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Posts Tagged ‘Intellectual property’


Source of Economic Growth

What is the source of economic growth?  Trying times like these make this question even more important.  The chart on the left is particularly instructive about the sources of economic growth.  It defines what engineers call a boundary layer condition.  The chart shows per capita income from 1000 BC to 2000 AD, where income has been normalized to one for the year 1800.  The part on the left where per capita income final takes off is only true for western countries.  For instance, African countries still have incomes near or below one on this chart and incomes in Japan do not take off for almost another 100 years.

So the million dollar question is why does income take off around 1800 after millennia of going nowhere?  Let’s examine the standard answers for getting our economy growing today.  Is the reason that income takes off around 1800 because taxes suddenly get lower (or higher) around 1800?  No tax levels did not change significantly around 1800 and in fact they were lower than today until around 1900.  Tax levels averaged 10% or less of GDP during most of history.  Is it because the size of government suddenly shrunk (or grew) around 1800?  No, the size of government did not change significantly around 1800.  The size of government did not start to grow until around 1900.  Is it because we suddenly created the world’s greatest “cash for clunker program” – in other words was Keynes right we just had to stimulate demand?  Well during the period from 1000 BC until about 1800 AD is called the Malthusian period, after Thomas Malthus http://en.wikipedia.org/wiki/Malthus.  During this period humans are just like every other animal and our population expands until we are on the edge of starvation.  I am pretty sure that there was plenty of demand during this period, at least for food.  Does income suddenly take off because we figure out how to control our money supply just right?  No the tools for controlling the money supply around 1800 were pretty crude.  The only reason we are wealthier today than in 1800 or 1500 or 1000 BC is because of our technology.  If we had the same technology as our ancestors we would be no wealthier than they were.

I am not the only one to point out that increases in our level of technology are the only reason for real per capita increases in income.  Robert Solow won the Nobel Prize in economics for essentially this point.  Other economists who have study this area include Paul Romer of Stanford, Jacob Schmookler who studied the relationship between inventions and economic growth and Gregory Clark from UC Davis.  This area of economics is often called Economics 2.0 or Innovation Economics.  One of the best books on this area (other than my book The Decline and Fall of the American Entrepreneur ) is a business book, entitled The Invisible Edge.

Not coincidentally 1800 is around the time the first modern patent systems are created.  Patents are the only free market system for encouraging people to invest in inventions and technology.  Patents are legal title to your invention.  The first patent statute in the US is passed in 1790.  The US becomes the economic and technological leader of the world because of our patent system, not because of some innate Yankee ingenuity.  We are the first country in history to recognize that inventors’ have a right to their inventions.  In fact, the only place where the US Constitution uses the word “right” is with respect to patents and copyrights.[1]

Despite the overwhelming evidence for the connection between patents, technology and economic growth, some detractors are going to argue that this is just coincidence.  The chart at the right shows per capita GDP for various countries.  As already explained US per capita GDP takes off around the time we create our patent system.  Japan comes to the US and studies why we are successful around the 1860s.  Their conclusion is that the US patent system is why the US is a technological and economic powerhouse.  As a result the Japanese copy the US patent system sometime in the 1870s, which is when their per capita income takes off.  A similar situation occurs in China.  On the other hand there are numerous countries with no patent system or ineffectual patent systems that are stuck in the Malthusian trap.

Patents are the free market system for conferring legal title to inventions and encouraging investment in technology.  Increases in technology are the only way to increase real per capita income.  A strong patent system is keystone upon which economic growth is built.


[1] US Constitution, Article 1, Section 8, Clause 8.  Note the Bill of Rights are amendments to the Constitution.

 
Voices on the Net a Session with JJ

I had an excellent interview with JJ on a Session w/JJ on Voice on the net.  For the full interview click here.

 
State Intellectual Property Bank

The federal government is pursuing a suicidal policy of giving away our inventions to our foreign competitors.  Our state can mitigate the damage of this insane policy by creating a state intellectual property bank.

The United States is giving away our most valuable assets – our technology.  In 2000, the government required the publication of most US patent applications in 18 months after they are filed.  Since patents only provide title to your invention in the country (or countries) in which you apply for patent protection, foreigners are able to steal our technology by just reading our published patent applications.  In fact, Pat Choate in his book, Saving Capitalism, (http://www.amazon.com/Saving-Capitalism-Keeping-America-Vintage/dp/0307474836) documents a company in China that admits to just searching the published patent applications as their only research and development project.  How can our state avoid this suicidal policy?

