IP - another racket?

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The Myth of the Sole Inventor

Mark A. Lemley

Stanford Law School

July 21, 2011

Stanford Public Law Working Paper No. 1856610

Abstract:     
The theory of patent law is based on the idea that a lone genius can solve problems that stump the experts, and that the lone genius will do so only if properly incented. We deny patents on inventions that are "obvious" to ordinarily innovative scientists in the field. Our goal is to encourage extraordinary inventions – those that we wouldn’t expect to get without the incentive of a patent.

The canonical story of the lone genius inventor is largely a myth. Edison didn’t invent the light bulb; he found a bamboo fiber that worked better as a filament in the light bulb developed by Sawyer and Man, who in turn built on lighting work done by others. Bell filed for his telephone patent on the very same day as an independent inventor, Elisha Gray; the case ultimately went to the U.S. Supreme Court, which filled an entire volume of U.S. Reports resolving the question of whether Bell could have a patent despite the fact that he hadn’t actually gotten the invention to work at the time he filed. The Wright Brothers were the first to fly at Kitty Hawk, but their plane didn’t work very well, and was quickly surpassed by aircraft built by Glenn Curtis and others – planes that the Wrights delayed by over a decade with patent lawsuits.

The point can be made more general: surveys of hundreds of significant new technologies show that almost all of them are invented simultaneously or nearly simultaneously by two or more teams working independently of each other. Invention appears in significant part to be a social, not an individual, phenomenon. Inventors build on the work of those who came before, and new ideas are often "in the air," or result from changes in market demand or the availability of new or cheaper starting materials. And in the few circumstances where that is not true – where inventions truly are "singletons" – it is often because of an accident or error in the experiment rather than a conscious effort to invent.

The result is a real problem for classic theories of patent law. If we are supposed to be encouraging only inventions that others in the field couldn’t have made, we should be paying a lot more attention than we currently do to simultaneous invention. We should issuing very few patents – surely not the 200,000 per year we do today. And we should be denying patents on the vast majority of the most important inventions, since most seem to involve near-simultaneous invention. Put simply, our dominant theory of patent law doesn’t seem to explain the way we actually implement that law.

Maybe the problem is not with our current patent law, but with our current patent theory. But the dominant alternative theories of patent law don’t do much better. Prospect theory – under which we give patents early to one company so it can control research and development – makes little sense in a world in which ideas are in the air, likely to be happened upon by numerous inventors at about the same time. And commercialization theory, which hypothesizes that we grant patents in order to encourage not invention but product development, seems to founder on a related historical fact: most first inventors turn out to be lousy commercializers who end up delaying implementation of the invention by exercising their rights.

If patent law in its current form can be saved, we need an alternative justification for granting patents even in circumstances of near-simultaneous invention. I consider two other possibilities. First, patent rights encourage patent races, and that might actually be a good thing. Second, patents might facilitate markets for technology. Both have some logic to them, but neither fully justifies patent law in its current form. As a result, I offer some suggestions for reforming patent law to take account of the prevalence of simultaneous invention.

Bugged by gold.

Free market advocates, like the think tank Cato Institute, are keen on gold

after the crash of 2008 and the growing realization that Dow 14000 was the product of a cheap-money boom that led to the inevitable bust, maybe it’s time to think about the gold standard or other constraints on politicized money creation.

(it is worth noting that Cato was formed and is run by by Edward H. Crane, now from AllianceBernstein and by principals from Koch Industries)

Being inherently anti regulatory, pro business and somewhat paranoid Cato has a natural affinity with tea baggers and other extreme right wing organizations, who they sponsor.

Anyway, the situation where those who purport to be supportive of a free market advocate that a gold standard be imposed as a restraint on making money seems counterintuitive. Not that making sense is a priority in politics, as Matt Yglesias points out, the current price of gold is a reflection on the demand for this limited resource

Nor does gold ensure stable prices. What it ensures is that inflation trends are driven by the supply of gold. Find a new gold mine somewhere: inflation. Aliens come to steal gold: deflation. All you’re doing is randomizing the extent and timing of inflation.

Businessmen may be good at servicing customers and making money, often at the expense of their competitors, but are ill equipped to run a national economy which needs to be good for everyone and whose only customer is itself.

