America innovates most when government stands behind a stable property rights regime

By Gene Quinn
August 31, 2017

Approximately ten years after receiving his patent, still not yet having been elected President of the United States, Lincoln delivered his second speech on discoveries and inventions. This often cited second speech was delivered first on February 11, 1859. It is in this speech that Lincoln simply and eloquently explained that the patent system “added the fuel of interest to the fire of genius.”

The entire passage from this famous Lincoln speech is as follows:

Next came the Patent laws. These began in England in 1624; and, in this country, with the adoption of our constitution. Before then any man might instantly use what another had invented; so that the inventor had no special advantage from his own invention. The patent system changed this; secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius, in the discovery and production of new and useful things.

Less well known than Lincoln’s often cited “fire of genius” line is something of even greater significance that Lincoln said shortly before uttering this now famous line. Abraham Lincoln explained that the three innovations in the history of the world surpassed all others. These innovations were above all others because they facilitated “all other inventions and discoveries.” One of these three seminal innovations was the “introduction of patent laws.”

Sadly, what seemed so evident to Abraham Lincoln almost 160 years ago seems all but lost today.

For much of the history of the United States the U.S. patent system stoked the fire of creative genius by enticing creative persons to innovate by giving them incentive to do so in the form of a patent. Increasingly over the last 12 years the U.S. patent system has chipped away at that incentive by making it more difficult to obtain a patent, easier and cheaper for infringers to challenge the validity of a patent, and less expensive to infringe even if they by some freak of divine misfortune find themselves finally adjudicated as infringers. How far rights can be eroded without completely compromising the entire system is a question inventors shouldn’t have to ponder, but these are not ordinary times.

Patent law has always swung like a pendulum. Swinging between more restrictive regimes where patent owners have few meaningful rights and back to a place where patent owners enjoy strong property rights.

Generally these pendulum swings occur slowly, but over the past 12 years the pendulum has been accelerating, and in a decidedly anti-patent direction. Years of chipping away at patents has added up to patent valuations being exceptionally low, a powerful a Patent Board that has been purposefully stacked against patent owners (as difficult as that is to believe), and validity issues in the most cutting edge technological areas: software and biotechnology. Indeed, individuals and corporations can get FAR better protection outside the United States relative to software and biotechnology than within the United States, which just a few years ago would have been a blasphemous statement.

Believing that innovation does not come from risk taking inventors, entrepreneurs, start ups, or even from the likes of those in Silicon Valley, is naïve in the extreme.  Sure, much of the long-term advanced government spending eventually produced things like the Internet, but America has always innovated most and best when stable rules are in place that incentivize risk takers to imagine the impossible and attempt to bring it into being. Simply stated, America works best and innovates most when government stands behind a stable property rights regime and gets out of the way so that risk takers can dream the impossible and set out to accomplish those dreams.

Unfortunately, our patent laws have become one-sided in favor of large technology companies that do not innovate, but rather have made a business of adopting the innovations of others. This efficient infringement business model recognizes that there is increasingly little that patent owners can do to stop infringement, so why pay a licensing fee? The problem for our economy is simple – large entrenched corporate interests do not engage in the risk taking required to innovate because Wall Street does not reward risk taking. Wall Street only rewards meeting or beating quarterly expectations, which is no way to run an innovation based business that is actually trying to accomplish anything worth innovating in the first place.

Dreaming big dreams is not what gets one a corner office in a publicly traded technology company, nor is it what shareholders reward. It is, however, a prerequisite to paradigm shifting innovation, which we all say we want. Even politicians who barely know anything about science, technology, engineering or math praise innovation and the breathtaking advances of those who dare to dream, but they don’t seem to understand even basic truths about the business environment necessary for those innovations to come through to fruition.

Those impossible, or at least lofty, dreams require money, which means investors on multiple levels need to be inspired. While the investor class with a tolerance for innovation risk taking is a different breed, at the end of the day investors invest to make money, which means they expect proprietary rights. In the innovation world that means patents, and not just any patents, but strong patents that are likely to survive challenge. Investors in this space will not just kick tires, they will engage in due diligence and generally speaking are not going to buy a pig in a poke, which is why you see so many start ups struggling to get investor dollars and so many investors going off shore for their investments.