Besides publishing our patent applications, the federal government requires that owners of patents pay a maintenance fee every four years in order to keep their patent from going abandoned.  Our state can use a process called escheat in order to ensure that no valuable patents go abandoned because of failure to a pay maintenance fee.  Escheat is a common law doctrine that operates to ensure that property is not left ownerless, according to Wikipedia.  Using this process the state can create a large portfolio of patents and ensure that our intellectual property is not lost.

How could the process of escheat be used to increase the wealth of our state?  State sanctioned entities would be allowed to pay the maintenance fee on any patent owned by a person or corporation residing in the state on the last day for paying the maintenance fee and take ownership of the patent using the state power of escheat.  This would allow these state sanctioned entities to build large portfolio’s of patents quickly.  Since the value of patents increases when they are part of a portfolio, this would allow these entities to build valuable patent portfolios that would generate licensing revenue.  My alma mater Kansas State University used a similar process to create a large patent portfolio very quickly.

So who are these state entities?  I do not suggest that the state literally run an invention company, I suggest that they license out this power of escheat to any group that has a reasonable plan to develop these patent portfolios.  For instance, university technology transfer offices are in a good position to evaluate the value of the patents that are about to expire for failure to pay their maintenance fees.  The licensing revenue from these patents could be used to support further university research.  Another potential group would be an intellectual property venture capital group.  Other groups could include NPE (Non-Practice Entities) invention firms, similar to Intellectual Ventures, Acadia, etc. that located in the state.

In order to ensure that the state’s interest is served, these entities could be required to license non-exclusively all in-state companies any patents in their portfolio desired by the in-state company for 30% less than a reasonably royalty.  This would encourage out of state companies to move to our state and be a great Economic Development tool for the state.  If more than one entity wanted to acquire title to a patent that was going abandon for failure to pay the maintenance fees, they would bid for the patent and the proceeds would be paid to the original owner.

The original owner of the patent would be provided certain safeguards.  For instance, they could reacquire title to there patent by paying the maintenance fee, the fees to revive the patent and reasonable attorney’s fees to the acquiring party within the time frames allowed by the patent statute.  In addition, the original owner would receive a small part of any proceed from the patent, such as 5% of any royalties or other return on the patent.

You might ask why anyone would want to pay the maintenance fee for a patent in which the owner was unwilling to do so?   A number of valuable patents go abandoned for failure to pay the maintenance fee because the underlying business has gone under or in the case of individual inventors they no longer have the resources to pursue the patent.  In fact, many of the independent non-practicing entities, such as Intellectual Ventures and Acadia started by acquiring the patents of companies that failed.  Other examples of failed business ventures where the underlying patents were very valuable include NTP and Mostek.  NTP is an invention company created out of the ashes of the failed operating company, Telefind Corporation.  RIM the maker of the Blackberry infringed NTP’s patents and eventually settled with NTP for over $600 Million.  Mostek was a failed semiconductor company that was sold to Thomson SA for $71M in 1985.  In the next seven years, Mostek licensed its patent portfolio for over $450 million.  So as you can see there are numerous patents that are valuable that go abandoned for failure to pay their maintenance fees.

A state Intellectual Property Bank program would ensure that the state did not lose its most valuable assets and be a strong economic development tool.

 
Robert’s Rules of Innovation: Book Review

This book is a well laid out, logical book on how to ensure that your company continues to innovate.  This is not a touchy feely book or a feel good cheerleader book like so many business books.  If you want practical advice from a person who has been there then this is the book for you.  As the book subtitle states this book is “A 10-Step Program for Corporate Survival.”

Robert F. Brands, the author, headed the highly successful company Airspray.  Airspray makes consumer products, particularly the highly successful instant foam dispensers.  These dispensers foam soap products without an aerosol and are found almost everywhere today.

The book has a number of metrics to determine if your company is truly innovating or only giving inventing lip service.  He suggests that companies should track new product sales.  New products are generally defined as those introduced in the last five years, however this depends on your industry.  If new product sales are less than 15% of total sales then your company is at risk of becoming extinct.  Note line extensions are not new products.  In Chapter 3 the book describes a complete innovation audit to determine if your company is truly committed being a technology leader.  He points out that most companies make the fatal mistake of cutting R&D and new product development budgets when time are tough.  If you want your company to survive, this should be the last budget item cut.

