Barron’s is a weekly newspaper that has covered financial information, including market developments and statistics, since it was first founded in 1921. Much like Forbes or Bloomberg, the publication tries to position itself as an authoritative voice on business matters in America and the wider globe.
A recent Barron’s editorial, however, has raised some eyebrows among those who are familiar with the effect of proper patent enforcement on financial fortunes. Published May 14th, “Patents Can Be Dangerous to Inventors’ Welfare” is a perfect example of how a rather odious point-of-view can be freshened and sweetened when some of the inconvenient truths are laid by the wayside.
Wrong on the U.S. Constitution
First, the most obvious and perhaps the most egregious error of the article, written by long-time Barron’s editorial editor Thomas G. Donlan, relates to a clear, direct and inexcusably incorrect statement about the U.S. Constitution. Donlan misrepresents the intentions of the Framers of the Constitution with regards to intellectual property. To wit: “The Framers of the Constitution considered patents and copyrights to be a useful nuisance… The Framers didn’t recognize a universal right to intellectual property.” Well, then, Mr. Donlan, please explain Article 1, Section 8, Clause 8 of the U.S. Constitution granting Congress the power “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
Indeed, the Founding Fathers deemed intellectual property rights so vitally important to the success and stability of our new country that these rights were explicitly written into the Constitution, a document not generally known for its length and specificity. As James Madison stated in Federalist Paper No. 43, the usefulness of the Congresses power to award both patents and copyrights “will scarcely be questioned.” Madison, Debates in the Federal Convention of 1787, at 512-13 (Hunt and Scott ed. 1920).
How does the express language of the U.S. Constitution not recognize a right to intellectual property? A respected publication such as Barron’s should never have published such a ridiculously inaccurate and fraudulent statement. They absolutely need to apologize to their readers and set the record straight.
But wait, there is more!
Poor Business Acumens, Not Patents, are Bad for Business
The article’s author makes the case that the pursuit of patents for novel technologies often crowds out other important business activities, such as improving prototypes. But what about the inconvenient truth that an overwhelming majority of venture–backed tech companies have patents? Even a relatively uniformed, casual viewer of Shark Tank knows investors care greatly about patents. It is as if Barron’s, which is allegedly a financial news and information source, knows nothing about the business of innovation and why patents are absolutely essential to high-tech start-ups.
In some cases Donlan mentions, patents were issued well before a commercial market existed for the innovation. Many failed business stories were trotted out, including the cases of Charles Goodyear and vulcanized rubber, the Wright Brothers and manned aviation and then Obed Hussey and the grain reaper.
It’s really unfortunate to see such a venerated financial news authority such as Barron’s taking such a sophomoric position on capitalism.
True, a patent doesn’t necessarily lead to a lifetime of riches but Barron’s is wrong to conflate a good sense of innovation with a good sense of business. Patents can be very valuable, but on the other hand they’re not much help if a market doesn’t exist for the product the patent protects. What one person sees as inventors who “are too far ahead of their time” could also be explained as poor marketers who didn’t know how to generate commercial interest. Take the case of Charles Goodyear, who racked up massive debt setting up exhibits of vulcanized rubber in London and Paris but earned no clients from them. It’s unfortunate that the market for rubber afforded by bicycles and automobiles didn’t arise until after Goodyear died and his patents expired, but it’s rather dim-witted to say that obtaining patents was the major factor in Goodyear’s failure.
One of the cases raised by the Barron’s editorial actually undermines its very argument. Obed Hussey may have filed for the first reaper patent but reports indicate that McCormick had actually invented his version months earlier without filing for a patent. The two marketed their products in direct competition with each other but accounts of the story indicate that McCormick was more involved with perfecting his design, which would naturally lead to his business being more valuable over time. Additionally, Donlan writes, “McCormick eventually surpassed Hussey because McCormick was more open to improvements invented by other people. He adopted their improvements and paid royalties or purchased their patents.” [Italics added for emphasis] McCormick had a patent acquisition strategy and it made him successful, but Barron’s would have us believe that Hussey’s one bad patent spoils the whole bunch.
