After seven years of working with intellectual property and innovation in China, I’ve seen some of the ups and downs as well as the gross misunderstanding of Chinese innovation and IP in the West. I’d like to briefly summarize what I’ve seen.
First, when it comes to innovation in science and industry, graduates of Chinese universities are not the drones and clueless copyists that many in the West seem to think they are. Yes, they have been through intense educational processes that emphasize memorizing tons of material and respecting what teachers say, but this hardly means they cannot think for themselves or innovate. In fact, the mastery of material that they have obtained gives many of them the skills needed to apply sound principles in creative ways. he truth about innovation is that in many cases, skills and knowledge matter, and the more you have at your fingertips, the more you can do with it.
But yes, in an innovation session, a facilitator is likely to find a lot of people looking down at the ground and not contributing. This can often be due to having the wrong people in the room and not providing the right setting and incentives. If the boss is there, people might be afraid of showing him or her up or afraid of saying something risky and possibly wrong. So get the boss out of the room. Then turn your event into a competition. Have incentives for contributing. It can be as simple as “no bathroom break until we have 10 ideas in the board” or prizes for the team with the best concepts. But once it becomes clear that there are reasons to contribute and little risk in contributing, you’ll face the problem I see most now: getting the group to slow down and limit their responses. “I just needed 5 concepts, not 30, but thank you!” A friendly competition brings out the best in many Chinese innovators, and I’ve been deeply impressed with their creativity and insights.
Innovation is very healthy in China. China is leading the world in innovation in many targeted areas, greatly outpacing the West in areas such as nanotechnology, green energy, AI, etc. You haven’t seen the power of great smartphone apps until you’ve seen how people are able to use WeChat over here for so many things: paying utility bills, ordering and paying for meal, participating in free videoconferences, sending gifts, finding when the next bus is coming to your stop, reserving seats at a movie theater, easily forming groups to share text, photos, and videos for an upcoming or current event, etc.
China has wonderful brands, cool business models, increasing quality and safety, brilliant entrepreneurs, and a booming market in many fields. It’s a dazzling and beautiful place with great hope for the future.
On the other hand, there are some great “fatigue factors” that make things tough on some innovators and entrepreneurs. The biggest issue may be the uncertainty in regulations. Here in Shanghai, for example, thousands of entrepreneurs who have spent years building their businesses in small shops along many classic streets of Shanghai suddenly found that all the shops in certain areas would be torn down to beautify the street or convert it to high-end hotels or something. Many times all that happened was that a flourishing market was eviscerated and sterile walls were left lining a street that suddenly was missing the flavor it had nurtured for decades. The purging of small businesses has been painful to watch and has also been frustrating to local residents who can no longer get the goods and services that used to be around the corner. Now they have to travel to go to larger stores that are less convenient and often more expensive.
Last week, I was thrilled to learn that the Central Committee of the Communist Party in Beijing sent out a very wise directive to cities in China urging them to be cautious about unnecessarily closing shops and markets on their streets. It noted that this process is removing important economic zones that convey a crucial part of the flavor of China. Amen! I grieve for the thousands who lost their jobs over these painful sweeps, and hope healthy local businesses and markets can continue to thrive for the good of both the entrepreneurs and customers like me. How I miss some of those little shops and businesses that have been such a precious part of my experience in Shanghai.
Unpredictable rule changes can hurt innovators in many ways. Some innovators just get a business going only to learn that a new rule now forbids the import or sale of a product they brought to China. Others learn that an area that was zoned for industry is suddenly no longer open to their business and perhaps an entire factory has to move. These things happen in the West as well, but the process here is less visible and harder to cope with in many cases, in my opinion, so those creating businesses here need to be both flexible and diligent in understanding the needs and plans of government so they can foresee problems or adapt to them quickly. I’m not saying it’s overwhelmingly difficult, but innovators and entrepreneurs do need to be prepared watchful, and always have a plan B. That’s good advice for any nation, of course.
The challenges from rule changes may be most severe for large companies, where a policy change can affect huge areas of one’s business or involve formidable costs. On the other hand, large companies often benefit greatly from relationships with other entities that can give them great advantages in innovation. And fortunately, the government is often understanding of the impact that rule changes can bring, such as the requirement to move a factory, and will often offer incentives that take way much of the pain and make the change possible.
