Why Must Patent Supporters Rewrite History In Attempt To Have The Feds Subsidize Patents

from the history-lessons dept

Hank Northhaft is the CEO of a patent licensing firm. He likes to claim that he's the CEO of a technology miniaturization firm, but the majority of the company's actual revenue comes from patent licensing, not actual product sales. He's got a book coming out next year that's all about making it even easier and cheaper to get patents, which he insists will create hundreds of thousands, if not millions, of new jobs, and has been making the rounds writing opinion pieces for various publications pitching this plan. Unfortunately, each of his opinion pieces seems to rewrite history or misinterpret studies to make his argument. Frankly, that's pretty sad.

Earlier this year, for example, he (along with his co-author for the book, David Kline), wrote a piece for the Harvard Business Review, claiming that patent system delays are costing millions of jobs. To support the claim that patents do create jobs, there's the following:

In contrast, we know that patents create jobs -- sometimes many thousands of them. Just consider the job-creating effects of Steve Wozniak's 1979 patent for a microcomputer, for example, or Larry Page's 1998 patent for Google's search engine. Then there's Jack Kilby's 1959 patent on the semiconductor integrated circuit, which gave birth to a semiconductor industry that directly employs 185,000 people just in the U.S. today, as well as contributing to jobs throughout the larger $1.1 trillion global electronics industry.

Note the implicit (totally false) assumption made there: that these products and jobs were entirely a result of these patents. This is false. In all three areas, there was tremendous work being done among competitors in the same fields, and the innovation that happened was not because of the patents (in fact, all of the patents discussed had almost nothing to do with the later success of the technologies in question). If you look at the history of the semiconductor industry, the PC industry and the search business -- all were built on widespread sharing of ideas among different researchers, rather than hoarding it and using patents to keep others from the market.

Larry Page's search engine work was really based on Jon Kleinberg's research at MIT & Cornell which was openly shared, and which Page built on. When others copied Google's ranking mechanism, Google never sued or, as far as I can tell, even threatened to sue. And most of the "jobs" created by Google came about not because of the patented search ranking mechanism, but because of Google's execution in the marketplace, and its creative decisions on how to implement more "user-friendly" advertising. It appears as if Google barely valued the patent at all.

As for the the PC industry, Wozniak's "microcomputer," was very much based on a sharing culture around the Homebrew Computing Club in Silicon Valley, where plenty of development was going on entirely outside of what was happening in the patent world. What made Apple a success wasn't its patents, but the incredible focus and salesmanship of Steve Jobs. And, of course, it's notable that it wasn't long before the big jump Apple made was due to Steve Jobs directly copying the graphical user interface that was first invented at SRI and then redone at Xerox PARC (by folks who had seen it/worked on it at SRI). Jobs saw it at PARC and copied it. Note what was important here: the real revolution and job growth came from the open sharing of info, and better execution, not from patents or patent licensing.

Finally, as for the example of Jack Kilby, that may be the worst of them all. After all, while Kilby patented the integrated circuit in 1959, his integrated circuit, was based on germanium. Just a couple months later, Robert Noyce came out with his patent application for the integrated circuit... based on silicon. The fact that I live in Silicon Valley rather than Germanium Valley should suggest how much the world actually valued Kilby's original patent. Separately, the fact that multiple inventors (and there were more) were reaching the same conclusion shows that it wasn't patents that drove this innovation and the corresponding job growth, but the natural progression of the needs of the market.

We see this all the time. Patent system supporters want to credit patents for things that had nothing to do with patents. Just because a company that innovates gets a patent, it doesn't mean that it was only because of the patent that the innovation occurred. Quite frequently, the patent has absolutely nothing to do with it. Northhaft quotes some company execs who claim that they can't move forward with a product without a patent, but that's entirely self-serving. Who doesn't want a gov't granted artificial monopoly on their product? But the idea that they can't move forward? Hogwash. Separately, the main guy that Northhaft quotes to support this claim, talks about the need to get money to bring a drug to market, claiming that "It can cost a billion dollars to bring a new drug to market." First of all, this myth of how much it really costs to bring a drug to market has been debunked multiple times -- and the biggest reason for the specific cost is a separate regulatory issue, which has nothing to do with patents.

More recently, Northhaft, along with former CAFC (the appeals court that tends to love patents) judge Paul Michel wrote an equally ridiculous op-ed piece for the NY Times where they suggested not just having the USPTO hire a bunch more workers, but also a plan to federally subsidize all patents for "small companies", such as patent trolls. I'm not joking:

To encourage still more entrepreneurship, Congress should also offer small businesses a tax credit of up to $19,000 for every patent they receive, enabling them to recoup half of the average $38,000 in patent office and lawyers' fees spent to obtain a patent.

They also claim that hiring more patent examiners to approve more bad patents would "create, over the next three years, at least 675,000 and as many as 2.25 million jobs." What's this based on? "Our guess." Uh huh. Notice that they don't bother to point out the massive amount of research showing that patents have been a net negative on the economy and jobs for quite some time now.

In both articles, Northhaft relies heavily on the Berkeley Patent Survey, which asked a bunch of companies about the importance of patents. We wrote about this study a few months ago, highlighting how it showed that most tech companies don't find patents all that valuable at all. Northhaft twists the study around, claiming that it shows that patents are necessary. That's based on a subtle misreading of the study, where many entrepreneurs did claim that they believed their patents were important in securing funding. Not in their success, mind you. Not in the actual innovation. But just in securing funding. Thankfully, Brad Feld, Jason Mendelson and Paul Kedrosky -- who are actually involved in the venture capital industry -- wrote a response in the Wall Street Journal, where they pointed out that Northhaft was quoting the study out of context, and even quoted Pam Samuelson, who was the co-principal investigator of the study, and said:

"Two-thirds of the approximately 700 software entrepreneurs who participated in the 2008 Berkeley Patent Survey report that they neither have nor are seeking patents for innovations embodied in their products and services. These entrepreneurs rate patents as the least important mechanism among seven options for attaining competitive advantage in the marketplace. Even software startups that hold patents regard them as providing only a slight incentive to invest in innovation."

Separately, they point out that Northhaft carefully quotes the study only showing what entrepreneurs think investors want, rather than looking at what investors actually value or what was actually instrumental to companies' successes.

So yet again, it appears that Northhaft is claiming things that don't match up with reality. There's no doubt that patents have helped Northhaft make money. But getting a gov't granted monopoly is a market-limiting function, not a market enhancing one. Competition is what drives innovation, and patents only serve to drive out competition. Of course, that's good for patent holders, but bad for everyone else. If we want to encourage the economy to grow, the last thing we should be doing is subsidizing even more bad patents and monopolies on the building blocks of innovation.

Filed Under: hank northhaft, incentives, jobs, patents