State of Innovation

Patents and Innovation Economics

Forbes Jumps on the Anti-Patent Anti-Intellectual Bandwagon

Steve Forbes, publisher of Forbes Magazine, was a strong defender of the US patent system.  He followed in the footsteps of one of his hero’s, Ronald Reagan, who made strengthening the US patent system a major part of his economic reform.  For more information see Reagan’s 100th Birthday.

Now Forbes (the magazine) pushes an anti-intellectual, anti-free market, anti-patent point of view as evidenced in the opinion piece Google’s Conundrum: Buy The Patents Or Pay The Lawyers? The author belongs to that Luddite group that wants to categorize patents as monopolies.  Patents are property rights.  Property rights derive from the act of creation or more specifically invention in the case of patents.  Monopolies are the result of political calculations and have nothing to do with creation.

The author then goes on to state:

When Prime Minister Tony Blair and President Clinton suggested imposing restrictions on patents in the field of genetics, publicly traded bio-tech firms experienced a predictable mini-crash. The impact of their recommendation would not have been as violent if the patents had shorter lives than twenty years.

Of course if the property rights in one’s invention was weaker before you suggested making it even weaker, it would have less impact on the value of the companies owning these assets.  This is like saying the value of a company will decrease less when nationalization is proposed if the tax rate were higher.  For instance, if the tax rate were 100% then it would not affect the value of company at all if politicians proposed nationalizing the company.  The author Reuven Brenner, is an economics professor at McGill University according to Wikipedia.  You would think that a professor would not make these obvious logical errors – the sort of errors that would make even an undergraduate paper on the topic receive a C or lower.

As if this gaff were not enough the professor then asks:

What would happen if the life of patents was shortened?

Prices of patented goods would decline and there would be less piracy

Yes and the price of all goods would decline if we would just get rid of property rights.  Of course, no one would produce anything and the same is true of weakening patents.  Innovation will come to a virtual standstill.  History shows that without secure property rights in inventions, innovation grows so slow that humans are stuck in the Malthusian Trap.  See The Source of Economic Growth.

As for there being less piracy that is like saying there would be less car theft if we did not give people title to their cars.  This is not Alice in Wonderland Mr. Brenner.  Words have meaning and even if there is not a law against piracy, it is still piracy.

Mr. Brenner continues with his Socialist line of reasoning by arguing, “Phillips’ initial success in Holland and throughout Western Europe was due to copying Edison’s lamps without paying any royalties to the Edison interests.”  Stealing always enriches the thief, but it does not create wealth it redistributes it and destroys it.  How many invention was Edison or some other inventor unable to fund because Phillips stole Edison’s inventions?

Mr. Brenner should be aware that since Robert Solow’s famous paper on economic growth it is clear that all per capita growth is due to increases in technology.  Most new technologies are created by start-ups that require property rights in their inventions (patents) in order to secure capital.  (See SBA Study).  In addition, all net new jobs in the US are created by start-ups according to the Kauffman Foundation.  If the US wants to create high quality, high paying jobs it needs strong property rights for inventions.

Advertisements

April 10, 2011 Posted by | -Economics, -Law, Innovation, Patents | , , , , , , , , , , , | 1 Comment

Déjà vu All Over Again: Undoing the Reagan Revolution

The situation in Egypt is reminding me of the Iranian situation in 1979.  The reason the situation in Egypt is occurring is because the world economy has fallen apart and the people of Egypt are facing declining economic prospects.  Egypt is a socialist country, so the economic prospects have been mediocre at best, but with the decline in the world economy the prospects for the average person in Egypt have plummeted.  Already there is a Google executive missing in Egypt and I see the situation evolving along the lines of Iran in 1979.  Is this just random coincidence or is something more going on.  In 1979 we had a progressive (they should be called regressives, socialists, communists, Marxists, statists or just plain freedom haters) president who ruined our economy and apologized for America around the world.  Today we have a freedom hating president (progressive) who has spent the first two years apologizing for the U.S.  During the 1970s progressives (yes Nixon was a progressive – see wage and price controls) had spent the decade destroying the U.S. and world economy.  During the last decade progressives (yes Bush was a progressive – see Medicare Prescription Drug Program the biggest entitlement since Medicare) have spent the decade destroying the U.S. and world economy.  Luckily for the U.S., the Reagan revolution occurred and the U.S. had two decades of strong economic progress, won the Cold War, and pushed back socialism (freedom hating) around the world.  Unfortunately, it now appears that all the progress of the Reagan Revolution has been undone.  Here are the analogies between the U.S. before Reagan and presently.

