Patents, Innovation and Job Creation: A Virtuous Circle

By Gene Quinn
January 18, 2011

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.

On Friday, January 21, 2011, I will be participating in a conference put on by the Innovation Alliance, which is is a coalition of entrepreneurial companies seeking to enhance America’s innovation environment by improving the quality of patents granted and protecting the integrity of the U.S. patent system.  The title of the conference is Patents, Innovation and Job Creation: A Virtuous Circle.  The event will take place in Washington, DC, at the Newseum, which is located at 555 Pennsylvania Avenue N.W.

I will be moderating the first panel, which will focus on the role of patents in the modern innovation economy.  Present and giving speeches will be Chief Judge Paul Michel (ret.) of the United States Court of Appeals for the Federal Circuit and David Kappos, Under Secretary of Commerce for Intellectual Property and the Director of the United States Patent and Trademark Office. The event begins at 8:30am and runs through 1:45pm.  Attendance is free to the public.

It is my hope that this conference will present an opportunity to start off 2011 with a bang and draw critical attention to the fact that innovation creates jobs.  That seems easy enough, but far more challenging it seems it the reality that in order for jobs to be so created a friendly legal and regulatory climate must be in place.  For innovation to play a role in job creation, which is can and must, we need the issuance of faster patents without the watering down of patent rights, which many fear to be on the horizon.

Innovation and entrepreneurship are central pillars of America’s economic strength and critical vehicles for job creation.  See Why Patents Matter for Job Creation and Economic Growth. We all know that to be true, and even our elected and appointed political leaders who are not intimately familiar with the innovation and technology industries know this to be true.  They say all the right things when on the campaign trail, they give all the right speeches after being elected, they parrot the language of a pro-innovation agenda as written for them by their staff, but sadly all too often they do not follow through with the pro-innovation policies that are necessary to actually allow innovation and technology to flourish, create new businesses and whole new industries that bring with them vast numbers of new jobs.  We desperately need to get out of this malaise and innovation based jobs are the answer.

Over the past several years I have written extensively about how companies that build their foundation on patented technologies can create the jobs we need if only the government would dedicate the resources necessary to allow the Patent Office to do its job.  No new monies are needed, the government just needs to let the Patent Office keep the fees it collects and put 100 cents on the dollar to work for those paying the user fees; those in the technology community who can and will create jobs if allowed.

Unfortunately, instead of the meager resources required and modest need for the Patent Office to keep user paid fees we see lost opportunity after lost opportunity.  The Patent Office operates on a budget that is approximately $2 billion a year, which is hardly a rounding error in Washington, DC.  Nevertheless, the only agency that can create wealth through merely recognizing it suffers from horribly outdated computer systems and not enough staff to do the job asked of them in any relevant time frame.  Perhaps with some many new faces in Congress one or more will emerge as the needed innovation champion that this energetic and determined community is looking for.

Reporter John Schmid of the Milwaukee Journal Sentinel wrote an article that was published on Sunday, January 16, 2011, aptly depicting the problems facing would-be job creators.  Despite the Green Bay Packers victory over the Atlanta Falcons the day before Editors of the paper still found front page space for this important story.  I say that straight faced and not to suggest that sporting news shouldn’t be on the front page.  Obviously a Green Bay win deserves front page news in Milwaukee, after all there is a need to sell newspapers.  But how many times have we seen front page patent news?  It is extremely rare, as is the excellent and dedicated coverage over the past two years by Schmid and his newspaper.

Schmid wrote in part of his article about a professor from the University of Wisconsin-Milwaukee who needed 11 years to obtain a patent on his revolutionary invention.  The sad tale is told like this:

Davida’s application, for secure ways to store personal biometric information on a smart card, was ahead of his time, said his patent attorney, Stephen Lesavich. He filed his patent application in 1999.

But Davida may have missed his best opportunities. Sometime after 2003, while the application was still pending, the Patent Office lost his application file…

Davida’s patent (No. 7,711,152) finally was issued in May – in the midst of a slow economy, and long after the 2001 terrorist attacks had made biometric data storage a hot technology.

