Barron’s is a weekly newspaper that has covered financial information, including market developments and statistics, since it was first founded in 1921. Much like Forbes or Bloomberg, the publication tries to position itself as an authoritative voice on business matters in America and the wider globe.
A recent Barron’s editorial, however, has raised some eyebrows among those who are familiar with the effect of proper patent enforcement on financial fortunes. Published May 14th, “Patents Can Be Dangerous to Inventors’ Welfare” is a perfect example of how a rather odious point-of-view can be freshened and sweetened when some of the inconvenient truths are laid by the wayside.
Wrong on the U.S. Constitution
First, the most obvious and perhaps the most egregious error of the article, written by long-time Barron’s editorial editor Thomas G. Donlan, relates to a clear, direct and inexcusably incorrect statement about the U.S. Constitution. Donlan misrepresents the intentions of the Framers of the Constitution with regards to intellectual property. To wit: “The Framers of the Constitution considered patents and copyrights to be a useful nuisance… The Framers didn’t recognize a universal right to intellectual property.” Well, then, Mr. Donlan, please explain Article 1, Section 8, Clause 8 of the U.S. Constitution granting Congress the power “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
Indeed, the Founding Fathers deemed intellectual property rights so vitally important to the success and stability of our new country that these rights were explicitly written into the Constitution, a document not generally known for its length and specificity. As James Madison stated in Federalist Paper No. 43, the usefulness of the Congresses power to award both patents and copyrights “will scarcely be questioned.” Madison, Debates in the Federal Convention of 1787, at 512-13 (Hunt and Scott ed. 1920).
How does the express language of the U.S. Constitution not recognize a right to intellectual property? A respected publication such as Barron’s should never have published such a ridiculously inaccurate and fraudulent statement. They absolutely need to apologize to their readers and set the record straight.
But wait, there is more!
Poor Business Acumens, Not Patents, are Bad for Business
The article’s author makes the case that the pursuit of patents for novel technologies often crowds out other important business activities, such as improving prototypes. But what about the inconvenient truth that an overwhelming majority of venture–backed tech companies have patents? Even a relatively uniformed, casual viewer of Shark Tank knows investors care greatly about patents. It is as if Barron’s, which is allegedly a financial news and information source, knows nothing about the business of innovation and why patents are absolutely essential to high-tech start-ups.
In some cases Donlan mentions, patents were issued well before a commercial market existed for the innovation. Many failed business stories were trotted out, including the cases of Charles Goodyear and vulcanized rubber, the Wright Brothers and manned aviation and then Obed Hussey and the grain reaper.
It’s really unfortunate to see such a venerated financial news authority such as Barron’s taking such a sophomoric position on capitalism.
True, a patent doesn’t necessarily lead to a lifetime of riches but Barron’s is wrong to conflate a good sense of innovation with a good sense of business. Patents can be very valuable, but on the other hand they’re not much help if a market doesn’t exist for the product the patent protects. What one person sees as inventors who “are too far ahead of their time” could also be explained as poor marketers who didn’t know how to generate commercial interest. Take the case of Charles Goodyear, who racked up massive debt setting up exhibits of vulcanized rubber in London and Paris but earned no clients from them. It’s unfortunate that the market for rubber afforded by bicycles and automobiles didn’t arise until after Goodyear died and his patents expired, but it’s rather dim-witted to say that obtaining patents was the major factor in Goodyear’s failure.
One of the cases raised by the Barron’s editorial actually undermines its very argument. Obed Hussey may have filed for the first reaper patent but reports indicate that McCormick had actually invented his version months earlier without filing for a patent. The two marketed their products in direct competition with each other but accounts of the story indicate that McCormick was more involved with perfecting his design, which would naturally lead to his business being more valuable over time. Additionally, Donlan writes, “McCormick eventually surpassed Hussey because McCormick was more open to improvements invented by other people. He adopted their improvements and paid royalties or purchased their patents.” [Italics added for emphasis] McCormick had a patent acquisition strategy and it made him successful, but Barron’s would have us believe that Hussey’s one bad patent spoils the whole bunch.
Selective memory can be a funny thing. Any honest account of how patents can affect the fortunes of inventors needs to bring up Thomas Edison, the quintessential American innovator. It has been noted that, given the current definition of patent troll, the father of the light bulb would certainly be seen as such a troll given his emphatic assertion of his own patent rights. And there are examples of modern-day inventor billionaires who have pursued patents, such as is the case with the founders of eBay and Amazon.com. Patents aren’t necessarily bad for business, poor business acumen is bad for business.
