Archive for government
One of the important new antibiotics discovered and developed by pharmaceutical companies in the past few years is Rifampicin and its relativeÂ Rifamycin. These potent antibiotics remain key tools in fighting off serious infection. Their story begins with a soil sample taken from a pine forest on the French Riviera in 1957 that was then studied in an Italian laboratory, where unusual antimicrobial properties were observed in a newly discovered bacterium.Â eventually an unusual molecule produced by the bacterium was identified, isolated, mass produced–and, yes, patented.
Rifamycin was credited with conquering drug-resistant tuberculosis in the 1960s. These drugs are marvelous discoveries, important pharmaceutical inventions, and became the subject of multiple patents providing protection and incentives to the developers and improvers of this unique products.
Thank goodness these products were discovered and patented decades ago, because today the USPTO would probably reject any patent application out of hand using its newly fabricated and terribly damaging rules that rule out “natural products” as patentable subject matter. This is the result of what appears to be a politically motivated attack on the pharmaceutical industry by the US government, using a Supreme Court decision (Myriad Genetics) as the excuse, but twisting it to go beyond what the Supreme Court said. The political angle is that politicians want to “stick it” to the pharmaceutical industry and appear to be taking steps to lower the cost of drugs by limiting patent scope and other means. But the long-term effect will be reduced innovation and less progress in medication.
If a product is actually novel, useful, and non-obvious, the fact that it had origins of some kind somewhere in nature should not be a barrier to patentability. The fact that an unknown bacterium in some French soil existed in nature does not enable the public to understand and produce a powerful, pure antibiotic useful in treating many diseases. Those who discovered, tested, refined, and modified the compounds produced by the bacterium deserved and needed patent production. Without it, there would be lessened incentives to take on the burdens of discovery, testing and drug development. We would be less innovative, not more, without patents for novel materials with some kind of basis in nature. But today, such patents and such innovations are threatened. It’s another example of innovation fatigue driven by political agendas and political machinations.
If you think about it, every invention has some roots in nature. The protons, neutrons, and electrons used in every object or affected in every process come from nature. Are we sure that we need a vague and indefinite “natural products” exclusion beyond the more sensible previous criteria for patentability?
My latest post here at Innovation Fatigue lamented the actions of the USPTO in their apparent war on patents involving natural products. New information makes the story even more troubling than before, indicating that more than just judicial error and bureaucratic blindness was involved. The steps taken appear much more deliberate and political than that, and reflect an increasingly revolutionary attitude toward patent rights holders, where IP is viewed as the problem, not as a vital tool to benefit society.
First, new insight into the actions of the USPTO comes from a leaked USPTO PowerPoint used to train patent examiners on the radical new USPTO guidelines implementing their extreme response to the Myriad decision. A PDF of the PowerPoint slides, coupled with the USPTO guidelines and some vital commentary have been compiled by Hal Wegner and are kindly provided by a great champion of IP (quality IP, that is), Greg Aharonian, Director, Center for Global Innovation/Patent Metrics. Wegner observes that the new guidelines, which require inventions involving natural products to be “significantly different” than what may be found in nature provide no concrete, objective test to determine when a claimed invention is “significantly different” from ineligible subject matter. Is a creative device made out of wood significantly different from naturally occurring wood? Is a new anti-cancer drug extracted from a newly discovered fungus significantly different? Who knows? The uncertainty created by the test can be disastrous for property rights holders. Wegner points out that a much more useful and concrete test already exists: the Papesch test for determining whether the claimed invention as a whole is nonobvious from the prior art. But this was never mentioned by the Supreme Court in the infamous Myriad decision and has been neglected by the USPTO as well.
