Reich’s Reality Doesn’t Have to Be True with Help from Commerce

By Gene Quinn
April 12, 2010

Robert Reich at the Progressive Governance Conference 2009

Today in the Wall Street Journal Robert Reich, a Professor of Public Policy at the University of California at Berkeley and former Secretary of Labor under President Clinton, painted a bleak picture of the future of the US economy over the next decade.  Reich explains that the latest job numbers are a positive sign relatively speaking, but that “the bleeding hasn’t stopped.”  While the economy added some 162,000 jobs in March, 40,000 were temporary jobs thanks to the ongoing census.  That means 112,000 “real new jobs,” as Reich calls them, were created, which is below the 150,000 needed on a monthly basis just to keep up with US population growth.  Reich blames outsourcing in large part, and says that even with robust job growth of 300,000 jobs per month it would take between 5 to 8 years to return to pre-recession levels of employment.

As a former Labor Secretary Reich knows a thing or two about the economy and employment in particular.  I don’t frequently agree with him on policy, but it is hard not to notice the man’s intelligence and grasp of issues, even if you oppose him philosophically or ideologically.  The reality he paints is altogether true, unfortunate and extremely unnecessary.  He concludes that “those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well.”  This may be true, but I know that it doesn’t have to be that way.  The outsourcing of jobs is largely in violation of US export laws and that seems to me to demonstrate the reckless disregard for the American worker rampant in Washington, DC.  The US government is not doing anything to enforce US export laws on the books and stop outsourcing that is in violation of US law.  Sadly, this is not a Democrat problem or an Obama Administration problem, rather it is a government problem.  The same US export laws were ignored under President Bush and when Republicans controlled Congress.

At the end of July 2008, I foolishly wrote that the USPTO ended patent outsourcing to India.  On July 23, 2008, the USPTO published a somewhat strange notice in the Federal Register, which was to remind patent attorneys and patent agents that the activities they are engaged, namely the sending of technological information abroad, was in violation of US export laws.  At the time I suspected that such a reminder notice was a precursor to actual enforcement of the laws and this was the shot across the bow giving fair warning to the industry to come into compliance.  Some 20+ months later nothing has changed, and in fact there is more outsourcing than ever.  At the end of July the Indian outsourcing of patent work was a $2.2 billion per year industry, and today it is undoubtedly more as most law firms that represent publicly traded companies can attest.

Yes, I know $2.2 billion per year is a drop in the bucket compared with our current financial crisis, but we have to start somewhere to stem the tide of job loss, right?  Ironically, $2.2 billion is more than the annual budget of the USPTO, which is sad in and of itself.  On top of that, if there is a $2.2 billion per year sucking sound of jobs from the patent preparation industry how big is the job loss in all other sectors combined? According to Reich outsourcing has increased dramatically during what he calls “the Great Recession,” and he doesn’t even mention India by name.  According to Reich:

Outsourcing abroad has increased dramatically. Companies have discovered that new software and computer technologies have made many workers in Asia and Latin America almost as productive as Americans, and that the Internet allows far more work to be efficiently moved to another country without loss of control.

Since the start of the Great Recession, which Reich and others say started in December 2007, the economy has lost 8.4 million jobs.  Even more staggering is that Reich explains the economy “failed to create another 2.7 million required by an ever-larger pool of potential workers.”  So much for the Obama “saved or created” language that was never anything more than linguistic games.  Reich’s comments in the Wall Street Journal today will likely not make him any friends in the Obama Administration.  I have long felt that Obama’s chief opponent in the Democratic Primary would be Hillary Clinton, who I suspect will step aside as Secretary of State at some point soon to lay the foundation for a challenge to Obama.  Could this op-ed by Robert Reich, a long time friend of Bill and Hillary Clinton, be a sign of things to come?

In any event, Reich reaches “the indubitable reality that many of the jobs that have been lost will never return,” but it doesn’t have to be that way.  Americans do not need to settle “for much lower wages and benefits.”  The Department of Commerce can instantly help by simply enforcing the US export laws on the books and stem the tide of outsourcing jobs.

An export is the actual shipment or transmission of items subject to regulation outside of the borders of the United States. More specifically, an export may also be the release of certain technology or software, including: (1) release of technology or software in or to a foreign country; or (2) release of technology or source code to a foreign national. Technology or software can be considered released for export through any of the following activities: (1) visual inspection by foreign nationals of United States made equipment; (2) oral exchanges of information in the United States or abroad; or (3) the application abroad of personal knowledge or technical experience acquired in the United States.

