A Short History Lesson on Patent Policy

By Robert Taylor
June 21, 2015

“Those who do not learn history are condemned to repeat it.” ~ George Santayana

To avert serious and lasting damage to our innovation ecosystem and our most promising young companies, it may be helpful to consider some history that appears to have been forgotten. For 225 years, the U.S. patent system has been one of the crown jewels of American economic policy, providing incentives for the commitment of time and money to create the next generation of technology. The Patent Act was one of first pieces of legislation adopted in 1790 by the first Congress, reflecting the Founders’ considered and thoughtful balancing of two competing objectives – allowing free and unfettered use of information and ideas in the public domain while encouraging innovation through limited protection of new and useful inventions. Those twin objectives have long provided a framework for managing the set of rules we call patent law. The current Congress, however, seems determined to abandon, or at least weaken, the latter of those objectives – the use of patents as incentives to innovate.

Despite a major overhaul of the U.S. patent system only four years ago that included the creation of special procedures for challenging weak and invalid patents in the Patent Office, Congress is now pursuing legislation designed to make it more difficult, more risky and far more expensive to enforce all U.S. patents, even the best and strongest of patents on the most important inventions. H.R. 9 and S. 1137, both of which are currently working their way through the congressional process, reflect the agenda of some of the world’s largest corporations who want to make it more difficult for startups and small innovative companies to erode their markets with next generation technologies. Although members of Congress are being told that these bills will crack down on “patent trolls,” the reality is that the legislation will have less impact on NPEs than on companies trying to interest investors in funding the development of new drugs, new medical devices and myriad other breakthrough technologies.

Lost entirely in the current debate is the importance of patents to the entrepreneurial community that depends on them to justify the risks and resources needed to bring new products and services to market in the face of entrenched competition. Venture capital backed startups have accounted most of the growth in our economy for decades. Although a few startups, such as those that create clever marketing models or applications for smartphones, may not depend on technology patents for survival, for most innovative companies patents are a critical part of their business plans without which investors will not provide funding. Consider, for example, a surgical device that may take years to develop and get approved by the FDA. Without patents, these products are easily copied, severely devaluing the development effort. For investors, enforceable patents provide the only viable way to justify the commitment of money, time and effort needed to develop such a product. Countless innovative products across nearly every technology fall into the same category. The legislative debate, however, ignores this part of our economy in a misguided effort to “get the trolls.”

Innovation does not take place in a vacuum. It requires visionary people willing to give up more secure jobs and start companies that have a high probability of failure. It requires investors with a strong appetite for risk who are willing to invest in an often distant prospect of returns sufficient to justify the risk. For technologies having a long development cycle, these prerequisites require the security provided by patents to assure that others will not be permitted merely to copy new products and services.

Patents play their most significant role in the perception of others that infringement will be punished. If an entrenched incumbent believes that a startup will be unable to enforce its patents, the patents lose this deterrent impact and become just empty pieces of paper. The unavailability of enforcement as a practical option becomes an open invitation for competitors to misappropriate the technology represented by the patent. It is already prohibitively expensive for most small companies to enforce their patents except in the most urgent of circumstances, and the result is that, even without the pending legislation, large companies often infringe the patents of smaller ones with impunity. The proposed legislation will make it still more expensive to bring patent cases and will escalate the risk level in even trying.

This is where some history might be useful. Starting before World War II and continuing throughout the 1950s, 60s and 70s, short sighted and now discredited government antitrust policies, coupled with judicial hostility toward patent enforcement and patent licensing, converged to reduce the enforceability of patents and to restrict the ability of patent owners to license their inventions. The result: foreign competitors began to capture entire industries that should have been dominated by U.S. companies that had pioneered the relevant technologies. Color television, for example, was invented in the 1950s by American companies, most prominently RCA, GE and Zenith. Despite the U.S. having an enormous technological head start, by the mid-1970s the best-selling color television set in the world was Sony’s Trinitron and a dozen American manufacturers were on their way to ceding the color television market to Japan and Korea. Similarly, another U.S. company, Ampex, pioneered the first video recorders in the 1950s, but by the end of the 70s that industry was also dominated by Japanese companies, including Panasonic and Toshiba. Similar stories abounded during the 1970s, prompting President Ronald Reagan to appoint a Presidential Commission on Industrial Competitiveness to determine the causes. That Commission was headed by John Young, then CEO of Hewlett Packard, and included numerous leaders of American businesses.

The Commission’s Report, issued in 1985, analyzed this massive migration of technology and industry from the United States to Germany, Japan, Korea and elsewhere. While the migration was not traceable solely to our failure to enforce patents and encourage licensing, the Report concluded that the lack of meaningful intellectual property protection was one of the principal drivers and something that required correction. Some of the findings resonate as much today as they did back then:

Protection is needed for intellectual property. Since technological innovation requires large investments of both time and money, the protection of our intellectual property is another task we should place on our competitive agenda. Research and development are always risky. If the developers of a new technology cannot be assured of gaining adequate financial benefits from its commercialization, they have few incentives to make the huge investments required.

