Innovation only occurs when entrepreneurs are incentivized to take risks

By Gene Quinn
June 29, 2016

Purdue University President Mitch Daniels.

Purdue University President Mitch Daniels.

As many are probably aware, conservative columnist George Will recently renounced his membership in the Republican Party and announced that he will not support, or vote for, Donald Trump in the fall election. Many are probably less aware of Will’s recent article, brought to my attention by Peter Harter (hat tip), in which he explained that Mitch Daniels is the President America really needs. Here Will reminds us of President Obama’s infamous statement about entrepreneurs not being responsible for building their businesses, but rather government being responsible because after all “you didn’t build that…” Clearly, Will is leaving the Republican Party not because he is enamored with the Democrats, but because the Republican Party has left him.

In touting Daniels, Will’s article goes on to quote the former Indiana Governor, now the President of Purdue University, telling the graduating class of 2016: “I hope you will tune out anyone who, from this day on, tries to tell you that your achievements are not your own.” Obviously, Daniel’s remark is directed at President Obama and those who share his belief that the government is responsible for prosperity rather than individuals.

Since taking over at Purdue Daniels has emphasized commercialization of research and has led Purdue to record numbers of new patents, record numbers of technology licenses and record numbers of start ups based on Purdue University innovations. Such an aggressive pro-innovation, pro-patent agenda creates a stark contrast between his philosophical approach to innovation and the one currently favored by the White House, many Members of Congress, and perhaps even the United States Supreme Court.

Daniels would go on to concede that luck can no doubt play some part in success, but also reminded the students that individual work ethic is what determines outcomes. Daniels quoted Thomas Edison: “Opportunity is missed by most people because it is dressed in overalls and looks like work.” And movie pioneer Samuel Goldwyn: “The harder I work, the luckier I get.” And Frederick Douglass: “We may explain success mainly by one word and that word is work.”

Daniels, Edison, Goldwyn and Douglass are all correct. A little luck never hurts, but relying on luck is hardly a winning strategy. Indeed, the best definition of luck is this: “Luck: when opportunity meets preparation.” Of course, work precedes preparation, which in turn precedes success.

Unfortunately, this “you didn’t build that” belief system seems to permeate President Obama’s thinking with respect to innovation, and has trickled down within the Administration. This view is also shared by many in Congress too. Sadly, this fatalistic view removes the virtues of work and ignores the sacrifices it takes to succeed. Worst, such a world-view belittles risk taking, which is an absolute prerequisite to business success, particularly with respect to innovation.

Believing that innovation does not come from risk taking inventors, entrepreneurs, start ups, or even from the likes of Silicon Valley, is naïve in the extreme.  Sure, much of the long-term advanced government spending eventually produced things like the Internet, but America has always innovated most and best when stable rules are in place that incentivize risk takers to imagine the impossible and attempt to bring it into being. Simply stated, America works best and innovates most when government stands behind a stable property rights regime and gets out of the way.

The entire premise of an intellectual property system, like the United States patent system, is that an individual will give up some of her rights (i.e., the right to keep the innovation secret) in exchange for the government enforcement of her private property rights so that society can benefit. Of course, society will benefit in multiple ways. In the near term society benefits through diffusion of the innovation by way of publication of the invention in a patent, and if the product or service is commercially desirable society reaps the rewards from availability of the technological advance, as well as jobs and the associated economic advantages.  In the long term, after the patent expires, anyone will be able to freely use the innovation and all obvious variations of the innovation. With many patents lasting as little as 4 years, others only 8 years and only relatively few of the most commercially valuable lasting the full patent term, this is a great bargain for society.

Of particular interest within the industry, as has been pointed out by attorney Robert Greenspoon (see comment 8) within the 15 months all eight Justices on the United States Supreme Court have signed on to an opinion that includes a statement calling patents an important private property right.  Yet, at the same time, the Obama Department of Justice (DOJ) and the Solicitor General in particular suggests patents are a public interest. So which is it?

Increasingly we hear stories that those who meet with the Obama DOJ, and other parts of the Obama Administration, get asked questions that seem to defy reality.  “If your patents are so valuable to you then why are you afraid of defending them in CBMs?”  “How can you tell me that America would not be better off if we did not have patents?”

It is absurd to have to answer these questions and even pretend that they are serious, well thought out, or informed questions. They are not. But let’s be clear – CBM, or covered business method review, is little more than a dog and pony show. The Patent Trial and Appeal Board (PTAB) is clearly abusing their authority and instituting CBMs on patents that clearly do not qualify as business methods and/or which have a technical component, either or both of which disqualify them under the statute.