US export laws do contain a rather broad “fundamental research” exception. The fundamental research exception seeks to identify basic and applied research in science and engineering, where the resulting information is routinely published and shared broadly within the scientific community. Fundamental research must, however, be distinguished from “proprietary research,” the results of which are restricted for proprietary reasons.

There is a lot of “may be” and “could be” when reading through the US export laws. The goal is really to prevent the release of sensitive technology and information abroad that might have national security implications. Unfortunately, a careful reading of the maze of US export laws demonstrates that a good many things that most would believe could never have national security implications are nevertheless caught up by the US export laws and require a license issued by the US government before any export can be made.

There are safe harbor provisions, and if you go through the elaborate maze of regulations you may find that what you want to export is subject to a blanket license, but the truth is that many things that are exported are not covered by this blanket license and no license is applied for, making the exportation of technology and information contrary to US laws. This truth is confirmed by the USPTO Federal register notice, which said in part:

Applicants who are considering exporting subject matter abroad for the preparation of patent applications to be filed in the United States should contact the Bureau of Industry and Security (BIS) at the Department of Commerce for the appropriate clearances.

Under the current realities Reich is correct to say:

Given how many Americans are unemployed or underemployed, it’s hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won’t keep interest rates near zero for very long.

It is time to recognize that the Obama stimulus did not work.  It is time to recognize that US laws currently on the books provide a mechanism to stop at least some outsourcing of technology and information, which if it happened would necessitate the hiring of US workers.  It is time to recognize that the Department of Commerce must aggressively enforce US export laws and keep more jobs from leaving and reclaim jobs that have left.  Reich’s reality, which is scary, doesn’t have to be true, but will be if no action is taken by our leaders.

Under Director David Kappos, the USPTO is becoming revitalized.  The USPTO can and should play an integral part in fostering a technology based recovery.  Proper funding of the USPTO by Congress together with enforcement of US export laws can and will create jobs — American jobs — and lots of them.

At a time when Congress debates hundreds of billions of dollars in spending as if we were talking about lunch money, and we are adding more than $1 trillion a year to the national debt, and Social Security and Medicare are facing unfunded liabilities to the order of about $50 trillion, the one agency of the Federal government that has the authority to create wealth out of whole cloth and without any risk of inflation — the USPTO — has an annual budget of less than $2 billion and has to practically beg for a few extra million to keep afloat.  This is ridiculous on a level that is absurd. Export laws should be enforced and the USPTO budget should be doubled.  After all, what’s the harm?  It isn’t our money anyway, we just borrow it from China and Japan.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. 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 23 Comments comments.

  1. Steve M April 12, 2010 11:49 am

    Fully agree that IP work should not; and cannot legally; be exported . . . and that this tough job market will remain for some years to come . . .

    . . . but as bad as the current and future employment picture is and will remain, the greater concern should be that all this gov borrowing; when combined with the trillions the US is already in debt; now exceeds over $50,000 piled on to the backs of each and every American.

    Will our children, their children, and all those yet unborn ever forgive us for what we’ve done to them?

    If nothing changes (and most of us won’t vote for folks who tell us they’re going to reduce or take away benefits we already have and are looking forward to receiving), our tidal-wave of debt will make Greece’s looks like nothing more than a ripple in a pond.