Today, the need to protect intellectual property is greater than ever. A wave of commercial counterfeiting, copyright and design infringement, technology pirating, and other erosions of intellectual property rights is seriously weakening America’s comparative advantage in innovation….”

Fortunately, the aftermath was a happier story. In the early 1980s, the newly appointed Assistant Attorney General, William F. Baxter, reversed many of the DOJ polices of prior years to encourage patent ownership and licensing. In 1982, Congress created the Federal Circuit and gave it jurisdiction over most patent infringement cases, thus providing a new vibrancy and strength to our patent system and ushering in the most productive thirty year period in history. This explosion occurred across countless industries and almost all technologies. The intervening 30 years have been hands down the most productive the world has ever known. Computing, digital audio and video, synthetic fabrics, communications, material sciences, chemistry, biotechnology, small molecule pharmaceuticals, optics, alternative forms of energy – it would be difficult to identify a technology that has not advanced by an order of magnitude or more in the last thirty years. Can we say that all of this remarkable growth was attributable solely to the renewed enforcement of patents? Of course not. But neither can anyone argue that the patent system was irrelevant in bringing it about. We know intuitively that for many technologies, patents are an essential part of the innovation process. Without protection from copying, why would anyone go to the trouble of developing a new drug or new device that is easily copied by competitors? The copyist does not share any of the development costs that may have been incurred over a period of years and with millions of investor dollars.

Before broadly weakening the enforceability of all U.S. patents, Congress needs to reflect long and seriously on the potential consequences – some that may not become fully apparent for a decade or more. There is often a long lead time between the decline in investment in technology and its impact on our nation, but history has shown us that the impact is predictable and inevitable. Frivolous and unfounded patent cases may be a nuisance to some U.S. businesses, but the prospects of losing markets and millions of U.S. based jobs to foreign competitors is a far greater threat. It is critical that Congress get this right.

The Author

Robert Taylor

Robert Taylor is the founder and owner of RPT Legal Strategies PC in San Francisco and Silicon Valley, which provides legal and business advice to companies and investors with respect to litigation, antitrust, intellectual property and related fields of law.

Bob's experience includes more than 40 years of dealing with a wide range of technologies and industries in litigation, deals & mergers and investing. He has served as lead counsel in dozens of patent cases involving diverse technologies and industries that include microprocessors, medical devices, DNA arrays, pharma products, semiconductor manufacturing equipment and processes, LCD computer displays, solar cells, nanotechnologies, computer memories and graphics accelerators, microfiltration devices, automotive electronics, high yield catalysts for making polyolephins, and many more.

Bob is a Fellow, American College of Trial Lawyers, a Member of the Antitrust Committee of Intellectual Property Owners Association and a Member of IPO’s Amicus Committee. He was also a Member of the 1992 Commission on Patent Law Reform and a Former Chair of the Antitrust Section of American Bar Association.

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 9 Comments comments.

  1. Night Writer June 21, 2015 10:35 am

    I think that Carter was the one behind the Fed. Cir., which was actually enacted at the end of his term and beginning of Reagon’s term. Moreover, I think the history is that Carter identified patents as a means to end the great malaise. Patents–plan and simple–light a fire under the b$tt of big corp. If they don’t innovate, then product improvements won’t be theirs and small companies can take market share as well as foreign companies.

    Carter figured this out and then Reagon pressed on.

    Now, Google has even said their biggest fear is that a start-up will come and take all their business in a few months (90% of their revenue is from search). Google is perhaps the company most behind the “reforms” or weakening of the patent system. It is in Google’s short-term interest to weaken our patent system.

    It is amazing how much millage Lemley and his ilk get out of the word “troll” and how anecdotal stories of trolls enrage people to want to end all patents. The OMB said there isn’t a problem and the OMB is without question the least political part of the Federal Governement. Yet, Lemley’s talk show circuit sways people’s votes and Google bucks buys Lee and the stacked fed. cir.

  2. Anon June 21, 2015 10:53 am

    Night Writer,

    What you see is nothing more than the adage of “Propaganda works.”

    As much as people despise the fact that propaganda exists, it does exist ans will continue to exist because in truth, the adage I mention is true.

    Human nature has not changed.

    Violence sells.
    Sex sells.

    Propaganda works.

    Fighting the good fight – fighting for the benefits of what the patent system stands for remains the more noble cause – no matter how easy it is to engage in propaganda.

  3. Randy Landreneau June 21, 2015 11:47 am

    Thank you, Mr. Taylor, for this article. I am an independent inventor, and I will be spending the next two weeks in Washington DC trying to talk some sense into House Members before the misguided effort to bring The Innovation Act to the floor. If you have any supportive data regarding “Venture capital backed startups have accounted most of the growth in our economy for decades,” it would greatly help my efforts.

    The grass-roots effort I am involved in is making a difference. Readers can follow and help the fight at http://www.independentinventorsofamerica.org/ and http://usinventor.org/ .

