Declines in U.S. innovation, entrepreneurship the focus at Capitol Hill patent policy event

By Steve Brachmann
May 17, 2017

Professor Carl Schramm.

Professor Carl Schramm.

“Innovation and creative endeavors are indispensable elements that drive economic growth and sustain the competitive edge of the U.S. economy.” Thus reads the start of the executive summary for the 2016 update to the Intellectual Property and the U.S. Economy study jointly produced by the U.S. Patent and Trademark Office as well as the Economics & Statistics Administration. The report identifies 81 IP-intensive industries which employ about 30 percent of the American workforce and account for 38.2 percent of U.S. gross domestic product in 2014.

“All of the giants today were once garage startups that clawed, fought and used every means to their advantage to overcome the incumbents,” said Robert Aronoff, executive director of the U.S. chapter of the International IP Commercialization Council (IIPCC). “These companies benefited greatly from the system as it was.” Aronoff’s remarks came at the start of an IIPCC-sponsored event taking place in the basement of the U.S. Capitol on May 8th, an event titled Promoting Innovation, Investment and Job Growth by Fixing America’s Patent System. The event featured a series of panels and keynote speakers addressing various concerns raised over recent changes to the U.S. patent system and how those changes have created an uneven playing field to the detriment of individual and small startup stakeholders in the system. See our other coverage here, here and here.

Anyone who has paid attention to the current political climate in the United States, especially conversations surrounding economic nationalism and the renegotiation of international trade agreements, would have to acknowledge that there are many who feel as though the American economy is lagging. Last October, The Wall Street Journal published a story titled Sputtering Startups Weigh Down Growth which outlined the gradual decline of U.S. startups since 1977. In 2014, only 8 percent of private U.S. firms were less than one year old, down from more than 16 percent in 1977. As well, the share of U.S. workers working at firms less than one year old has dipped over that same period of time from nearly 6 percent of U.S. workers in 1977 down to 2.1 percent in 2014.

At the same time that America’s business climate has become too acidic for a vast majority of domestic startups, the nation has also been losing its place in the global supply chain while other major global economies, like China’s, are becoming increasingly self-reliant. Another Wall Street Journal article published last October not only showed recent dips in the value of China’s overall imports and high tech imports but also the percentage of foreign inputs used in Chinese exports. Such foreign inputs in products sold by Chinese manufacturers rose sharply from just more than 5 percent in 1981 up past 40 percent by the mid-1990s, but these foreign inputs dropped steadily to 19.65 percent by 2015. “There’s less and less reason why they need us, they’re protecting their innovation and tech more and more,” Aronoff said of China, adding that this issue deserved further discussion.

Still other issues facing innovators hoping to use the U.S. patent system to commercialize emerging technologies were highlighted by a Hope Cycle for Emerging Technology report issued last year by market research firm Gartner. This report identifies trending emerging tech like virtual reality, augmented reality, machine learning, smart robots, gesture control devices, smart data discovery and virtual personal assistants, as well as consumer expectation levels and the length of time until the emerging tech becomes fully commercializable. As Aronoff noted, much of the innovation in those sectors relies on software. “Is that even protectable anymore?” Aronoff asked.

“We’re here to have a frank discussion about, ‘Are we doing the right things to protect the engine of innovation of America,” Aronoff said. He highlighted several issues that would be discussed at length throughout the day, including the need for patents, costs/benefits of patent licensing and patent invalidation, patent monopoly and patent troll myths, the state of the U.S. patent system from the trenches, costs/benefits of a strong U.S. patent system and strategies for getting the country back on track in terms of sensible patent policy. “With the new patent enforcement gauntlet in the U.S., what does it really take for a small company to protect its IP in the current system?” Aronoff asked, adding that the patent troll myth could very well be a red herring which has distracted U.S. patent policy makers.

Aronoff’s remarks were followed by Dr. Carl Schramm, professor at Syracuse University and an U.S. IIPCC board member. “There’s an entrepreneur crisis in the U.S., which is reflective of an innovation crisis,” Schramm said, adding that while the two distressing trends were happening together, they weren’t being well understood or seen by mainstream observers.

Schramm led off his remarks by pointing to a couple of inverse correlations, which can be inferred when looking at U.S. entrepreneurship and innovation. Despite the fact that academic programs for entrepreneurship have exploded from four schools in 1990 up to more than 3,000 schools employing more than 6,000 entrepreneurship professors currently, and yet U.S. entrepreneurship has declined. Similarly, business incubators have spurted from 12 local incubators in 2002 up through 1,400 such incubators today. “The more of them we open, the fewer entrepreneurs we produce,” Schramm said. He added that less than 20 percent of such incubators currently keep statistics on the success of incubator startups, calling that a “terribly disturbing statistical vacuum.” “Why would local guys who are mostly picked by governors and mayors to be venture capital advisors do better than the professionals?” Schramm asked. “There is no science in this business.”

Teaching students to become entrepreneurs in their early 20s is something that we’re “enamored with” in the U.S. but young adults have a limited worldview compared to those in their late 30s; the average age of a person beginning a successful startup earning over $1 million in yearly revenues is 39. In Schramm’s view, about 70 percent of the startup ideas coming from students in university entrepreneur programs relate to university-specific problems, such as reducing food waste in cafeterias or parking management systems for football stadiums.

Schramm wound up his remarks by focusing on four aspects of the current landscape affecting American innovation, beginning with the sensitivity of American innovators to the signals that it’s becoming more difficult to be a successful innovator as an individual. Much of this sensitivity has been triggered by an abundance of regulations which have left business students with questions as to whether the federal government will essentially need to approve new business concepts or industries. “If you don’t think that it’s an overburden on people’s ability to think freely, you are really, really wrong,” Schramm said.