In a recent email to his subscribers, Greg Aharonian shares an email sent to him by a biotech patent examiner within the USPTO. It helps explain some of the motivation behind the seemingly crazy USPTO action, which isn’t so crazy at all from the perspective of politics:
1610 examiner here again. We examiners in biotech at the PTO also would like to know ourselves who wrote those ridiculous guidelines. We are being told to stretch 101 as much as possible. The guidelines say that, for example, if claim 1 is an assay method, with steps such as centrifugation, column chromatography, mixing reagents in a test tube, spectrophotometric measurements, if each category of technique was known at the time of the invention (is routine/well known/conventional), forget about whether the step was ever done with the molecules in the claim, we have to write how each step is 103-obvious w/o using 103’s word “obvious”. We have to write somehow how the combination is 103-obvious, w/o the using 103 word “obvious”. Then we have to reject the claim under 101. We don’t know if the PTO requires art cited for each step that is obvious.
Now, Funk Bros. v. Kalo Inoculant, one example in the guidelines, is a decision in which the patented composition, which I think is amazingly clever, was considered not to be inventive. The decision involves 103, not 101. How could the PTO so thoroughly confuse 101 with 103?…
Myriad was politically motivated, filed by the ACLU, because poor people can’t afford the BRCA1 gene test. OK, this is the Obama era, max political correctness. Current politics ruled. The test, however, is expensive and difficult to do. It’s not in the test strip category, like a pregnancy test.
But Mayo v. Prometheus takes the cake. The drug and its metabolites are not natural products. So what is the natural phenomenon that the justices never mentioned? And the clever part is looking for a target concentration of one synthetic metabolite in red blood cells.
What seems to be forgotten is that patents are intellectual property and that patented inventions are new and useful. When intellectual activity is maligned rather than rewarded, the economy goes with it. The PTO seems to be under pressure from the White House, because biotech patents don’t jive with Obamacare, which is backfiring.
Yes, it is high time for patent attorneys to fight back (don’t laugh Greg). David Kappos cut our time for examination, but he increased customer service. Time for the customers to demand more service.
The biotech community seems afraid to speak out too loudly on these outrages, but I think savvy investors see a dimmed future and have begun pulling some of their money out of the field (my guess about the recent plunge). The patent community and the business community is remaining far too silent, perhaps afraid of attracting political wrath, but the losses of IP rights could seriously set back innovation in the US and beyond.
China is ramping up its IP system and strengthening protection, while America is declaring IP to be the problem and weakening IP rights. Who’s going to own the future? I’m living in beautiful Shanghai now, where a lot of the future seems to be sprouting in an increasingly pro-IP environment. Meanwhile, I hope America will come to its senses and return to vigorously protecting IP rights and promoting innovation, not innovation fatigue.
In response to recent court cases, the USPTO has dramatically revised its approach to dealing with a wide variety of patents. Its new guidelines to patent examiners on subject matter eligibility for inventions involving natural productsÂ seem to go way beyond the legal decisions on which they are allegedly based, adding extremely high barriers to patentability. If your invention uses natural products, as almost every tangible invention does to some degree, you now must show that what you claim is “significantly different” that what might be found in nature or from natural phenomena. This vague requirement gives examiners a new club. I’ve already seen it abused.
One client from a previous employer of mine was on the verge of having her patent allowed, but instead just received a ridiculous rejection based on the new guidelines. Â The invention is a real breakthrough in consumer products that replaces a potentially harmful active ingredient with a novel formulation of several natural compounds with unexpected benefits. The value of the invention is potentially huge, but the examiner notes that since all the ingredients are natural and not significantly different from what can be found in nature, the overall invention is not patentable. End of story. I hope this examiner doesn’t realize that every atom, electron, and photon used in any invention can be found in nature.
Those in the biotech industry are highly agitated by this development.Â “IP Practitioners ‘Horrified’ by USPTO Guidelines on Myriad” is a recent article from Managing IP Magazine with the following:
Sherry Knowles, principal at Knowles Intellectual Property Strategies [said]:
I think the guidelines that were promulgated by the Patent Office are horrifying to the pharmaceutical and biotech industry. That is probably the nicest thing I could say about them. According to the utility guidelines that came out in March this year, not only is no natural product patentable in the US, arguably derivatives of natural products may also not be patentable. That is a clear change in the law.
She said the guidelines include a number of questions to find out if something is patentable. The first is: is it a natural product and does it include chemicals derived from natural sources such as antibiotics and proteins. Knowles noted that 47% of drugs over the past 30 years include derivatives of natural products.
