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Another Reason to Reform Patent Law: Touch Off A Recession!


Tags Booms and BustsCapital and Interest TheoryPhilosophy and Methodology

And here I thought recessions and the business cycle had something to do with state manipulation of the money supply. Now we have a new culprit: Patent Reform. So here's the deal. There's increasingly hyperbolic opposition to patent reform efforts. In the last year or so, the U.S. Supreme Court and CAFC ruled on major patent cases with the effect of making it more difficult to get patents (1, 2, 3, 4, 5); the U.S. House of Representatives passed (2, 3) a set of much stricter rules for patents now under consideration in the Senate; and the U.S. Patent and Trademark Office has proposed a new set of rules that opponents say would dramatically limit the ability of companies to create new products and protect them under the law. (The patent office rules were set to take effect Nov. 1, until they were temporarily blocked by a suit from GlaxoSmithKline (2), a British drug maker, and smaller companies claiming the new rules would cause irreparable harm to their business.)Naturally, the organized patent bar and intellectual property (IP) advocates have an interest in labeling recent developments "radical” so that any really radical proposals will be dismissed out of hand. (Patent lawyers also seem loath to have to learn some new rules—those CLE courses are so bothersome.) For example, as reported in GCs Draw Line in the Sand Over Changes to Patent Law (fee-based), Patent attorney John R. Harris ominously intones about recent and proposed change: "The U.S. has the best patent system in the world. What I'm afraid of is that they are about to throw the baby out with the bathwater. … The new rules are radical. The new legislation is radical. They will cause fewer patents to be issued.” Well, I disagree that the proposed and recent changes are radical. Patent terms have not been shortened. The scope of what is patentable has not shrunk. Patents are still enforceable by injunction. The (groundless) presumption of validity is alive and well. Patent defendants who win still pay their own legal fees. So where is the radical change? Sure, patent attorneys can expect to see more business as a result of all this legal turmoil. (Why many of them are complaining about these developments is a mystery.) But other than more money being spent on patent attorneys and a relatively small, probably temporary, shift in the balance of power between patentees and alleged infringers, the patent system has not fundamentally changed. Anyway, Harris goes so far as to raise the possibility of a patent-reform-caused depression: "If we're about to go into a recession and all of a sudden you kill innovation in the country, we might not have a recession. We might have a depression." Whatever you do, don't lower money-supply growth and easy credit, and don't reform patent law--we might have a recession! Come to think of it, since recessions are a good thing--helping to restore the economy back to health after the distorting effects of boom-caused malinvestment--here's yet another reason to favor patent reform! *** Update: Patent attorney Lawrence Ebert replies to this post here; my response is reprinted below (to ensure it survives):

Dear Mr. Ebert, I'm sorry you found my piece insipid (meaning bland, uninteresting--but apparently interesting enough to reply to). Regardless of differing policy views on these matters, we can I am sure agree to be civil, respectful, professional, and courteous to one another when trading ideas. In that vein, let me try a reply to some of your comments here, and in your other post that you linked to. I had written, "There's increasingly hyperbolic opposition to patent reform efforts." Your reply was: "Dude, some of us have been pointing to the "same old, same old" bad aspects of patent reform for years but guys like yourself never respond." I have no idea what "guys like me" are. I am also not sure what I am supposed to have responded to. I would be surprised if you can find any other patent practitioners who have written as much on patent policy as I have--see, e.g., my "Against Intellectual Property", "In Defense of Napster and Against the Second Homesteading Rule," and "There's No Such Thing as a Free Patent" (variously translated into Polish, Spanish, and Georgian, btw) and other pieces collected here and on the Mises Blog, for a starter. I'd be curious what your justification for the patent system is (not your summary of others' justification). I haven't heard a coherent one yet from a single patent attorney I know; yet they are all so sure the patent system is "necessary." In any event, it's not clear whether or why you disagree with my statement that opposition to patent reform is increasingly hyperbolic. Here we have someone warning of a "depression" if we reform patent law; others have told me they think current efforts will "obliterate" the patent system; that patent filings will fall to 5% or less of the current amounts. Is this not hyperbole? What does this comment have to do with people "like me" not "responding" to "some of you" pointing to bad aspects of patent reform? I really have no idea