Schmid would explain that Davida’s patent application was lost sometime after 2003 and found sometime in 2008.  For five years the application did not progress because it was lost.  As inexcusable as that is, and as likely as some will be to focus only on that unfortunate fact, let’s not miss the most pressing point.  The real question is why wasn’t this application allowed before it was ever lost?  It had been pending nearly 4 years prior to being lost, and then after it was found it still took nearly 3 more years to issue?

How many jobs were lost as a result of unacceptably slow processing by the Patent Office in the Davida case?  What could have become of this exciting technology in the aftermath of the 2001 terror attacks?  How many jobs will never be created because industry has moved on?  If this happened here how many other times has a similar tale gone untold?

Talk about lost opportunities.  The Davida story replayed thousands of times, as it has been, explains why the United States has seen anemic job growth out of the Great Recession.  It is wholly unacceptable by any definition.  We are supposed to see a rebound from a deep recession, but innovation is not being fostered to allow for that.  Things can and should be better.

The current leadership of the Patent Office is doing better, much better, but Director Kappos is Captain of a sinking ship thanks to Congressional inaction and the inability of the Patent Office to reinvest in itself as an ongoing, growing and cutting-edge enterprise.

The Innovation Alliance conference will hopefully generate new discussions about and direct appropriate attention to the critical role patents and the USPTO play in innovation and job creation in the United States.   Of course, how well the conference succeeds will not only be decided by those who attend and discuss the topic, but rather it will depend upon the action that comes from the conference.  Whether you can attend or not it is time to realize that everyone in the industry has a vested interest in Congress paying attention.

With the Courts poised to continue to erode the value of a patent Congress will all but certainly need to act at some point in 2011 in order to sustain the value of a patent and allow intellectual property based start-ups flourish and reach their full employment potential.  With so many new faces in Washington, DC, now is the time to get the message out.  We must all be engaged.

* * * * * * * * * * * * * * * * * *

‡ “New” being defined as elected in November 2010.  There are 13 Senators new to the 112th Congress, with Senators Manchin, Kirk and Coons elected in November 2010 and sworn in immediately to fulfill existing terms.

CORRECTION: Updated 1/19/2011 at 11:02 am.  The original version (paragraph 3) incorrectly reported that the Newseum is affiliated with the Smithsonian.  The Newseum is a 250,000-square-foot museum of news largely funded by the Freedom Forum, a nonpartisan foundation dedicated to free press and free speech.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 20 Comments comments.

  1. blue January 18, 2011 8:20 pm

    i can understand why the US patent law needs to be weakened.

    1) to protect the interest of big businesses and 2) to protect the interests of US corporation that have been unable to compete in the realm of product innovation. The weakening of the patent law is essentially a protectionist policy, its a desperate and short-sighted move which provide little benefit for the economy in the long term.

  2. step back January 19, 2011 4:25 am

    Oh come off it steppy, there you go again being a picker of nits.

    I’m sorry you are going to feel that way … but

    1) What is the definition of a “job” and is increasing the number of jobs simply for the sake of increasing that number, always a good thing?

    2) Aside from those who say patents stifle the free-for-all-to-grab-it market place, is it possible that some inventions are net reducers of number of jobs rather than increasers? Consider for example the day that thousands of telephone switchboard operators lost their jobs because an automated call router was invented.

  3. Gene Quinn January 19, 2011 10:20 am

    Step-

    What have you been drinking friend? The definition of a job? OK… I’ll bite…

    The definitions of “job” on the web seem unsatisfying, but I’m sure you would know the definition if you didn’t have one. Lets just say that a “job” is roughly synonymous with an employment arrangement whereby an employer needs certain things done on a routine basis so they hire those who are willing and able to provide said certain things on a routine basis for payment of some sort, perhaps benefits as well.

    Is increasing the number of jobs always a good thing? The use of the word “always” in your question speaks of a trap, but what can be said is in a depression, recession, coming out of a recession or when unemployment is higher than statistical averages or at least higher than sufficient to grow GDP, it is always better to have more jobs. I think 100 out of 100 people who are unemployed and looking for work would agree.

    With respect to the automated caller, you aren’t seriously going to pretend that automated switchboards wouldn’t have occurred without patents, are you? The fact that there were patents created jobs for an industry, namely the supply of the equipment.

