Thursday, December 18, 2008

Patents, The $50 Billion Fraud and Globalism

Business Week columnist Michael Mandel has an excellent article just published about how the last ten years of American and global finance was built much on lies. The article is at: "Madoff and the Global Economy: The world was told the U.S. was a low-risk, high-return investment. But like the Wall Street trader's victims, we are learning the truth." The article is at: Why was the U.S. not a low-risk, high return investment economy? "First, the U.S. economy was supposed to be on the cutting edge of innovation. Innovation through technological change, by nature, is a very risky activity. Sometimes it pays off and sometimes it doesn't. If the investment in innovation pays off, the economy booms, as it did during the second half of the 1990s. But innovation has fallen short in recent years. Biotech and nanotech still have not come to fruition, and alternative energy is moving slowly. As a result, the U.S. economy as fallen short of expectations. The income isn't there, and the debt just piles up." Important to this is the ability for investors, domestic and foreign, to be able to recognize real innovation. While real innovation is measured much by commercial success (a reason the secondary factors of Graham should be the primary factors), one measure of real innovation is the association of the innovation with a quality patent, a vital role of the Patent Office in the national economy. The patent indicates that the inventor thinks there is enough commercial potential to more than cover the costs of patent prosecution and litigation (a useful sign to an investor). A high quality patent lessens the risk of the litigation on the side of the inventor (which is why large companies like IBM encourage the PTO to issue tons of crappy patents - it hurts IBM's competitors more than it hurts IBM). High quality patents help minimize the risk for investors in investing in recent innovation. (And to correct Michael, there wasn't much real innovation in the second half of the 1990s, if you look at those patents. The Internet bubble was driven as much by the arbitraging of personal information about consumers and their spending habits, as opposed any great advances in computing technology). But that association (innovation and quality patent) simply isn't happening. I ask, when the average patent issues, can the average investor really say that the patent is novel, unobvious and fully enabled? No, they can't. Sure many patents do have reasonable quality, but many don't - enough of a parity that without paying a lot of money for a validity opinion, the average investor has to guess which patent is high quality. PTO management's solution: reject everything, which while killing the crap, also kills patents that protect real innovation. For this reason alone, much of current PTO mismanagement has to be swept out by the next PTO Director. And that the PTO Board of Appeals has to distort engineering principles to help PTO management reject everything is reason enough for the next PTO Director to do a sweeping overhaul of the Board. Small companies with real innovation are being hurt in two big ways. First, they are running out of money in this economic climate to pay to fight idiotic rejections and other games being played with appeals. They are being forced to abandon their patent applications. Second, assume they survive an increasingly expensive examination process while doing what it takes to obtain a high quality patent (starting with good searching), their quality patent gets lost in the noise of all of the crappy patents being issued, in most cases, to big companies such as IBM that flood the PTO with uninnovative patent applications. So if all of the politicians in this country, starting with President Obama, really believe their mindless chanting about how technology and innovation is going to save the U.S. economy, they better start paying attention to the incompetence and corruption at one of the chokepoints in innovation commercialization - at the Patent Office. As one of the worst PTO Directors in recent times, Bruce Lehman (so horrible of a PTO Director that Congress passed a law requiring the PTO Director to be competent in patent and trademark law, which Lehman wasn't) once said: "Issused patents should be checks in the banks, not licenses to sue." Checks in the bank, as in the issuance of a high quality patent should lead to investment dollars for those patentees seeking such support. A high quality issued patent is an information signal to the investment markets. It should be relatively easy for investors to detect such signals. But right now, the signal/noise ratio is too high. Because of incompetent PTO management. Which betrays the investing public. This country can't afford to play politics with the appointment of the next PTO director - no legislative aides, no academics, and no one whose experience is at companies that have undermined the patent system. Also, someone suggested to me that the next PTO Director must be someone who publicly opposed the continuation rules package, and/or publicly opposed the PTO in Bilski.