Category: Patents

If the Feds Want an Effective Stimulus, They Should Spend to Reduce the Patent Backlog

In my seminar on the Economics of Technology on Tuesday night (11/30/10), Gauri presented some interesting information on intellectual property. At one point she summarized that the lag in processing patents is about three years, but it takes, on average, only about 18 hours to process a patent once the processing has begun.
Later in the seminar, we talked about a brief article by Amar Bhidé on whether large economic stimulus programs have worked in the past, and will work in the present. Bhidé was skeptical, and I am too.
But it occurred to me that one modest economic stimulus expenditure might help. Why not make the highest stimulus spending priority to hire and train enough patent examiners to reduce the patent lag from three years to, say, three weeks?

The Bhidé article mentioned above is:
Bhidé, Amar. “Don’t Believe the Stimulus Scaremongers.” Wall Street Journal, (Tues., February 17, 2009): A15.

Whittle “Struggled for Years to Get Funding and Time to Pursue His Idea”

DeHavilandComet2010-11-14.jpg“When Britain Ruled The Skies: A De Havilland Comet under construction in Belfast in 1954.” Source of caption and photo: online version of the WSJ review quoted and cited below.

(p. C8) Frank Whittle, the brilliant British military pilot and engineer who began patenting jet designs in 1930, struggled for years to get funding and time to pursue his idea. Even after World War II, when a competing Nazi design showed what fighter jets could achieve in battle, U.S. airlines were slow to see jets’ potential for passenger travel.

It took another Brit, airplane designer Geoffrey de Havilland, to awaken postwar America’s aviation behemoths. While Lockheed and Douglas were still churning out rumbling, low-flying propeller planes, De Havilland’s jet-powered Comet began breaking records in 1952. Only after seeing Comets scorch the stratosphere at 500 miles an hour did Howard Hughes want jetliners for TWA and Juan Trippe get interested for Pan Am.
Among American plane makers, it was a military contractor that had struggled in the prewar passenger-plane market–Boeing–that first took up the jetliner challenge. In retrospect, the outcome seems obvious. The Boeing 707 inspired the term “jet set.” Boeing’s iconic 747 “Jumbo Jet” opened jet-setting to the masses.
But in 1952, that outcome was far from obvious. Mr. Verhovek zeroes in on the mid-1950s, when Comets first seemed to own the world and then started plunging from the sky in pieces. The Comet’s fatal design flaw–the result of an insufficient appreciation of the danger of metal fatigue–holds resonance today as both Boeing and Airbus struggle to master the next generation of jetliner materials, composites of carbon fiber and plastic.
. . .
Although “Jet Age” inevitably centers on technology, Mr. Verhovek wisely focuses as well on the outsize personalities behind world-changing innovations. There’s Mr. De Havilland, a manic depressive who was so dedicated to aviation that he kept going after two of his three sons died testing his planes. Mr. Whittle, we learn, sniffed Benzedrine to stay awake, popped tranquilizers to sleep and shriveled to just 127 pounds while developing the jet engine. And Boeing chief executive Bill Allen, a meticulous lawyer, bet the company on passenger jets when not a single U.S. airline wanted one.

For the full review, see:
DANIEL MICHAELS. “Shrinking the World; How jetliners commercialized air travel–stewardesses and all.” The Wall Street Journal (Sat., October 9, 2010): C8.
(Note: ellipsis added.)

The book under review is:
Verhovek, Sam Howe. Jet Age: The Comet, the 707, and the Race to Shrink the World. New York: Avery, 2010.

Coke’s Patent Law Motivated by Belief that Creative Craftsmen Were Source of Britain’s Prosperity

William Rosen discusses the genesis and significance of the world’s first patent law:

(p. 52) The Statute became law in 1624. The immediate impact was barely noticeable, like a pebble rolling down a gradual slope at the top of a snow-covered mountain. For decades, fewer than six patents were awarded annually, though still more in Britain than anywhere else. It was seventy-five years after the Statute was first drafted, on Monday, July 25, 1698, before an anonymous clerk in the employ of the Great Seal Patent Office on Southampton Row, three blocks from the present–day site of the British Museum, granted patent number 356: Thomas Savery’s “new Invention for Raiseing of Water and occasioning Motion to all Sorts of Mill Work by the lmpellent Force of Fire.”