With respect to whether America would be better off without a patent system, anyone who thinks that passes for knowledgeable or informed thought need only look around the globe and notice that where there are no patent regimes there is no economic activity. If a weak patent system were the answer you would expect countries that have a weak patent system, or no patent system at all, to have run away innovation. What you see, however, is the exact opposite. See Maximizing innovation requires a strong patent system. In fact, Professor Stephen Haber of Stanford University has found, “there are no wealthy countries with weak patent rights, and there are no poor countries with strong patent rights.” See How Strong Patents Make Nations Wealthy.

Furthermore, “numerous studies of the real-world impact of patenting on innovation and economic growth… all found that patents foster ex ante innovation — meaning, they induce people to invent because of the prospect of reward.” See Do Patents Truly Promote Innovation? Still further, there is a clear correlation between the proliferation of innovation and the protection of intellectual property rights. See IP Protection Incentivizes Innovation. Further still, study after study “confirms the value of patents as important incentives for R&D in several sectors, including pharmaceuticals, biotechnology and medical instruments.” See The Economics of Incentives.

Obviously, there is much more that could be said on this point, but given the lack of seriousness of this ridiculous and uninformed position it isn’t worth the time or effort to further rebut such provably false nonsense. If you cannot understand that people respond to incentives there really isn’t much that can be said to convince you of anything. Of course, if you believe people don’t respond to incentives then why is our tax code so cumbersome and constantly used by Congress and the President as a means for directing social policy? I can just hear the refrain from the legions of haters: Tax incentives cause people to respond, but certainly not patent incentives. That type of hypocrisy could only every possibly exist inside the beltway in Washington, DC.

There is reason to fear that the Napster generation is now getting older and taking a deeper root in our society and culture, and soon our governance. The next few years will be a pivotal time for the U.S. patent system. Will we continue down this path to oblivion, or will attitudes change?

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 4 Comments comments.

  1. Night Writer June 29, 2016 9:55 am

    The argument that Google presents is that they will take care of innovation. You Congress/President/Courts just do what we tell you and all will be fine. It is a lot like the arguments for de-regulation of the finance industry and Google and Goldman Sachs have a lot in common in terms of size, power, and lobbying.

    Look what Google is saying: give us better tax breaks on innovation, give us stronger trade secret laws, get rid of those patents or at least make them so only big international corporations can use them, and we will take care of that innovation thing.

  2. Anon June 29, 2016 10:59 am

    Yes! More of this!

  3. john June 30, 2016 9:32 am

    I have always enjoyed this blog, but this foray into political commentary is ridiculous and contradicts itself. President Obama has never suggested that the government is responsible for innovation. Obama’s main point is that it is hard to be innovative, no matter how driven and talented you, are if you live in Afgahnistan, Syria, or Sudan. Warren Buffet and many others have made the same point. Those countries all have very weak central governments. The essay also makes the point that no country with a weak patent system has a strong culture of innovation. I agree. However, I am not aware of any countries with a non-governmental patent system. Please stick to writing about IP and not politics.

  4. Gene Quinn June 30, 2016 11:04 am

    John-

    Obviously, the foray into political commentary is NOT ridiculous. Not sure why you would say that.

    Whether you like it or not, President Obama said that if you succeed in business it has nothing to do with your hard work, but rather it has to do with the hard work of others. That is his world-view. If you don’t think that permeates his view of innovation and technology you really need to open your eyes. He has taken positions throughout his term in Office, primarily in the second term, that have strongly supported infringers at the expense of innovators. The beliefs of President Obama are hardly distinguishable from the beliefs held by Google executives and their DC lobbyists, and Google openly says that innovation is putting a product into commerce. So there is nothing particularly special about inventing. The hard work of inventing doesn’t make you an innovator because someone else is actually selling that product or service. So Obama’s view on innovation seems entirely consistent with his view on business generally.

    As far as sticking to writing about IP… this article was about IP and innovation. Having pointed out the obvious I’ll take one step further. I always find it extremely interesting when people like you tell me to stop writing about things of a political nature even when they clearly relate to patents, IP, innovation and technology, which is the subject matter of IPWatchdog.com. What I find particularly interesting is people like you comment by providing your opinion of the subject matter and politics and then conclude that I don’t know what I’m talking about so I need to stop writing about things that have a political aspect. I guess you on the other hand don’t need to follow your own advice and are perfectly competent to offer opinions relating to politics and IP. How hypocritical.

    Seriously, we write about matters that touch on politics constantly. Whenever there is a hearing in Congress on a major piece of legislation that deals with patents, trade secrets, copyrights, or even the Internet we cover the hearing. I’ve interviewed Senators and Congressman. I’ve published op-ed articles by Congressmen and Congresswomen. We cover legislation, rule making and the intellectual property and innovation views of candidates for high Office. To tell me to stop writing about politics sounds an awful lot like you are completely unfamiliar with IPWatchdog.com.

    -Gene