Barack Obama came to office with the suspicion that patents caused higher prices and created market inefficiencies. He set a mission to disassemble the patent system, which culminated in the America Invents Act, a one-way legislation that deprived inventors of patent rights and naively transferred power to market incumbents. In its implementation in the U.S. Patent and Trademark Office (PTO), patents were attacked by market incumbents in a second-window patent examination with the effect of destroying a substantial number of patents.
However, Obama does not understand economics. The patent system is the bedrock for the U.S. economy, supplying critical tools for market entrants. Instead, Obama supplied power to the market incumbents, thereby fortifying their monopoly power, while depriving market entrants of critical tools. By strengthening incumbents and their industrial oligopolies, he harmed competition from market entrants, policies that generated the slowest growth in history.
Even Obama’s chairman of the Council of Economic Advisers, Jason Furman, understands the need to control the abusive market power of oligopolists. But apparently, neither Furman nor Obama implemented policies to help market entrants to compete with entrenched incumbents because of a naïve view of economics and complete misunderstanding of the critical value of the patent system.
The Obama administration has implemented patent policies inspired from left-of-center. Yet, because the far left arguments have questionable assumptions, mistaken facts and over-extended arguments, these policies have a long list of contradictions. Accepting these far left positions, particularly from the open source movement that attacks patents as blocking innovation, has provided the Obama administration with an ironic position of aligning with the far right political positions of market incumbents, critical of patent rights to protect incumbent monopoly power.
The Obama contradictions on patent policy include: (a) a desire to assist start-ups, but penalizing start-ups by attacking the only tool, viz., patents, available to compete against larger corporations; (b) helping China, which has a massive manufacturing sector, attack U.S. innovators; (c) starving U.S. start-ups and ventures of capital by weakening patent rights that investors require and by harming start-ups that create two-thirds of jobs, thereby constraining job creation; (d) demanding substantially increased litigation barriers to enforce patents, which hurt the weakest companies that need patent rights the most; (e) aligning with the far right to protect the monopoly power and profits of large corporations (in effect promoting trusts rather than enforcing antitrust laws that attack trusts); (f) claiming a need for innovation to spur growth while attacking the patent system’s essential tools for competition; (g) not realizing that litigation and access to the judicial system is the only way to even the playing field between market entrants and larger companies; (h) aligning with the open source movement, which attacks property rights, and advocates openness in government at the risk of harming legitimate government secrecy and security; (i) appointing patent critics to policy positions to delegitimize patent rights; (j) not realizing that weakening patents promotes inequality, which they attack; (k) encouraging large corporations to hold out from negotiating licenses for patented inventions and then complaining about the high costs of litigation; (l) claiming that patent holders hold up manufacturers even when the patent holders are not eligible for injunctions (and thus cannot hold out to enforce an exclusive right) and rewarding the infringer rather than the innovator; (m) drastically increasing costs in the Patent Office in the name of increasing efficiency but with the effect of providing a high regressive tax to inventors and then complaining that we don’t have enough innovation; (n) advocating an unrealistic emphasis on manufacturing but advocating a utopian vision that ignores the U.S.’s only competitive advantage of innovation; (o) crushing American small entities in the Patent and Trademark Office in order to favor East Asian institutions, suggesting that they don’t know who their friends are; and (p) advocating for an aristocratic patent system that requires vast capitalization for innovators when their rhetoric suggests the ideals of a democratization of patents. It would appear, then, that the Obama patent policy is hypocritical and self-contradictory, with more in common with the previous administration that it critiques. These convoluted political positions are largely responsible for the weak economic development and jobless recovery of the recession years.
The genesis of these inconsistencies can be found in the Obama administration’s philosophical belief in big government to solve problems. According to this view, the government R&D budget should be expanded. This view of a central government focus advocates that government funded R&D should be given away for free. There are, however, two main problems with this view. First, no matter how big the federal government R&D budget (and it is never enough, even at $140B+ per year), this investment is only a small part of overall U.S. technology spending. Even after corporations and venture capitalists invest capital, the need is over a trillion dollars a year. Angel investors and individuals are the biggest category of non-corporate technology spending and require strong patent rights to protect those investments. Second, the government funding goes mainly to universities, which require patent rights to commercialize their inventions. The main motivation of central government technology spending is the utopian notion of supplying free stuff for the people. But is this not a socialist vision and has not that ideology been discredited as being inefficient and unworkable? Because of the dramatic left turn of these Obama economic policies, the Democrats are now largely a marginalized minority party.
The terrible consequences of these contradictory policies that attacked patent rights and helped market incumbents are just now evident. Because he attacked the patent system, market entrants and small entities suffered their worst declines ever recorded. The disintegration of patent rights robbed incentives to innovate. Investment in innovation declined dramatically, not only for market entrants because of the uncertainty that accompanies weak patent rights but also for incumbents; since incumbents could free ride on market entrants, they lacked incentives to invest in innovation. With declining investment in innovation, productivity growth recorded its worst showing in generations, even as tech incumbents realized the greatest profits in history. As a consequence of weak productivity growth, the economy stagnated. China’s economy also grew dramatically even as the U.S. economy stagnated, creating a competitive challenge from our mismanaged policies. From economic stagnation, wage growth stagnated. From wage growth stagnation, populist movements emerged on the far right as well as the far left.
From the weak economy, generated in large part by Obama’s anti-patent policies, Republicans gained complete control of the federal government. From complete control of the federal government by the opposing party, every single one of Obama’s policy initiatives will be reversed.
Since Obama’s policy mistakes caused the economic malaise that ultimately deprived the Democrats of power, particularly since they derived from mistakes and contradictions adopted by the far left of the party, this catastrophe was preventable. The chief challenge now is whether the Democrats will ever learn from these disastrous mistakes.