Selective memory can be a funny thing. Any honest account of how patents can affect the fortunes of inventors needs to bring up Thomas Edison, the quintessential American innovator. It has been noted that, given the current definition of patent troll, the father of the light bulb would certainly be seen as such a troll given his emphatic assertion of his own patent rights. And there are examples of modern-day inventor billionaires who have pursued patents, such as is the case with the founders of eBay and Amazon.com. Patents aren’t necessarily bad for business, poor business acumen is bad for business.
The Barron’s editorial also reflects a lack of knowledge as to the function of patents entirely. Donlan argues that, “Once an inventor receives a patent, it can be put into the public domain, or it can be licensed for a pittance to all who want to use it.” At various points, Donlan also conflates patents with monopolies. None of this is truly accurate. Perhaps on the micro level, when talking about one or two patents, it can be difficult to see the licensing value, but don’t tell Microsoft (NASDAQ:MSFT) that its billion-dollar-plus patent royalty stream for its Android-related patents alone is worthless. Yes, Microsoft has resources that a Charles Goodyear never did, but not every patent is licensed for a pittance.
Also, the idea that patents offer the patent holder a monopoly is an oversimplification. The patent gives a patent owner a right to exclude others from the market, but that’s up to the patent owner to decide whether and when to enforce; the owner could be aware of infringement for quite some time, waiting for the market to mature, without ever bringing suit. And most patent owners, especially those who don’t practice the technology themselves, don’t want to see competitors eliminated but rather to receive a slice of the sales which is rightfully theirs for disclosing the invention.
If patents were monopolies, how can other companies license and practice the technologies developed by Apple (NASDAQ:AAPL) or Qualcomm (NASDAQ:QCOM)? Neither Apple nor Qualcomm have the exclusive control of trade on those commodities or services, a business condition which would otherwise be known as a monopoly. Furthermore, calling something “a monopoly” presupposes there is a market to start with, but so many patented inventions fail because there never was a market for the product in the first place.
Elon Musk, Patent Savior, to the Rescue!
Of course, it’s easy to understand why such a hatred of patents is allowed to flourish in this editorial by the time the reader gets to the end. Once again, we run into the almost Christ-like figure of Elon Musk giving up his patents so that the world might be saved. (In the very distant future, it might not be that strange to see people wearing plastic bracelets emblazoned with the acronym “WWEMD” given how strongly people believe in the altruistic nature of his sacrifice.) As Donlan opines: “Musk, however, realized that Tesla’s ultimate success will have to be as a player in a worldwide market for vehicles, and that electric vehicles can’t take over that market if his patents stand in the way. His investors may be very glad that he did not follow the Wright brothers down the patent path.”
We here at IPWatchdog have covered the Musk patent saga since the summer of 2014, when Musk first announced that he wouldn’t assert the rights of patents held by Tesla Motors (NASDAQ:TSLA). A blog post on Tesla’s official website penned by Musk argues that “a patent really just meant that you bought a lottery ticket to a lawsuit” and that he has “avoided [patents] whenever possible.” As we noted in our coverage, however, the timing of his announcement coincided with the end of a battery pack licensing agreement Tesla had made with Toyota Motors (NYSE:TM).
The idea that Musk is solely interested in bringing electric vehicles to the world is a red herring. Tesla doesn’t need patents to make Musk rich if it has resources that no one else has to leverage a very valuable market. The valuable market here isn’t electric vehicles but rather the lithium-ion batteries that such vehicles use. Analysis of Tesla’s open source decision published in 2014 by Seeking Alpha argues that Tesla could see annual profits of more than $5 billion if other companies build technologies around Tesla’s patents and then purchase the battery packs produced by the Gigafactory, Tesla’s lithium-ion battery production plant currently under construction in Nevada.
Also, Musk isn’t being completely honest, at least where his perspective on patents is concerned. In that 2014 Tesla blog post, Musk wrote that after he left an early venture, Zip2, in 1999, he “avoided patents whenever possible.” That’s not a point of view that is borne out by the activities of his businesses, however. SolarCity (NASDAQ:SCTY), which Musk serves as board chairman, continues to obtain patents through acquisitions and its own patent application filings. Through the first nine months of 2015, the year after Musk said he would stop pursuing patents, Tesla had obtained 27 U.S. patents. That’s not a large number, but it’s also not zero and Musk’s comments clearly indicate that the number of new patents his companies obtain should be zero.
