26 December 2007

Congress: Reform Those Patents

Congress: Reform Those Patents
Robert Weber 12.26.07, 6:00 AM ET
In 1807, after 15 years of litigation, a court finally protected Eli Whitney against infringers of his cotton gin patent. The experience nearly bankrupted him, though, and was a distraction for this prolific inventor.

Some things never change. Exactly 200 years later, we find ourselves with a patent system that has served us faithfully, but needs to be overhauled to reduce devastating litigation and promote innovation.

Naysayers are materializing as legislation to modernize the patent system wends its way through Congress, again. The House has passed a reform bill, and the Senate now has the opportunity to make history, too. Some are asking why we are "rushing" into these changes. We would respectfully remind critics that carefully considered patent reform has been in the works for years.

Opponents of progress have asked stewards of the reform process to take the equivalent of a doctor's Hippocratic Oath to "do no harm." Well, many rightfully believe that the patient is seriously ill and requires intervention. Lightweight reforms--cosmetic surgery--will do the patient absolutely no good.

The last time patent laws were comprehensively updated was more than 50 years ago. In Web time, that's equivalent to the passage of 200 years. Regulating today's intellectual property with those laws is a bit like trying to manage air traffic with systems designed for horse and buggy.

Still, in addition to the flurry of fundamental breakthroughs in the recent past, innovation is now frequently incremental rather than epic. Therefore, many of the damages awards in patent infringement cases are, today, wildly disproportionate. So, why are we awarding patent damages based on the value of the entire car to the inventor of the tire? And why are we making the court system the only venue for challenging a patent's validity? It's expensive, time consuming and acrimonious.

Reform would enable inventors to resolve differences out of court. If cases do make it to the legal system, then awards will be much more reasonable under the new laws.

Unreasonable awards and excessive patent litigation are nothing less than an assault on our economy. According to the National Research Council, patent lawsuits resolved in U.S. District Courts mushroomed from 1,200 in 1988, to nearly 2,400 in 2001. Two professors from the Boston University School of Law, Michael J. Meurer and James Bessen, have found that, in the aggregate, patent litigation costs for complex technologies at public companies began eclipsing patent profits in the late '90s.

According to the Phoenix Center for Advanced Legal & Economic Public Policy Studies, patents of poor quality cost the economy $4.5 billion annually. Research and development budgets now run the risk of being hijacked by legal expenses. Every disproportionate court award might as well be a tax on businesses and consumers, resulting in more expensive and less innovative products.

Let's face it: Litigation by itself makes for a poor long-term business model, and does nothing to promote real innovation.

Patent speculation is a phenomenon that fuels such litigation. Patent speculators produce no products or services; they mostly just sue others for supposed patent infringement. Intel (nasdaq: INTC - news - people ) has noted that U.S. tech companies have contended with 193 patent infringement lawsuits in the past 21 months, with 70% of them originating from patent speculators.

And there is another imperative: We need to be in synch with the rest of the world. One way to accomplish this is to recognize the first applicant to file for a patent as the prospective owner of the idea. Believe it or not, our current system does not give priority to those who are first to file. Doing so will help us reduce controversy over idea ownership, and will enable us to participate more easily in the international marketplace.

As the largest holder of U.S. patents, we feel it is our responsibility, and the right time, to speak out forcefully in favor of reform. We are trying to do our share by unilaterally publishing a first-ever corporate policy aimed at promoting patent transparency and quality. We also initiated, and with others in the private sector, are working with the U.S. Patent & Trademark Office to ensure that citizens have a voice in the patent review process.

But these voluntary efforts, along with recent wise Supreme Court decisions, are not enough.

Progress, not perfection, is the goal. It was so from Eli Whitney's time, and is true today. Congress finally has an historic opportunity to address the thorniest of modern challenges, to secure America's continued role as the leading innovator in the global economy.

Robert Weber is senior vice president for Legal and Regulatory Affairs & general counsel of IBM.

At first glance these comments make a lot of sense! The patent system is in need of reform. But Mr. Weber misses some key points, as would be expected by a person who has made his career as an attorney. He has done a very good job as an advocate for his firm's position. What he misses is how this applies to this legislation affects the larger audience of inventors and therefore the long term good of the economy as a whole.

There are a couple of points to consider as an alternative viewpoint. Eli Whitney patent was number 78. The Patent system was in it's infancy. Whitney's idea was originally not to "sell" the the cotton gin but to use the machines in a new service in the same way a grist mill provided a service. Later in 1818, Whitney, having learned the legalities of the patent process, was able to secure a patent on the milling machine. This idea was not new, and it was not his, but drove through the concept of "interchangable parts" which eventually lead to major changes in the mass production of various goods and evolved into the concepts put forth by the likes of Henry Ford, Edwards Deming and Taiichi Ohno.

"Necessity is the mother of invention". Although IBM is the single "largest holder of US Patents" most innovation happens as a result of necessity. One guy with a hammer thinks "there has to be an easier way". One woman, writing code, thinks the same, One person running a milling machine in a job shop thinks "I can do this better" What if...

The real problem is lies not with the concept of a patent system but the vested interests who want to bend the rules to their own interest. Lawyers who have not "invented" anything but have found ways to make money by making money off of other's ideas. Mr. Weber suggests that Patent speculation is not healthy. He is correct. However, if the new laws only benefit corporate America they will not serve the longer term good of the country.

Unfortunately the cost for a small inventor, wielding a hammer, to learn and understand the patent process is going to cost him well over six figures. Do these inventors exist? Given that 20% of all High School Dropouts fall in the "gifted IQ" range I would say yes. The costs of market entry are prohibitive. Will the proposed legislation stimulate or stifle innovation?

