quality Nonsense

There has been a constant drumbeat of propaganda suggesting that the U.S. is issuing low quality patents.  The academic papers supporting this propaganda compare the issue rates of patents that were filed in the U.S. and in the EPO (European Patent Office) or JPO (Japanese patent office).  While a number of papers have pointed out  the methodolical problems with  these academic papers (see Patent Quality Myth ), the bigger question is whether they selected the correct metric in the first place.  This post suggests that other metrics are more appropriate measures of patent quality and do not suffer from imposing other countries’ goals on the U.S. patent system.  These metrics show that U.S. patent quality has been steadily increasing for over a fifty years and shows that perhaps the U.S. system is becoming an elitist system – much like Europe and Japan have practiced for years.

 

Technology start-ups drive innovation.  According to the book, The Decline and Fall of the American Entrepreneur, a start-up needs almost a billion dollars in sales to justify going public because of the cost of complying with rules such as  Sarbanes Oxley, depriving our technology sector vital financial capital.

Decline and Fall clearly shows:

*Sarbox fails to achieve its goals;

*Thriving IPOs are critical to providing capital for technology companies, even if most of those companies never go public;

*The SEC estimates the cost of Sarbox compliance at $91,000/yr per company, the actual cost is closer to $4.0M/yr!!!

*Is the medicine worse than the disease!!

Percentage of World IPOs:

1996 – 60% in U.S.

2005 – 20% in U.S.

*Decline and Fall shows how we can turn this around- Make the US the world leader again in Innovation. Jobs. Capital.

Your copy of The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation, by Dale B. Halling, is at Amazon.com.

 


Dec 18, 2009 – The U.S. of the ‘90’s was a dynamic society filled with promise, high quality jobs, and the economic envy of the world.
Now the U.S. is a static corporatist society filled with political groveling worthy of a Dostoyevsky novel.
What has happened?  How did the U.S. go from endless possibilities to endless nightmares?

How did the U.S. go from endless possibilities to endless nightmares?   The book The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation, by Dale B. Hallling, will clearly explain-

That the 90s were more innovative than the decade of 2000-2009;

That innovation is the key to real per capita increases in income;

Why the venture capital model is defunct;

How little known laws have undermined the three pillars on which the innovation of the 90s was built; and

How the U.S. can regain its preeminence as the most successful and dynamic economy in the World.

This long overdue book is now available for $21.95 on Amazon.com.

# # #

Dale B. Halling is a patent attorney, founder of several start-ups and author of the book “The Decline and Fall of the American Entrepreneur.”

 

The authors of Against Intellectual Monopoly in an editorial in the Christian Science Monitor suggest ending the patent system.  The number of errors in such a short editorial is staggering, especially considering the authors are distinguished professors at a major university – Washington University in St. Louis.  Each of the major errors are discussed below.

Monopoly

Levine and Boldrin constantly describe a patent as a monopoly in their editorial.  A patent gives the holder the right to exclude others from making, using or selling the invention.  35 USC 154.  It does not give the holder the right to make, use or sell their invention.  According to Wikipedia “In economics, a government-granted monopoly (also called a “de jure monopoly”) is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement.”  Since patents are clearly “government granted”, then this is the appropriate definition.  Since a patent does not even provide the holder the right to sell their invention, it clearly does not grant an exclusive privilege to a firm to be the sole provider of a good or service.

 

President Obama travels to the climate conference at Copenhagen this week.  How would limiting CO2 emissions effect innovation?  The president has promised that:

U.S. emissions in 2050 will be 83 percent below 2005 levels. If so, 2050 emissions will equal those in 1910, when there were 92 million Americans. But there will be 420 million Americans in 2050, so Obama’s promise means that per capita emissions then will be about what they were in 1875.[1].

In order to achieve this goal will require significant advances in technology or significant restrictions on the activities of U.S. residents.  The argument that limiting CO2 emission will increase innovation are based on the idea that government mandates stimulate innovation by businesses to meet the directive.  The problem with this argument is that it ignores the innovation that businesses did not undertake because they had to spend their research and development budgets to meet a government directive.  Since it is unlikely that the U.S can achieve these goals without also limiting the activities of its residents, the CO2 emission goals set by the President will limit economic activity.  According the Rate Law of Innovation, any limitation on the goals or means of innovation reduces the rate of innovation.  A weaker economy is also likely to reduce the number of innovators slowing the rate of innovation. 

 

Based on the reports in the post “Bilski Case Provokes Skepticism from Justices” it is clear that the Supremes do not understand patent laws or innovation economics.