Part of the good news is that officials at all levels in the country are increasingly recognizing the importance of aiding and not hindering innovation and entrepreneurs, and so in spite of some of the risks of rule changes, there is a general climate of encouragement and help for innovation. This can benefit large and small companies. It helps to be involved, to unite with good organizations to stay informed and build increasing influence, and to also be close to your community, making sure that your business is involved in bettering the community and lifting others. Such organizations and innovators who aren’t just looking out for themselves but recognize the greater good and seek to serve can have lasting impact on this nation.
Innovation is real in China and is becoming stronger and more important every year. It is a great place to pursue innovation and a great place to develop and enforce meaningful IP. More on the IP issues later. For now, give China a chance and look beyond the stereotypes that are often projected as if they were facts. China has changed greatly in the past two or three decades. Come see what’s really happening over here!
Pop stars seem to get all the publicity, so it’s cool that CNN finally did a major story about a real inventor and his useful, practical, real-world anti-gravity patent, US Patent #5255452, “Method and Means for Creating Anti-gravity Illusion” by Michael J. Jackson. Heard of him? Apparently this inventor did a little singing and dancing in his spare time. The CNN story is “How Michael Jackson’s tilt defied gravity,” May 22, 2018, CNN.com. It’s a real patent with a useful, practical, and impressive technology that gave him an even bigger competitive advantage that his stage talent alone could provide.
Let’s remember Michael Jackson not just for his incredible talent on the stage, but also for his role as an inventor and patent holder who shared the secret of his breakthrough anti-gravity invention with the world. Michael’s anti-gravity invention reminds us that even seemingly small steps forward in technology can have significant practical effects.
Or as they say, “One small step for man, one giant moon walk for mankind.”
Under the America Invents Act, the United States Patent and Trademark Office (USPTO) was given broad new powers to “correct” past mistakes in issuing patents through the power given to the PTAB, the Patent Trials and Appeals Board. The PTAB is an administrative law that decides issues of patentability, formed on September 16, 2012 under the America Invents Act. Their impact on patents, innovation, and the US economy has far exceeded anything contemplated when Congress debated this provision. They have become the “go to” route almost anytime significant patent litigation is underway, and the results have been devastating to patent holders. Large numbers of seemingly valuable patents have been invalidated and patent holders have faced huge costs and losses as opponents can launch repetitive assaults that need to be defended at great cost. For many of us in the innovation and IP communities, the term “patent death squad” sadly seems appropriate.
The PTAB consists of numerous “judges” who conduct trials on the patentability of patents that have already gone through years of examination at the USPTO. It’s a painful burden that often results in the USPTO saying, “Sorry — we messed up completely when we granted your patent that you struggled so many years to prosecute. Should never have been issued in the first place.”
But who are these “judges” that are causing such havoc? Gene Quinn of IPWatchdog.com has done some great investigative journalism and revealed that these judges are a far cry from what one would expect in terms of their legal experience. Many have just a few years of experience, which helps explain some of the surprising decisions they have rendered.
See “PTAB Judges Shockingly Inexperienced Compared to District Court Judges” by Gene Quinn at IP Watchdog, March 6, 2018. A short excerpt follows, but see the original article for key data and some incisive comments afterwards.
Inexperienced PTAB Judges
What was most astonishing is just how inexperienced many patent judges of the PTAB are compared to federal district court judges. For example, many PTAB judges were appointed to the PTAB at a time when they were associates, and in some cases junior associates.
This study uncovered several shocking revelations. First, 12.64% of PTAB judges were appointed with less than 5 years of experience prior to their appointment as APJs (i.e., 5 years or less removed from graduating from law school), while some PTAB judges were appointed with as little as 2 years of experience. Indeed, 7.47% of APJs had 4 or less years of experience when they were appointed to the PTAB. More than one-third (36.21%) of PTAB judges were appointed with 9 years or less of experience….
The America Invents Act (AIA) invests PTAB judges with extraordinary powers. For example, overwhelmingly institution decisions are not appealable. Yet, there have been numerous lawyers with shockingly little experience appointed to the position of patent judge, and vested with the power to make decisions that cannot be reviewed by any Article III federal court.