Of course, one might make the argument that Musk’s companies might be obtaining patents, but Musk himself isn’t involved with that at all. A specious argument, yes, but one that this writer would be willing to entertain if Musk’s name couldn’t be found on any patent, especially any that have been filed since Musk swore he took his anti-patent vow in 1999. Wouldn’t you know it, but if you look at the list of inventors on U.S. Patent No. D724031, titled Vehicle Charge Inlet, you’ll see a very familiar name. That patent was filed for in July 2012 and granted in March 2015. So it would seem that Musk’s public patent position is just a hypocritical “do as I say not as I do.”
This is just another in a long line of ridiculously false tales about the patent system written by the mainstream media. While we do not like to jump to the conclusion of malice, it is hard to come to any other conclusion given the egregious errors made in this article and the apparent indifference to even primary resources like the U.S. Constitution.
Join the Discussion
19 comments so far.
AnonJune 12, 2016 10:05 am
Do you know who the seven or so countries are that do not have IP systems?
Mary Ann StiegelJune 11, 2016 11:44 pm
Legaleese – it’s ALL the the language (let us talk “word choice” here.
Stuart FoxJune 11, 2016 10:47 pm
Gene – ‘ intriguing how many – some of whom should have known better or at least researched and further considered prior to submitting erring ‘interpretations’ – have such differing, perhaps even speculative views.
Also interesting how many journalists while criticising patents never decry their own far longer and more easily established IP rights as also alluded to by ‘Curious’ above.
You mention “virtually all the rest of the world now observe first to file rules” – which is / are still the exception? – I understand approximately 186 countries of the 193 members of the UN have IP systems.
Prizzi’s GloryJune 10, 2016 08:21 am
BTW, there are alternatives to the current US patent system that could have similar effect.
The government could grant nobility, an estate, and a term of income in exchange for making an invention public. Such an alternative system has the problem of the difficulty of judging the (probably time-dependent) value of an invention. It might be necessary to give the exact same reward for any invention even if the invention is completely silly. (Curious notes a logically equivalent problem in #13.)
In theory the US patent system allows the market to decide the value (an approach that not only expands knowledge but can potentially expand the economy) if the USPTO does not favor large corporations over individual inventors and small businesses as seems to be the current corrupt state of affairs.
Prizzi’s GloryJune 10, 2016 08:10 am
Privately ownable property is a social construct. Property can be a staked out territory of land, of underground, of in the air, of water surface, of water below the surface. Property could also be a trademark, a franchise, a license to provide a service, mineral rights, etc.
It is obscure to me why a staked out territory of knowledge is not legitimate property. I can only guess that someone wants to use some knowledge without doing the work to create and to earn it, or he does not want to pay for it.
Maybe an antipatent person believes all knowledge should be free, but that situation has never obtained anywhere. In ancient Rome families or groups of tradesman often hoarded knowledge and kept it secret.
Because of such knowledge hoarding the technology of concrete that could set underwater was lost for approximately 2 millennia.
If only to encourage people to share knowledge patents seem to be a good thing. If the Romans had had a patent system, many technologies would not have been lost for 100s or 1000s of years. The Dark Ages might have been shorter or have never occurred.
There is a more important reason for patents that comes from game theory and from the nature of the human economic systems. Economies that are capable of game theoretic modeling (like market-based systems) all concentrate wealth even if they are completely fair.
Wealth concentration occurs because there are many more ways to concentrate wealth than to distribute wealth evenly. As a consequence such economic systems that can be modeled by fair (or unfair) games either collapse or result in revolutions. A reasonable patent system serves as a less catastrophic system of wealth redistribution and at least alleviates some serious flaws in market based economies.
People arguing for and against patents seem to be addressing the wrong issues. The important issues are economic and metalegal.