The patent system all three branches of our government has created over the last 12 years has increasingly incentivized the stealing of patent rights rather than engaging in an arm length negotiation with innovators who possess patent rights that are supposed to be statutorily presumed valid. This is antithetical to basic, fundamental principles embedded throughout American law, not to mention basic economic principles.

Laws are supposed to be certain, stable and understandable. When certainty, stability and understandable laws are achieved externalities and transaction costs are low, which allows for the bargaining of rights to ensue. This in turn leads to an efficient outcome where the party that most values the rights can acquire certain, stable rights in a transaction that requires minimal diligence and presents little risk. This is known as the Coase theorem, and is attributed to Nobel Laureate Ronald Coase. According to the Coase theorem the law should maximize certainty and minimize transaction costs in order to facilitate an efficient, arms-length negotiation of rights between efficient parties.

According to Coase, obstacles to bargaining, a lack of certainty and/or poorly defined property rights will lead to an inefficient marketplace. It seems that the utter chaos that has become the U.S. patent system has once again prove the brilliance of Professor Coase and the elegance of his theorem.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

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 39 Comments comments. Join the discussion.

  1. Confused Pharmacist August 31, 2017 4:29 pm

    What about boredom as a driver for innovation?

    https://hbr.org/2011/05/how-boredom-can-drive-innovation

  2. step back September 1, 2017 10:13 am

    Confused:

    Too many people get this wrong.

    Patents are not supposed to “cause” invention in the first instance.

    Rather their purpose is to “promote” (accelerate, speed up) the rate of progress in science and the useful arts.

    The theory is that inventors will be forced to race as between one another because only the winner of the race (first to file) gets the prize.

    Invention is not innovation (the latter being more so about getting the fruits of invention into the hands of the public).

    Patents also help innovation because suddenly there is a private property right in the inventions that underlie the innovation effort.

    By killing patents, the patent haters slow down the rate of invention and the rate of innovation. They draw down on the fuels that accelerate both processes.

  3. Tesia Thomas September 1, 2017 10:16 am

    It doesn’t matter how bored you are. You’re not going to sink thousands of dollars to millions of dollars into inventing just because of boredom.

    And, no investor is going to fund the fruits of your boredom.

    People want a return. The patent is the return on investment. Otherwise, might as well just donate your IP money to charity.

  4. Robert W. September 1, 2017 10:41 am

    Lincoln’s 1859 so-called “famous speech” included a most infamous comment:
    “Though not apposite to my present purpose, it is but justice to the fruitfulness of that period, to mention two other important events—the Lutheran Reformation in 1517, and, still earlier, the invention of negroes, or, of the present mode of using them, in 1434.”
    Lincoln regarded the “negroes” as a new & useful commodity invented by the Portuguese Antonio Gonzales, the first ship captain who brought a “few negro boys” from Africa in 1434 & sold them in Portugal & Spain.
    As a certifiable racist and the serial “killer in chief” of about 800,000 Americans during the Civil War, Lincoln’s name should not be mentioned in the context of the Patents’ history or in reference to any other historical matter, period!

  5. Eric Berend September 1, 2017 3:00 pm

    One of the more clearly stated expositions of the value of the proposition of patents as applied to intellectual property, that I have seen.

    Thank you, Gene.

  6. HeartPTAB September 1, 2017 5:44 pm

    Get real, Lincoln was a long time ago. Things were completely different. Today we have software that obsoletes in a few short years. If Lincoln was alive today and saw the innovation happening in today’s world, he would have a different opinion.

  7. HeartPTAB September 1, 2017 5:46 pm

    Tesia:

    Nobody needs to “sink millions”. That’s not how innovation works in software. You need a weekend to implement a prototype and try it out. Sometimes less, sometimes a little longer.