The mysterious case of the missing millions.

Tony Abbott tries to reconcile the numbers

Now, ladies and gentlemen, there are hundreds of you here, there are thousands of you who would like to be here and there are millions of you who are sick of being ripped off by a bad government.

Financially it was a flop

Country towns have been left with a huge clean-up bill and piles of unused food after ''thousands'' of truck drivers rallying against the Federal Government failed to show up.

. Politically it was deluded

The "Convoy of No Confidence" currently descending on Canberra continues to be reported as demanding a double dissolution.

In response to these reports, let me repeat once again that it is constitutionally impossible for there to be a double dissolution.

To keep the few hardy stragglers entertained there was the theatrics by the closet queen known as Alan Jones

Anyone for tea?

Marketing and the 3 bears

This piece has some interesting thoughts on marketing and pricing,

The traditional product segmentation is to offer two versions: a high-end version and a low-end version. However, in some circumstances, it is preferable to offer three versions: low-end, mid-range and high-end. The rationale is that people tend to exhibit “extremeness aversion” and will tend to choose the mid-range offering. Consider the following experiment (from Hal Varian's paper on Versioning Information Goods):

Simonson and Tversky [1992] describe a marketing experiment in which two groups of consumers were asked to choose microwave ovens. One group was offered a choice between two ovens, an Emerson priced at $109.99 and a Panasonic priced at $179.99. The second group was offered these ovens plus a high-end Panasonic priced at $199.99.

By offering the high-end oven, Panasonic increased its market share from 43% to 73%. More remarkably, the sales of the mid-priced Panasonic oven increased from 43% to 60% apparently because it was now the “compromise” choice. According to Smith and Nagle [1995], “Adding a premium product to the product line may not necessarily result in overwhelming sales of the premium product itself. It does, however, enhance buyers’ perceptions of lower-priced products in the product line and influences low-end buyers to trade up to higher-priced models.”


In other words, adding a “premium” version to the product line actually boosts the sales of the mid-priced version. The newly-introduced premium version steals market share from the mid-range version, but this is more than offset by the market share that the mid-range version gains at the expense of the low-end version - this is the Goldilocks effect. Note that this is purely the result of a cognitive bias – there is no objective rationale for such trading-up.

This may explain the tall/grande/venti segmentation: even though few will order the venti, its mere presence on the menu will induce some buyers to trade up from the tall to a grande. Similarly, it makes sense to add expensive wines to the wine-list that realistically no one is going order.

Austere outlook.

With austerity being the political/media headline.of.the.moment Morgan Stanley takes a dim view of global prospects

Policy-induced slowdown: The main reasons for our growth downgrade, apart from disappointing incoming data, are recent policy errors in the US and Europe plus the prospect of further fiscal tightening there in 2012. This is eroding business and consumer confidence and has weighed down on financial markets. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making.

Maybe, but data from China shows no let up in exports - somebody must be buying all those bibs and bobs?

Credibility gap.

Two years ago the Murdoch press was running their own brand of DIY economic forecasting, the editorial of the WSJ was warning readers to lock up their daughters,

The surge in the 10-year note is especially notable because its rate helps to determine mortgage lending rates. The Fed is desperate to keep mortgage rates low to reflate the housing market, and last week it promised to inject hundreds of billions of dollars more in this effort. This week the bond vigilantes are showing what they think of that offer, bidding up yields even higher. It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets.

Wise words indeed. Now that that self appointed bastion of free markets has become a paysite let's dump the WSJ for Bloomberg,

Next week, it will be the two-year anniversary of the collapse of Lehman Brothers Holdings Inc. Sadly, the bond market suggests the investment community has learned none of the lessons of the misguided adventures of recent years that prompted the biggest bankruptcy in history.

Doesn't make sense - the failure of the stimulus was that it was insufficient. This has been the argument of

Bank of England policy maker Adam Posen’s 11-month push for more stimulus is now shaping the debate among officials as they consider whether the U.K. needs more quantitative easing to fight the danger of Europe’s crisis.
With no policy maker seeking an interest-rate increase after Spencer Dale and Martin Weale switched votes, the discussion on the Monetary Policy Committee has shifted toward Posen’s agenda. He has pushed since October to increase the bank’s 200 billion-pound ($261 billion) bond-purchase plan.