  2. OldTimer April 12, 2010 1:06 pm

    Just some quick comments and questions:
    1. The employment stats were actually much worse than the jobs report indicated. In addition to the 40k census workers another 80k were due to “seasonal adjustments” by the department of labor. The sad fact is that there is virtually no private sector job growth in the US economy. Only government sectors are growing.
    2. This is a depression, not a recession. A recession is a temporary economic slowdown typically created when production outstrips demand and businesses are forced to slow production to work off excess inventory. A depression is a deflationary economic collapse almost always caused by the bursting of a credit bubble. Our credit bubble burst in 2007. It doesn’t look or feel quite like the depression of the 1930s because we now have a fiat currency that we can print at will and social programs keep much of the poverty hidden from view. In a nutshell, welfare payments and food stamps have replaced soup lines.
    3. “The outsourcing of jobs is largely in violation of US export laws and that seems to me to demonstrate the reckless disregard for the American worker rampant in Washington, DC. ” I assume you mean jobs in patent preparation? Or is it your position that other outsourcing violates export laws?
    4. My understanding is that many of the large corporations are using two techniques to get around export laws. The first is to make sure at least one inventor on patent applications is resident in India or China, such that they can take the position that the invention was not made in the United States. This is easily done by simply assigning an Indian resident to each research project. The second is to hire patent drafters in-house in an Indian subdivision, such that they can claim that the technology never left the corporation and therefore was not “exported” according to export laws.
    5. IBM pioneered outsourcing patent drafting to India. You’re dreaming if you think Kappos is going to tackle this issue. The practice is almost universal among big global tech companies. It’s not going to stop unless and until the courts start throwing out patents resulting from outsourced applications and levying fines against offending companies. Don’t hold your breath.
    6. The work returned from Indian outsourcing shops is complete crap, but the clients don’t care.
    7. Indian outsourcing results in little or no savings over using smaller patent firms, but again clients don’t care. My understanding is that much of this is driven by corporate pressure on in-house patent departments to develop an Indian outsourcing model.
    8. The Fed’s ZIRP (Zero Interest Rate Policy) or near-ZIRP is probably a permanent fixture of our economic landscape. We are locked into near-zero short term interest rates by our massive federal debt. The only way the U.S. Treasury can finance this debt is to issue short-term notes which have near-zero interest rates. Even a relatively small increase in interest rates will bankrupt the U.S. Treasury in a short time period.
    9. The really sick thing about ZIRP is that it drives the “carry trade” which drives investment and jobs overseas. In short, financiers borrow in dollars at zero percent and invest the money overseas in a jurisdiction with higher interest rates. It’s a guaranteed profit and sucks capital and jobs out of the ZIRP economy and pushes them into foreign economies.
    10. China has by and large stopped lending to the U.S. China’s treasury holdings are staying fairly constant at around $900 billion, plus or minus. They are purchasing new U.S. debt as old U.S. debt matures, but they are buying short-term treasuries rather than long-term, i.e., moving down the yield curve. Japan is similar. Most of our net new debt is being purchased by the Fed, which is to say that it is simply being printed.

    America has a terrifically productive and innovative private sector, but it is now trapped within a bankrupt government and financial system. I see nothing on the horizon that can drive investment and employment gains in the U.S. economy. I think we are looking at 10+% unemployment numbers as a permanent fixture in the economy.

  3. Gene Quinn April 12, 2010 3:19 pm

    Steve M-

    I agree with you that the greater concern is borrowing. I think we need an all options on the table solution to the problem. A portion is jobs, but the bigger problem is spending, which causes the need to borrow. While it is not a solution, it seems to me that anything we can do to enforce laws to keep jobs is at least a step in the right direction.

    -Gene

  4. Gene Quinn April 12, 2010 3:25 pm

    Old Timer-

    I hate it when I agree with you, particularly when your observations are even more pessimistic than my own. Having said that, it is hard to disagree with anything you write.

    Eventually there will be patents that are thrown out as the result of Indian outsourcing. Just a matter of time. Far more likely is the loss of valuable trade secret assets. I don’t really expect the government to do much, but it is only a matter of time before there is a major breach and shareholders will likely start asking questions. At least that is the hope.

    I know how corporations attempt to get around the export laws. I am not sure they are technically within the law, but they are admittedly far closer to the line and there are indeed arguments to justify it not being in violation of export laws. Far more problematic is the outsourcing done by law firms and the many Internet non-attorney shops that outsource to India. That could and should be stopped immediately. I do think there are other things being outsourced, and are far more in terms of dollars. There is a tone of computer software development done in India and other countries. Again, that can and should be stopped.

    I am not foolish enough to think government will be able to turn and do anything effective here, although I think there are many in government that would like to do the right thing. I am more interested in addressing the hypocrisy of government. They want a jobs plan, yet they do nothing to stop the outsourcing that is in violation of export laws. Curious if you ask me.

    -Gene

  5. Frustrated Legacy April 12, 2010 4:20 pm

    “Will our children, their children, and all those yet unborn ever forgive us for what we’ve done to them”

    Boo hoo hoo. I’m under 30. There’s something really simple that Boomers can do to reduce my generation’s debt burden and vastly improve my future: RETIRE.

  6. Blind Dogma April 12, 2010 4:32 pm

    “The second is to hire patent drafters in-house in an Indian subdivision, such that they can claim that the
    technology never left the corporation and therefore was not “exported” according to export laws.”

    The BIS regulations do not allow this. Such is classified as “export” even if the information stays within the same company (export can and does happen intra-company), and such export is as regulated (supposedly) as extra-company export.

  7. Steve M April 12, 2010 5:44 pm

    OldTimer,

    Like Gene, I believe your args are well-founded; making your future even bleaker than I saw it. “Hunkering down” is gonna’ be much tougher, and more painful, than I thought.