A book on World War II teaches a lesson for today on innovation. In Churchill and Orwell: The Fight for Freedom by Pulitzer-prize winning author Thomas E. Ricks (New York: Penguin, 2017), we learn about some of the reasons England struggled to defend itself effectively in dealing with Germany. A key problem discussed by Ricks was England’s poor state of preparation with inadequate machinery, feeble industrialization, weak supply chains, etc., that made it hard to fight a serious war and led to embarrassing disasters like the rapid loss of Singapore, their supposed fortress in southeast Asia. Close to home in Europe, Britain had a hard time just moving troops around — they often had to walk — and the Brits were amazed at how quickly their American cousins could mobilize when they came to the rescue. Why was England so poorly prepared?
England, as you will recall, was the birthplace of the Industrial Revolution, yet by the time of the War, they were awkwardly behind in many of the basic technologies they would need. How could this happen? Ricks comments are insightful:
Managed by family members more interested in reaping dividends than investing in new machinery and other gear, “British firms were unable to adopt modern, best-practice technology,” concluded business historian Alfred D. Chandler Jr. As a consequence, Britain’s brilliant university research generally did not make the transition into factories. Britain had led the first Industrial Revolution of coal and steam power, but generally sat out the “Second Industrial Revolution” of the late nineteenth and early twentieth centuries, built around oil, chemicals, metals, electricity, electronics, and light machinery, such as automobiles. By the end of the 1940s, it would have neither an empire nor an economy capable of competing with those of other major powers. As Correlli Barnett put it, the reality was that by the time World War II ended, the British “had already written the broad scenario for Britain’s postwar descent to the place of fifth in the free world as an industrial power, with manufacturing output only two fifths of West Germany’s.” Interestingly, Barnett was the keeper of the Churchill Archives at Cambridge University from 1977 to 1995. [Ricks, pp. 203-204]
Something similar happened in China, which once led the world in innovation and GDP, but from the Qing Dynasty until the late 20th Century, in part due to apathetic leaders unwilling to invest in or even open the doors to innovation and technology, China missed out on much of the Industrial Revolution. Only through massive reform and exerted effort in recent decades has China begun its return to a position of global leadership in innovation, IP creation, and economic growth.
In the paper industry, which I’ve been close to for many years, it’s clear that the American paper industry has largely fallen into the same trap that nearly cost Britain its freedom and did cost many lives unnecessarily. The American paper industry has largely failed to invest in new technology and relies heavily on antiquated paper machines and pulp mills that are decades behind what we have in Asia (China and Japan in particular). Their slower, less efficient machines and less efficient plantations put them at a distinct cost disadvantage. Instead of taking steps to compete better, the US industry too often tries to rely on protective legislation to raise tariffs on imported paper and make everyone in the nation pay much more for their paper than they should. The real problem is not Chinese competition, but American businessmen falling into the same pattern that nearly cost Britain the war: focusing on immediate profit and dividends while neglecting the future.
Each industry, whatever it is, needs to build for the future with investment in innovation and a willingness to boldly cope with the threats and opportunities of disruptive innovation. If your industry is dominated with leaders who feel like they can just milk their business as a cache cow with no need to invest in the future, that industry will fail.
For those of us working with innovators seeking to build and grow much-needed businesses and bring new valuable new products to the world, it’s painful to survey the damage that has been done to the patent system in the United States over the past decade and the corresponding damage to innovation. Many factors have come together in a perfect storm of patent hostility, driven in part by rhetoric about dread “patent trolls” spread by Silicon Valley giants whose business models are threatened by the pesky patents of other parties but also by political hostility to pharma patents, perhaps because the unmanageable costs of Obamacare might be reduced somewhat if drug costs could be driven down by reducing the value of IP.
The hostility came in several waves. The American Invents Act created several new ways to gut patents, most particularly the Inter Partes Review (IPR), which would allow opponents and their allies to file endless actions against existing patents to wear down the owner and in nearly 90% of the cases so far, eventually eradicate key claims. There would also be a series of Supreme Court decisions such as the Alice decision that would make it easier for the USPTO to reject patents by declaring the invention to be “abstract.” What does “abstract” mean? The Supreme Court refused to define the term in their decision, giving examiners and courts a hammer they can swing any way they want. And then there would be a series of actions from the USPTO itself, headed by a former Google attorney highly sympathetic to the anti-patent sentiments of Silicon Valley, which went beyond the requirements of the law and of judicial decisions to exacerbate the hostility toward patents.