You calling me paranoid?

Apparently we are being run by a bunch of bankers!

Abstract
The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions.

This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.

This is how the data presents itself.

And the winners are....

Talking parrot.

Cultural warriors.

Two studies (here and here) pointing to the tribal nature of contemporary belief systems, when it comes to climate denial those who are white, conservative and male tend to dominate the field.

However, whilst there appears to be much heat and noise generated by CWMs their overall impact is limited. In a survey by Griffith University researchers found that

Less than 6 per cent of survey respondents could be reasonably classified as true climate change sceptics..

..78 per cent of Australian respondents agreed that, “If nothing is done to reduce climate change in the future, it will be a ‘very serious’ or ‘somewhat serious’ problem for Australia”.

Which is a sad indictment on the credibility and relevance of CWMs.

In hindsight.

Back in 2006 Airline Partners Australia (APA) made a bid for Qantas. The offer was for $5.45 per share and the Chairman, Margaret Jackson said

the proposal provided an attractive premium for Qantas shareholders, being 33 percent higher than the closing share price of $4.20 on 6 November 2006, the day before the first speculation about the offer; and 61 percent above Qantas' volume weighted average share price of $3.48 over the six months to that date.

The bid was rejected by the shareholders and as a consequence shareholders expressed a loss of confidence in the Board, which had recommended the takeover.

Shares in Qantas are currently trading around the $1.50 mark.

War on confidence

The Economist struggles to come to terms with the riots

The high level of youth unemployment (20% of those aged 16 to 24 are out of work), the inequality of incomes and wealth and the effect of local authority spending cuts on youth services are all factors that might have contributed....The much-heralded cuts have only just started: public spending is still higher than it was a year ago. There has to be more doubt, this morning, about the ability of the government to see through five years of austerity and thus to justify the low bond yields on long-term debt...

Big Business identifies the debt, any debt, as a barrier to confidence

Future Fund chairman David Murray yesterday called on the government to significantly cut its debt in order to restore market confidence.

''We are a highly indebted nation overall if you add up all government debt in Australia plus private sector debt,''

Note that David Murray did not ask the private sector to reduce their debt. Of course a government that issues its own currency can service its debt. Bill Mitchell accessed data from the US Treasury on foreign ownership,  ownership of securities and consolidated balance sheet and found that a significant proportion of the debt is issued by and held by the Govt!

The story that China "owns" the US appears to be an exaggeration.

Are the debt levels sustainable? History shows that they are

But never let the facts get in the way of a good story.

As a result of the media deluge confusion reigns and consumer confidence plunges

Making the most of nothing.

Joseph Stiglitz looks at the political impasse(s) gripping both the US and the EU

All of this makes it more likely that the North Atlantic will enter a double dip, but there is also nothing magic about the number zero. The critical growth rate is that which stops the jobs deficit growing larger. Problematically, America and Europe’s current growth rate of about one per cent is less than half of the amount required to do this.

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

So who got the margin call?

Asks hedge fund manager John Hempton

....the desperate selling of the biggest liquid names is a sign of margin calls.

The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds.

So lets play the game: guess who got the margin call!

Trumped by the Trumpster.

Real estate salesman and possible Presidential nominee Donald Trump gives S&P a bollocking

"I can just see these guys sitting in their little office on Wall St. or wherever they are, saying 'we're going to take down the United States!,” he told Fox television.

“Because they want the publicity, because the want to restore their reputation [from the housing and mortgage crisis]. They love it."

Repeating that he is no fan of Barack Obama, he insisted the downgrade was not called for.

He also attacked S&P for “doing a terrible call” with respect to mortgage securities ratings at the onset of the global financial crisis; he also described John Chambers, chairman of Standard & Poor's sovereign debt committee, as an “arrogant guy.”

Tit for tat.

Warren Buffett makes his views on S&P known,

Warren Buffett says there's no question that the United States' debt is still AAA and that he's not changing his mind about Treasurys based on Standard & Poor's downgrade.

"If anything, it may change my opinion on S&P," the legendary investor said.