Weak Patent System

It is a little known fact that a major part of Reagan’s economic plan included strengthening our patent system.  He started a process where our patent system was strengthened by a number of initiatives over the next 17 years.  Another little known fact is that we have consistently weakened out patent system since 2000.  We broke the social contract with inventors in 2000 when we agreed to publish patent applications at 18 months from filing even if the patent had not issued.  The social contract for patents is that in return for telling the public how to practice the invention the inventor receives a limited term property right.  By publishing how to practice the invention without having granted a patent, the public is receiving the benefit without fulfilling it side of the bargain.  Before 2000 patent applications were secret until they were allowed.  If an inventor felt he was not receiving adequate protection for his invention, he could withdraw the application and keep his invention a trade secret.  There have been a number of other changes to our patent laws that have weakened inventor’s property rights in their inventions.  This is exactly the situation the U.S. was in before Reagan became president.

Taxes

Reagan significantly lowered our marginal tax rates, unlike the very minor changes made by President Bush.  In exchange for lowering the marginal tax rates the tax code was simplified and most deductions were eliminated.  Now we have a very complicated tax code, where the alternative minimum tax (AMT) now hits many middle class families.  Our marginal tax rates appear low, but the phasing out of deductions makes it much more onerous than it first appears.  Finally, the complexity of the tax code has grown to being even more burdensome than in the 1970s.

The ads on TV for “tax fixing” firms remind us that our government is at war against its own citizens.  In a truly free country, there would be no market for these firms.

Lawyer Ads

Much like the 1970s we now are being bombarded by tort lawyers looking to get rich off of other people’s misery.  In the 70s it was plane crashes, diving boards, ambulance chasers, and perceived environmental concerns.  Today it is “bad drugs”, ambulance chasers (some things never change), and asbestos.  In the 70s these lawyers killed off diving boards, killed off the nuclear (not nucular President Bush) power, and almost killed off the private aviation business.

Unions

Before Reagan unions were draining the life out of our corporations.  They received oversized pay checks and imposed productivity killing rules.  Today public sector unions have pay packages that are much larger than their private sector workers who are paying them.  The retirement packages are outrageous paying retirees six figure pensions to people who have committed felonies and are in prison.

 

The Reagan Revolution has completely undone.  Are we better off today now that Reagan’s agenda has been completely subverted?  Will regressives (freedom haters) admit the damage they have done to the world, freedom, and the US?

 

February 8, 2011 Posted by | -Economics, Innovation, Patents | , , , | 7 Comments

National Inventors’ Day

Ronald Reagan proposed National Inventors Day at February 11 in 1983.  February 11 was chosen because it is Thomas Alva Edison’s birthday.  Reagan’s proclamation was

Almost two hundred years ago, President George Washington recognized that invention and innovation were fundamental to the welfare and strength of the United States. He successfully urged the First Congress to enact a patent statute as expressly authorized by the U.S. Constitution and wisely advised that “there is nothing which can better deserve your patronage than the promotion of science . . .” In 1790, the first patent statute initiated the transformation of the United States from an importer of technology to a world leader in technological innovation.

Today, just as in George Washington’s day, inventors are the keystone of the technological progress that is so vital to the economic, environmental, and social well-being of this country. Individual ingenuity and perseverance, spurred by the incentives of the patent system, begin the process that results in improved standards of living, increased public and private productivity, creation of new industries, improved public services, and enhanced competitiveness of American products in world markets.

In recognition of the enormous contribution inventors make to the nation and the world, the Congress, pursuant to Senate Joint Resolution 140 (Public Law 97 – 198), has designated February 11, 1983, the anniversary of the birth of Thomas Alva Edison, one of America’s most famous and prolific inventors, as National Inventors’ Day. Such recognition is especially appropriate at a time when our country is striving to maintain its global position as a leader in innovation and technology. Key to our future success will be the dedication and creativity of inventors.

Now, Therefore, I, Ronald Reagan, President of the United States of America, do hereby proclaim February 11, 1983, as National Inventors’ Day and call upon the people of the United States to observe this day with appropriate ceremonies and activities.