One of the most shocking aspects of the war on patents has been the discovery that the judges of the PTAB, the Patent Trials and Appeals Board the runs the IPR system, have no code of ethics beyond the basic requirements for any employee in the Dept. of Commerce. Thus, unlike judges in any other area, the judges of the PTAB can take cases from their former clients. General rules for Commerce employees requires a one-year buffer for cases with a potential conflict of interest, but for judges in the US judicial system, the distance must be much greater. In general, a judge simply should not take a case involving a former client regardless of how long ago the financial relationship ended. But with the scandalous lack of a judicial code of ethics for PTAB judges, questionable cases occur and with easily predicted results. Gene Quinn and Steve Brachman of IPWatchdog write forcefully on this scandal here and here.
The PTAB has been called the “death squad” of American patents, and some of its judges seem to relish that role.
Michelle Lee, the Google-tainted director of the USPTO, has at least been removed from that position, and many patent practitioners and patent seekers hope that the new leader will be free from heavy Silicon Valley influence and will take bold steps to curtail the damage being done to the US patent system. Meanwhile, many innovators are looking to other countries to develop their innovations, including places like China where IP is increasingly valued and supported. May the US catch up!
Many of the greatest inventions in America came from immigrants. See Steve Brachman’s article, “American innovation has been fueled by immigrant inventors” at IP Watchdog. Nearly all of our inventions, in fact, came from people who were either immigrants or descendants of immigrants (sometimes we seem to forget our own roots!). Immigrants with skills and a desire to succeed often become great entrepreneurs that create jobs and wealth that benefit the rest of us. Today, unfortunately, there is a lot of misunderstanding about immigrants.
Sadly, many people with great innovation potential and good education find legal immigration is nearly impossible or takes many years. They are punished with unreasonably high barriers to entry. Making the barriers greater for them will only hurt the economy and our innovation potential.
The Sovereign Man Explorer newsletter (from Sovereignman.com) of Feb. 5, 2017 has an excellent article on immigration to consider:
Everyone Loves a Good Ol’ Immigrant Witch Hunt!
Republicans aren’t the only ones who want to limit immigration. While democrats are crying foul over Trump’s policies towards immigrants, they have initiated a little foreigner witch hunt of their own.
A whole bunch of Democrats in Congress introduced a bill that would have the Secretary of State, and other federal agency directors, create a list of foreigners believed to have manipulated the election, or tampered with American political parties.
It would give the government power to freeze their assets, and bar them from entering the United States.
And this would happen based solely on the investigation and recommendation of the State Department; no due process.
What this means:
This is some pretty weak criteria for having your assets frozen and being barred from entering America. True, Trump’s plan to ban all immigrants from particular countries is extreme as well, but at least he doesn’t plan on freezing immigrants’ assets.
This essentially could rob immigrants’ of the products of their labor, while stifling their international mobility, just because their name ended up on a list.
How much evidence is required to end up on the list? We don’t know. Can they get off the list, have their travel allowance returned, and have their assets unfrozen? We don’t know. Will this be used politically against enemies of politicians? We don’t know.
This is a vague and ill defined bill which gives more power the the Feds to arbitrarily harass immigrants. And it proves this attitude is held by both major American political parties.
Innovation thrives when there is certainty and an environment where the risks of developing a new business or other innovation can bring returns. When there is the risk that government with the stroke of a pen can seize assets without due process or otherwise take everything by changing the rules of the game, there is uncertainty that chokes innovation. Scaring away talented innovators and threatening them with the loss of assets for supporting a political opponent will leave all of us worse off.
Of course, a government so out of control that it will seize immigrants’ assets for arbitrary reasons is a threat to all of its citizens as well. It is the ultimate source of innovation fatigue and worse.
Be careful about the vehicle you’ve been driving. As sturdy, tangible, useful, and inventive as it looks to you, it may turn out to be merely an abstraction, perhaps nothing more than the mere idea of “transportation” or “going places,” making it unworthy of the thousands of patents protecting its numerous technologies — if the USPTO and America’s elite judges get their way. An abstract automobile? You don’t want to be caught dead driving one. Unfortunately, since the USPTO’s Patent Trial and Appeal Board (PTAB) just ruled that an MRI machine is abstract and thus not patentable under the odious and vague principles of the Supreme Court’s recent Alice decision, it could be that automobiles and virtually every other machine under the sun could be next on the anti-patent chopping block. Your trusty Toyota or your faithful Ford are about to go abstract on you, courtesy of the USPTO. Look out.