“According to the guidelines, if it is not a natural product you look at whether it is ‘markedly different’ from the natural product. That’s the test. Of course that is clear as mud and that will be defined over time in case law. But let’s say two-thirds of approved drugs that are derived from natural products are markedly different you are still down to 390 drugs over the past 30 years that arguably under the utility guidelines are not patentable. I find that horrifying. I am very concerned,” she said.
These new guidelines, as well as the questionable court cases behind them, reflect a growing anti-patent mentality among our judges, politicians, and bureaucrats. We need to educate a new generation to understand that intellectual property is a critical tool to lift all boats by encouraging innovation and the sharing of secret knowledge obtained by inventors. We need to reverse the popular trend of pointing to patents and trolls as the biggest barriers to progress, when it is not that way at all. Sound patents, properly examined and granted, encourage innovation and lead to gains in knowledge for all.
Breaking news from the Province of Shandong in northern China: A Chinese paper company, Quanlin Paper (also called “Tralin Paper”) has successfully used its portfolio of patents and trademarks to secure a huge loan of 7.9 billion RMB (about $1.3 billion). Potentially significant story for those tracking IP and innovation in China. The story was just reported on March 3, 2014 at China Paper (the story is in Mandarin). This is quite a big deal and may be a record for China in terms of how much value IP brought in seeking a corporate loan. To emphasize the significance of this development, the normally dry China Paper publication begins with a somewhat flowery statement based on an interview with the Chairman, who expresses surprise and delight at how much money they were able to obtain with their IP. Here’s my loose translation, followed by the actual Chinese:
“I never thought that intellectual property could have such a big effect in obtaining this loan. IP was a big part of it,” according to Quanlin Paper Company’s Chairman of the Board, President Li Hongfa, speaking today to a reporter about the 7.9 billion yuan from bank lenders that began this week. He said that this money will help them rapidly expand and seize market opportunities. For an enterprise where funds have been tight, this new addition is gladly welcomed just as the mist-covered earth rejoices in the spring rains from the night before.
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OK, a bit flowery, but again, this is big news for China and things get flowery when the big news is good. This development shows that IP in China can be valuable (though the portfolio includes some international patents, though it is mostly Chinese IP). It also shows that Chinese companies, even in seemingly dull industries like the paper industry, can be innovative and create valuable IP. I haven’t reviewed their IP to assess its value, but I understand they have over 100 Chinese patents in areas such as technology for using straw and other renewable or recycled materials for making paper, with alleged benefits of enhanced environmental friendliness and cost effectiveness. Shandong Province’s IP Office has also created some publicity about Quanlin’s IP estate (see the Chinese article here), though this was before the news of the massive loan secured with the help of IP. Expect more publicity from them shortly.
Further background comes from Baidu’s wiki-like entry on Quanlin Paper.
When nations develop strong IP systems, companies can use their IP to protect their innovations. This also motivates them to take the risk and spend the money need to drive further innovation, and gives investors courage to fund growth and innovation. In this case, it helped give a lending partner (a Chinese financial organization) the courage to loan a giant sum of money to help Tralin grow. Tralin has been pursuing IP not just for tax breaks it seems but also for strategic purposes, and information coming out about this story shows that they have been developing expertise in their staff to develop their IP estate. Sure looks like that has paid off for them.
This is one of many signs that China is becoming serious about IP and innovation, and not just low quality IP, but IP that can provide significant value. For IP to apparently be a crucial part of such a large loan in this challenging economic times is a remarkably positive sign for China, in my opinion.
A hat tip to Ian Feng (Yan Feng) of Goldeast Paper in Zhenjiang, China for bringing this news to my attention.
Update:Â On my mostly China-related blog,Â Shake Well Before Serving, I offer my full translation of the China Paper article, if you are interested. The translation is in the post, “A Sign of Chinaâ€™s Growth in Intellectual Property: Chinese Company Relies on IP to Gain Giant Loan,” where I have cross-posted the breaking news on Tralin Paper (a.k.a. Quanlin Paper).