S&P reacted by downgrading Warren Buffett

"In our view, the U.S. sovereign credit rating constrains the long-term rating on these U.S. insurers because their businesses and assets are highly concentrated in the U.S. and they have significant holdings in U.S. Treasury and agency securities"

Jumping sheep

The Murdoch press gang were quick to yell "fire"

THE Australian sharemarket's dramatic $133 billion plunge in the past week has wiped out all the gains made by superannuation funds last financial year and threatens to drive returns lower this year.

Another $33bn was stripped from the value of Australian stocks yesterday on top of last week's $100bn selldown, as investors flooded brokers with selling orders following Standard & Poor's decision to downgrade the sovereign credit rating of the US.

As others noted, it is fear of reduced earnings from a double dip recession that has seen investors have been piling into, not out of US debt. As for S&P, traders said

Why in the world does anyone care what the ratings agencies think given their track record three years ago?

China watcher George Chen observes

.Moody’s decision to keep the United States “Triple-A” and Dagong’s decision to downgrade the U.S. (made, some people say, for the sake of Beijing’s political agenda in Sino-U.S. relations) actually mean the same thing — that such ratings are merely subjective rather than based on facts and are in fact a potential and indirect risk to global economic recovery.

In the statement issued by Dagong downgrading the United States, the firm should probably have noted in its disclaimer that the U.S. Securities and Exchange Commission had denied Dagong’s application to become an officially recognised bond rater in the U.S.

Since then, Dagong has often verbally attacked the credibility of the SEC and the U.S. government. Google the news and you will find more buzz about the bad relationship.

So, tell me, who do you believe these days?

Too big to fail

Standard & Poors like to hedge their bets,

Elsewhere it is business as usual

..police acting on orders from prosecutors had raided the Milan offices of rating agencies Moody's and Standard & Poor's as part of continuing investigations into their role in the recent financial turmoil...

..S&P, which along with other rating agencies has been strongly criticised in Europe for downgrading countries such as Greece, said in a statement it believed the Trani inquiry "has no foundation". It added: "We shall strenuously defend our work, our reputation and that of our analysts."

Poor standards.

Having failed to properly rate Lehmans

Standard & Poor's is taking great pains to defend its "A" rating for Lehman Holdings Inc.

the rating agency has decided to rate the US Government.

The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge

Credit ratings reflect an institutions ability and willingness to pay and are inappropriate when used as a judgement of the political process.

Treasury was quick to hit back by pointing out errors in Standard & Poor’s arithmetic

“A judgment flawed by a $2 trillion error speaks for itself,”

The Fed responds

Earlier today, Standard & Poor’s rating agency lowered the long-term rating of the U.S. government and federal agencies from AAA to AA+. With regard to this action, the federal banking agencies are providing the following guidance to banks, savings associations, credit unions, and bank and savings and loan holding companies (collectively, banking organizations).

For risk-based capital purposes, the risk weights for Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not change. The treatment of Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities under other federal banking agency regulations, including, for example, the Federal Reserve Board’s Regulation W, will also be unaffected.

The simple fact of the matter is that, unlike member states of the EU, the US is a fiat currency issuing government. It cannot "go broke."

Interest-ing

Christopher Joye cites HSBC Paul Bloxham

An inelegant deficiency

Warren Mosler tries to explain why we need to better understand what is happening and not be swept along by the current media driven policy talking points.

Austerity and the confidence fairy.

As western Governments bend to poll pressure, cutting back on spending programs to satisfy the demands coming from right wing think tanks, the market has lost confidence

The strong demand for these safe-haven assets amid a selloff in stocks and other risky investments suggests that market participants are increasingly nervous about the pace of the global economic recovery … Investors are getting pummeled by myriad factors: fears about a potential economic drag from the spending cuts, the risk of a downgrade on the U.S.’s credit rating, signs of contagion in the euro zone spreading to larger economies and disappointing global data over the past several sessions.

Bill Mitchell is finding little joy in the collapse of MMT

The evidence mounts – day by day – that the mainstream economic position is deeply flawed and incapable of resolving the economic disaster that its application caused.

People generally, however, seem incapable of understanding that. The Tea Party in the US is destroying the lives of the very people that support it and give it air. It is an amazing conflict.

Not without irony, Paul Krugman notes

...things are falling apart all over. Maybe someone should do something?

Cell hunters strike Clathrin.

On-off protein switch a Newcastle breakthrough