What appears below is the speech Henry Nothhaft (Tessera President & CEO) gave at the Innovation Alliance conference on January 21, 2010, which is published with his permission. Readers may also find interesting Nothhaft’s recent article Looking for Jobs in All the Wrong Places: Memo to the President, relating to President Obama’s State of the Union Address and published by Harvard Business Review.
Hank Nothhaft addresses the Innovation Alliance Conference, 1-21-2011.
All told, I’ve helped create more than 6000 jobs and return 8 billion dollars to investors. And this work experience has given me first hand insight into a subject that economists are only now beginning to study closely. Namely the surprisingly powerful role that start ups play in job creation and economic growth. Of course, economists have been studying the sources of economic growth for a long time. 50 years ago, Robert Solo discovered to every one’s great shock that virtually all economic growth, or at least 80% of it comes from technological innovation. Not capital inputs or productivity increases or anything else, just technological innovation, the kind of break-through innovation that crates whole new industries and millions of jobs. Like the development of semiconductors, personal computers, software, and the Internet.
Manus Cooney (American Continental Group) discusses job creation with the panel, Chief Judge Michel looks on.
On Friday, January 21, 2011, I was at the Newseum for the Innovation Alliance conference on patents, innovation and job creation. The turn out was spectacular. Of course there were the usual suspects, but also in attendance were a number of Congressional Staffers and a good contingent of reporters. No doubt the location, only blocks away from the Capitol, facilitated the attendance of many.
I had the privilege of moderating the first panel on how patented innovations create jobs and economic growth. On the panel were Lisa Kuuttilla, President & CEO of STC.UNM at the University of New Mexico, Harry Leonhardt, Vice President & Deputy General Counsel for Amylin Pharmaceuticals, Inc., and John Swart, President of Exemplar Genetics, a small Iowa-based biotechnology company. The panel discussion ran the spectrum from Kuuttilla, who is responsible for getting University based research licensed and into the hands of start-up companies, to Swart who’s company is only three years old, has raised $6 million from investors and licenses University technologies, to Leonhardt who described Amylin as being in virtually the same position as Exemplar Genetics 20+ years ago.
The Freshman Class of the 112th Congress in the U.S. House of Representatives
Yesterday was the day that we remember Martin Luther King, Jr., which unofficially seems to typically be the start of the new business year and marks the end of the celebratory hibernation that occurs in the United States from the end of December through about the middle of January. The College Bowl games are now over, the NFL playoffs are half-way over and the next federal holiday isn’t for five weeks, with the next such holiday after that Memorial Day at the end of May. Thus, we are about to embark the heavy lifting period for business in the U.S., which coincides with the cold dark days of winter.
As a nation we continue to suffer from a number of very serious issues. We have a new Congress with a large number of new faces. There are 94 new Members of the House of Representatives, with 85 being Republican and 9 being Democrat, and a total of 16 “new” U.S. Senators, with 13 being Republican and 3 being Democrat.‡ See Congress by the Numbers: The 112th’s New Composition. We can only hope that eventually our leaders will turn their attention to the most important issue of the day; namely our struggling economy and anemic job growth.
We have all made the arguments — the issuing of patents leads to job growth. The nay-sayers would have people believe, however, that the issuing of patents is a drag on the economy. The factual realities are stark and tell a clear and unmistakable tale: patents are good for the economy and promote job growth.
Those who are not fond of the patent system like to pretend that innovation is free and will happen despite funding. Purveyors of extremist anti-patent rhetoric even go to the extreme of saying that we can expect the same level of innovation as we enjoy now absent a patent system. There is always one who is a software programmer who says that he or she could just work non-stop for six months, suffer many sleepless nights and wind up with a killer application, program or service, all at no cost and despite any patent protection. Of course, this proves the point for those who believe in a patent system, which is clear to all rational thinkers. Nothing in life is free. Opportunity costs are costs, and exactly how do you plan on taking your application, software or service to market? At some point every business will need funding to grow, it is just that simple. Patents and the rights they provide are extremely attractive to investors, so attempting to grow a business without a strategic patent portfolio means you are building obstacles and hurdles to success rather than removing them.
I frequently ask myself why it is that patents continue to come under attack by those who want to pretend they are only a burden on society and provide no benefit. Believing patents provide no benefit to society demonstrates a failure to understand fundamental aspects of the patent system, disclosure and publication of applications, as well as the basic economic reality that to innovate requires funding. Innovation, particularly cutting edge innovation, requires quite a bit of funding, sometimes many millions or hundreds of millions of dollars of funding. Where will that money come if there is no reasonable expectation of recouping the investment? Free-riders are not innovators and policies that encourage free-riders at the expense of innovators are nonsensical.
News of Nathan Myhrvold’s Intellectual Ventures bringing a series of lawsuits should have displaced the above the fold headlines regarding the vague financial turmoil currently afflicting the U.S. and World Economy. Whereas one will pass, like kidney stones, with much watery eyed pain and gnashing of teeth, the other is far more insidious and potentially fatal to our collective future as a leading economy. Here’s why:
Just like in the story-line of Independence Day, where the alien death ships slowly but surely positioned themselves over each major city, with the eventual outcome well understood, so too is Intellectual Ventures (I.V.) slowly positioning itself as the patent overlord over many major industry segments. Just like in the movie, the eventual outcome is well understood. To wit: Complete usurpation of the U.S. Patent system. The outcome is a, gigantic tax/toll collector controlling the pulse of innovation in the U.S. or, like the movie, extermination of innovation.
Let’s be perfectly honest, the US patent system has stopped rewarding innovation and has started rewarding those who have the finances and ability to game the system. That is a huge problem and one that needs to be addressed far more quickly than any other problem facing us. I have been saying for years that the manufacturing jobs are not coming back and that we need to focus on those areas where we can grow jobs and the economy, and that space is the innovation space. Innovation is at the core of growth because discoveries lead to inventions which lead to new technologies which lead to the creation of new industry which leads to the creation of high paying jobs. A rising tide lifts all boats and the tide that is going to lift the US economy is the innovation tide, so we need to start focusing on that and putting in place an environment that will allow innovation to thrive. This of course means a functioning patent system that recognizes worthwhile inventions, but it also requires that we put a stop to patent trolling.
In the election yesterday the Republicans scored an enormous victory in the United States House of Representatives, gains of a still unknown number in the United States Senate, and gains in Governors’ races as well as State House and State Senate chambers across the country. Earlier this afternoon, at 1:00 pm Eastern Time, President Barack Obama held a press conference to discuss the election and answer questions. At times during this news conference it seemed that he was in denial, not wanting to acknowledge that Americans could have potentially repudiated his policies, and at times he also seemed conciliatory and willing to work with Republicans. President Obama even accepted blame for the frustration of voters with respect to the progress on the economy.
There was one exchange between he and Chip Reid, White House Correspondent for CBS News, that had to do with the difference between spending and investment, and which touched upon the importance of continuing to foster research and development and not taking a back seat to China. President Obama said he is also willing to listen to ideas to stimulate job growth that Republicans have historically supported and that are deficit neutral. Well Mr. President, if you are serious I have the answer for you, and it wouldn’t take more than a $1 billion up front payment and the passage of a bill that is a single sentence long. The solution lies with the United States Patent and Trademark Office.