Both the case law and the legislation under which the application was granted had been written by Edward Coke. Both were imperfect, as indeed was Savery’s own engine. The law was vague enough (and Savery’s grant wide-ranging enough; it essentially covered all ways for “Raiseing of Water” by fire) that Thomas Newcomen was compelled to form a partnership with a man whose machine scarcely resembled his own. But it is not too much to claim that Coke’s pen had as decisive an impact on the evolution of steam power as any of Newcomen’s tools. Though he spent most of his life as something of a sycophant to Elizabeth and James, Coke’s philosophical and temperamental affinity for ordinary Englishmen, particularly the nation’s artisans, compelled him to act, time and again, in their interests even when, as with his advocacy of the 1628 Petition of Right (an inspiration for the U.S. Bill of Rights) it landed him in the King’s prisons. He became the greatest advocate for England’s craftsmen, secure in the belief that they, not her landed gentry or her merchants, were the nation’s source of prosperity. By understanding that it was England’s duty, and–perhaps even more important–in England’s interest, to promote the creative labors of her creative laborers, he anticipated an economic philosophy far more modern than he probably understood, and if he grew rich in the service of the nation, he also, with his creation of the world’s first durable patent law, returned the favor.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: italics in original.)

When Inventors Could Get Patents that Were Durable and Enforceable, “the World Started to Change”

(p. 50) . . . Coke, who had . . . been made Lord Chief Justice of’ England, drafted the 1623 “Act concerning Monopolies and Dispensations with penall Lawes and the Forfeyture thereof,” or, as it has become known, the Statute on Monopolies. The Act was designed to promote the interests of artisans, and eliminate all traces of monopolies.

With a single, and critical, exception. Section 6 of the Statute, which forbade every other form of monopoly, carved out one area in which an exclusive franchise could still be granted: Patents could still be awarded to the person who introduced the invention to the realm–to the “first and true inventor.”
This was a very big deal indeed, though not because it represented the first time inventors received patents. The Venetian Republic was offering some form of patent protection by 1471, and in 1593, the Netherlands’ States-General awarded a patent to Mathys Siverts, for a new (and unnamed) navigational instrument. And, of course, Englishmen like John of Utynam had been receiving patents for inventions ever since Henry VI. The difference between Coke’s statute and the customs in place before and elsewhere is that it was a law, with all that implied for its durability and its enforceability. Once only inventors could receive patents, the world started to change.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: italics in original; ellipses added.)

Steven Johnson Ignores Role of Market in Enabling Innovation

WhereGoodIdeasComeFromBK.jpg

Source of book image: online version of the WSJ review quoted and cited below.

Steven Johnson’s The Ghost Map is one of my favorite books. I also enjoyed his The Invention of Air. I have not yet read his Where Good Ideas Come From. Based on the review quoted below, I do not expect to be as enthused about the new book.
I have read elsewhere that Johnson criticizes patents. If all would-be innovators were independently wealthy then innovation without patents might work. But William Rosen in The Most Powerful Idea in the World has recently shown that patents financed a key group of craftsmen who otherwise would not have been able to create the steam engines that powered the industrial revolution.
The issues are difficult and important—I will write more in a month or two after I have had a chance to read Johnson’s book.

(p. A21) Mr. Johnson thinks that the adjacent possible explains why cities foster much more innovation than small towns: Cities abound with serendipitous connections. Industries, he says, may tend to cluster for the same reason. A lone company in the middle of nowhere has only the mental resources of its employees to fall back on. When there are hundreds of companies around, with workers more likely to change jobs, ideas can cross-fertilize.