It is unfortunate that the Supreme Court justices are so ignorant of patent law and innovation economics.  Justice Sotomayor’s comment that patents in fact “limit the free flow of information” is complete nonsense.  First, the information in the patent would not exist if the inventor had not created it.  Second, patents trade the disclosure of information for a limited term property right.  As a result, patents foster the creation and dissemination of information.  Justice Breyer’s comment if everything that “helps a businessman succeed” is patent-eligible, it would “stop the wheels of progress” shows a complete ignorance of the history of patents and technological progress.  Before the advent of the modern patent system in the US, technological progress was so slow that per capita incomes had not changed in over 2000 years.  Since the advent of the modern patent system, we have had an unprecedented explosion in technological innovation.

 

Sarbanes Oxley (Sarbox) is starving high technology start-ups for capital.  Mathew Bandyk, in US News and World Report, suggests that not only has Sarbanes Oxley hurt venture capital, and decreased the number of IPOs, it is imposing costs on small businesses.[1] The reason that Sarbox is increasing the costs for small business, according to Bandyk, is that accountants are applying Sarbox rules to small businesses out of habit or conservatism.  In order for a company to go public nowadays, a company needs somewhere near $1 billion in annual revenue.  For more information on the damaging effects and absurdity of Sarbox see Sarbanes Oxley – The Medicine is Worse Than the Disease.  Since it does not appear likely that Washington is going to fix Sarbox anytime, how can we mitigate its damage?

 

There have been numerous articles and blog posts on the death of the venture capital model.[1] Only six companies that were venture capital backed went public in 2008, the lowest number since 1970.  There were also very few acquisitions of venture backed companies.[2] As a result, many venture capital firms are likely to disappear in the next couple of years.

Historically, venture capital funds have invested in a limited number of companies and taken an active part in the oversight of the companies.  Sarbanes Oxley and the likelihood of more financial regulation threaten the ability of start-up companies to go public.  Without a robust IPO market, it is unlikely that M&A activity will result in strong valuations.  Additionally, many IT start-up companies have low capital requirements and can forego traditional venture capital investments.

 
Foreigners Receive More Patents than U.S.!

For the first time in U.S. history more patents were issued to foreigners than U.S. residents, by the U.S. Patent and Trademark Office (USPTO).  According to the USPTO, foreigners received 80,271 patents while U.S. inventors received 77,501 in 2008.[1] Six of the top ten patenting companies in 2008 were foreign.

 

We know that in all areas of economics where it has been tested private property rights encourage economic activity.  We also know that when the government establishes incentives, it always results in more of the incentivized activity.  We also know that countries with the strongest patent laws have the most innovation and the greatest technology diffusion and vice versa those countries with weak or non-existent patent laws have little or no innovation and little technology innovation.  Despite this Mr. Kinsella and the anti-patent crowd ask us to believe that patents do not follow the normal rules of economics and logic.  As Thomas Paine pointed out in his book The Age of Reason, extraordinary claims require extraordinary evidence.  Mr. Kinsella and the anti-patent crowd have provided no evidence that patents harm innovation.

 

The first step in build a market dominating patent portfolio is to undertake a survey of the patent landscape in your marketplace.  For more information on how to perform a prior art survey please see Competitive Analysis and Patent Portfolios .  This analysis will show you where there are gaps in the prior art that can be exploited and also help stimulate your thinking about design options.  Gary Boone, the inventor of the microcontroller, explains the advantage of surveying the prior art this way.  “Most engineering design groups do not feel there is much to learn by reading patents.  I feel that’s unfortunate, because there is a huge amount to learn from the accumulated five million issued patents, just picking up the U.S. patents alone.”

 

 This post is the Introduction to my book, which should be available on Amazon.com in December of 2009.

This book started as a project based on my observations.  I deal with technology start-up entrepreneurs everyday as a patent attorney.  I noticed a difference between the sort of projects my clients were undertaking since the technology downturn of 2000-2001 and the 90s.  Clients, in the 90s, would come into my office with plans to build businesses that were disruptive or revolutionary.  The technologies underlying these companies held the potential to completely redefine a market.  Some of these of these ideas would increase the available bandwidth by 10x for minimal costs or allow data searches that were 10-100x faster than existing technologies.  It was extremely exciting talking with these entrepreneurs.  Their energy was infectious and the potential implications of their work was mesmerizing.  The technology downturn of 2000-2001 forced a reevaluation of these aggressive business plans.  I expected that after a couple years of the technology market taking a breath, I would again be working with companies trying to change the world. 

 

The IEEE oral history with Gary Boone, co-inventor of the microcontroller, has been lost for over decade but is now posted on the IEEE site.  Please read the whole oral history.  Mr. Boone has a number of interesting insights.  For instance, he states that he invented microcontroller while at Texas Instruments because of boredom.  He was working in a group designing custom Integrated Circuits (ICs).  While designing these chips he began to feel “I’m tired of doing this.  I’m working long hours.  My family is not happy.  I have to find a better way of doing this.”  He also noticed that the basic requirements for all these projects were similar and this led to the idea that a general chip that was programmable could solve multiple customers’ requirements.  He also discusses the resistance in the community to this innovation.

 

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