what you are trying to say here. It sounds like an attempt at insult, but the dots don't seem to connect. "LBE published "Patent Reform 2005: Can you hear me, Major Tom?" back in 2005 and talked about it on IPBiz." I don't know why this is supposed to be a retort to me. How does the fact that you published this mean that there is not hyperbolic, exaggerated opposition to patent reform? (See below for a response to this piece.) I also don't get the "dude" comment--is this supposed to imply I'm a kid, or from California, or just approaching this non-seriously or non-intellectually? Well, I'm 42, many years of patent experience, in Texas, and as the writings linked above will show, have looked into this deeply and extensively. "Kinsella finds boogeymen in the patent bar," It's not boogeymen. It's just recognizing the fact that almost every patent lawyer you will meet is--surprise--a proponent of the patent system. It approaches 99%, or more, I would venture. Obviously, there's a self-interested aspect to this. Likewise, public school teachers tend to be in favor of the public school system. This observation is not that controversial nor is it new to me. "Lots of people in the "organized patent bar" favor post-grant opposition, a current part of the house and senate patent reform packages. It creates MORE opportunities for patent lawyers. Duh, where's your brain Steve? Oh, yes, lots of new rules to learn in post-grant opposition." Any of the proposed changes create more work for patent lawyers; that's why I'm mystified patent lawyers oppose any of it. Any change at all, except truly radical change, redounds to their benefit. And this is my point--very clearly expressed--that patent attorneys by and large oppose *radical* patent reform--e.g., abolishing the system, going to a petty patent system, reducing the patent term (say, to 5-7 years), reducing the scope of patentable subject matter (say, restricting it to pharmaceuticals only). And this, I believe, is one reason they paint fairly modest reforms as "radical"--to put utterly out of question truly radical patent reform. You may disagree with my analysis here; but a wave of the hand won't do it. If you think I'm wrong, why not explain why? I've got no skin in this game--to the contrary, it's in my interest to find ways to justify patent law, or work-generating changes to it. "The changes to the rules on continuing applications were supposed to impact the backlog, but they will affect only 5% (or fewer) of filed cases. Tough to see how all this added paperwork is going to reduce backlog. Where's your logic Steve?" Steve is short for Stephen or Steven; Stephan is a different name. It sounds like Stephanie without the "ie". Anyway--where did I argue that the reform would reduce backlog? Or even that I care one way or the other about the backlog? Or even that I support the patent reform? In fact, I am mildly in favor of any reform that weakens (and therefore the harm done by) patents and reduces the costs they impose on society--even a relatively mild one like this. To me, this law is equivalent to a tax law reform lowering marginal rates from 47% to 46.2%. A move in the right direction, but very minor. "Steve writes: Well, I disagree that the proposed and recent changes are radical. Patent terms have not been shortened. The scope of what is patentable has not shrunk. Steve doesn't mention that the ability to claim an invention will have shrunk if the new rules go into effect, and the ability to argue with examiners about stupid rejections will diminish." Why would I mention this? Of course the law does something. It somewhat weakens patents (but not unambiguously). I don't deny this. I just submit the change is relatively minor, not "radical". Now, if someone wants to argue whether the extent of the change is radical or not, they need a coherent and justified definition of radical, and then an application of this concept to the changes at hand. But we don't see this--we see off-the-cuff appraisals, with no supporting reasoning. This is fine; but don't pretend as if this is truly rigorous or scientific, or that it's "obvious" or "settled". "If a large fraction of continuing applications were devious attempts to claim the products of competitors, one might at least understand the motivation (if not the ultimate rationale), but the most abundant continuing application form is the RCE, wherein one can't change the invention. One is arguing with the examiner about the claim scope of already submitted claims." I don't know what this remark has to do with my comments; I think you seem to be replying to someone else. Now, in your post "What is the purpose of the patent system?", you write: "Many people try to suggest that the patent system is to reward people who create a commercialized product. It isn't. The purpose of the patent system is to promote disclosure of inventions. Period." I don't agree with this, for a couple of reasons. First, the purported official rationale for the patent system is not merely to encourage disclosure. It's also to encourage innovation itself. I'm not sure how you just assert that the latter purpose is not as important as the former one. Second, talk about what "the" purpose of a patent system is, is a bit