Creating successful new products is not enough to survive in the marketplace.  Your company must protect its new products with strong IP particularly patents to have sustainable advantage.  In addition, you company must understand the patent landscape of your marketplace.  “It is proven that those companies with a strong patent portfolio creates much more value to their stakeholders than companies without. Airspray, the case study focused on in the book (the company that brought instant foaming dispensers like hand soap to market) was sold at 15 times EBIT, which proves the point.”  This 15 EBIT was twice the going EBIT for similar companies and the main reason for this high valuation was Airspray’s patent portfolio protecting its innovative products.

Robert’s Rules of Innovation is a must read for anyone who wants practical, real world advice on how to ensure that their company does not go the way of the dinosaurs.

 
Pikes Peak Economic Club May 4 Meeting

Local author, “The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulation are Killing Innovation”.

Dale B. Halling is a patent attorney located in Colorado Springs. His book, “The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulation are Killing Innovation“, explains that innovation is the key to getting out economy growing  again. Unfortunately, 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.

May 04, 2010
from 06:30 pm to 06:30 pm
The Vanguard School, 1605 D South Corona Ave., Colorado Springs, CO 80905

For more information click here

 
Da Vinci Institute: Night with a Futurist

Dale Halling will be speaking at the Night with a Futurist event at the Da Vinci institute on April 5, 2010 at the Madcap theater.   As a patent attorney, Dale Halling deals with start-up entrepreneurs on a daily basis.  He began noticing a significant difference between the types of projects his clients were involved with in the 1990s and 2000s. Clients, in the 90s, would come into his 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 the 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 very exciting talking with these entrepreneurs.  Their energy was infectious and the potential implications of their work was mesmerizing.  However, the tech downturn of 2000-2001 changed all that.

After 2002, the start-up companies he came into contact with were all looking for narrow niche markets.  Instead of trying to make dramatic changes to technology and go public, these companies were looking to develop incremental changes and be bought out by an existing company.

He started wondering if other people in the tech world were seeing similar trends.

Recent innovations like the iPod, the tremendous amount of money Intel was spending to build their next microprocessor plant, and the social media industry are certainly innovative, but they are not capable of altering the entire economy like the Internet of the 90s.  The Internet in the 90s affected almost every business in the U.S.  It drove PC sales, retail, electronics, telecommunications, professional businesses, marketing, newspapers, and much more.  It also redefined whole areas of life, with email, online shopping, and online advertising. It was impossible to escape the effects of the Internet unless you crawled under a rock.

The personal computer revolution of the 80s had a similar effect.  The iPod has been cool, but hasn’t affected the whole economy.

So what’s behind all this? The changes have seemed subtle from the outside, but the ripple effects have been huge.

Join us as we take a hard look at how the face of innovation has changed, and what we can do to turn it around.

EVENT: Night with a Futurist
DATE: April 5, 2010 – Monday
TIME: 6:30pm-9:00pm
WEBSITE: http://www.davinciinstitute.com/events/433/night-with-a-futurist-monday-april–5-2010

LOCATION: MADCAP Theater, 10679 Westminster Blvd, Westminster, CO 80020
DIRECTIONS: Driving Directions

COST: $25, Members: Free, SuperMembers: Free
REGISTER: Register here

PHONE: 303-666-4133

TOPIC: “The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation”
SPEAKERS: Dale Halling, Allison Taylor, Catharine Merigold, Gene Branch, Mike Schmidt, Thomas Frey

 
Pat Choate: Technology Theft as a Business Strategy

Dr. Patent Choate has an excellent article in the Huffington Post, please read the full article, that shows that patent reform is really about patent theft by some of the largest technology companies.  As Dr. Choate explains:

America’s largest big tech corporations are now using a business technique called “efficient infringement,” which means that they calculate the benefits of stealing someone else’s patented technology against the possibility of getting caught, tried in court and being forced to pay damages and penalties. If the benefits exceed the costs, they steal.

The sad thing about the large technology companies cited in the article is that they all grew faster in the 90s when we had strong patent laws than in this decade.  Their desire to weaken the patent laws dooms them and the rest of the country to slow or nonexistent growth.  Ultimately, their actions will result in technological stagnation in the US.

Dr. Choate then give the specific example of how the large financial services companies conspired to steal a start-up’s, DataTeasury’s, patented technology.  Then they used their lobbyists to get a clause inserted into the so called “Patent Reform” bill that would have given all the defendants in the DataTreasury case immunity.  As the article explains:

Bank of America, Wells Fargo, and about a dozen other banks refuse to deal with the little company. Instead of paying up, those remaining banks have played dirty. In 2007, Washington lobbyists working for the banking industry had an amendment inserted into a pending patent-reform bill that would have granted legal immunity to all of DataTreasury’s defendants. The amendment died on the floor of the U.S. Senate after the press exposed the story.