Another issue has been the consolidation of power into larger firms which has led to a presumption that big business is where true innovation occurs. Schramm pointed to the consolidation of the U.S. healthcare industry which has been impacted most significantly by the 2010 enactment of the Affordable Care Act (ACA). As a result, the number of healthcare companies has dropped drastically from the 211 health insurance providers operating prior to the ACA. “America is moving in a direction where government, big business and big labor would control the economy and give us endless prosperity,” Schramm said. “It doesn’t work, and it couldn’t work because it stands in the place of the individual.”

The consolidation of larger firms leads to Schramm’s next point, that current viewpoints on antitrust litigation were rather lax. Whereas entrepreneurs used to create companies with venture capital investment which they saw as their life’s work, Scramm said that 80 percent of startups today are sold to other companies. Many startups have exit strategies in place which consider a sale before the company even begins operations. “It’s very hard to find an entrepreneur who says that ‘I’m going to build this company in my vision,’” Schramm said. Finally, Schramm noted the “dangerous vision” that jurisprudence on patent policy and other issues were shifting from the United States to Europe. “We’re the only country on Earth that does things really right,” Schramm said. “Any time I hear that we’re going to harmonize with Europe, I get hives.”

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 8 Comments comments.

  1. Valuationguy May 17, 2017 9:03 am

    Thanks for related Dr Schramm’s comments.

    I happen to agree heavily with them that the emphasis on entrepreneurship at universities and its utter failure to provide tangible results is another example of how broken our education system is.

    Businesses are created around solving SPECIFIC problems….yet the problems seen/experienced by students (and taught by the ultra liberal faculty at most of our universities) are more likely to be GLOBAL issues where solutions require changing SOCIETY itself. Most haven’t worked a day in their lives…and are typically SPONGES of what OTHERS THINK…rather than thinking for themselves. Out of box thinking is NOT the specialty of a college student…because to succeed in college…you have to stay within the four walls of your professor’s views. This is one reason why the MOST SUCCESSFUL entrepreneurs never graduated. They marched to a different drummer.

    Of course there are SOME institutions where innovation and entrepreneurial spirit is engendered by an open-minded faculty….but they are the exception…not the rule.

  2. Night Writer May 17, 2017 9:21 am

    Easiest way to see that there is a problem is the large cash reserves of Apple, Microsoft, and Google. Companies that are in highly competitive spaces with viable competitors spend that money to innovate. They don’t horde $10 of billions of dollars a year.

  3. Bemused May 17, 2017 9:30 am

    Valuationguy@1: Your commentary is spot on.

  4. angry dude May 17, 2017 11:45 am

    The doc said ‘to the morgue’, to the morgue it is!

  5. Darrell Metcalf May 17, 2017 1:42 pm

    Quick: State what hi-tech innovation, backed by U.S. IP, has ‘flowed forth’ since AIA! Or even ten years back. to the Smartphone. Perhaps VR or AR? Think again, the category-encompassing VR patent expired pre AIA.

    Think Apple invented the iPod? Think again. It was brought to the company by (dare I say?) an ‘outside’ inventor, some might say an ‘NPE’. What impact did the ‘iPod’ have on an ‘iPhone’, an ‘iPad’ being follow-on products, or more valuable still on a new, disruptive ‘medialess’ form of distribution.

    Got Differentiation?

    Quick: State what’s substantially different between any one of the following — produced by U.S. or ANY of the top hi-tech companies — Smartphones?, Tablets?, Laptops?, Smartwatches?, Wearables? Can you say: “parity”.

    Patents challenge parity, fuel differentiation. But not in a system where patents are devalued, mocked, to the point where ‘Efficient Infringement’ prevails.

    So long as America fails to provide real-world property protection to its patents — it will see patent-attributable innovation, investment, entrepreneurship, differentiation, jobs, growth and revenues, that could have accrued to her benefit, get ‘outsourced’ to countries providing better protection to their patents.

    –Darrell

  6. angry dude May 17, 2017 9:22 pm

    Darrell Metcalf @5

    I can state very confidently that the cutting edge VR/AR technology is now coming from China…. HTC, Pimax, NoloVR … the list goes on and on…
    China is the birthplace of the next big thing in Virtual/Augmented Reality

    The scribble on the back of my old IPhone 4 “Proudly designed in California, manufactured in China” is long obsolete

    It should read now: “Proudly invented in China, manufactured in China, sold to US lemming consumers”

  7. Benny May 18, 2017 6:01 am

    Darrell,
    At least 100K US patents have issued which claim priority post -AIA. So, none of that represents US hi-tech innovation with commercial value? What is it , then?
    The market doesn’t link differentiation. That’s what standards are all about, so that the same charger and software can be used on different platforms interchangeably. Patents are not just about forcing your competitor to do things differently, they are also about licensing technology. What if you invent a superior, but incompatible product? Ask Sun Microsystems, for example, how far they got in the market with a system arguably superior to Microsoft/Intel.
    BTW, the last quote by Schramm, (“We’re the only country on Earth that does things really right,”) is comical out of context and, I would think, inaccurate withing the context of the US patent system.

  8. Anon May 18, 2017 7:59 am

    Benny,

    Not to pick a nit with you, but once again, your statements are simply in error at face value:

    The market doesn’t link differentiation. That’s what standards are all about

    is wrong on multiple levels, from the market likes angle to the reason for standards angle.