question-begging; this type of language seems to assume that the official explanation is the truth. Sure, the state and its supporters might give a reason for a policy. That does not mean it is "the" purpose of the policy. As an example, you could say "the" purpose of the military is to defend our country--that's what the state tells us. But others might believe "the" purpose -- well, that there are many "purposes"--and that one of them is to perpetuate itself, to live parasitically off the populace; another is to entrench the state's power; another is to dominate other states; and so on. "The" purpose of welfare is to help the poor, its advocates say; even though it doesn't. Maybe "the" purpose is other than the official explanation. Likewise, I am not sure I trust the state--the state that steals half our income every year, that kills hundreds of thousands of innocent people with bombs and bullets, that jails people for victimless crimes like smoking marijuana--as to what "the" purpose of the patent system. I think I'll reserve judgment before trusting the pabulum they spoonfeed kids in government schools. One might argue that "the" purpose of the patent system is to redistribute wealth from one class to another; or even to destroy wealth (that is, if wealth-maximization arguments in favor of the patent system are flawed). "the purpose of the patent system is to promote disclosure of inventions. It is not, and never has been, to encourage innovation that is "beneficial to our economy."" I am curious why you assert this. What is your reasoning? Jefferson, e.g., the first patent examiner (and always on the fence about whether patents were a good idea), wrote that "Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody." Now I do not agree that this is a good idea, or that it actually does encourage (net) innovation; but this seems to clearly have been a motivation of our founders. Jefferson also wrote that the patent system had "given spring to invention beyond my conception.” I.e., encouraged or stimulated innovation--not merely encouraged disclosure of them. I should also point out the Constitution itself empowers Congress to enact copyright and patent "to promote the progress of science and useful arts." It seems clear the founders thought the patent system would "encourage" innovation, not merely its full disclosure. See also these annotations to the Constitution: "Underlying the constitutional tests and congressional conditions for patentability is the balancing of two interests--the interest of the public in being protected against monopolies and in having ready access to and use of new items versus the interest of the country, as a whole, in encouraging invention by rewarding creative persons for their innovations." "Capitalists do that." ? Capitalists are entrepreneurs and directors of capital; I do not see that they are necessarily the same as innovators. "There probably are some bad patents (an antigravity patent issued in Nov. 05)." Probably? This seems a bit stingy. There is no doubt: there are a LOT of bad patents. "Getting better trained examiners and giving more time (and database access) will help." Will it help enough to justify the extra cost?

*** My reply to yet another post by Ebert, Kinsella's post on patent reform: insipid or not?:

Mr. Ebert, A few comments on your reply. "Kinsella took issue to his article being termed insipid." That's not really my objection. You are welcome to find my comments boring or uninteresting. You are probably not an Austrian economist or libertarian, after all. The primary purpose of my post was because Harris' comment about recession caught my eye. Austrian economists have a particular view of recession, so that's why I blogged it there. In the Austrian view, recessions are nothing but the inevitable collapse of an artificial boom which is itself created by a central bank inflating the money supply. When the money supply is inflated, it causes over-investment in certain capital projects because the interest rate is driven down artificially. This is really a mal-investment that leads to inefficiencies and unsustainable investments. Sooner or later it has to crash, like a drug user on a high. The particular thing that touches off a recession is not really relevant; and in fact, a recession is not a bad thing--it's a good thing. It's what restores health back to the economy after the artificial boom has skewed it. The quicker the recession is allowed to happen, the better--the sooner the economy gets back on track, and the less severe it is. When the fed staves the recession (that they made inevitable by their earlier boom) off by further money inflation (lowering interest rates) they delay it and make its inevitable extent more severe. Harris' idea that patent reform could cause a recession is confused for several reasons. First, he seems to think a recession is a bad thing. It's not. Second, he seems to think that patent reform would kill innovation. It would not; even abolishing the patent system would not kill innovation. "Somehow, Kinsella never manages to talk about currently-pending issues in patent reform, such as post-grant review (opposition), apportionment of damages, and first-to-file, instead choosing to whip up on poor