Americans have long celebrated many things, but one of them has been our incredible ability to continue innovating. Much of what it means to be a modern society is due to innovations made or commercialized most successfully first in this country. The telephone, the automobile, the airplane, computers (mainframe and personal) and software to operate them, air conditioning, and the Internet (with retailing and search) were all commercialized by entrepreneurs in the United States.
Patents have been and remain critical to incentivizing innovation, which in turn is key to sustaining economic growth and increasing living standards. Public officials, academic scholars and other commentators continue to debate whether and how to improve the legal standards and procedures for granting patents and challenging them. As important as these subjects are, they do not address the central economic problem with the current patent system in the United States.
The real challenge is that today the legally oriented patent system imposes significant transactions costs on licensing inventions: Most patent owners and users cannot bear the costs or risks associated with enforcing and licensing their patents. As a result, a substantial portion of the two million-plus patents granted, and thus the knowledge and technology they embody, is not commercialized or used to benefit others. The potential cost of this waste to the American economy has been estimated to be as large as $1 trillion annually, representing a five percent reduction in potential GDP.
Jay Walker sits with Jon Ellenthal as he listens to his introduction as keynote speaker at the 2014 IP Dealmakers Forum.
On Thursday, November 6, 2014, Jay Waker, the Founder of Priceline.com, gave what can only be described as an inspiration keynote address at the 2014 IP Dealmakers Forum in New York City.
Speaking without notes, Walker was in rare form. This is the presentation that all Congressional Staffers and every Member of Congress needs to hear. Walker spoke about everything from job creation to the need to allow innovators to benefit from the fruits of their labors. The common thread throughout his speech was simple— attracting more customers leads to job creation, the way you attract more customers is to solve problems in innovative ways, and then you patent those solutions, thereby creating a competitive advantage.
“If you are good at solving problems you can have a lot of customers,” Walker explained as he started his address. You can have a billion customers if you solve a problem in the modern world that a lot of people have, her told a packed audience of nearly 200 attendees, with more in the overflow room where his address was being broadcast internally. He then succinctly explained: “How do we solve problems: Inventors.”
Editorial Note: This month’s column from Joe Allen comes from his plenary address to the Eastern regional meeting of the Association of University Technology Managers, which took place in Baltimore, Maryland, on September 18, 2014. CLICK HERE to view his PowerPoint presentation, which includes facts and figures that support the positions taken in this article.
They say when speaking that you should repeat your message at least three times. Here’s the first: Bayh-Dole has succeeded beyond anyone’s wildest imagination. It was not created to benefit universities but the American taxpayer. You are the stewards of a public trust and have an obligation to defend and protect the law in the same way as the Founders of AUTM protected it for you.
Research universities are now recognized drivers of our economy and your discoveries improve lives around the world, but that wasn’t always the case. The reason is the Bayh-Dole Act which gives certainty and predictability to the ownership and management of publicly funded inventions so they can move from the lab into the marketplace.
Last week I was speaking in Brazil which adopted a technology transfer law to spur university-industry partnerships. Unlike Bayh-Dole theirs is full of uncertainty which is undermining its impact. I explained that having clearly stated rules is an essential ingredient for success because companies are undertaking a tremendous risk when turning university technologies into useful products. The time and expense of development is borne by the business—not the government or the university. Companies cannot justify this effort when the bureaucracy inserts itself between a university and its industry partner. That was the situation in the US before enactment of Bayh-Dole and it caused the benefits from billions of dollars of taxpayer supported research to go right down the drain.
We are at a point in time where the overwhelming sentiment is against the patent system. Rather than celebrating innovators the public, and our leaders, vilify anyone who has the audacity to seek patent protection. The simple reality is that without a strong patent system investment in innovation will cease. This truth should be self evident to anyone with half a brain, but sadly it is not. There are many truly ignorant individuals who actually believe that investment in research and development will continue even if the day an innovation reaches the market it can be copied without recourse by competitors. What a fairy tale!
As Dr. Kirstina Lybecker has explained: “Incentives are essential to innovation due to the expense of research and development activities, and the public-goods nature of the resulting knowledge.” Indeed, there is no business person in the world who would ever invest the hundreds of millions or billions of dollars necessary to bring ground-breaking innovations to market without the expectation of the competitive advantage provided by a strong patent. In the real world investors seek a reasonable return on investment given the risk, which is quite substantial in the high-tech, innovative world. To ignore this reality one must be firmly planted in fantasy and not the real world.
Yesterday the Partnership for American Innovation (PAI), which is comprised of Apple, DuPont, Ford, GE, IBM, Microsoft and Pfizer, submitted comments responsive to a request for public information published in the Federal Register back on July 29, 2014, titled Strategy for American Innovation. Some may recall that in February 2011, President Obama released a Strategy for American Innovation, which described the importance of innovation as a driver of U.S. economic growth and prosperity, and the critical role the government plays in supporting the innovation ecosystem. The Office of Science Technology Policy and the National Economic Council are now tasked with updating the document to create a revised Strategy for American Innovation.
One can hope that this group of venerable American innovators will be able to get through to decision makers who will be responsible for charting the new innovation and intellectual property strategy. Notably missing from the PAI, however, is Google, who will certainly have different views.