  4. Curious June 22, 2015 1:04 am

    This is a well-written article, but I suspect it will fall on deaf ears. Congress is addicted to $$ and because of the SCOTUS decision in Citizens United, there is little keeping corporate $$ from helping elected officials (albeit not directly). This patent fight is just one example of the expected consequences of that decision — corporate interests will matter most to those in power because corporations have the $$ to help in the next reelection cycle because the most important job a politician has is to be reelected.

    Perhaps some day the pendulum will swing back, but I’m not expecting it to happen anytime soon. Before that happens, I’m just hoping that corporations’ short-sighted addiction to their latest earning reports (and “meeting their numbers”) doesn’t lead to the evisceration of the US patent system so as to completely erode our competiveness in the world. It is a sad state of affairs, but this is where we find ourselves.

  5. aldo June 22, 2015 8:54 am

    gentlemen & ladies,

    great article – many thanks robert!

    i believe the current patent fight is just one front is a war for control that is timeless. it started in the garden and continues to this day.

    you can see part of the problem on the playground when a larger child takes something from a smaller child because of fear/greed and simply because he can because he is larger &/or the overseer is distracted.

    i believe greed is built on a fear that there is not enough for all when in fact history has demonstrated we live on a planet with nearly endless possibilities based on our ability to continuously grow our understanding of the elements around us and harness them to make life better.

    all of the elements in our most cutting edge technology have been with us from the beginning – our ability to understand and reshape them to make life better is truly what changes & drives life.

    jefferson understood this clearly as an inventor and founder – he worked hard to enable the harnessing of innovation to actually better many & not just a few by realizing that the originator of better ideas needed protection to develop them for the betterment of society. i believe he is turning in his grave at what has become reality.

    from a different prospective, ip protection is a social ladder for people with better ideas to improve their lives & help others – google’s board should not forget this as they exist because of larry page and sergey brin.

    i for one wish to live in a world that enables people with better ideas and is based on recognizing endless possibilities rather then the path we are on that enriches the biggest bully and relies on fear, that started before the feudal state in europe and has come back to haunt society.

    maybe google’s greatest contribution to the world would be to recognize this inherent flaw in our dna and help society rise above living by fear to see the real abundance that is possible & harnessable for the benefit of many over the control of a few with proper technology protection rights.

    ip rights are just an extension of the real property rights that are essential to our evolution. can you imagine what the world would be like if bigger entities could just come take your home because they wanted to and the law was so confusing/bureaucratic/costly that they could? where would that leave us? that is where ip is unfortunately.

    i can say from experience aberrant market behavior is the norm as copy entities usually benefit more than innovators do largely because of a confused system that is jammed and delayed – confusion and complexity rules the day.

    in 1792 it took jefferson $10 and a few weeks to issue patents when information traveled at the speed of foot, hoof & sail. 225 years later when rich information travels instantly around the globe it takes +$20k and many years to get confused claims that are inevitably challenged. jefferson understood this dilemma when he changed the patent system to registry and for some reason congress changed it back some years after his death.

    i believe we need to have a system that actually works on today’s global instant playground and actually restores predictability & fairness to the innovation marketplace. my sense is that we must move toward a much more transparent simple and nimble system that allocates patent office resources and enforcement based on real time market activity to keep the bullies from taking what they want.

    ball is in your court google; how do you want history to record your contribution to humanities story? is their something about evil in your charter…? is the overseer distracted on the playground:)

    blessings & be safe,

    aldo
    x-it inventor
    big lather inventor

  6. Raymond Van Dyke June 22, 2015 10:26 am

    Great article outlining the historical significance of the patent system to our nation and the harms of losing sight of the benefits of a patent system to society.

    The high tech industry wish to maintain their market share and prevent competition. I’d like to add that we came close to possible elimination of the patent system in 1924 when Henry Ford ran for President. His animus toward the patent system was such that his stated political platform included the abolition of patents. The hostility now is purely economic.

    Now, the patent system is subject the same hostilities of the 1950s-70s, and sometime in the 2030s some Congressperson will lament about how our economy and our patent system should be more competitive.

    The cycle of life. Still, we need to do what we can to prevent this calamity. Forward this article on.

    Ray

  7. Robert Taylor June 22, 2015 11:36 am

    Ray, thanks for the reinforcement and the observation that we have to do what we can. One of my fervent hopes in publishing this is that it will be forwarded to people in a position to educate members of Congress. I do not think that the vast majority of members of Congress want to harm the patent system, only that the problems are complex and the time needed to understand them is short.

    Bob

  8. Ryon June 29, 2015 5:09 pm

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  9. Ryon June 29, 2015 5:31 pm

    International vulnerability said, the internet. Said, files internationally. I Want to file threw your antiquity my utilities. Said, however you claim I have to file after you get and spread my word independent from you abroad. Said, making my own word toxic to me abroad. Said, what you are is independent prior spread of my information abroad.