Does innovation happen in Research & Development area of a corporation? Yes, but.... it more than often happens in the field. The caveat being that innovation in certain industries happens in different areas. Innovation in biotechnology happens in a lab, Innovation with software happens in the lab AND in the small bedroom office. Innovation in manufacturing happens on the floor of a small tool and die shop. In most cases the "first to file" is not the single inventor but the corporation with a battery of attorneys. That is why, as Mr Weber suggests, " innovation is now frequently incremental rather than epic"

The Japanese patent office gets over 50,000 hits a day by manufacturer's seeking ways to implement new ideas under the "first to file" concept. There is not "reward" for the small inventor to file and expose his idea to someone who can take it and make it before he or she has learned the way to take their idea to market let alone defend the patent.

We need to consider the effects of patent law changes on each segment of society and not just the attorneys in corporate America who are acting as advocates for their own industry. Perhaps the real focus should be on tort reform and bettering our educational systems

08 December 2007

Investing lessons from a CIA Agent

I think this is a great lesson in alot of areas:

By Mark Skousen
Investors are always warned to avoid the twin relics of Wall Street folly, fear and greed. But during my two years working for the highly secretive Central Intelligence Agency, I learned that there are two worse dangers equally applicable in the financial world: ignorance and arrogance. Let me explain...

I don’t usually tell my subscribers or friends very much about my stint as a junior economic officer at the CIA in the early 1970s, but after reading Tim Weiner’s expose, "Legacy of Ashes: The History of the CIA," I thought it appropriate to reveal some insights I learned there, and how to apply it to one’s finances.

Tim Weiner, a New York Times reporter, tells a depressing story of how the CIA failed repeatedly in its mission to predict international conflicts and attacks on the U.S. For example, to cite two recent examples of bad intelligence, the CIA failed to warn America of the 9/11 terrorist attacks from Islamic extremists; and it gave faulty information on weapons of mass destruction, and thus condemned the U.S. to a misconceived war in Iraq.

My Run-In with Former CIA Director George Tenet

I confronted George Tenet, director of the CIA from 1997 to 2005, on these two blunders at a session I moderated at last year’s New Orleans conference. He could only answer, "Our failures are always publicly trumpeted; but our successes – which were many – are always a secret."

He’s right. When I was at the CIA in the early 1970s, the agency’s mistakes were all too prominent. As a member of the Office of Economic Research (OER), we were in charge of warning the President and Congress of imminent economic crises. But we failed to anticipate the power of OPEC, the 1973-74 energy crisis, and the subsequent gasoline shortages.

A few years later, when Mexico devalued the peso, the CIA economists were silent. They were just as surprised as everyone else. Tim Weiner recounts numerous tales of failed missions by the clandestine service, such as the Bay of Pigs invasion of Cuba.

Even when the CIA was right, its successes were suppressed. I co-authored a secret report on the meat shortage in the U.S. as a result of Nixon’s wage-price-controls. (Yes, Virginia, the CIA is into everything.) We predicted that when the price controls were lifted, beef prices would not increase, but would actually fall. But the White House refused to believe our prediction, and buried the report.

The CIA failed repeatedly because of two persistent problems: ignorance and arrogance. More often than not, they just didn’t have the intelligence to know what was really going on in the Middle East, Vietnam or Latin America. And they refused to admit they didn’t know, so they often lied to presidents and Congress.

In sum, billions of taxpayer dollars were wasted on the CIA, and thousands of American citizens, as well as freedom fighters in foreign lands, were killed.

Ignorance is Costly

Is there a lesson here for investors?

Indeed, humility and lack of understanding reality are all too often missing in the lives of investors. How often are we shocked by the unexpected, such as this past summer’s collapse in the mortgage and credit markets, and its ramifications? Could we not see the real estate boom was too good to be true and had to come to a bad ending? If we had studied Austrian economics, we would know that inflationary booms are unsustainable and require a bust.

What about China? If we study the history of emerging markets, we know that booms inevitably turn into busts. Should we not be surprised that after the Shanghai stock index rose 400%, it would fall by 40%-50%? The smart investor uses trailing stops to protect his profits.

How many of us take the time to study the history of Wall Street and the inevitable cycles of greed and fear? How many of us learn by sad experience that stories that are too good to be true usually are just that. We eventually get burned by investing in "sure fire" penny stocks and tax shelters.

Pride Proceedeth the Fall
2007-12-08 09:00:00
Investing lessons from a CIA Agent
There is also the problem of pride. Investors and money managers who have doubled or tripled their portfolio that become "know-it-alls," thinking that beating the market is easy.

A few years ago, a hedge fund manager I know had several years of superior profits, and become highly conceited. He wrote a book about his exploits, full of colored photographs of his expensive lifestyle. But as the old saying goes, pride proceedeth the fall. A few years later, he made a series of blunders in the marketplace, and his accounts blew up. He was forced to declare bankruptcy.

Don’t let it happen to you. "The used key is always bright," says Ben Franklin. Keep informed and know the signs of the times. Stay educated. Attend conferences and keep up on the financial news. And always remain humble, knowing that you never know what’s around the corner.

In Beijing, workers wear masks just to breath. Most have to filter drinking water. But all this is about to change fast as the Chinese government launches one of the biggest initiatives in history to clean up this mess. Our inside-China contacts show us which companies are about to get billion dollar contracts, for gains of 1,046% or more in the coming months... All while U.S. investors are paralyzed by subprime shock waves.

Courtesy: www.investmentu.com