  8. Benny September 2, 2017 6:48 am

    Gene correctly points out that the genesis of the internet was military/government contracts, beginning with the requirement to link early warning radar stations. A significant proportion of technical innovation (radar, gps, jet engines, computers) is a direct result of government cost-plus contracts, rather than individual initiative.

  9. Tesia Thomas September 2, 2017 9:05 am

    Benny,

    I think it became that way only in the mid 20th century.
    Before the MIC was even formed, it was individual initiative.
    Then, yes, people started to get tons of money from the govt. That’s what made Silicon Valley.

    And it’s only because the funding was easier to come by. It’s much easier to obtain government funding for something that seems long winded than to get investment for it.

    Now even govt funding is super competitive and fraud, waste, and abuse reigns.

    Dual use research is also highly misappropriated from individuals who began r&d before obtaining govt funding.
    So of course ppl think what you think.
    Just as people wrongly believe NASA invented Velcro and that the Army invented color night vision.

  10. Tesia Thomas September 4, 2017 2:49 pm

    @HeartPTAb,

    That’s not how innovation works in anything, software or manufacturing/mechanical hardware.

    You need money to produce, scale, and ship. Or else why are these software startups raising millions?

    My point is you’re not going to raise millions on software tech that isn’t defensible. Investors want defensbility.

    But, thanks for misconstruing my words.

  11. Gene Quinn September 4, 2017 2:57 pm

    HeartPTAB-

    You say that no one has to spend millions developing software, and then you say: “That’s not how innovation works in software.”

    What is clear is you don’t know a damn thing about developing software. Even simple software projects where nothing is new and all you are doing is developing simple applications for the web easily costs $50,000 to $100,000, plus the ongoing cost of maintaining for security, new browsers, etc. For major projects and releases from companies like Apple, IBM and Microsoft, you are correct when you say they don’t spend a million dollars on development — they spend hundreds of millions of dollars.

    I don’t know what kind of fake narrative you are trying to push here, but you’ve stumbled upon an audience that actually understands the truth and isn’t going to be swayed by ignorantly stated falsehoods.

  12. Tesia Thomas September 4, 2017 3:00 pm

    But, @Heart PTAB, maybe you think servers and software engineers are free.
    I mean, you are claiming that you can speak for a dead man.

  13. Benny September 5, 2017 1:59 am

    Gene at 11,
    I take issue. You are confusing innovation with development (and it appears as though you are using the words interchangeably in your post). True, software development requires huge investment of time and money in coding, debugging, testing, writing user interfaces etc. Innovation means creating something entirely new and unknown which might be a single routine in disk full of software. In my field, I’ve seen software patents which are stimulus-data manipulation-response routines – often quite short ones – within complex, but well known, control software.

  14. Eric Berend September 5, 2017 2:07 am

    @ 6, 7, ‘HeartPTAB’:

    Once again, “software” is all that you IP pirate sycophants pretend to see, in the U.S. patent domain.

    Have you never heard of a patent describing an apparatus, a chemical process, an electrical circuit?

    Of course, you also come off sounding like Justice Breyer, he of the infamously ignorant remarks in oral arguments before the Court, about sophisticated software capabilities being developed “by a few CS students in a couple weekends hanging out at a Starbucks”; in so many words.

    The magnitude of contempt, unfounded derision and gratuitous opprobrium in your comments, can only come from a committed lackey of the most criminally motivated IP pirates in SiliCON Valley and China, Inc.

    Do you have anything to offer here to actual, real world inventors and IP practitioners, besides egoistic insults?

  15. Anon September 5, 2017 8:09 am

    HeartPTAB does sound like a minor flunky – even the choice of moniker seems geared to one thing: antagonizing others.

    The PTAB – and more correctly, the manner in which Congress has set up the PTAB – objectively has several Constitutional infirmities.

    How one reacts to (or chooses to gloss over) those infirmities often speaks louder than the actual words put forth.

    On that other blog, for example, there is a poster, Greg, that wants to maintain the function that IPRs in the PTAB provide, and he does not shy away from the objective elements on the table of discussion. Rather (albeit with some flaws), he seeks a number of possible changes that could still provide that function while eliminating the Constitutional infirmities.

