A “Patent Stimulus” to End the Recession?

by Stephan Kinsella on December 10, 2010

It’s bad enough to have mainstream economists tell us we need to “stimulate” the economy by printing money, to get us out of the recession. Now we have some calling for the printing of patents to do the same, by patent attorney Gene Quinn, about whom I’ve blogged before.1 You remember Quinn–he’s the guy who ridiculously argued that we need a state-granted monopoly system … so that Albert Einstein could have had a job in the Swiss patent office.2

In Patent Stimulus to Solve Great Depression II, Quinn writes:

If we really want to get out of this economic downturn we need a Patent Stimulus Plan.  Yes, that is a PSP, not of the Sony variety though, a PSP of the get us the heck out of this miserable recession/depression variety.

… The nice thing about this Patent Stimulus Plan is that it will cost only a small fraction of the amount of money we have already wasted on failed economic stimulus.  What we need to do is have President Obama issue an Executive Order directing the Patent Office to start allowing patents.  A 42% allowance rate during the first quarter of 2009 is wholly unacceptable. … So while you are at it President Obama, order the Patent Office to issue a patent UNLESS there is a reason to deny it.

The sheer ignorance and stupidity of this argument is breathtaking. How in the world would issuing more paper certificates that entitle people to sue others in federal court stimulate the economy? And what would it even mean for the President to “order” the PTO to start allowing patents? Which ones? All of them? How does he know a 42% allowance rate is “unacceptable”? What’s the “optimal” rate? This reminds of the hubris of Obama transition team member Reed Hundt, formerly Bill Clinton’s FCC Chair from 1993 through 1997, who had a patent reform proposal to reduce the number of patents granted, increase fees, and increase funding of the USPTO, in connection with which he wrote: “First, we should slash the number of patents granted each year by 90%. In 2004 the U.S. Patent &Trademark Office issued 165,000 patents. Sixteen thousand is more like an optimal number.”3

Such ridiculous arguments are not restricted to hacks like Quinn–whom Kevin Carson accurately described as arguing “in the tone of a belligerent drunk announcing he can lick anyone in the bar.” None other than Paul R. Michel, former former chief judge of the United States Court of Appeals for the Federal Circuit (CAFC), which handles patent appeals, co-authored a piece in The New York Times, “Inventing Our Way Out of Joblessness,” earlier this year, with Tessera CEO Henry R. Nothhaft (Michel appeared on a recent Federalist Society IP panel, as mentioned in my post Federalist Society’s Intellectual Property Practice Group National Lawyers Convention Panel Online). Michel and Nothhaft argue that we need the USPTO to get through its backlog of patents to jump-start the economy and create jobs:

To revitalize America’s engine of entrepreneurship — and create as many as 2.5 million jobs in the next three years — Congress should, first, give the patent office a $1 billion surge to restore it to proper functioning.  …  according to our analysis of the data in the Berkeley Patent Survey, each issued patent is associated with 3 to 10 new jobs.

So our guess is that restoring the patent office to full functionality would create, over the next three years, at least 675,000 and as many as 2.25 million jobs. Assuming a mid-range figure of 1.5 million, the price would be roughly $660 per job — and that would be 525 times more cost effective than the 2.5 million jobs created by the government’s $787 billion stimulus plan.

… Taken together, fully financing the patent office and creating an innovation tax credit could mean as many as 2.5 million new jobs over three years, and add up to 600,000 more jobs every year thereafter.

The Wall Street Journal published a devastating, smart, withering reply, “Want to Create Jobs? Certainly Don’t Rely on the USPTO,” which was written by “venture capitalists Jason Mendelson and Brad Feld, who are managing directors at Boulder, Colo.-based Foundry Group, and Paul Kedrosky, a senior fellow at the Kauffman Foundation and author of the financial blog Infectious Greed.” As Mendelson et al. write:

A patent myth is loose in the land about their importance to innovators and those that finance them. In, fact, recently the New York Times published an op-ed titled “Inventing Our Way Out of Joblessness.” The authors, Paul R. Michel and Henry R. Nothhaft, argued that the best way to jump-start our moribund economy was for the United States Patent and Trademark Office to get through its backlog of patents.  Their premise is that the more patents are granted, the more jobs will be created in the U.S.  Unfortunately, their logic is flawed and biased.

… the authors advocate a tax-incentive for small businesses who receive patents. This is based on their “guess” that letting loose the USPTO will create at least 675,000 new jobs and offset their estimation of $570 million in tax revenue. There is absolutely no support for their job creation claims. …

Also, plenty of scholars believe that patents (especially in the fields of software and business methods) are a net negative for job creation and innovation in this country. [They are right. See my post Yet Another Study Finds Patents Do Not Encourage Innovation. --SK] These expanded patents fail the classic patenting criteria of being novel, useful, and non-obvious. They aren’t innovations, rather vague concepts that allow patent collectors to sue the real innovative companies in our society. Even Microsoft co-founder Paul Allen is in the patent troll and tax game.

Finally, while Mr. Nothhaft describes himself as the CEO of a “technology miniaturization firm,” his company, Tessera, makes almost all of its revenue from patent-related licensing and royalties.  While we know and respect Mr. Nothhaft, we believe his current company has a material and undisclosed interest in the USPTO granting more patents. …

Our interests are this: We believe that innovation and real, sustainable, job creation are good.  As venture capitalists, we acknowledge that our industry will do well if both of these things happen, but this will also be good for our country, not just for the interests of a particular company or a subset of the economic ecosystem that scavenges for dollars by suing real innovative companies.

What should be done about patents? The answer needs to be based on what drives entrepreneurs to create companies, and what approach will lead to the clearest and highest quality patents.  The U.S. innovation economy has been harmed by low-quality software and business method patents, as well as a legal system that biases process and lawsuits over real invention.  Speeding up this flawed process would be negligent.

[Mises cross-post]

  1. See Gene Quinn the Patent Watchdog; Gene Quinn, Joke; Gene Patent Absurdity; Shughart’s Defense of IP; IPWatchDog Patent Lawyer Sued by Invention Submission Corporation; Gene Quinn: Patent Twit of the Week; Koepsell – Quinn “Debate” on Gene Patents; Is It So Crazy For A Patent Attorney To Think Patents Harm Innovation?; Patent Lawyers Who Don’t Toe the Line Should Be Punished!. []
  2. See Absurd Arguments for IP. []
  3. This is discussed in my post Obama Transition Team Member on “Optimizing” the Patent System. []
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