Google is known to be one of the primary advocates of watering down, if not outright destroying, the U.S. patent system. This is interesting because Google is a top 10 patenting company according to data from the United States Patent and Trademark Office for 2013. They have also spend tens of billions of dollars acquiring patent portfolios that now due to their lobbying efforts are practically worthless. Regardless of Google’s schizophrenic approach to patents, the arm of Google that seems to loathe patents and the U.S. patent system has particular influence in Washington, DC. Both current and former Google executives are known to have the ear of the White House, which is largely to blame for the substantial anti-patent sentiment flowing from the White House. Unfortunately, all of this suggests that whatever the new strategy for innovation will be it will be one that incorporates significant anti-patent positions support by Google.
There was a lot riding on Alice v. CLS Bank, and the Supreme Court got it wrong. There is no point in sugar-coating it, or pretending that everything will be alright. The Supreme Court is openly hostile to patents, and increasingly so is the Federal Circuit. Simply stated, strong patent rights are an absolute prerequisite for a high tech economy.
It is a sad realization, but we are indeed at a point were commercially viable claims worth litigating are virtually assured to be invalid claims. Until this changes the economy suffer in due course. After all, it isn’t the copycats who create new things. Copycats copy and innovators innovate. You cannot infringe patents owned by an innovator and claim that because the product is new to you it is an innovation. NO! It is merely new to you and a rip-off from the true innovator.
On the very same day that the U.S. jobs report shows unexpectedly weak growth, the Federal Court of Australia issued a ruling directly opposite to the ruling rendered by the United States Supreme Court relative to gene patents. In Yvonne D’Arcy v. Myriad Genetics, Inc., the Federal Court of Australia ruled that Myriad’s claims to isolated DNA are patentable under the laws of Australia. That is the correct ruling, and it is the ruling the U.S. Supreme Court should have reached in Association of Molecular Pathology v. Myriad Genetics. As the patent eligibility laws of the U.S. become increasingly inhospitable to high-tech innovative businesses we can expect more job losses and worse news for the U.S. economy on the horizon.
In Joe Allen’s recent column Does Innovation Lead to Prosperity for All? he ended with a quote by Alexander Fraser Tyler from The Decline and Fall of the Athenian Republic, which suggested that a democracy cannot continue to exist once the majority realizes they can vote for candidates that promise a never ending stream of benefits. Eventually, the result of politicians handing out money and benefits for votes leads to a collapse as the result of unsustainable fiscal policy. Allen quizzically ends by stating that this couldn’t ever happen in the United States, could it? Sadly, we know it is happening in America.
Saying the United States has a spending problem is an extraordinary understatement, but spending continues. The public demands spending and so many people now erroneously believe that the way to improve the economy is for the government to spend ever more sums while at the same time regulating business like never before. Taking the foot off the throat of the private sector and reducing government spending has been a time tested and effective way to stimulate activity, create jobs and improve the overall economic condition of the U.S. economy. So there is an extreme disconnect between historical reality, what the people want and the policies America is pursuing.
There’s a famous Chinese curse “May you live in interesting times” which certainly applies now. It seems that every cornerstone we’ve relied on has slipped, creating instability in all aspects of modern life. As humorist Ogden Nash remarked: “Progress might have been all right once, but it has gone on too long.”
We live in a world where seemingly everyone has a cell phone —and a rifle. Every day we learn of breathtaking scientific discoveries and atrocities straight from the Dark Ages. Thanks to technology images of beheadings travel instantly around the world.
Debates rage over hot button topics widening divisions in society. One is over the merits (or demerits) of the patent system. That’s really a subset of a larger question: does innovation lead to prosperity for most people or does it merely widen the gap between the haves and have not’s?
What, if anything, should be done to correct “income inequality” is a point of contention in our political system. President Obama says that growing income inequality and a lack of upward mobility is “the defining challenge of our time.” Sen. Elizabeth Warren (D-MA) ads: “Trickle down (economics) doesn’t work. Never did.”
By and large we are exporting our intellectual property so foreign companies and subsidiaries around the world can engage in manufacturing. Unfortunately, when manufacturing exits a country R&D funding dwindles in direct response, thereby creating an enormous problem. This has been and will continue to be an acute problem for the United States moving forward. With countless manufacturing jobs already gone what the American economy thrives on is intellectual property, particularly in the form of innovation.
This is an issue that has come to mind are the result of a recent article in POLITICO titled As factories die, income gap grows. This article starts by telling the tale of a married couple from Reading, Pennsylvannia, Dave and Barbara, who back in 2008 were making $22 and $19 an hour respectively working for Baldwin Hardware, a unit of Stanley Black & Decker Corp. Layoffs came, long term unemployment followed, and now the couple are among the tens of millions of Americans who are under employed. They had to run through all their retirement savings to stay afloat, and now they each make $10 an hour; Dave as a janitor and Barbara cleaning houses while she looks for something permanent.
The American story of lost manufacturing jobs dates back for decades. Bruce Springsteen’s song My Hometown, which is actually about my hometown of Freehold, New Jersey, immortalized the tale of a textile mill closing down, jobs leaving and never coming back, which leads to vacant stores throughout the town. The line ? Foreman says these jobs are going boys and they ain’t coming back” ?has proved to be eerily prophetic, repeated in once thriving manufacturing and industrial communities all across America.