    Frustrated,

    If only retiring would solve our exploding debt problem. First of all, I am still too young (read: can’t afford it) to retire. Second, retiring just adds more to the debt, since the gov has to borrow more money to cover Social Security (now there’s an oxymoron for us future retirees) payments.

    As for the “boo hoo hoos,” just stick around. As OldTimer explains, they’ve only just begun.

  8. OldTimer April 13, 2010 10:15 am

    @ Frustrated

    Since you are posting here I assume you are a patent attorney, and based on your comment I assume you are not finding enough work to keep busy.

    Your problems are not caused by OldTimers like me. Your career problems are caused by the fact that you are trying to break into patent law, which is a practice in decline, and the decline appears to be accelerating.

    If you are under 30 my advice to you is to switch practice out of patent law while you are still sufficiently junior to do so. Bankruptcy law is booming. Health law is going to explode. Environmental law is still growing. Election law is exploding.

    There are lots of green shoots in the legal sector, but they are regulatory practices and debt discharge practices, not patent law. Patent law is part of the capital allocation process in a market economy. The government is stepping in to make these capital allocation decisions now, so much of patent law is unnecessary. That’s the source of your problem.

  9. keojawireless April 13, 2010 10:49 am

    Gene,

    This is completely off subject, but have you considered adapting a enviro-friendly print button to your blog posts?? I would like to print the article and comments sections without the sidebar links and advertisements.

    With regards,

    Keoja

  10. Gene Quinn April 13, 2010 11:06 am

    Keoja

    I have, but don’t know exactly how to go about doing that. I am contemplating a redesign of the website at some point in 2010, and will likely integrate that then. If you have suggestions I am all ears.

    Thanks for reading.

    -Gene

  11. keojawireless April 13, 2010 11:27 am

    All,

    Considering the subject matter of this post and the disappearance of patent boutiques, in your opinion, what is your take on the “value” of US patent attorneys/agents? Is it increasing/decreasing? What skill sets are now necessary for students considering a careers in patent law? i.e. specialist in PCT prosecution or export control law or bi-lingual…

    I’ll look forward to hearing your thoughts.

    Keoja

  12. breadcrumbs April 13, 2010 2:57 pm

    Gene,

    Have your website designer also be aware of how the site shows on handheld devices (text on a black background is very difficult to read).

  13. pop April 13, 2010 7:12 pm

    -Old Timer

    You are a man of infinite wisdom my friend. I agree with everything you said, and have been personally watching the economic situation closely for several years now. Most people who don’t know what is going on, that is, what is really going on, hear a speech from Obama and assume everything is going to be ok. Much like the medic telling the guy with no legs that everything is going to be ok, it is just to reduce the shock, but it doesn’t make it true.

    We are in stagflation right now. My instinct is to do what Volker did and raise rates through the roof, but as you pointed out, fiat loans are all that is keeping the punctured life raft called the federal government afloat right now. I’m not completely against the federal reserve in concept, but maybe it is time to move responsibilty back under the governmental roof? At the very least, we need a central back reform of epic proportions.

    -Gene

    If you think this is bad, try working in tech. Our rear ends have been soar for a while now. I am almost planning at this point to fall back on teaching math at some point. Even when people can find jobs, they are almost always contract jobs that go as soon as they came. I have never blamed Indians for our problems, like a lot of programmers do, but like you, blame our reckless government policies. I love computer science, but it is a real dogs fight right now.

    A redesign of the site eh? If I weren’t burning the candle on both ends right now I would suggest some quid pro quo since I want to start a small business one of these years with my “killer app” idea, which is sadly not so unique anymore. I think Apple or Adobe is going to beat me to the punch.

  14. step back April 14, 2010 6:06 am

    pop,

    Fully understand your upset and pain with the state of the job market. We kind of did it to ourselves –by being too good at automating everything and thus deleting jobs.

    Reminds me of a joke of sorts:

    A doctor, a lawyer, an engineer and an economist are lined up in that order for execution during the French Revolution.

    To make the shaggy dog story short, the guillotine blade jams just short of their necks for the doctor and the lawyer. Under the law, if the first execution try fails, it’s a sign from God and you are let free. So the doctor and the lawyer are set free.

    As the engineer next steps up to the execution apparatus, he proclaims, “I think I see where your problem is. Let me help you fix it.”

    The economist standing behind smiles knowingly and chimes in, “I knew it! The Invisible Hand always comes into play sooner or later to fix the situation and maximize efficiency. Thank God my theories have been validated.”