    -Gene

  4. Ron Hilton January 19, 2011 10:35 am

    Gene,

    I am becoming convinced that the root cause of what ails the patent system is low quaility, due largely to inadequate prior art search. That in turn is due in part to inadequate funding, but also due to an antiquated search practice that focuses primarily on patent literature and largely ignores non-patent literature. It is low quality that enables trolls, that enables bulky patent porfolios for big business, and that ties up patent disputes in costly litigation for years. All of which serves to turn public opinion (and that of Congress and the courts) against the patent system.

    In your Deceember 14, 2010 blog regarding trolls, you stated with refreshing candor that “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.” Until that problem with the fundamental soundness of the patent system is fixed, there will be continuing pressure by the public, Congress,and the courts to water down patent rights and indiscriminately raise the bar to obtaining patents in the first place (e.g. through questionable obviousness criteria and subject matter restrictions).

    Frankly, many patents today do not deserve the high standard of evidence and enforcement remedies that were traditionally available under patent law. Until the fundamental problem with quality is fixed, it will be an uphill battle to stave off ill-advised patent “reform” and return the patent system to become a driver of economic strength and not an inhibitor.

  5. Mark Nowotarski January 19, 2011 2:27 pm

    Gene,
    As pro-patent as I am, it’s important to realize that the equation is not “patents = jobs”, but “patents = manufacturing jobs”. Historically services companies, such as retail stores, banks, insurance companies and, dare I say, law firms, have grown and prospered quite nicely without patents. Manufacturing firms, on the other hand, have found them to be essential.

    With the advent of e commerce the sharp distinction between “service companies” and “manufacturing companies” has become blurred. Many traditional manufacturing companies with large patent portfolios, like IBM, are now largely consulting firms. Many traditional service firms with no patents, like Accenture, are now largely technology providers. Both are having to seriously reconsider the necessity of patents. Accenture is currently “patenting up” and I would not be surprised to see IBM “patenting down” in the not too distant future.

  6. step back January 19, 2011 2:46 pm

    Lets just say that a “job” is roughly synonymous with an employment arrangement

    Hi Gene,

    No trap was set or intended.

    It’s just that before we go off talking about “jobs” (creation thereof) and “patents”, we need to be weary of the possibility that we may again be making noises of a kind that have no clear definition (as for example is lacking in the “software” noise byte thing).

    I would refine your definition by saying that a “job” (in the sense we are using the term) indicates that society is designating a certain person and certain activities performed by him or her as being worthy of meaningful compensation.

    The question of who deserves meaningful compensation for what activities (and to what extent of compensation) also arises when we talk about inventors and their inventions.

    Some may argue that inventors deserve no more than a pat on the back and a praise (example: “Hecka of a job, Brownie!”) where after the “free” market determines winners and losers.

    Others here will of course argue the opposite; that being an inventor is a “job”-like activity and rightfully deserves to be not only meaningfully compensated for, but also to be encouraged to the point where we all become inventors.

    ___________________
    As to the automated telephone call router thingy, I never said anything about patents. I was talking about net loss or gain of “jobs” due to an “invention”; independent of whether a patent was obtained for it.

  7. step back January 19, 2011 2:52 pm

    p.s. I forgot to respond to all interrogatories:

    Step- What have you been drinking friend? The definition of a job? OK… I’ll bite…

    I neither admit nor deny to having drunk the Kool Aid
    I also object as to form and substance because Blind Dogma is a necessary and indispensable party to an action entertaining such questions 😉

  8. Ron Hilton January 19, 2011 3:05 pm

    Innovation doesn’t create jobs directly, and may even kill some jobs in the short run by obsoleting prior technology (like the example of the switchboard operator). What innovation does is to improve productivity, which raises the standard of living for society in general. But in order for individuals to benefit from that higher standard, retraining is often necessary to qualify for the higher-skilled jobs that remain or have been newly created. To some extent the modern 40-hour work week is a result of innovation, and the fact that there are in fact fewer labor-intensive jobs than before. But we have a higher standard of living with more time for leisure and cultural pursuits.

  9. Gene Quinn January 19, 2011 3:59 pm

    Mark-

    Excellent point! I’d love to hear more about your thoughts on this.

