Defending the American Standard of Living, part 2

An earlier post on defending our standard of living gave some context for concern about the issue. This post goes a bit deeper.

Some things are not easy to understand because they involve things that are not tangible. One intangible is intellectual property. It's called that because it includes intangibles like methods to make products, methods do things, new drugs (patented), the Coca Cola recipe (a trade secret), music (copyrighted), company logos like the Mercedes Benz logo (a trademark)
                                                                       ®

.

Tangible property includes things like your house, jewelry, a bar of soap, a bar of gold, your car, your clothes and so on.

The questions that come to mind are simple: So what? Who cares? Why should anyone care about intellectual property? Real property (house, car, jewelry) is the real deal, right? Well, yes and no - probably mostly no.

A recent study by Ocean Tomo rated the intellectual property value of intangible assets in some U.S. companies. Its an eye opener. According to that study, the value of S&P 500 companies in 1975 was 83% tangible (physical and financial) assets and 17% intangibles, mostly patents. By 2005, that had flipped to 20% tangible assets and 80% intangibles, which is where it still was as of 2010.

If the estimates are basically accurate, it is fair to conclude that a significant portion of the U.S. has transitioned from an economy grounded mostly in physical property and financial assets to an innovation-based economy. Again, one can ask: So what? Who cares?

To maintain our standard of living, there has got to be a means to create wealth to at least keep up with population growth. That opinion is based on common sense and the observation that we do not distribute our wealth very evenly. That may be just a natural aspect of human nature. Regardless, new wealth has to come from somewhere and some of it needs to reach the middle and lower income classes. If that doesn't happen, our standard of living will drop.

Everyone should care

If intellectual property is as important a source of wealth as the study suggests, then it is reasonable to conclude that most everyone should care about related U.S. law and policy. If nothing else, much wealth more resides in intellectual property now than before. It could therefore be a source of new wealth creation.

The current job situation suggests we are facing an erosion of the American standard of living. Despite the constant thunder from the political right about the horror of the national debt, we seem to be in an era of high unemployment and shrinking incomes. Although incomes increased by about 1.9% last year, consumer inflation was about 3.2% in the year ending in April. If that trend continues, what will happen to the middle and lower classes in the U.S. is obvious.

If intellectual property, particularly patents, generates wealth by protecting U.S. innovation, then patent policy and law should be focused on reasonably maximizing its potential to do that.

What to do, if anything? - Fix patent law

I believe in not fixing things that aren't broken. Unfortunately, the U.S. patent system isn't just broken. Patents are under attack by the federal courts and some sectors of society, e.g., special interests who don't like paying for access to inventions and people who see patents as evil monopolies that hurt people for no socially redeeming purpose. That's a bunch of rot, but it is reality.

Congress can't help. They aren't up to the job. They don't understand patents and cannot distinguish good ideas from bad. Arguments from special interests who are expert at obfuscation in service of their own interests leaves congress confused, uncertain and largely paralyzed. In the meantime, the courts continue to undermine patent law.

There are fixes: To a large extent, it would be an improvement to go back to patent law as it was before the Supreme Court, the U.S. patent office and people unhappy with patents became active about 4-5 years ago and went on the attack. The rationale for the attack on patents is only partly comprehensible - most of it is nonsense. To the extent that changing patents or patent law makes sense, there are simple, focused and efficient solutions.

Instead of getting reasonable, efficient solutions, we get a nuclear attack on patents and their economic value. In short, American political institutions and parts of society are actively undermining one of its most effective means to crate wealth, strong patents. We needlessly slit out own throats, but that's politics as usual from inept Democrats and clueless Republicans in congress.

There are good and defensible reasons for losing faith in our political institutions and both political parties. One is that they have failed and another is that they continue to fail with no evidence of meaningful change in sight.

I have said it before and repeat it again, Democrats and Republicans govern without my consent.

-----------------------------------------------------------

A later post will explain how patents are being gutted by our political institutions and some parts of society. I cannot explain why, other than to attribute it to incompetence, public ignorance, political self-interest, special interest corruption and/or the politicization of the courts by inept ideologue politicians, i.e., political business as usual.

Explanations are too much in a single post here. It takes some explaining and context to be fair to the topic. Some federal court decisions that clearly illustrate my opinions are (1)  Sun Pharmaceutical Industries, Ltd., v. EliLilly & Co., 625 F.3d 719, 96 U.S.P.Q.2d 1830 (Court of Appeals for the Federal Circuit, 2010) (the U.S. supreme court denied certiorari this week, so that awful federal appeal court decision is the law of the land as of now) and (2) KSR Int'l. v. Teleflex Inc., 550 U.S. 98,  (U.S. Supreme Court, 2007). 

Briefly, the 2010 Sun Pharmaceuticals case came out of the blue, directly contradicted what was clear precedent and established law. It will have the effect of killing hundreds or thousands of patents with on warning to patent owners that it was coming. All for no reason - the rationale in Sun is grounded in old law that is now completely changed (a 20 year limit on patent term). The Sun decision is an attack on the patent system, pure and simple.

The 2007 KSR case is just as bad as Sun and was just as unexpected. Although the KSR opinion itself says otherwise, the KSR decision allows the use of hindsight to render patents invalid, which is a big patent killer. And, it directly contradicts a law that Congress passed years ago at 35 USC 103(a) which says that it doesn't matter how an inventor invents something. The KSR case blows that away and yet congress does nothing, absolutely nothing, to reverse the catastrophic KSR decision. Thanks to KSR, we are now back in the very bad old days when an invention had to come from a divinely inspired a flash of genius accompanied by crisp blue thunderbolts and lots of smoke spewing from an inventor's ears. That is something that rarely occurs. It ignores the real world way in which inventions come about - slow, hard work, usually accompanied by a lot of pain and research expense. When it comes to patent law, the U.S. supreme court is simply clueless and inept.