Gene QuinnJune 9, 2016 09:45 pm
What is shameful is you mischaracterizing what is being said. Sad really.
Defensive patenting is perfectly fine. But what Musk and his followers claim is that they obtain patents so that others won’t be able to get those patents. That is a lie, period.
CuriousJune 9, 2016 07:43 pm
If you were designing a patent system from scratch, would you indiscriminately give all patents, regardless of industry/scope, the same term.
Let me explain to you the problem with the genie of industry/technology-specific patent term. Once let out of the bottle, there will be no end to the lobbying, in Congress, as to whose industry gets what term. Should semiconductors get different terms than cell phones? What about construction materials — should they get more term than cell phones? What about the terms of semiconductors and construction materials in cell phones? Once you let that genie out of the bottle, you can come up with hundreds, thousands of different permutations that people are going to lobby for. Moreover, figuring out how to interpret all those permutations will be a nightmare. How do you calculate the patent term that cross 3 different types of technology? Think of the gaming of the system that will occur when people start adding stuff into their claims just to increase the patent term. It would be an utter and complete nightmare to legislate (also think about how people will continue to lobby for more categories and redoing the patent term). It would be a complete nightmare to implement.
Right now, there is certainty over patent term. Under the system you are contemplating, very few people will know what the patent term should be.
It is one of those things that fall under the category of “nice idea but an implementation-disaster-waiting-to-happen.”
Night WriterJune 9, 2016 05:17 pm
Great article. There is so much convoluted reasoning that you exposed that it is hard to get my head around it. It doesn’t seem to end. And we have Matt….another source of crxp.
BobJune 9, 2016 02:20 pm
It’s shameful that you’re still peddling this idea that Musk can’t be applying for patents defensively.
Owning a patent regarding a subject matter is a significantly stronger position to defend against others than simply publishing your work and watching for opportunities to place ex parte submissions.
I agree, he probably would assert these patents if it was in his interest. But that does that mean that defensive patenting isn’t a plausible activity.
MattJune 9, 2016 01:37 pm
1. There’s a reason why I put “limited” in quotes. Of course, 20 years is not an unlimited amount of time as a literal, factual matter. We’re talking about “limited” times as a matter of policy.
2. I am well aware of maintenance fees and their escalating nature, although I disagree that “exceptionally few” patents last the full term. I don’t know the exact numbers offhand, but I believe it’s somewhere around 50%. If I’m mistaken, by all means please let me know.
3. You’re not seriously contending that the Patent & Copyright Clause does not allow Congress to change the qualifications for receiving a patent, adjust patent terms, etc., are you?
Gene QuinnJune 9, 2016 01:06 pm
You say: “But let’s not pretend patents are an unalienable right such as those found in the Bill of Rights, either.”
You are correct. Patents are different than the rights found in the Bill of Rights. The Founding Fathers thought patents even more important for the country which is why authorization for Congress to grant patents appears in the Constitution itself and was not put in later as an amendment.
As for your claim that the Constitution provides for Congress to change the patent process, you must be reading a different Constitution from a different country because the U.S. Constitution clear does not say what you claim it says.
As for your question about the same patent term across industries, I agree with you. Patents should last far longer in those areas where it takes many hundreds of millions of dollars, or billions of dollars, to research, develop and take a product to market.
Gene QuinnJune 9, 2016 01:02 pm
You say that 20 years is not a limited time. You are, of course, wrong. You are not only wrong from a factual point of view, given that 20 years is by definition a time limited duration, but you are wrong from a legal point of view. Further, you are wrong if you care about reality. In order for a patent to enjoy the full term the patent owner must make 3 separate maintenance fee payments, which come due at 3.5, 7.5 and 11.5 years after the patent is issued. The fees escalate and exceptionally few patents actually last for a full patent term.
Before jumping to the wrong conclusion you might want to become more informed on the topic.
MattJune 9, 2016 11:40 am
I don’t disagree. But let’s not pretend patents are an unalienable right such as those found in the Bill of Rights, either. Their scope, duration, and the process of obtaining them can be changed by Congress according to relevant policy considerations — that’s what the Constitution provides for.