    So it goes.

  15. Gene Quinn April 14, 2010 10:05 am

    Breadcrumbs-

    Do you have a Blackberry? I think the problem with the Blackberry is Opera. For some reason IPWatchdog does not display appropriately in Opera. I have an iPhone and it displays more or less properly there.

    Can you do me a favor and take a look at: http://usapatentpending.com/

    It is very rough I know, but something I have been working on a bit in my spare time. Not sure if I want to redo the website, get help doing it or just pay someone to redo it for me. The paying someone to redo it for me sounds good, but can be extremely frustrating. Thoughts are appreciated, and of course you will need a little imagination when viewing this rough work in progress.

    -Gene

  16. Gene Quinn April 14, 2010 10:09 am

    POP-

    Is there a time we can chat offline? I think I need to learn more about what you are up to. Don’t throw in the towel just yet and retreat to teaching math.

    I agree with you, the Indian programmers are not to blame. Who among us wouldn’t do the same thing they do? They are just taking opportunities. They don’t deliver that well many (or most) times, but the industry doesn’t force them to either. I agree 100%. It is reckless government policies that are the problem. You tie that together with corporate America’s refusal to demand quality and hold their feet to the fire and that explains everything.

    -Gene

  17. Gene Quinn April 14, 2010 10:17 am

    Keoja-

    I think the value of a good US patent attorney is only increasing. Coming out of any recession there will be numerous start-up companies that are built on technology, making IP, particularly patents, extremely valuable. Early stage companies tend to value patents more because investors require them in many, if not most or even all, circumstances. Start-up companies that are trying to build an empire are not going to tolerate the quality provided by India. I know highly paid patent prosecutors who have all the work they can handle and then some. I am seeing a dramatic increase in my own business, and folks who are building companies want quality and are not afraid to pay for it when it is provided. So I would urge younger patent attorneys and agents not to cut corners and not to engage in the Internet race to the bottom. Those are clients you likely don’t want and it cheapens your service and skills in reality and in the eyes of those who can and will pay for your quality. This is not to say that attorneys or agents can’t and shouldn’t engage in helping inventors who couldn’t otherwise pay. Pro bono or reduced fee work to help is great and may even be ethically required to some extent. But don’t center your business plan around it.

    I tend to think that if a patent attorney is bi-lingual that would help quite a bit moving forward. Speaking to people in their native language is never a bad thing in the business world, or at least enough to be courteous and sensitive to cultural differences. Everyone likes to be respected, and people like what is familiar. Just my opinion.

    -Gene

  18. breadcrumbs April 14, 2010 11:06 am

    Gene,

    Yes, my handheld is a blackberry. The test site does come up nicely and with one click to zoom in the text column nicely fits the screen.

  19. Gene Quinn April 14, 2010 11:31 am

    Great. Thanks breadcrumbs. I appreciate the help.

    -Gene

  20. Dale B. Halling April 15, 2010 3:24 pm

    Gene,

    The numbers I have heard state that we have to produce 300,000 jobs a month for the next five years just to get down to 5.5% unemployment. Only once in our history have we created 300K jobs in a month and that was in the late 90s.

    Besides exporting our patent work, we are giving away our technology. This is reducing our employment numbers and decreasing our standard of living. How are we giving away our technology? First we are not enforcing the TRIPS agreements that require foreign countries to provide real IP protection. Pat Choate’s book “Hot Property” documents how dearly we paid to get these IP protections and how we have failed to demand that other countries live up to these agreements. Second, publication rules give away our technology on a platter. If we want high quality, high paying jobs we need to demand that other countries live up to their agreements under TRIPS, repeal the publication rules, demand reciprocity from foreign countries for patent issued in the US and of course repeal KSR, ebay, Bilski, ACLU, . . .

  21. Gene Quinn April 16, 2010 4:38 pm

    Dale-

    You are preaching to the choir my friend! I think what we need is another 1952 moment, where we rewrite the entire patent statute from the ground up, codifying sensible case law and specifically doing away with case law that doesn’t make sense. But if we cannot even get modest patent reform past the thought of a 1952 moment is nothing but a pipe dream I’m afraid.

    -Gene

  22. step back April 16, 2010 5:07 pm

    Gene,

    Re another 1952 moment: Giles Rich is dead and there is no one of his caliber on the bench or in the academic or legislative horizon.

  23. Dale B. Halling April 16, 2010 5:26 pm

    Gene/Stepback

    Perhaps the choir is not singing loud enough.