    One such as he is eminently more believable than anyone who would either close their eyes to the infirmities (much less anyone who would choose to celebrate those infirmities by attempting to glorify the Ends regardless of the Means to those Ends).

    So yes, Eric, your post at 14 is most likely dead nuts accurate, and “HeartPTAB” is likely an anti-software wanna-be mouthpiece – much like those that have attempted to spam or attack this site on a recurring basis.

  16. Gene Quinn September 5, 2017 1:06 pm

    Benny-

    For any project of any size you cannot divorce innovation and development. As you set forth with development you will encounter many unforeseen problems that will demand attention, many of which will require further innovative solutions. So while a version 1 may exist that can be protected prior to development, there will be a great deal of follow on innovation that occurs during development. That is an absolute truth of any innovation, especially so for software.

  17. Anon September 5, 2017 1:32 pm

    Gene,

    I agree with your response to Benny and would merely add that innovation often is intertwined with development and “ironing out the kinks” of an earlier innovation. This is a well-honed view in the innovation literature.

    I would also add that on the international front, this is currently being played out. I am somewhat surprised that I have not read yet academics putting two and two together and realizing that the earlier migration of the manufacturing sector to such places such as China have brought along other innovation efforts.

    There is a very good reason why China has accelerated along the (oft-historically repeated) innovation curve and NOW is seeking more of that by upgrading their patent system (even as we engage in self-destruction) pushed in large part by a (Large Transnational Corp) captured Congress and a judicial body (the Supreme Court) that has historically been Left-centered when it comes to the vitality of the property right that is patents.

  18. Gene Quinn September 5, 2017 1:45 pm

    Anon-

    Exactly right. China doesn’t really need to steal IP from the U.S. The U.S. is willing giving IP away for purposes of manufacturing in China and elsewhere. All the follow on innovation, which by some estimates is as much as 80% of the overall innovation attributed to a single innovative breakthrough, belongs to those manufacturing.

  19. Benny September 5, 2017 3:51 pm

    Gene and Anon,
    In many cases manufacturers outsource R&D to Asia, and not just manufacturing. You see this often when a company requires solutions which are outside their core competence,. China is not suffering from shortage of talented engineers who are content with wages lower than the US norm.

  20. HeartPTAB September 5, 2017 4:55 pm

    “Even simple software projects where nothing is new and all you are doing is developing simple applications for the web easily costs $50,000 to $100,000”

    Gene – who would bother filing patents for $100k project?

    Yet you claim I’m the one who doesn’t “know a damn thing about developing software”.

  21. HeartPTAB September 5, 2017 4:57 pm

    Tesia – software developers do not need $millions to make a successful living.

  22. Gene Quinn September 5, 2017 4:57 pm

    HeartPTAB-

    Did you seriously ask why you might file a patent for a project that costs $100K to develop? You do understand in business the goal is to spend X and then have many multiples of that X returned.

    Yes, your comment does pretty conclusively point to the fact that you don’t know anything about patents, software or business.

  23. HeartPTAB September 5, 2017 5:00 pm

    “by a few CS students in a couple weekends hanging out at a Starbucks”

    Eric – You are a perfect example of not having a clue. A single competent developer can implement significant idea over one weekend – not “a few CS” and not “couple of weekends”. If you want to be blind to that notion, then I can’t help you.

  24. Paul Morinville September 5, 2017 5:00 pm

    HeartPTAB, Gene is right. You don’t know a damn thing. It doesn’t matter what the development costs of a product are… it matters what the revenue potential is. A patent does not protect development costs. It protects a market. If you are developing something and base your decision to develop it or not based on development costs and not market potential, patents are not for you. Leave the big boy stuff of business for someone else. You can go back to your app development.

  25. Tesia Thomas September 5, 2017 5:06 pm

    @HeartPTAB,

    Software companies not employees need millions.
    Or else why do startups raise VC funding?