John R. Harris to embody "hyperbolic opposition to patent reform efforts."" So? Why is this a criticism? Why am I obligated to "talk about" the details of patent reform, in a short blog post highlighting a somewhat amusing misconception of the business cycle by a patent attorney? "Thus, in addition to the diffuse structure of the post (i.e., the title theme shows up in paragraph five), the post never gets to the substantive issues currently in patent reform. For someone actually interested in patent reform, that makes the post insipid (bland)." Our argument here is actually a bit insipid. Here we are mustering arguments about whether my post was bland. Let's move on and just stick to substance. "It was "interesting" only to the extent it further illustrates how little solid content there really is among the patent reform people." ? I don't see how it illustrates this at all; I've written at length elsewhere on the economic and political foundations and justifications of patent law. "Apart from trashing Harris," I did not trash Mr. Harris; I was respectful to him. I simply believe his comments are exaggerated and illustrate exaggeration among opponents of patent reform (and incidentally betray a view of economics different than that held by us Austrian economists--hence my post aboug it on an Austrian economics blog). "Kinsella goes after patent lawyers generally: Naturally, the organized patent bar and intellectual property (IP) advocates have an interest in labeling recent developments "radical” so that any really radical proposals will be dismissed out of hand. IPBiz seems to recall that AIPLA and IPO favor most of patent reform." Mr. Ebert: do you deny that most patent lawyers are in favor of the patent system? That most patent lawyers are opposed to *radical* weakening of patent right? That is my point. The details of the current legal changes are really "insipid", to me. They distract from fundamental issues. "In "Who You Gonna Call?" (Intellectual Property Today, March 2007, page 8), patent attorney Charles Gholz basically assumed post-grant opposition was a done-deal and was pointing out how interference attorneys would be the best (only?) attorneys to handle post-grant review. Gholz was NOT terming post-grant review or first-to-file as radical." Why would he? This is merely tinkering with the system. It's just a minor detail. It won't affect patent attorneys very much. "Paragraph 2 of the Kinsella post noted: the U.S. Patent and Trademark Office has proposed a new set of rules that opponents say would dramatically limit the ability of companies to create new products and protect them under the law. The main justification for the new rules given by the USPTO was to reduce backlog. Kinsella's reply included: Anyway--where did I argue that the reform would reduce backlog? Kinsella earlier had demonized the opponents to the rules: opponents say would dramatically limit the ability of companies to create new products and protect them under the law. but Kinsella failed to note that (some) opponents to the rules oppose the rules because they won't achieve their objective," ? I quite agree that some people commenting on the rule/law changes oppose the changes on the ostensible grounds that they will backfire or not achieve their stated objectives. Sure. I never denied this. I think some patent attorneys are even sincere; though I believe many, if not most, are using this objection at least partially as an excuse to resist any significant reform. I, myself, am not even strongly in favor of patent reform, for similar reasons--as I stated, the proposed change does not *unambiguously* weaken patent rights. I do not trust the Congress to do anything right, which is why I oppose the patent act in the first place--who made Congress God? "Kinsella did NOT include the objective reasons why people oppose the new rules, instead trying to paint the opponents as crazies by reporting only SOME commentary on the topic." I did not mean to imply all opposition to the law changes is hysterical or based solely on self-interest. I was criticizing the arguments that *are* hyperbolic. Some are, would you not agree? "Like IPBiz says, it's what one omits to say that is frequently most revealing." I've written about IP policy more than just about any patent attorney I know of. I've "omitted" far less than others. "Similarly, IPBiz does disagree with the assertion that opposition to patent reform is increasingly hyperbolic." Finally--a substantive disagreement. "There are SOME people that have intense feelings about this. HOWEVER to paint the whole picture in this way is like saying the advocates of patent reform are embodied by Mike at Techdirt. Mike exists, but he is not the whole picture." What can I say. I'm a practicing patent attorney and active in patent law circles and in policy discussions about all this. My evidence may be anecdotal but there's nothing else I can go on. I've seen a good deal of hysterical and exaggerated wailing about the changes. I could quote several. If your personal impression is different, so be it. "Of --What does this comment have to do with people "like me" not "responding" to "some of you" pointing to bad aspects of patent reform?