A few years ago, K2 Energy, an innovative start-up with a breakthrough in smart batteries offering several performance advantages over existing battery technologies in the market, was on the verge of finally commercializing their technology. They had just won the support of significant investors, and over $20 million in funding was about to be received. Then came a nearly fatal blow from an unexpected source: government help. Not help to K2, but to their largest competitor, A123 Systems. Out of the blue came news that A123 was receiving a grant of $249 million as part of the Federal Government’s plan to stimulate green energy.
This help to a competitor did more than just strengthen the competition. Now that A123 has failed and filed for bankruptcy, we can also say that this case of government help was more than just a huge waste of money that harmed the economy in general. We can also say it was more than just another government-sponsored failure that threatened to transfer US technology to foreign nations (how much technology, if any, was given away in the now-on-hold A123 deal with China is unclear).
For K2, the help was nearly fatal because its own investors, when they saw the news of the massive government grant to A123, decided to abandon K2. They felt there was no way little K2 with $20-something million from investors could ever compete against A123 with that kind of government backing. K2’s investors pulled out and that would have been the end of the story for K2, were it not for extremely tenacious and brave founders and leaders who insisted on forging ahead on their own. K2 clung to life, resisting innovation fatigue, and now was emerged with leading products and a global presence. The future is bright again for this tenacious company. No thanks to help from the government.
Selective funding of individual companies by the government always sounds like a great idea, at least to those who feel good about “doing something” and being generous, and certainly to those who receive the funds. But there are almost always overlooked consequences to this giving, and when one considers who and how such decisions are made, it should be no surprise that the allocation of funds to companies is often a misallocation. The odds of a poor decision are high because the politicians and bureaucrats who make these decisions often lack the market and technical knowledge to pick the best and most promising companies to fund, and instead may be tempted to make decisions on the basis of political expediency, favoritism, or other reasons influenced by murky agendas. But even if the decision is brilliantly made with top-notch intelligence, it is still inevitably a distortion of the market. Favoring one company means pulling funds out of the economy, funds that could have been part of natural market growth in needed areas, and moving those funds artificially to a favored target. What is the justification for that? Sure, there’s always an excuse offered, but rarely a justification.
Favoring one target artificially can actually mean destroying several others unintentionally, especially small innovators without vast political connections who may have the best solutions for the future. When it comes to innovation, I recommend letting “natural” market forces pick the winners and losers. When bureaucrats do it, it’s often worse than just wasting the money that could have helped the economy naturally. It can be a lethal blow to those with the most promise.
Billionaire Mark Cuban, after complaining about patent lawyers making too much money, condemned the US patent system for blocking innovation. He and some other wealthy elites are troubled by US patent rights and would like to dismantle large parts of the system. This is a growing and troubling trend. The voices in the tech community claiming to have a “consensus” against patents are not the ones creating the technology, so argues Gene Quinn at IPWatchdog.com, but those who want patents out of their way so they can more easily exploit the work of others. I think Quinn’s argument has a great deal of merit.
The patent system has plenty of problems that can discourage innovation, but these problems arise from poor law, poor courts, poor examiners, and other problems that weaken the ability to obtain and enforce valid patents for genuine inventions. The solution is not to dismantle patents, but to strengthen them and their quality. The basic patent system is fundamental to encouraging innovation. If my invention can be copied by someone else at no cost, why would I go through all the trouble and cost of bringing it to the market? There is a need to protect property rights in order for an economy to flourish, and the existence of the US patent system has been one of the main reasons for the phenomenal growth of the US economy over the years, while the weakening of property rights in that nation is now contributing to its economic decline.
To overcome innovation fatigue, we need to keep property rights, including intellectual property rights, alive and well. Don’t listen to the rantings of Cuban and his ilk. Understand the basic economic incentives needs for innovation to flourish, and then join me in pressing for a healthier patent system.
Here in China, copyists used to be the foundation of the economy, and there was little need for patents. Now China is changing dramatically and its government and industries see the need to strong IP to encourage invention and innovation for the new China. So here, patents are becoming stronger as America weakens its system progressively with the help of “progressives” like Cuban and some very poor judges and politicians. Chinese companies are racing to build aggressive IP estates while America complains about its patents. At this rate, in the next 10 or 20 years, who will lead and control the global economy?