The author outlines other factors that make innovation work: the tolerance of failure, as in Thomas Edison’s inexorable process-of-elimination approach to finding a workable light-bulb filament; the way that ideas from one field can be transformed in another; and the power of information platforms to connect disparate data and research. “Where Good Ideas Come From” is filled with fascinating, if sometimes tangential, anecdotes from the history of entrepreneurship and scientific discovery. The result is that the book often seems less a grand theory of innovation than a collection of stories and theories about creativity that Steven Johnson happens to find interesting.
It turns out that Mr. Johnson himself has a big idea, but it’s not a particularly incisive one: He proposes that competition and market forces are less important to innovation than openness and inspiration. The book includes a list of history’s most important innovations and divides them along two axes: whether the inventor was working alone or in a network; and whether he was working for a market reward or for some other reason. Market-led innovations, it turns out, are in the minority.

For the full review, see:
MEGAN MCARDLE. “Serendipitous Connections; Innovation occurs when ideas from different people bang against each other.” The Wall Street Journal (Tues., OCTOBER 5, 2010): A21.

William Rosen’s “The Most Powerful Idea in the World”

Most-Powerful-Idea-in-the-WorldBK2010-10-24.jpg

Source of book image: http://ffbsccn.files.wordpress.com/2010/07/the-most-powerful-idea-in-the-world.jpg

The range of William Rosen’s fascinating and useful book is very broad indeed. He is interested in THE question: why did the singular improvement in living standards known as the industrial revolution happen where and when it did?
The question is not just of historical interest—if we can figure out what caused the improvement then and there, we have a better shot at continuing to improve in the here and now.
I especially enjoyed and learned from William Rosen’s discussion, examples and quotations on the difficult issue of whether patents are on balance a good or bad institution.
Deirdre McCloskey taught me that the most important part of a sentence is the last word, and the most important part of a paragraph is the last sentence, and the most important part of a chapter is the last paragraph.
Here are the last couple of sentences of Rosen’s book:

(p. 324) Incised in the stone over the Herbert C. Hoover Building’s north entrance is the legend that, with Lincoln’s characteristic brevity, sums up the single most important idea in the world:

THE PATENT SYSTEM ADDED

THE FUEL OF INTEREST

TO THE FIRE OF GENIUS

In the next few weeks I will occasionally quote a few of the more illuminating passages from Rosen’s well-written account.

Book discussed:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.

Myhrvold Innovates in Financing Innovation

MyhrvoldNathanIntellectualVentures2010-03-01.jpg “Nathan Myhrvold, chief of Intellectual Ventures, says patent holders are being treated unfairly.” Source of caption and photo: online version of the NYT article quoted and cited below.

When Nathan Myhrvold was at Microsoft, he helped Bill Gates write The Road Ahead, a well-written book full of realistically optimistic speculation, forecast and analysis.
Besides his main initiative, discussed below, he has recently been in the news due to his bold and controversial suggestion for how to cheaply solve global warming.

(p. B1) BELLEVUE, Wash. — Nathan Myhrvold wants to shake up the marketplace for ideas. His mission and the activities of the company he heads, Intellectual Ventures, a secretive $5 billion investment firm that has scooped up 30,000 patents, inspire admiration and angst.