    -Gene

  10. Gene Quinn January 19, 2011 4:05 pm

    Ron-

    I would be tempted to agree with you, and I have had a number of e-mail exchanges with Mark Lemley about this. I think everyone agrees what is going on, but if the Supreme Court unilaterally disarms with a reduced standard that will be awful. It sweeps good and bad into the same pile and those who are the true innovators are punished, as if we are back in Mrs. Miller’s 3rd grade classroom.

    What we need is another 1952 moment. We need attention of Congress and the ability to work through things in an adult fashion so as to not kill innovation. Most don’t innovate, but to those who do a reduced value patent will be awful.

    I think with a holistic approach we can get from A to B without killing innovation. We need comprehensive inequitable conduct reform so the USPTO can require more meaningful participation without ever word later being under a microscope. We need to recognize that a property right is no such thing if it never settles, so ownership and validity need to be settled in some time frame to justify continued investment and expansion. We can’t just chip away at the patent right. Quid pro quo means there needs to be a pro quo, and right now there is just erosion of patent rights.

    -Gene

  11. Blind Dogma January 19, 2011 4:20 pm

    Sorry step – busy docket today – do appreciate the tip of the hat though.

  12. blue January 19, 2011 6:10 pm

    jobs are created directly or indirectly through investments. If businesses cannot protect their IP, they would have no incentive to invest. this is especially true in the software/IT industry where IP protection via patents is central to a competitive strategy.

  13. step back January 19, 2011 6:37 pm

    I know I’m being a pain today.
    However, it pains me to see this “jobs, jobs, jobs” noise being made without any deeper probing going into it.

    Suppose (purely hypothetically) that my Italian uncle calls me up and says he’s got a “job” for me to pull off … err I mean to perform, at the local bank and he will pay me handsomely for doing it well. By most accounts, that is a “job”. However the deeper question is whether such a job, or any created “job” is beneficial to the welfare of the nation (or the world if you are a global kind of person). Clearly, some bank jobs are not.

    So how about other “jobs” that might be created, perhaps by the patent system or perhaps not?
    Much as I am very pro-patents, I submit that a job of using patents to extort people (pay up or I’ll sue) is not a good kind of job.

    I also submit that a patent does not block a manufacturer of patented stuff from off-shoring the manufacturing of the thing. If the manufacturing is off-shored, essentially no jobs are created in this country. Moreover, the invention might be of a kind that puts many people out of work in this country –as automation inventions often do.

    What I am saying is that it is illogical to conflate patents with “jobs”. It is also illogical to conflate “jobs” with economic or other well being for people in general. It goes much deeper than that. But we are being lazy here and not doing the deep down drilling to the heart of the matter.

  14. blue January 19, 2011 7:12 pm

    Step,

    you started off by telling us to probe deeply into the issue but you have offered no insights in your post. What exactly is this ‘deeper probing’ that is needed? What are the issues exactly? You have explained nothing.

    You dont know what the deeper issues are and if you do you would have been able to explain them clearly and succinctly in a paragraph or two.

    “…It goes much deeper than that.”

    so how deep must we go? you only need to see the big picture. there is no need to go so deep into things that dont matter very much.

  15. Gene Quinn January 19, 2011 7:22 pm

    Step-

    Take a look at:

    http://ipwatchdog.com/2011/01/02/why-patents-matter-job-creation-economic-growth/id=14170/

    I make the case that patents lead to VC, and the fellow cited here, who is in the VC business, makes the point that VC leads to IPO. It is post IPO when most jobs are created. So it is fairly fundamental that if you cut off the VC business by not allowing for the creation of assets that suggest investment is appropriate you will not grow companies. Those companies that don’t grow won’t hire more people. Those companies that don’t grow and don’t hire more people will never go public even if they otherwise would or could.

    You seem to want to bring patent trolls into the debate with your comment about extorting people. No one said anything about promoting patents so patent trolls can sue, so I have to wonder what your point is. Clearly there are excellent justifications for obtaining a patent that don’t entail extortion.

    A patent wouldn’t prevent off shoring manufacturing, but it would prohibit the importation of that off shore manufactured product. So if folks want to steal our patents and then make and sell only abroad we have never been able to do anything about that. So your off shoring is a head fake and one that requires people to ignore that importation can be and is frequently prevented.