But wait, haven’t there been studies showing that patents hurt innovation? Allegations, yes, but a careful look at history does not support the argument. Below is Ron Katznelson’s valuable input to the Gene Quinn article mentioned above, taken from the comments section. The links Ron provides should be helpful in debunking popular myths:
However, we have a greater challenge when history is rewritten by those who mischaracterize, distort, or otherwise ignore historical facts to â€œdemonstrateâ€ that patents block downstream development. This revisionism has been going on for the last century and has produced certain myths and false â€œproofsâ€ of the patent blocking/hold-up hypothesis. The number of scholarly sources that repeat the patent blocking allegation may now be so great that the allegation has become an entrenched and unchallenged â€œtruth.â€ It is being taught in economics, business and law schools. In my opinion, it is the major source of misguided patent legislation and court opinions. The myths are originally perpetrated to serve agendas that have very little to do with innovation policy.
In every instance so alleged, a further investigation of the real facts surrounding the subject patents reveals that no downstream development suppression occurred, and in some cases the opposite had occurred. The details of some examples that my colleague John Howells and I looked at are detailed in the following papers recently submitted for publication:
The Myth of the Early Aviation Patent Hold-Up â€“ How a U.S. Government Monopsony Commandeered Pioneer Airplane Patents, at http://bit.ly/Aircraft-Patent-Logjam-Myth.
Inventing-around Edisonâ€™s incandescent lamp patent: evidence of patentsâ€™ role in stimulating downstream development. at http://bit.ly/Inventing-around-Edison.
In each of these studies, we sought to collect, assemble and convey, a definitive and unassailable empirical evidentiary record including primary sources that cannot be characterized as â€œjust another viewâ€ of the facts. Similarly, the economic historian George Selgin and his colleague John Turner have debunked patent blocking allegations regarding James Wattâ€™s steam engine:
Strong Steam, Weak Patents, or the Myth of Wattâ€™s Innovation-Blocking Monopoly, Exploded at http://ssrn.com/abstract=1589712 .
We have similar detailed analysis on other alleged patent blocking cases in the pipeline. Hopefully, these and future articles may change the misconceptions that fuel the patent blocking myths.
After a charming 10-day trip to New Zealand, several things stood out in my mind: the overwhelming beauty of its landscapes and vegetation, the abundance of resources its islands have, the cleanness of the air and water, the friendliness and resourcefulness of its people, and the difficulty of getting basic Internet in an advanced nation. Some of the small hotels where we stayed didn’t have Internet access at all, and nearly all of the others had inadequate or surprisingly expensive service. For example, after paying for an hour of Internet access, it quit working after about 10 minutes. The hotel said I had exceeded the data limit of 20 Megabytes (or was it 50?). I had only sent a few emails and done two or three searches on Google. How could my data limit be exceeded? I was then asked if I had turned off automatic updates or other background services on my computer that can eat up data limits quickly. Apparently between background updates and Carbonite backup going on, I, like many other chagrined travelers to New Zealand, had whipped through the stingy data limits that are typical of hotel Internet plans. 20 Mb for an hour, or 50 MB for a 24-hour pass. Stingy! One place didn’t seem to have a limit, at least not that we knew of, but the general perception from our stay was that Internet is expensive and limited in New Zealand, and that’s not a healthy thing in the Information Age. It’s a sign of barriers to innovation.
After asking around, I learned that the problem appears to be with the Internet provider, Telecom, which has something of but not exactly a monopoly, and has been criticized for years for its overly expensive and restrictive policies. Competition makes companies better, and monopoly powers from government tend to make them unresponsive and expensive. That seems to be the case in New Zealand, where politicians continue to prop up Telecom at the expense of the public good. See “Telecom’s New Monopoly” by Chris Barton in the New Zealand Herald.