  26. HeartPTAB September 5, 2017 5:07 pm

    Sorry Anon but anyone who pushes patents onto hardworking software little guy is the “anti-software wanna-be mouthpiece”.

  27. HeartPTAB September 5, 2017 5:09 pm

    So spending $25k on a patent that is unenforceable for a $100k project makes sense to Gene and Paul Morinville. Alrighty then.

  28. step back September 5, 2017 9:16 pm

    H…TAB

    First I thought you were being sarcastic, tongue in cheek style, when claiming that a college student can do it (any software project) over a mere weekend.

    Now I realize you were being serious. Woefully wrong but serious.

    Let’s play 20 questions.
    You wouldn’t happen to be swing vote Justice who sits on the Supreme Court, would you?

  29. HeartPTAB September 6, 2017 12:48 am

    S…Back – never said “any software project” over a weekend.

    Based on your previous history here and by throwing “any” in there makes me believe that you prefer to be facetious rather than have a conversation and perhaps even learn something. Probably the same reason you folks stay here in your safe and comfy website instead of daring to venture out on where software folks discuss patents and their effects on real people developing innovative software.

  30. Roger Heath September 6, 2017 1:34 am

    TAB – “hardworking software little guy”

    Can you give one patent example that a “software little guy” is going to be using.

  31. Roger Heath September 6, 2017 1:46 am

    TAB – “where software folks discuss patents and their effects on real people developing innovative software.”

    OK- Where are they?

  32. Benny September 6, 2017 2:06 am

    HeartPTAB @27,
    For a patent attorney, a client spending 25K on an unenforceable patent makes sound economic sense. A lot of the people here on this site make a living by drafting, filing and prosecuting patents, rather than inventing anything (with the probable exclusion of Paul M), and whether the granted patent has any value to the client is not their problem – these people have to make a living and put bread on the table. The economics of IP ownership are far more complex than merely balancing the patent costs against the project sales. Patents can increase a corporation stock market value, and blocking a competitor from marketing a feature can essentially transfer customers to your product and have more effect than a 0.25M$ advertising campaign. Of course, you also have the case of clueless managers who think the patent “protects their product” as a whole and don’t understand what they are getting for their money – those are the ones who continually pay maintenance on patents with ridiculously narrow claims.

  33. Roger Heath September 6, 2017 2:25 am

    The real issue is the successes of fake narrative by Chinamen With A Keyboard, et al., in disparaging patent holders and American attorneys.

  34. HeartPTAB September 6, 2017 1:11 pm

    Roger, here’s some from past couple of months:

    PatentShield helps startups fight patent litigation in return for equity https://news.ycombinator.com/item?id=14208324

    Microsoft and Linux and Patents and Tweets https://news.ycombinator.com/item?id=13020601

    Universities have turned over hundreds of patents to patent trolls https://news.ycombinator.com/item?id=12709546

    Reward for Patents After Leaving the Company? https://news.ycombinator.com/item?id=14741110

    But be forewarned, Hacker News is a lions den for patent folks

  35. Tesia Thomas September 6, 2017 1:36 pm

    And yet Paul Graham made the patent pledge: https://techcrunch.com/2011/08/31/ycs-patent-pledge-asks-tech-companies-to-grant-startups-patent-immunity/

    …and I don’t see most of the efficient infringers anywhere on the list: http://www.thepatentpledge.org

  36. HeartPTAB September 6, 2017 5:17 pm

    The comments on HN are the community not Paul Graham

  37. Tesia Thomas September 6, 2017 5:22 pm

    Well, if any of those in the community want to be accepted to Y Combinator then they’ll likely need patents.
    Pretty much all of Y Combinator’s successes have patents.

  38. HeartPTAB September 6, 2017 7:16 pm

    Tesia – you’re only making my point. Patents do not help the little guy – hence why Graham in 2011 was looking to get tech companies to pledge not to threaten his tiny 2-3 person innovative startups with patents.

  39. Tesia Thomas September 6, 2017 7:18 pm

    Yeah I know. But what do you do when you’ve made mech tech?
    (besides just never talking about it)

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