In the PTAB’s elite view, as Gene Quinn explains, all the physical wizardry of the mighty MRI machine as claimed in a recent patent application for an improved MRI is just an abstract idea based on the abstraction of “classification.” It defies logic and defies the requirements of the Alice decision and the USPTO’s rules for applying Alice, but the PTAB has become a patent munching zombie that doesn’t seem bound by logic or law. They are one of the strongest forces promoting innovation fatigue. Many innovators are just giving up or going to other nations where IP rights are more meaningful.
The anti-patent forces that have taken hold of far too many influential posts in America view property rights and especially intellectual property rights as a barrier to the ideal society they envision. If only we could get rid of patents, they seem to think, drug prices would fall and Obamacare, for example, would not be such a disaster. But the bounty some intellectuals promise by weakening property rights is an illusion, for without IP rights, what is the incentive to take on the risks and costs of innovation if you cannot benefit from the occasional successes that come from your uncertain work? If your hit product can be taken and marketed by others who did not have to spend so much time and money developing it, then the inventor is often at a competitive disadvantage to everyone else. Why bother?
America’s war on patents is a war on the future of innovation. It’s a war we cannot afford to lose.
One of the great challenges in intellectual property work is translation of foreign documents. Translating between Chinese and English is especially difficult for machine translation, where strange or even nonsense results are common due to the complexity of Chinese and the difficult legal and technical phrasing that is common in patents. Google Translate is quite poor in this context, and the outstanding translation tools at Baidu.com also generally don’t work well for patents.
Wonderfully, WIPO (the World Intellectual Property Organization) has come to the rescue with WIPO Translate, a machine translation tool that has been especially designed for patents. The results have been stunningly good in my testing so far, vastly outperforming prior systems.
WIPO Translate can handle a variety of language pairs both ways, all involving English and either Chinese, French, Korean, Portuguese, Russian, and Spanish. Only about one paragraph at a time can be translated, so you can’t yet dump an entire patent all at once into WIPO translate.
In using WIPO Translate, you can select a technical field to help focus the translation and improve the chances of the appropriate terminology being used.
As I watch the decline of the US patent system, I have to marvel at how much loss the world is facing through the crushing barriers to innovation and job creation in the U.S. Once the beacon of innovation for the world, now would-be innovators are afraid to take the risks required to bring their new products and services to the market because they cannot get the protection that should be theirs when IP rights are strong. If a Google or Microsoft takes their invention, the great equalizer of patents will not be there for them.
In the name of advancing innovation, Congress created a monster called the American Invents Act. This was done without input from the small inventors and entrepreneurs of the world, where most innovation and job creation occurs. It was based on input from the giants like Google who despise patents (other people’s patents, that is). But thanks to the AIA, there is now a host of new ways to destroy patents and they are being used with startling effectiveness.
A key component of the war on patents is the new “patent death squad,” that Patent Trial and Appeal Board. Based on the statistics from their work, there is little hope left for patent owners. See Gene Quinn’s excellent report, “Misleading PTO statistics hide a hopelessly broken PTAB” at IPWatchdog.com. Startling, troubling, but accurate.
The war on innovation also includes action from the courts, especially the Supreme Court, which has given judges bold new weapons to invalidate patents by calling their subject matter “abstract” — a deadly word that is vague, which the Supreme Court has not even attempted to define. The possibilities for patent destruction under the Supreme Court’s new Alice test are immense, and I’ve seen some great innovations blown apart with that weapon.
The USPTO, now led by a Google attorney, has repeatedly taken a hostile attitude in how they interpret laws and create policies regarding patent examination. The results are shameful.
The politicians and their gargantuan backers are winning the war against IP and innovation in the US. It’s time for Congress to pare back the damage they have done with the AIA, and for champions of innovation to rise and demand a more equitable system.
China’s housing market is in a bubble, in my opinion, for it seems to display some of the same excesses and questionable behavior that the United States had in real estate shortly before the big subprime mortgage crash in 2007. We have a flood of newly created cash flowing into the market at low interest rates for easy loans. We find unusual business models popping up to exploit the cheap credit and drive up housing prices and housing demand. And we will see rapid changes occur as the bubble pops in some way.