Innovation fatigue can occur when a government interferes with commerce to favor one player at the expense of all others. “Crony capitalism” is one flavor of this problem. It means inherent barriers to commerce and to innovation, and reduced ability to create in the affected area. New Zealand has some incredible programmers and software services, but all such innovators are hindered when internet access is restricted and not as competitive as it should be. The problem with Telecom is likely to be a problem in many easy-to-miss sectors of New Zealand’s economy, where innovation is a buzzword but may not be nearly as vibrant as possible if a government actually realizes the danger of being an unintended barrier to innovation through excessive interference in the marketplace.
I wish the hardy and fiercely independent Kiwis success in finding innovation success and getting barriers like Telecom to stand down and let the nation move forward more rapidly. It’s a story, though, that can be repeated in various ways in almost every nation today.
One of the most serious factors contributing to innovation fatigue in the U.S. and many other nations can be the failure of government to protect and enforce property rights, including intellectual property rights. When the fruits of invention can be plucked by anyone without benefit to the inventor, when the risks and costs of innovation provide no benefit to the innovator apart from a first mover advantage in the market place, then the incentives to invest, to sacrifice, and to bear the pains of innovation are diminished. Frankly, why spend ones time and money inventing and innovating if the results cannot be protected to benefit those who sacrificed and paved the way?
As we argue in Conquering Innovation Fatigue, that nations with good IP systems tend to have stronger, more vibrant economies. China gets this and is building its future with a growing emphasis on IP, even as the West thinks China has no IP. Meanwhile, many in the West seem to have bought into the lie that IP hinders economic progress, and have joined the anti-patent bandwagon. It’s a fast road to innovation fatigue.
Sadly, the latest to join the anti-patent parade is one of the most powerful entities on earth, the Federal Reserve Bank of the United States. That’s right, the secretive, unelected, unaccountable organization that has overseen the erosion of about 95% of the value of the dollar since its inception, the institution that repeatedly turns to “legal counterfeiting” with non-stop printing of money created from thin air as the addictive cure-all for America’s economic problems, now dares to expand its influence into not just eroding your financial property, but also your intellectual property, with a call for the elimination of patents: “the final goal cannot be anything short of abolition.” Ouch.
The mega-government, Keynesian mentality behind Quantitative Easing and the other voodoo tools of the Fed can naturally lead to a hostility toward property rights of all kinds, so the assault on patents is not necessarily out of character for the Fed, though certainly far afield from their supposed area of responsibility and certainly far from any hint of expertise. Yet they have had the audacity to publish a report pretending to offer economic analysis into the harm of patents with a call for the ultimate demise of patents. This is disturbing stuff.
The failure of the USPTO and the patent problems that are given so much publicity are generally not inherent to IP rights but are largely due to the failure of the USPTO to ensure that quality searching and examination is done. Issuing loads of worthless patents can create serious problems. It is easy to focus on the loss caused by bad patents, as we do in a chapter of Conquering Innovation Fatigue, but one must also consider the even greater loss caused by no patents and easy theft of IP. The solution, again, is not to abolish IP, but to strengthen the USPTO so they can and must perform quality examination, prevent the siphoning of funds by Congress from the USPTO, and strengthen our patent system so it is less capricious (real patent reform, perhaps beginning with eliminating the vague and unpredictable 101 assaults on patents when some computer method is involved).
We must say no to the Fed’s attempt to add yet another devastating failure to its track record, or rather, to prevent one more success in reducing the value of the property held by Americans.
Dave Galland’s recent column at Casey Research discusses the malaise that has swept Portugal, resulting in utter discouragement across the rising generation. In spite of the beauty and natural richness of Portugal, the entrepreneurs and innovators of the future tend to be looking to leave as quickly as possible. What has gone so wrong? Casey suggests that the innovation fatigue factor of stifling Eurozone bureaucracy and oppressive regulations have gutted Portugal’s spirit.
‘ll give you a hint by relating that as a condition for inclusion in the Eurozone, functionaries in the European Commission based in Brussels required the Portuguese to retire and destroy a large percentage of their fishing fleet. As I understand it, the commissioners felt that the size of the Portuguese fleet coupled with the sea-faring nation’s long history in commercial fishing gave it an unfair advantage over other nations in the Eurozone. They also helped rationalize the demand to burn the boats by saying that the Portuguese fishermen were putting the ecosystem of the Atlantic Ocean at risk.