    It is not at all illogical to associate patents with job creation. I have to say that you seem to be intentionally closing your eyes and ignoring the facts, law and reality of the situation to come to a contrary conclusion.

    -Gene

  16. blue January 19, 2011 7:38 pm

    Mark,

    “Historically services companies, such as retail stores, banks, insurance companies and, dare I say, law firms, have grown and prospered quite nicely without patents..”

    but who are the clients of these banks, insurance companies and law firms? What would happen to these banks, insurance companies and law firms if their clients go into liquidation or experience a fall in revenue?

    Is IBM and Accenture the only entities that matter to the economy AS A WHOLE? The fact that IBM and Accenture are considering ‘patenting down’ tell us very little about the needs of the economy as a whole and more importantly, tells us nothing about innovation or the future of innovation because IBM and Accenture are not the only companies that innovate and create jobs. You guys are in favor of protecting the interest of big businesses, obviously.

  17. step back January 19, 2011 8:02 pm

    Gee whiz Gene,

    You keep trying to force fit my square toes into the rounded anti-patent pigeon holes.

    All I’m saying is that the “proximate cause” chain of cause and effect is a long and dubious one when it comes to arguing that patents are the root cause of “jobs, jobs, jobs”.

    ____________________
    BD, where the heck are ya when I need ya? They’re not buying my KoolAid. Did I mix in too much logic and not enough artificial disillusionment?

  18. Bobby January 19, 2011 8:04 pm

    Gene,
    Again, what you provided evidence of in that article is that VCs prefer firms with patents over firms without patents, not how VC and IPOs would be different absent the patent system. Part of the current value of a patent for a startup is that having a patent can provide some degree of leverage against a megacorporation’s enormous patent portfolio (yes, big companies have patents too. In fact, they tend to have the most patents of anybody, which seems to be forgotten around here), meaning they might have a chance of making a product that isn’t crippled or aimed at a niche market without most of their income going into someone else’s royalties. If the megacorporations didn’t have these massive portfolios, then there wouldn’t be a need for a defensive patent in the first place.

    “A patent wouldn’t prevent off shoring manufacturing, but it would prohibit the importation of that off shore manufactured product.”
    But that’s not an assurance of any domestic jobs. Nothing about a US patent means that the product will be made domestically, the patent holder will be American, or that there will be any money flowing into the US besides perhaps maintenance fees.

    Now, in regards to job creation, one of the most important elements is having some breathing room for competition, and if you want to create jobs, you need to make sure patents don’t end up stifling. If we’ve got something that might be called a patent thicket, then it can be harmful, especially to startups. For example, given the amount of litigation going on in the smartphone arena, it would appear to be a bad idea to fund a new smartphone company since there are many outstanding lawsuits over patents that are pretty much necessary to make a modern smartphone, and a company without a big portfolio of their own and a lot of money doesn’t stand a chance. Smartphones are a sector with lots of growth right now, but I don’t see much hope for a startup being important there any time soon because there really isn’t room to breathe.

  19. Blind Dogma January 20, 2011 8:22 am

    I am sorry step – I have a mountain of work to do.

    I will offer this thought though – Innovation is necessarily a double edged sword, as making things better provides the seeds of change and that which is reaped often includes a loss of the old jobs.

    There is nothing inherent in the grant of a patent that makes the new jobs. The patent is a negative right – not a right to actually do anything. This is a critical, and often misunderstood, facet of patent law.

    Actually creating jobs is thus necessarily divorced from patents. It is a separate effort. It deserves its own attention (read that as funding, nourishment, guidance, and even promotion as you will).

    It is indeed a good idea to revisit the earlier thread on this. But when one does, one must not do so merely to reinforce one’s already entrenched mindset.

    As they say, the only constant is change. Our leadership in the Legislature should be ever vigilant about leveraging this change, ever vigilant about sowing the seeds of innovation so that multiple options are provided to the peoples of this country, ever vigilant about protecting the seedlings (most notably from the existing businesses who will be threatened by the seedlings), and ever vigilant about understanding when to get out of the way.

    Step,

    As for your Kool-Aid, avoid the black market stuff. It is clearly inferior.

  20. step back January 20, 2011 12:11 pm

    Well said my Kool-Aid drinking buddy. Well said.