Easy credit from the banks of China and abundant new cash from China’s equivalent of “quantitative easing” have been used in an attempt to stimulate the markets, just as has been done with little success in the U.S., Japan, the European Union and Zimbabwe (before their cataclysmic crash with hyperinflation and economic chaos). Initially much of the new money being created was being used to drive the Chinese stock market. As that bubble popped, rich Chinese looked again to real estate as the traditional safe way to make lots of money. In popular cities, home prices have shot up. In Shenzhen, housing prices show a 57% increase over last year. That’s a ridiculous rate showing something is wrong.
Owners of apartments until recently were not too concerned about rent since they real money were making was coming from rapidly appreciating property values in cities like Shanghai. But with fear that recent rises were no longer going to be sustainable, rental prices are now getting more emphasis. This appears to be driven in part by the very large-scale actions of a giant force, the real estate company Lianjia (United Homes), according to a friend of ours who is a real estate agent. Lianjia has managed to obtained huge capital reserves that it has used to buy up many former competitors, giving them a stranglehold on the real estate market. They are also using large amounts of capital to make loans to customers who otherwise might not be able to afford the down payment of a new property. Further, they are actively working with property owners to push for significantly higher rental values. This increases their commissions and also make landlords happy.
In spite of China’s slowing economy, many renters are reporting significant jumps in rent this year. Our landlord, for example, wanted to increase our rent by 33%. Since we take good care of the place and don’t make many demands, though negotiation, she was willing to sacrifice to help us by just asking for a 24% raise in rent instead. But she has agents from Lianjia calling her and saying she could be getting 33% or even 40% more. This seems to be happening all over the city.
In looking for new, more affordable apartments, my wife found that when she went to the nearby Lianjia office and asked for places with a price similar to what we have been paying the past year, they said it wasn’t possible and that we would have to pay a lot more to get a place with the features we now have. When we went to one of the increasingly hard-to-find non-Lianjia dealers, we learned that there certainly were places in our price range that could meet our needs. While my wife and a non-Lianjia agent were looking at one apartment priced at 14,000 RMB, a Lianjia agent came to the same place with a Chinese girl who was looking to rent. She liked the place and asked how much it was. My wife heard the Lianjia agent say it was listed at 18,000, a full 4,000 RMB above the actual asking price. The girl was shocked and wondered how it could be so expensive. She turned to the agent my wife was with and asked what price he had been told. Not wanting to make another agent lose face, our agents just nodded his head and said it was 18,000. But this apparently was Lianjia’s attempt to drive up the price, deceiving a customer. Ugly.
By offering easy loans to customers who might not otherwise be able to get one, and by collaborating with landlords to drive prices up, the rental market in Shanghai has been booming at a crazy pace, the kind of pace that looks like a classic bubble. The housing bubble is already popping in Hong Kong, with a significant drop now in housing prices since the Sept. 2015 peak, said to currently be in “free fall.” That cold front may soon sweep northward to cities like Shanghai.
In bubble economies, it’s hard to tell precisely when the insanity will stop. With abundant injections of cash and other policy actions, the government could keep driving up prices for a while, but eventually (what, two more months? maybe six? a year?) economic reality has to kick in, and when it does, it can be painful and sudden. The bigger the steps taken to keep the bubble going, the worse the pain will be and the longer the correction will take.
When cheap mortgages to unqualified buyers begin to fail and threaten the banks, we could be in for a repeat of the subprime mortgage crisis the US faced a few years ago. When property owners begin to see that real estate values can drop significantly, they may look to the ultimate way of preserving capital in risky times: precious metals, particularly gold and silver. A dramatic pop of any kind in China could send shock waves throughout the world.
This is a good time to be prepared. Get out of debt. Have cash on hand to keep you going for two or three months in case there is a run on the banks (the available currency in the US is a tiny fraction of the vast amount of digital money that has been created, and if banks fail or are hacked, turning those digits into something you can spend may be a challenge that faces many delays, not to mention massive threats of hacking. Physical cash on hand may be an important part of your survival kit. Food and other supplies, and some gold and silver coins or bullion, may be a good idea.