The result of forcing the Portuguese to burn these tools for capital creation is that since joining the Eurozone in 1986, Portugal’s fish harvest has effectively been cut in half. I was told that the country is reduced to buying many of the sardines that find favor in the local cuisine from the Spanish fleet.
The Euro-meddling doesn’t stop with fish. The Portuguese are mandated to trash a large amount of their annual orange production lest they exceed the quotas set in Brussels. Apparently the Spanish, ever attuned to capitalize on Portugal’s mandated misfortunes, buy the unsellable excess oranges and use them to make marmaladeâ€¦ which they then sell back to the Portuguese.
Of course, actions have consequences. One of them has been that Portugal has run a trade deficit for about twenty years now â€“ in other words, starting soon after joining the EU in 1986.
And even though the country (and the continent) is tight in the grips of the most dire crisis in living memory, the EU commissars are still at it. In fact, as I write, Portugal is being forced by the European Commission to kill a large percentage of its chicken population, with the slaughter to be completed over the next month. This by virtue of the ironically named EU Welfare of Laying Hens Directive, forbidding the continued use of conventional egg-laying cages.
Once the chickens are destroyed, and provided the Portuguese egg farmers can ever find the capital needed to rebuild, they will have to build to the specifications of the EC Directive that requires that all laying hens must be kept in “enriched cages” providing each hen with at least 0.8 square feet of cage area, a nest-box, litter, perches and claw-shortening devices, allowing the hens to satisfy their biological and behavioral needs.
Tragically, as Europe stumbles in a massive economic crisis, the bureaucrats aren’t backing off, but increasing the burdens on the backs of the people and making it harder than ever for business to grow and innovation to thrive. This is sadly typical of minds disconnected from reality and deaf to the voice of innovators, a voice that will become largely silent if the burdens on their backs aren’t eased.
On Sept. 16, President Obama signed the Leahy-Smith “America Invents Act” which supposedly will strengthen innovation and improve our patent system. It’s a radical change in our patent system–one that seems to have been drafted by people who don’t fully understand patents or innovation.
Does this bill promote innovation as advertized? What about that 15% rate hike for patent fees–a new 15% tax on the IP that entrepreneurs need. That’s the most immediate and obvious change. Guess which way that increased burden tilts the balance? Economics 101 suggests that making innovation more expensive is not likely to make it more abundant. But Congress may know better.
Congress apparently recognizes that we have a problem with the patent system, where huge backlogs exist that cause enormous delay and expense for inventors. The backlog and efficiency problem they are allegedly fixing, however, does not require all the unintended consequences of revising patent law but simply improving the administration of the PTO. For example, if Congress would refrain from siphoning off many millions of dollars of PTO funds each year, effectively taxing innovation and crushing the ability of the PTO to properly staff itself and keep its systems up to date, then the backlog could be easily resolved, in my opinion. Unfortunately, we seem to have another case of politicians proposing costly solutions that won’t solve the costly problems that they caused. As long as Congress can redirect funds received by the PTO, the administrative problems at the PTO will not be resolved by changes in patent law. (See “Patent Reform–A Tax on Innovation?” and “Let the Patent Office Keep Its Money.“)
While probably not solving the problems it allegedly fixes, the America Invents Act clearly raises a host of new problems that may lead to unpredictable results in costly litigation for years to come. The radical changes involving who gets patents and what is prior art use confusing language that strips the bill of the “certainty” that its proponents allegedly sought to restore in the system. See excellent reviews of the controversies in these sources:
- Joshua D. Sarnoff, “Derivation and Prior Art Problems with the New Patent Act,” 2011 Patently-O Patent Law Journal, http://www.patentlyo.com/files/sarnoff.2011.derivation.pdf.
- Eric Guttag, “Some More Heretical Thoughts on Strategies for Coping with First to File Under the America Invents Act,” IPWathdog.com, Oct. 5, 2011.
- Gene Quinn, “Prior Art Under America Invents: The USPTO Explains First to File,” IPWathdog.com, Oct. 4, 2011.