-- why don't you respond to the objective arguments against patent reform instead of demonizing poor old John Harris?" I was not demonizing or trashing Mr. Harris. I commented on a comment of his, on an Austrian economics blog, since it seemed to commit an error in economic reasoning and also to illustrate exaggerated arguments given to oppose patent reform. Do you agree that Mr. Harris's comments were a touch exaggerated? As for responding to the "objective arguments" against patent reform--I have, and am working on a lengthy article now, where I argue that the current reforms are all minor, rearranging deck chairs on the Titanic... I advocate more radical reform if mutually agreed upon goals are to be achieved. In any event, I have explored extensively in my writing more fundamental issues regarding patent law. I'm interested in whether patent law itself is justified; the particular details of current reform or anti-reform efforts are just a distraction from serious examination of more fundamental issues. It is my view that most patent lawyers prefer to dicker about such details, because a presupposition of such debate is that we will have a patent system. It is this premise that they do not wish to debate or defend. Do you disagree with me here? "Of --First, the purported official rationale for the patent system is not merely to encourage disclosure. It's also to encourage innovation itself. I'm not sure how you just assert that the latter purpose is not as important as the former one. Second, talk about what "the" purpose of a patent system is, is a bit question-begging; this type of language seems to assume that the official explanation is the truth. Sure, the state and its supporters might give a reason for a policy. -- IPBiz has no idea what Kinsella means by "purported official rationale."" The *stated* purpose of a given law--the purpose stated in the Constitution, say; or given by legislators who enact the law. Etc. They can *say* what they purpose is; that does not make it so. To blindly accept the word of a bunch of Congresscritters--inherently criminal people--does not seem to make sense to me. "The system does what it does: in return for a certain kind of disclosure an inventor gets the right to exclude for so many years. That's it. Period. The USPTO never asks how the invention might be commercially implemented ("innovation.")" This is not a very good argument, IMO. The reason for having such a system, according to many of its advocates, is so that innovators will have an incentive to innovate. It of course does not guarantee a given invention is valuable. But the idea is that those that are valuable get created because the inventor has some monopoly on it; that these innovations would otherwise not get created. I think this argument is fallacious, but it is fairly coherent at least. "That's for capitalism and free markets. Kinsella, and others, try to read "innovation" into a system that is not about innovation. It's about disclosure of inventions and right to exclude." I have no idea what the patent system is "about". It's not "about" anything. It's a set of rules enforced by the state, which rules have certain effects on human action and the economy. The question for me is whether it's justified or not. In any event, to deny that one widely trumpeted effect of the patent system is to encourage innovation seems, to me, crankish. Anyway, your argument is not one I have a quarrel with. After all, it is my view that the patent system is *not* justified on utilitarian, wealth-maximization grounds--that is, I disagree with IP proponents who believe that the "costs" of the patent system are outweighed by its purported benefits, such as increased innovation or even increased disclosure. If I read you right, you agree with me that the patent system does not increase innovation. Good. That is one less purported benefit. So in your view, I suppose, the value accruing from increased invention *disclosure* is greater than the costs of the patent system (otherwise there is no net benefit). Is this correct? If so, could you please give me a rough estimate, in dollar terms, of the costs, and disclosure-related benefits, of the patent system? I can do the math after that to figure out the net value of the patent system. I mean, is it a dollar? A trillion dollars? Negative billion? "It's not the only way one could do business. But the Venetians figured out it's preferable to the "no patent" way about 500 years ago." And this, it seems to me, is what passes for serious discussion of fundamental patent issues by advocates of IP. Just hand-waving. No desire to explore the issue. Do you have any serious response to any of my articles laying out serious problems with pro-IP arguments? In Defense of Napster and Against the Second Homesteading Rule; Against Intellectual Property; or There's No Such Thing as a Free Patent? I'd love to see a coherent defense of IP--after all, it's my profession too. It's why I searched for a justification of it--and how I finally discovered that IP is actually anti-property, anti-capitalist, unjustified.

Stephan Kinsella is an attorney in Houston, director of the Center for the Study of Innovative Freedom, and editor of Libertarian Papers.

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