As Dr. Chaote’s excellent book “Hot Property” vividly points out, lack of enforcement of intellectual property rights destroys innovation.  I particularly enjoyed his example of how Mexico’s failure to enforce copyrights has ensured that Mexico does not and will not have a recording industry – music or movies.  Theft always looks like a quick way to wealth, but it ultimately destroys the source of wealth creation.  These high tech companies would rather destroy America’s wealth than have to compete in the market on the basis of the technology they can develop.

 
Accounting Inhibits R&D

Accounting rules for R&D result in companies and nations under investing in research and development.   Since increases in real per capita income are the result of increases in our level of technology, this accounting error actually results in all of us being poorer.  The point of R&D is to create inventions, whether products or processes, that are useful.  R&D that does not result in inventions may be interesting intellectually, but does not increase our wealth- so the rest of the post will discuss investments in inventions as opposed to the more nebulous concept of R&D. 

 Creating an invention without obtaining legal title to the invention is like building an office building without obtaining title to the land and building.  Without legal title to the office building, you cannot finance the building, sell the building, or lease the building.  In other words, without legal title to the office building its economic value is significantly reduced.  The same is true of inventions.  Inventing something without obtaining legal title to the invention means that you cannot license (lease) the invention, cannot sell the invention, and cannot finance the invention. 

There are couple of ways to obtain title to an invention.  You can either obtain a patent on the invention or you can keep the invention a trade secret.  Many inventions are not amenable to trade secret protection.  As a society, it is better if people obtain patents instead of keeping their inventions a trade secret, since a patent allows other people access to the knowledge associated with the patent, allowing them to use this knowledge to build other inventions.

 The present accounting rules for the costs in creating an invention and obtaining title to the invention result in an immediate expensing of these costs.  While this may be helpful from a tax point of view, it causes these costs to appear superfluous.  Note that the rest of this post is concerned with accounting as an accurate measurement tool for the operations of a business and is not concerned with tax law, which has caused so many perversions to accounting and business generally.  Our present accounting systems never show  internally funded inventions produce any value. 

 

 
Another Confused Libertarian on Intellectual Property

Timothy Sandefur is another Libertarian confused about intellectual property – see his article.  He suggests that Adam Mossoff’s article on Natural Copyrights and Ayn Rand’s thoughts on intellectual property are incorrect.  Mossoff and Rand have the better argument.  First of all it is clear that intellectual property rights are consistent with Locke’s view of property rights.  You own yourself and therefore you own the product of your labor mental or physical.

Portuguese Claim to Sea

The argument about the Portuguese claim to the sea is an attempt to condemn Locke by a misapplication of Natural Rights theory.  The Portuguese did not improve the sea.  According to the Portuguese argument when I drive over the road I own the road or if I walk over land I own the land.  Using a misapplication of Natural Rights theory is a red herring argument.

Non-Exclusive Nature

Patents do not keep you from thinking about the invention and in fact it is a purpose of patent law to encourage the dissemination of knowledge associated with inventions so that other inventors can improve upon these inventions.  Patents only restrict you from making a physical version (or threatening to do so – offer for sale).  An infringer of a patent is no longer making a non-exclusive use of the invention when they make it.  They have taken a part of the potential market for the invention.  This market is neither unlimited or non-exclusive.

Your argument about two people having two separate copies of the invention ignores the property right involved in patents.  The property right is not in the physical item.  When you steal my invention by making an unauthorized copy, you have initiated force not the patent holder.  This is similar to me stealing apples from your orchard.  I have not initiated any force against you, it is only when you call the police or come out with your shotgun that force is initiated.

The exclusive nature of real property is illusionary at best.  You only occupy and exclude the space you are presently in.  You do not occupy your whole apple orchard all the time.  If I take an apple from your orchard that you are not presently holding or eating then there is nothing “naturally” exclusive about your ownership of that apple.  If you own more land than you can farm or otherwise take advantage of and I decide to plant crops on that land I have not hurt you.  You have initiated force against me when you kick me off your land and you inhibit productive enterprise.

The non-exclusive nature of intellectual property is a confused argument.  If you are talking about physical exclusion then you should only own real and personal property that you are presently using, which would destroy the concept of  property rights generally.  If you are talking about the legal right to exclude others from using your property, then you have to be consistent with your definition of the legal right involved.  Intellectual property is not about physical ownership, so making a copy of another invention is a clear breach of the property right.