Admirers of Mr. Myhrvold, the scientist who led Microsoft’s technology development in the 1990s, see an innovator seeking to elevate the economic role and financial rewards for inventors whose patented ideas are often used without compensation by big technology companies. His detractors see a cynical operator deploying his bulging patent trove as a powerful bargaining chip, along with the implied threat of costly litigation, to prod high-tech companies to pay him lucrative fees. They call his company “Intellectual Vultures.”
White hat or black hat, Intellectual Ventures is growing rapidly and becoming a major force in the marketplace for intellectual capital. Its rise comes as Congress is considering legislation, championed by large technology companies, that would make it more difficult for patent holders to win large damage awards in court — changes that Mr. Myhrvold has opposed in Congressional testimony and that his company has lobbied against.
. . .
(p. B10) The issues surrounding Intellectual Ventures, viewed broadly, are the ground rules and incentives for innovation. “How this plays out will be crucial to the American economy,” said Josh Lerner, an economist and patent expert at the Harvard Business School.
Mr. Myhrvold certainly thinks so. He says he is trying to build a robust, efficient market for “invention capital,” much as private equity and venture capital developed in recent decades. “They started from nothing, were deeply misunderstood and were trashed by people threatened by new business models,” he said in his offices here.
Mr. Myhrvold presents his case at length in a 7,000-word article published on Thursday in the Harvard Business Review. “If we and firms like us succeed,” he writes, “the invention capital system will turbocharge technological progress, create many more new businesses, and change the world for the better.”
In the article and in conversation, Mr. Myhrvold describes the patent world as a vastly underdeveloped market, starved for private capital and too dependent on federal financing for universities and government agencies, which is mainly aimed at scientific discovery anyway. Eventually, he foresees patents being valued as a separate asset class, like real estate or securities.
His antagonists, he says, are the “cozy oligarchy” of big technology companies like I.B.M., Hewlett-Packard and others that typically reach cross-licensing agreements with each other, and then refuse to deal with or acknowledge the work of inventors or smaller companies.
. . .
Mr. Myhrvold personifies the term polymath. He is a prolific patent producer himself, with more than 100 held or applied for. He earned his Ph.D. in physics from Princeton and did postdoctorate research on quantum field theory under Stephen Hawking, before founding a start-up that Microsoft acquired.
He is an accomplished French chef, who has also won a national barbecue contest in Tennessee. He is an avid wildlife photographer, and he has dabbled in paleontology, working on research projects digging for dinosaur remains in the Rockies.

For the full story, see:
STEVE LOHR. “Turning Patents Into ‘Invention Capital’.” The New York Times (Thur., February 18, 2010): B1 & B10.
(Note: ellipses added.)
(Note: the online version of the article is dated February 17, 2010.)

The Bill Gates book is:
Gates, Bill. The Road Ahead. New York: Viking Penguin, 1995.

Myhrvold’s Harvard Business Review essay is:
Myhrvold, Nathan. “The Big Idea: Funding Eureka!” Harvard Business Review 88, no. 2 (March 2010): 40-50.

MyhrvoldNathanFreezeDryMachine2010-03-01.jpg “Nathan Myhrvold with a machine that freeze-dries food. Intellectual Ventures so far has paid $315 million to individual inventors.” Source of caption and photo: online version of the NYT article quoted and cited above.

The Case for Patent System Reform

(p. A13) The Patent Office now gets some 500 million applications a year, leading to litigation costs of over $10 billion a year to define who has what rights. As Judge Richard Posner has written, patents for ideas create the risk of “enormous monopoly power (imagine if the first person to think up the auction had been able to patent it).” Studies indicate that aside from the chemical and pharmaceutical industries, the cost of litigation now exceeds the profits companies generate from licensing patents.

For the full commentary, see:

L. GORDON CROVITZ. “OPINION: INFORMATION AGE; Why Technologists Want Fewer Patents.” The Wall Street Journal (Mon., JUNE 15, 2009): A13.

Our “Patently Absurd” Patent System

(p. A15) The Founders might have used quill pens, but they would roll their eyes at how, in this supposedly technology-minded era, we’re undermining their intention to encourage innovation. The U.S. is stumbling in the transition from their Industrial Age to our Information Age, despite the charge in the Constitution that Congress “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.”
. . .