Harold C. Wegner of the respect form Foley and Lardner has published an analysis of the law (3rd edition, Sept. 29, 2011) which highlights its pervasive ambiguity due to poor drafting. This is a serious issue which will cloud patent law and hinder the quest for patent rights for years to come. Wegner also rules that the new law may increase backlogs because appeal judges will have to continue dealing with their heavy load of existing cases as well as take on added cases of “post-grant reviews” and other new administrative procedures (supplemental examination and transitional examination of business method patents) which are provided in the new law. The backlog is sure to increase and fees will be raised even more to cope. Meanwhile, the new post-grant review process has “dractonian” elements, as Wegner observes, that may further impede the ability of an inventor with a real invention to obtain a patent. Further, there are numerous details Wegner identifies in his 177-page text showing potential harm to “upstream” entities like universities and small inventors while benefiting those downstream entities that want to use the innovations of others for their business as cheaply as possible. I smell innovation fatigue.
In my view, the bill reflects fundamental ignorance about the nature of invention. The perplexing provisions on prior art highlight this. Years of litigation that will be needed to clarify what on earth is meant by the new prior art provisions as patent professionals already express exasperation over issues of derivation, inventorship, and prior art in the new law.
A crucial part of the ignorance here is on the nature of invention itself, amplifying the confusion created by the judiciary regarding what is patentable. Viewing business methods and software as somehow being non-technical, in spite of typically involving highly technical systems and tools, opens many cans of worms. If something is novel, useful, and non-obvious, why should it not be patentable if it involves computers and electronic data? But the judicial backlash against vaguely defined “business method patents” has been institutionalized in this new law, where business method patents dealing with the financial services industry (thank you, Wall Street lobbyists) have been given special treatment, allowing Wall Street to have a special route to invalidate patents that otherwise have survived basic prosecution, reexamination, and prior litigation. Section 18 of the law describes how those being sued by a “covered business method patent” can have a special hearing to invalidate the patent. That section includes this gem to define that key term:
(1) IN GENERAL.–For purposes of this section, the term â€œcovered business method patentâ€ means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.
(2) REGULATIONS.–To assist in implementing the transitional proceeding authorized by this subsection, the Director shall issue regulations for determining whether a patent is for a technological invention.
The drafters of this law apparently view “business method” inventions as distinct from “technological inventions.” If science were to rule, it would be clear that one cannot clearly distinguish between “technological inventions” and a claim involving data processing or management of a financial product or service when technology is involved. Why is a new use of a computer to advance financial services not “technological”? Why is it a less worthy invention than a new use of a polymer or of amide chemistry or of coherent photons? This probably relates to the non-scientific but widely held view among judges and politicians that information, data, and electronic signals are somehow not part of the physical universe and should be viewed as abstractions rather than concrete entities that relate to physical measures such as entropy and require tangible matter and real energy to manipulate. Note that “technological” is undefined, perhaps because it cannot reasonably be defined in this unreasonable provision of an fatigue-generating law. I wish the best of luck to the Director of the PTO in clarifying this opaque miasma.
The richest innovations transforming our era involve inventions rooted in the processing and manipulation of information and these innovations must be encouraged and rewarded, not excluded from patent coverage because some failing but well-connected ‘too big to fail” entities don’t want patents from others to stand in their uncreative way. The AIA clearly shows the power of those Wall Street entities in guiding legislation and giving them special breaks, breaks that will do anything but strengthen innovation. Like much of the rest of the law, it’s directed at fixing the wrong things in the wrong way. May wiser heads quickly repeal or massively revise this legislation before backlogs explode and innovation fatigue is further spread across the US system.
Meanwhile, from my vantage point in Shanghai, I see China increasingly strengthening incentives for innovation and strengthening patent rights. This bodes well for the competitiveness of China in the future. America will soon be wondering how to catch up. How about some real patent reform down the road?
For a rather optimistic but definitely helpful overview of the impact of the AIA on patent practice, see PLI’s page, “America Invents Act: How the New Law Impacts Your Clients and Your Patent Practice.”