The Barron’s editorial also reflects a lack of knowledge as to the function of patents entirely. Donlan argues that, “Once an inventor receives a patent, it can be put into the public domain, or it can be licensed for a pittance to all who want to use it.” At various points, Donlan also conflates patents with monopolies. None of this is truly accurate. Perhaps on the micro level, when talking about one or two patents, it can be difficult to see the licensing value, but don’t tell Microsoft (NASDAQ:MSFT) that its billion-dollar-plus patent royalty stream for its Android-related patents alone is worthless. Yes, Microsoft has resources that a Charles Goodyear never did, but not every patent is licensed for a pittance.
Also, the idea that patents offer the patent holder a monopoly is an oversimplification. The patent gives a patent owner a right to exclude others from the market, but that’s up to the patent owner to decide whether and when to enforce; the owner could be aware of infringement for quite some time, waiting for the market to mature, without ever bringing suit. And most patent owners, especially those who don’t practice the technology themselves, don’t want to see competitors eliminated but rather to receive a slice of the sales which is rightfully theirs for disclosing the invention.
If patents were monopolies, how can other companies license and practice the technologies developed by Apple (NASDAQ:AAPL) or Qualcomm (NASDAQ:QCOM)? Neither Apple nor Qualcomm have the exclusive control of trade on those commodities or services, a business condition which would otherwise be known as a monopoly. Furthermore, calling something “a monopoly” presupposes there is a market to start with, but so many patented inventions fail because there never was a market for the product in the first place.
Elon Musk, Patent Savior, to the Rescue!
Of course, it’s easy to understand why such a hatred of patents is allowed to flourish in this editorial by the time the reader gets to the end. Once again, we run into the almost Christ-like figure of Elon Musk giving up his patents so that the world might be saved. (In the very distant future, it might not be that strange to see people wearing plastic bracelets emblazoned with the acronym “WWEMD” given how strongly people believe in the altruistic nature of his sacrifice.) As Donlan opines: “Musk, however, realized that Tesla’s ultimate success will have to be as a player in a worldwide market for vehicles, and that electric vehicles can’t take over that market if his patents stand in the way. His investors may be very glad that he did not follow the Wright brothers down the patent path.”
We here at IPWatchdog have covered the Musk patent saga since the summer of 2014, when Musk first announced that he wouldn’t assert the rights of patents held by Tesla Motors (NASDAQ:TSLA). A blog post on Tesla’s official website penned by Musk argues that “a patent really just meant that you bought a lottery ticket to a lawsuit” and that he has “avoided [patents] whenever possible.” As we noted in our coverage, however, the timing of his announcement coincided with the end of a battery pack licensing agreement Tesla had made with Toyota Motors (NYSE:TM).
The idea that Musk is solely interested in bringing electric vehicles to the world is a red herring. Tesla doesn’t need patents to make Musk rich if it has resources that no one else has to leverage a very valuable market. The valuable market here isn’t electric vehicles but rather the lithium-ion batteries that such vehicles use. Analysis of Tesla’s open source decision published in 2014 by Seeking Alpha argues that Tesla could see annual profits of more than $5 billion if other companies build technologies around Tesla’s patents and then purchase the battery packs produced by the Gigafactory, Tesla’s lithium-ion battery production plant currently under construction in Nevada.
Also, Musk isn’t being completely honest, at least where his perspective on patents is concerned. In that 2014 Tesla blog post, Musk wrote that after he left an early venture, Zip2, in 1999, he “avoided patents whenever possible.” That’s not a point of view that is borne out by the activities of his businesses, however. SolarCity (NASDAQ:SCTY), which Musk serves as board chairman, continues to obtain patents through acquisitions and its own patent application filings. Through the first nine months of 2015, the year after Musk said he would stop pursuing patents, Tesla had obtained 27 U.S. patents. That’s not a large number, but it’s also not zero and Musk’s comments clearly indicate that the number of new patents his companies obtain should be zero.
Of course, one might make the argument that Musk’s companies might be obtaining patents, but Musk himself isn’t involved with that at all. A specious argument, yes, but one that this writer would be willing to entertain if Musk’s name couldn’t be found on any patent, especially any that have been filed since Musk swore he took his anti-patent vow in 1999. Wouldn’t you know it, but if you look at the list of inventors on U.S. Patent No. D724031, titled Vehicle Charge Inlet, you’ll see a very familiar name. That patent was filed for in July 2012 and granted in March 2015. So it would seem that Musk’s public patent position is just a hypocritical “do as I say not as I do.”
This is just another in a long line of ridiculously false tales about the patent system written by the mainstream media. While we do not like to jump to the conclusion of malice, it is hard to come to any other conclusion given the egregious errors made in this article and the apparent indifference to even primary resources like the U.S. Constitution.