Make American Innovation Great Again

Like many others, I expected to go to bed last Tuesday night to jubilant proclamations by the media that their anointed candidate was the newly elected President of the United States of America. But something unexpected happened on the way to the coronation: blue collar men and women from the heartland arose and overthrew the political class. Government by transnational elites was said to be the inevitable wave of the future but it shattered against a wall of voters in the United Kingdom and the United States where commoners standing up to those presuming to determine their futures for them has a long tradition. They said “No thanks” (actually their sentiments would more accurately be captured in a two word phrase inappropriate for printing here).

One of the collateral casualties of last week’s revolution is the effort to bring our life science industry under UN control and to overturn the Bayh-Dole Act, putting bureaucrats in charge of setting “reasonable prices” for products arising from government funded R&D. You can also write off the associated idea of “delinking” research from markets by having the government take over drug development. Like chickens with their heads cut off, those advocating these positions will flail around for a while but their time is past– for now. However, they will not go away. Rather they will bide their time hoping that the public will accept management of the economy by global elites if the new Administration and Congress fail to deliver on their promises.

The Trump Administration (how odd it feels to write that) and the Republican led Congress have a mandate to get this economy moving again and if they want to maintain power they better produce results fast. To jumpstart the economy we need more than infrastructure projects (seems like we heard about those elusive “shovel ready jobs” somewhere before) — we need to reignite the fire of American innovation. One of the brakes on our prosperity has been the deliberate undermining of the patent system. This was not imposed by some malevolent foreign power but by internal forces which didn’t want to be bothered by pesky patent owners objecting to having their property being taken by their betters. While American innovation manages to lead the world despite a malfunctioning patent system, imagine what we would do if the intellectual property rights of our inventors were protected as the Founding Fathers intended.

It’s a fundamental principal of economics that the secure ownership of personal property is essential for prosperity. Walk through any public park and see how seldomly people bother to pick up trash thrown so thoughtlessly about by a few. But if someone throws trash on your lawn, it will quickly be made clear that this nonsense better stop, including calling the police if necessary. But what happens when the police won’t protect the rights of homeowners? Neighborhoods deteriorate, crime flourishes and investors move their money to other markets. That’s what’s happening to patent owners as “effective infringement” becomes an accepted business practice. However, we’ve been down this road before and have a good roadmap of the way out.

[Joe-Allen]

When President Reagan was unexpectedly swept to power, he faced a similar situation. The Bayh-Dole Act had just been passed and some bureaucrats were quietly working to smother the law in the crib because it threatened their power. The essence of Bayh-Dole is decentralizing the management of inventions made with federal R&D out of Washington and into the hands of those doing the research. That idea ran squarely against the competing idea of the time– that we should adopt a version of Japan, Inc. where government planners working with dominant companies plotted the economic future. We heard how much more sophisticated that was than relying on markets and competition. One attractive feature of this model to those on the inside track is that it allows the wielders of political power to reward companies that support them with contracts and other lucrative favors. They also get to punish their enemies.

The Reagan Administration rejected a Washington led approach, embracing the decentralized Bayh-Dole model to integrate the taxpayers’ multi-billion dollar annual investment in federally funded R&D into the economy. President Reagan enshrined the law in an Executive Order and established an effective policy oversight function at the Department of Commerce (unfortunately, now abolished) insuring that bureaucratic resistance to the law stopped. Here’s what happened next according to The Economist Technology Quarterly:

Remember the technological malaise that befell America in the last 1970’s? Japan was busy snuffing out Pittsburgh’s steel mills, driving Detroit off the road, and beginning its assault on Silicon Valley. Only a decade later, things were very different. Japanese industry was in retreat. An exhausted Soviet empire threw in the towel. Europe sat up and started investing heavily in America. Why the sudden reversal of fortunes? Across America, there had been a flowering of innovation unlike anything seen before.

Possibly the most inspired piece of legislation to be enacted in America over the past half century was the Bayh-Dole Act of 1980… this unlocked all the inventions and discoveries that had been made in the laboratories throughout the United States with the help of taxpayers’ money. More than anything this single policy measure helped to reverse America’s precipitous slide into industrial irrelevance.

Before Bayh-Dole, the fruits of research supported by the government agencies had belonged strictly to the federal government. Nobody could exploit such research without tedious negotiations with the federal agency concerned. Worse, companies found it nigh impossible to acquire exclusive rights to a government-owned patent. And without that, few firms were willing to invest millions more of their own money to turn a raw research idea into a marketable product.

But there was another part of the story which The Economist Technology Quarterly missed. When the Reagan Administration took office we had allowed the patent system to unravel as various federal courts interpreted the law differently, undermining confidence. Like the property owner who isn’t sure the police will stop someone from driving across their lawn, without confidence that patent rights can be enforced, they become meaningless. The top priority of patent owners was creating the Court of Appeals for the Federal Circuit insuring that the patent law would be applied uniformly across the country. It was this restoration, along with injecting the incentives of patent ownership into the federal R&D system through Bayh-Dole, that ignited the greatest explosion of innovation in history.

We only have the Bayh-Dole Act because Purdue University brought to Sen. Bayh’s attention that its inventions were being taken away by the federal government under previous policies where they died because the incentives of patent ownership were destroyed. Before becoming Vice President-elect, Mike Pence as Governor of Indiana was keenly aware of the contribution Purdue’s inventions make to the state’s economy. Pence is closely associated with Purdue University President Mitch Daniels, under whose leadership the university has launched record numbers of spin-out companies and licensing deals. In response to President Obama and Senator Elizabeth Warren’s claim: “You didn’t create that” arguing that business success is a collective, not individual achievement, Gov. Daniels told the 2016 graduating class: ” I hope you will tune out anyone who, from this day on, tries to tell you that your achievements are not your own.”

But your achievements are really not your own if rich and powerful competitors can steal them with impunity. When American inventors wonder if U.S. patents are worth the paper they are printed on, we have a serious problem. This isn’t an abstract issue as we rely on small innovative companies to grow our economy. They are also the engine for creating good paying jobs that are so desperately needed. That’s why this is the perfect time to remind the new Administration and Congress that poorly conceived revisions of the patent law need to be repealed and replaced, and judges appointed who will enforce the law, not impose their personal philosophies.

We should boldly proclaim that entrepreneurs will beat the pants off of centrally planned economies every day of the week– but that can only happen if they can own and protect the fruits of their labor. The great chronicler of early American democracy, Alexis de Tocqueville said: “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality by liberty, socialism seeks equality in restraint and servitude.” If we don’t want a future of restraint and servitude, we’d better seize this opportunity to get back on track.

History doesn’t give many do-overs.