President Obama Gives Reaganesque Innovation Speech

Let me set the record straight from the start. I do not agree with President Obama on much, and I voted for and supported John McCain dating all the way back to his first run for President. Having said this, it is impossible to ignore the fact that so far President Obama and his Administration is saying all the right things with respect to innovation and patents, and there is real cause for optimism, at least if you believe that innovation and strong patent rights will lead to a better economy and leverage what Americans do best, which is solve problems with ingenuity and innovation. Not only has President Obama appointed a patent attorney to run the Patent Office, which is sadly revolutionary, but when he speaks of innovation his words sound Reaganesque. This has never been more apparent than in his speech on innovation and sustainable growth delivered at Hudson Valley Community College in Troy, New York, on Monday, September 21, 2009.

While I may disagree with the President on many levels and with respect to many issues, his stated innovation policy is enlightened and if he delivers on his promises he may well go down as the President with the strongest and most well developed innovation and patent policy in US history. While it is hard to ignore the tremendous work done by the Reagan Administration to cut out of control pendency, and while one cannot ignore the growth of technology and the economy under President Clinton, and while we have had inventor presidents like Jefferson and Lincoln, President Obama seems to get patent and innovation policy on a different level. I just hope his overly ambitious and highly contentious domestic agenda doesn’t get in the way, and I likewise hope opposition to strong intellectual property rights and a competitive, capitalistic economy based on innovation isn’t thwarted by the radical left wing of the President’s own party.

During his remarks at Hudson Valley Community College President Obama made numerous positive statements that should make any patent attorney, inventor, entrepreneur and small business stand up and applaud. Some of his most positive pronouncements included:

1. “My budget finally makes the research and experimentation tax credit permanent. This is a tax credit that helps companies afford the often high costs of developing new ideas, new technologies, new products — which means new jobs. And this tax incentive returns two dollars to the economy for every one dollar we spend. Time and again, I’ve heard from leaders — from Silicon Valley to the Tech Valley — about how important it is. I’ve also proposed reducing to zero the capital gains tax for investments in small or startup businesses, because small businesses are innovative businesses; they produce 13 times more patents per employee than large companies do.”

COMMENTARY: Reduced taxes for small businesses and start-ups is exactly the right recipe to foster innovation and associated job growth. It is also extraordinarily positive to have the President recognize that small businesses are more innovative than large companies. This is a well known truth. Large companies simply lose the ability to innovate because there are to many levels of weeding out between invention and the person or persons who can green light the funding and pursuit of commercializing an innovation. This causes a lot of good ideas and inventions to languish. If we want to spur the creation of new industries that will create jobs that never previously existed we need to foster, promote and assist independent inventors and small businesses.

2. “Now, another key to strengthening education, entrepreneurship, and innovation in communities like Troy is to harness the full power of the Internet, and that means faster and more widely available broadband, as well as rules to ensure that we preserve the fairness and openness that led to the flourishing of the Internet in the first place. So today, FCC Chairman Julius Genachowski is announcing a set of principles to preserve an open Internet in which all Americans can participate and benefit. And I’m pleased that he’s taking that step. (Applause.) That’s an important role that we can play, laying the ground rules to spur innovation. That’s the role of government — to provide investment that spurs innovation and also to set up common-sense ground rules to ensure that there’s a level playing field for all comers who seek to contribute their innovations.”

COMMENTARY: I am not a fan of government telling business what they can do with their own assets, which is one way to look at Internet neutrality. The government is telling companies how they can manage their network resources. Having said that, there is something fundamentally wrong with businesses discriminating and the government not stepping in to stop that discrimination. It is impossible to ignore the fact that the Internet has become an omnipresent aspect of both personal and business life. The Internet is like any other scarce resource, and government setting rules that promotes neutrality, prevents discrimination and keeps a resource as important as the Internet open for exploitation by individuals and small businesses is hardly something to lament. The devil will be in the details, and good ideas can turn bad given the particulars, but from a policy standpoint ensuring that small businesses cannot be shut out and discriminated against makes perfect sense. The life-blood of our economy is entrepreneurship and small businesses are the ones that will most rapidly exploit opportunities and create new jobs. It is also exceptionally good to hear the President express interest in setting rules that will spur private investment in innovation and start-up companies.

3. “The same thing is true when it comes to energy. No area will need innovation more than in the development of new ways to produce and use and save energy. And you understand that here at Hudson Valley. I firmly believe that the nation that leads the clean energy economy will be the nation that leads the global economy.”

COMMENTARY: This statement is no different than the statements of President Reagan relative to superconductivity. If there is going to be a global revolution then the place for America is at the front of said revolution, not struggling to catch up. Right now we are struggling to catch up, and that is not acceptable. We are behind many countries in deployment of innovative energy solutions, and between the sun in our desserts and the wind practically everywhere, we should be out in front. In order to accomplish this we need to give incentives for green technologies and we need to move patent applications faster through the system to get to the point where assets have been created that will lead to investors providing capital. The truth is Gordon Gekko got it right — greed is good. Perhaps it is more appropriate to say that greed CAN be good.

The reality is that creating new industries requires capital, and unless we want to have ridiculously burdensome levels of taxation we need to leverage the greed of those who have money and give them cause to part with that money in ways that will lead to the desired outcome. This means we need to not only tolerate patents, but embrace them. We want investors to support risky research and development knowing that many innovations will never make anyone any money other than patent attorneys and other vendors. Thus, we need strong patent rights that can withstand scrutiny and be used to exclude others. This sufficiently tickles the greed gene, causes investors to invest, creates jobs and also critically gives other companies the reason to continue to push the envelope with respect to other new technologies. The patent cycle causes more innovation, not less. If you lose out you do not give up, you work toward new solutions so that you do not infringe and so that you don’t have to pay royalties and so that you can eventually get your own patent and exclude others. Tickling the greed gene is exactly what we need to do, and hearing President Obama embrace such a fundamentally capitalistic idea is wonderful.

The Bad News

Now for the bad news. Not all innovation is good, and while on paper it sounds wonderful that we can save money and reduce waste by creating electronic medical records, the truth is that such activities will cause us to surrender privacy and could fulfill Orwellian prophecies. Furthermore, industry has shown extraordinary ineptitude with respect to protecting financial data from identity thieves and hackers, and I find it almost impossible to believe that an electronic medical records database could be made secure. To many people will have access, to many people will have incentive to seek access for nefarious reasons and knowing how the Patent Office manages technology does not give me warm and fuzzy feelings with respect to the government involvement.

I also note that President Obama only used the word “patent” once in his speech. Perhaps it is overly optimistic to believe President Obama views strong and plentiful patents as the cornerstone to his envisioned innovation based economy. Many in the President’s own party do not believe patents should be granted on much, if any, technology.  It is therefore conceivable that President Obama thinks innovation will occur as a result of altruistic means and in spite of patent protection. His position advocating short exclusive protection for biologics seems directly opposite to the views expressed in this speech, so there is cause for concern. But for now, saying the right things and appointing David Kappos as Director of the USPTO provides hope, so I choose to be optimistic, at least for today.