In Witness Whereof, I have hereunto set my hand this 12th day of Jan., in the year of our Lord nineteen hundred and eighty-three, and of the Independence of the United States of America the two hundred and seventh.

Ronald Reagan

While Reagan’s economic plan is generally thought of as just reducing taxes, he was a strong supporter of policies that encourage invention.  He strengthened the patent system by creating the Court of Appeals for the Federal Circuit.  All patent appeals were consolidated into the (CAFC) created in 1982. A number of the initial Judges on the CAFC were former patent attorneys and the court brought consistency to patent appeals.  The court also took seriously the idea that issued patents are presumed to be valid.  These changes signaled a more favorable atmosphere for patents in the 1980’s.  Before the CAFC patents were treated differently in each of the federal court circuits.  Some circuits had not upheld the validity of a patent in decades.  The new court brought a sense of stability to patent law.  The 1980’s saw a restoration of America’s economic and technological dominance in the world.

As Reagan’s quote above shows, he understood the connection between a strong patent system and a strong economy and more generally a strong U.S.  Today 96% of Americans believe innovation is critical to the success of the US as a world economic leader.  Zogby Poll, January 2010.  If America wants to be great again, then we have to protect the rights of our inventors.

February 11, 2010 Posted by | Innovation, Patents | , , , , , , , , , | 5 Comments

National Inventors' Day

Ronald Reagan proposed National Inventors Day at February 11 in 1983.  February 11 was chosen because it is Thomas Alva Edison’s birthday.  Reagan’s proclamation was

Almost two hundred years ago, President George Washington recognized that invention and innovation were fundamental to the welfare and strength of the United States. He successfully urged the First Congress to enact a patent statute as expressly authorized by the U.S. Constitution and wisely advised that “there is nothing which can better deserve your patronage than the promotion of science . . .” In 1790, the first patent statute initiated the transformation of the United States from an importer of technology to a world leader in technological innovation.

Today, just as in George Washington’s day, inventors are the keystone of the technological progress that is so vital to the economic, environmental, and social well-being of this country. Individual ingenuity and perseverance, spurred by the incentives of the patent system, begin the process that results in improved standards of living, increased public and private productivity, creation of new industries, improved public services, and enhanced competitiveness of American products in world markets.

In recognition of the enormous contribution inventors make to the nation and the world, the Congress, pursuant to Senate Joint Resolution 140 (Public Law 97 – 198), has designated February 11, 1983, the anniversary of the birth of Thomas Alva Edison, one of America’s most famous and prolific inventors, as National Inventors’ Day. Such recognition is especially appropriate at a time when our country is striving to maintain its global position as a leader in innovation and technology. Key to our future success will be the dedication and creativity of inventors.

Now, Therefore, I, Ronald Reagan, President of the United States of America, do hereby proclaim February 11, 1983, as National Inventors’ Day and call upon the people of the United States to observe this day with appropriate ceremonies and activities.

In Witness Whereof, I have hereunto set my hand this 12th day of Jan., in the year of our Lord nineteen hundred and eighty-three, and of the Independence of the United States of America the two hundred and seventh.

Ronald Reagan

While Reagan’s economic plan is generally thought of as just reducing taxes, he was a strong supporter of policies that encourage invention.  He strengthened the patent system by creating the Court of Appeals for the Federal Circuit.  All patent appeals were consolidated into the (CAFC) created in 1982. A number of the initial Judges on the CAFC were former patent attorneys and the court brought consistency to patent appeals.  The court also took seriously the idea that issued patents are presumed to be valid.  These changes signaled a more favorable atmosphere for patents in the 1980’s.  Before the CAFC patents were treated differently in each of the federal court circuits.  Some circuits had not upheld the validity of a patent in decades.  The new court brought a sense of stability to patent law.  The 1980’s saw a restoration of America’s economic and technological dominance in the world.

As Reagan’s quote above shows, he understood the connection between a strong patent system and a strong economy and more generally a strong U.S.  Today 96% of Americans believe innovation is critical to the success of the US as a world economic leader.  Zogby Poll, January 2010.  If America wants to be great again, then we have to protect the rights of our inventors.

February 11, 2010 Posted by | Innovation, Patents | , , , , , , , , , | 5 Comments