Both sides may be right. New empirical research by Boston University law professors James Bessen and Michael Meurer, reported in their book, “Patent Failure,” found that the value of pharmaceutical patents outweighed the costs of pharmaceutical-patent litigation. But for all other industries combined, they estimate that since the mid-1990s, the cost of U.S. patent litigation to alleged infringers ($12 billion in legal and business costs in 1999) is greater than the global profits that companies earn from patents (less than $4 billion in 1999). Since the 1980s, patent litigation has tripled and the probability that a particular patent is litigated within four years has more than doubled. Small inventors feel the brunt of the uncertainty costs, since bigger companies only pay for rights they think the system will protect.
These are shocking findings, but they point to the solution. New drugs require great specificity to earn a patent, whereas patents are often granted to broad, thus vague, innovations in software, communications and other technologies. Ironically, the aggregate value of these technology patents is then wiped out through litigation costs.
Our patent system for most innovations has become patently absurd. It’s a disincentive at a time when we expect software and other technology companies to be the growth engine of the economy. Imagine how much more productive our information-driven economy would be if the patent system lived up to the intention of the Founders, by encouraging progress instead of suppressing it.

For the full commentary, see:
L. GORDON CROVITZ. “OPINION: INFORMATION AGE; Patent Gridlock Suppresses Innovation.” Wall Street Journal (Mon., JULY 14, 2008): A15.
(Note: ellipsis added.)

Myhrvold Claims His Patent Purchases Benefit Small-Time Inventors

PatentSettlementGraph.gif Source of graph: online version of the WSJ article quoted and cited below.

(p. A1) Millionaire Nathan Myhrvold, renowned in the computer industry as a Renaissance man, has a less lofty message for tech companies these days: Pay up.

Over the past few years, the former Microsoft Corp. executive has quietly amassed a trove of 20,000-plus patents and patent applications related to everything from lasers to computer chips. He now ranks among the world’s largest patent-holders — and is using that clout to press tech giants to sign some of the costliest patent-licensing deals ever negotiated.
. . .
(p. A21) Mr. Myhrvold says the fact he doesn’t make actual products is irrelevant. He stresses that Intellectual Ventures helps small-time inventors by providing them with an aggressive buyer to sell their patents to.
Intellectual Ventures, which has about $5 billion under management, bears some similarities to a private-equity firm that operates investment funds for the benefit of investors. However, its largest fund has an unusual structure in which fund investors are also responsible for the lion’s share of the fund’s returns.
It works like this: Technology companies agree to pay patent-licensing fees to inoculate themselves against potential lawsuits by Intellectual Ventures. These fees are how the fund generates its returns. As part of the deal, though, these same companies also put up the cash Mr. Myhrvold uses to buy more patents, receiving an equity stake in the fund in return.

For the full story, see:

AMOL SHARMA and DON CLARK. “Tech Guru Riles the Industry By Seeking Huge Patent Fees.” The Wall Street Journal (Weds., SEPTEMBER 17, 2008): A1 & A21.
(Note: ellipsis added.)

MyhrvoldNathan2009-02-15.jpg

“Nathan Myhrvold’s message for tech firms: Pay up.” Source of caption and photo: online version of the WSJ article quoted and cited above.

Inability to Patent Sulfa, Delayed Its Marketing

When new uses of old, unpatentable drugs are discovered, there seems to be inadequate incentive to publicize them, and bring them to market. (For example, I think I have seen research suggesting that aspirin and fish oil capsules, are as effective in fighting heart disease as some newer drugs, but are nonoptimally utilized because of perverse incentives.) Maybe a revision of the patent law should be considered that permits some patenting of new uses of old drugs and substances?

(p. 172) It was wonderful that this powerful, inexpensive medicine was now available, but for a year after the Pasteur Institute announcement, no one marketed it seriously in its pure form as a medicine. Because it was not patentable, it was difficult for major chemical or drug firms to see a way to make much of a profit from it. It was not until months after the Pasteur group’s first publication on sulfa that the president of Rhône-Poulenc, an industrial supporter of Fourneau’s laboratory, visited the Pasteur Institute to hear about it. After talking with the researchers he decided to launch Septazine, a variation on pure sulfa that he felt was different enough to allow patenting—and hence profits. Septazine reached the marketplace in May 1936.

Source:
Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.