Posts Tagged: "productivity"

Economic Consequences of the Patent Crisis

The Fed has been oblivious to the mechanisms of market economics and technology investment driven by the degradation of patent rights in recent years. While the Fed focuses exclusively on inflation and the labor market, they have ignored factors driving technology investment and the disintegration of the patent system that has underscored the declining business investment trend. With a degraded patent system, investors have shifted to other asset classes or markets rather than investing in technology.

Policy Solutions to Repair the US Patent System and Restore Productivity Growth

The declines in productivity growth in recent years are undisputed. There is some controversy over the causes of these declines, particularly, the sources of the declines in technology investment. However, the arguments of the present article elucidating a decline in the patent system suggest a clear and potent explanation for the declines in technology investment and in productivity growth…. The tech cartel has been relentless in denying opportunities for patent holders to enforce patents. The three main ways for attacking patents include instituting IPRs in the PTO, constraining enforcement in federal court and limiting damages. Each of these must be retuned.

Connecting the Dots of a Weak Patent System and Productivity Growth Decline

Technology transfer is blocked in a weak patent system since companies employ the “efficient infringement” model. In a weak patent system, enforcement is expensive and burdensome, supplying the infringer with incentives to infringe. Rather than voluntarily license technology, incumbents engage in reverse hold out in which they ignore patents and refuse to deal with patent holders. When an entire industry engages in reverse hold out, that is, collective refusal to deal, which is enabled by a weak patent system with high barriers to enforcement, they exhibit anti-competitive behaviors. In fact, enforcement in the courts, as expensive as it is, is generally caused by the belligerence and refusal to deal by technology incumbents which force matters to the courts. Particularly in the absence of an injunction as a remedy for the patent holder, the patent holder can no longer possibly be considered a hold out because their patents cannot enforce an exclusive property patent right. In the pervasive business and political environment that enables the collective refusal to deal with patent-holding market entrants, with high transaction costs to patent enforcement and with reduced compensation from enforcement because of a reduction in patent remedies, there is no incentive to invest in innovation.

Correlation of U.S. Patent System and Productivity Growth

By providing a property right in exchange for the disclosure of a novel and useful invention, patent law supplied an incentive to perform risky and expensive scientific research. By embedding a property right in a patent, the market, not a biased government, could pick winners and determine value. A patent embeds a micro-economic property right in an invention from which market-based incentives are derived. From the property right, market competition is developed as multiple competing parties enjoy similar benefits of owning the fruits of discoveries in which they have vested financial interests. The patent system thus levels the playing field for different competitors as it encourages investment in scientific research. From the fair competition that arises in the system of patent rights that protects investment evolves economic and technological progress.

Economic Trends and Productivity Growth Decline in America

In the past decade, economic growth, wage growth, business investment and productivity growth have declined dramatically. Economists have discovered that productivity growth alone explains the dramatic development of industrial economies. Yet, the causes of productivity growth are unclear, with capital, labor and technological contributions. My central thesis is that productivity growth is strongly correlated with a strong patent system. Consequently, I will show that the attack on patent rights starting about 2005 is correlated to the decline of productivity growth. The patent system is designed to induce business investment in technology R&D. In effect, the macroeconomic analysis of productivity growth rests on microeconomic phenomena of decisions made by entrepreneurs to risk capital on technology projects in the expectation of a reward.