As for what an appropriate term is for any given patent, I won’t even pretend to know, and fully understand that foreign treaty issues further make this a tricky subject to deal with. But a 20-year term isn’t something that is (or should be) gospel — it’s only been around for 20 years or so. Hell, the first Patent Act set the term as a discretionary “not to exceed” 14 years from issuance. And we already set a different term for design patents.
If you were designing a patent system from scratch, would you indiscriminately give all patents, regardless of industry/scope, the same term?
CuriousJune 9, 2016 11:20 am
Not to nitpick, but granting Congress the power to do something is not the same as recognizing “a universal right to intellectual property.”
On the scale of “The Framers of the Constitution considered patents and copyrights to be a useful nuisance” to “a universal right to intellectual property,” intellectual property being specifically mentioned in the Constitution is far closer to the “universal right” than the “useful nuisance.”
In the context of many patents, 20 years is not “a limited time.”
Perhaps you might want to expound upon this statement. Versions of this statement get thrown about by the anti-patent crowd from time to time, and I’m curious what you think is appropriate?
CuriousJune 9, 2016 11:14 am
Unfortunately, the article is hidden behind a paywall. Hmmm … what is up with that? If this author is suggesting that intellectual property in the form of patents be set free, why doesn’t he also suggest that the intellectual property (in the form of the article he wrote) also be set free? What’s good for the goose should be good for the gander?
Musk will eventually see the light. His electric vehicles likely infringe hundreds if not thousands of patents. Between the vehicles themselves and the battery technology, he is walking into a minefield of protected intellectual property. Eventually, when they start earning a profit (actually, I have to chuckle on that one — has anybody looked at Telsa’s income statement?), the big boys with patent portfolios numbering in the hundreds, thousands, or tens of thousands are going to come knocking on his door. When that happens, Musk is going to wish he had a substantial patent portfolio by which he could negotiate a decent cross-licensing agreement.
Unless the US patent system is completely dismantled, Musk’s day of reckoning will come. When it does, he’ll realize that his personal aura isn’t a cure all. Hubris can be awfully expensive.
MattJune 9, 2016 11:01 am
Not to nitpick, but granting Congress the power to do something is not the same as recognizing “a universal right to intellectual property.” In fact, I think there’s a good argument to be made that the “for limited times” portion of that clause gets glossed over far too often. In the context of many patents, 20 years is not “a limited time.” And this says nothing of ludicrous copyright terms…
AnonJune 9, 2016 10:53 am
I glossed over the article (mainly because I already have a position in the choir), but the thought that did occur to me was that there remains a virulent anti-patent propaganda machine in force and that this article by Barron’s is not a driver, but rather a symptom of that propaganda effort.
Instead of reacting to the symptoms as they (continue) to pop up – and thus playing a losing defensive game – perhaps a more on-the-offense tactic of chasing down the source of the propaganda would be in order?
That being said, there should be no confusion as to the reality that there is likely more than one source: the Right (as captioned by Big Corp, who are generally against other people having competing exclusive property rights) AND the Left (as often exemplified by Academia and other “socialist”-minded entities who are generally against any people having personal exclusive property rights).
Thus, there should be a multi-pronged reply – noting not just the fallacies involved (defense) but also questioning WHY these fallacies are being pursued: somebody will benefit from a different societal view on the private personal exclusive property rights that patents provide: who is that “somebody” behind the curtain, pretending to be the great, wonderful and powerful Oz?
Gene QuinnJune 9, 2016 10:34 am
You are absolutely wrong.
Elon Musk does make the completely false assertion that he seeks patents so others cannot get them, but the fact that the great Elon Musk says it does not make it true.
If Musk wanted to prevent others from patenting what he invents all he has to do is publish technical descriptions of what he invents. Given that the U.S. (and virtually all of the rest of the world) now observes first to file rules once a disclosure of an invention occurs all others would be prevented from obtaining a patent.
So clearly Musk is not being honest when he says that he seeks patents so others cannot get them.
John WeaverJune 9, 2016 10:13 am
To get a patent might also be to protect you against others getting them