Simultaneous Invention

In your statement about “innocent” simultaneous inventors that, “but because you make it to the patent office first, you get the patent on that thing, and can therefore forbid the other person from making or selling his thing” is wrong.  The US is a first to invent country (at least so far) not a first to file country.  So just because someone beats you to the patent office does not mean they receive the patent.  However, you do make a strong point for why we should not change our patent laws to a first to file system.

More generally, the definition of an inventor is the first person to discover a new invention.  Only the first person adds to the store of human knowledge.  The second person is just clever.  If a person living in India rediscovers Calculus he is not the discoverer of Calculus because he did not add anything to the store of human knowledge.  In addition, there are an infinite number of potential inventions and increases in technology are the only way to increase our standard of living.  As a result, we want people to invent not to copy other people’s inventions.

Fair Use

Copyrights protect the artistic expression of an idea.  They do not protect every component of a written work for example.  Fair use is just a statement of this fact.  So copying a small portion of work is not a violation of the owner’s copyright because you have not taken their expression of the idea.  This is why one of the factors of fair use is how much of the work did you copy.

Intellectual Property and Free Markets

You state, “natural copyright is very dangerous to the free market, in that it proposes to forbid entrepreneurs from legitimate and praiseworthy uses of their liberty.”  Actually, the exact opposite is true.  By undermining intellectual property you are undermining the very basis of property rights and liberty.  The empirical evidence also shows that whenever a government refused to protect intellectual property rights they also do not respect other property rights or the mechanisms of a free market.

Locke’s Natural Rights

Natural rights theory is not only the historical and logical basis for property rights but explains most common law crimes.  The natural rights labor theory of property explains why slavery is immoral.  If you own yourself, then no one else has the right to own you.  It also explains why murder and manslaughter are immoral, why stealing is immoral, why assault and battery are immoral and why we have laws against all these actions.  The natural rights labor theory defines how property should be allocated and how people come into possession of property morally and legally.  The labor theory explains all of our basic criminal law and all of our basic property laws.  What does scarcity explain?  It offers no justification for why slavery, murder, manslaughter, assault and batter and theft are immoral, except that they are inefficient at allocating resources.  Thus, all of these crimes would be allowed if they were efficient at allocating resources.  Scarcity does not explain who has ownership in property or why they should have ownership in property.  It merely explains that private property ownership is an efficient manner in allocating scarce resources.

In science, the theory that has the greatest ability to explain the widest number of facts is considered to be the correct or better theory.  Here the “scarcity” theory of private property requires the additional assumption that it is preferable to have efficient allocation of resources.  However, it fails to explain how the resource should be initially distributed, it does not explain how property law determines ownership and has no power to explain criminal law.  Trading scarcity for the labor theory of property is like trading the theory that “what goes up must come down” for Newton’s Law of gravity.  The fact of the matter is that the proponents of scarcity have confused cause with effect.  A system of private property results in efficient allocation of resource, but it is not the reason for private property – it is the effect of private property.

For more information see Scarcity – Does it Prove Intellectual Property Rights are Unjustified? http://hallingblog.com/2009/06/22/scarcity-%E2%80%93-does-it-prove-intellectual-property-is-unjustified/

 
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.

 

There appears to be considerable confusion differentiating property rights, possession and objects in the economics including academic papers. Property rights are a moral and legal concept. Historically, the moral reason for property rights is based on the natural rights concept that you own yourself and therefore you own the product of your labor, both physical and mental. Property rights in an object mean that you have a legal title to an object, which gives you the right to exclude others from using the object in which you have title. This is exactly the same whether the property right is in the object of land, chattel, inventions, or writings.

 

The goal of this post is to describe how to prepare an Intellectual Property (IP) strategy document that shows your company is an IP expert.  According to the book The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property, IP is the most important “sustainable competitive advantage.”  There are numerous types of intellectual property, but this post is going to focus mainly on patents and trade secrets, because these types of intellectual property protect a company’s innovation.  Innovation is the most important method of creating a sustainable competitive advantage.  Innovating without protecting the innovation with patents or trade secrets is charity according to the authors of The Invisible Edge.

 

A number of scholars[1] have suggested that the logical basis for property rights is scarcity.  Property rights efficiently allocate these resources and avoid conflicts.  These scholars argue that ideas and inventions are not subject to scarcity and therefore intellectual property rights should not exist.  These arguments seem to be particularly prevalent among Libertarians, including the Cato Institute and Von Mises Institute, and the open source community. 

 

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