Henry R. Nothhaft

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Dear Mr. President, Are You Listening?

The president says that’s the fault of recalcitrant Republicans in Congress. Republicans in Congress say it’s the fault of a president who is hostile to business. But the real reason we are not putting people back to work three long years into the recession is that Washington is afflicted with a totally-bipartisan cluelessness about how to create jobs.

Eating Our Seed Corn for Job Creation

Everywhere I go, I meet entrepreneurs whose ventures either failed or are slowly dying on the vine because of the outrageous delays they suffered in getting patents. Who would invest the huge sums needed to develop a new medical treatment, for example, without at least the promise of exclusivity and a return on their investment that a patent provides? But because of delays stretching up to seven or more years in getting a patent, these startups lost crucial funding opportunities—or in some cases, even went bankrupt—as a result of the backlog of 1.2 million applications now throttling America’s overburdened and underfunded “innovation agency.”

Tax Policy Makes U.S. Uncompetitive, Not China’s Low Wages

Many people assume that there’s no way American manufacturers can compete with cheap Chinese labor. It’s just basic economics, right? Wrong. It’s the U.S. government’s myopic policy, not China’s lower payroll costs, that make our nation uncompetitive in the all-important solar and other high-tech manufacturing sectors. With manufacturing friendly tax policies and a permanent 20 percent R&D tax credit equal to what other nations offer China’s advantage drops to 1 to 2 percent, and that the U.S. can compete with.

Start-Up Reality: No Patent = No Funding, No Business, No Jobs

The log jam in patents issuances is not the only impediment to start-up job creation. Although it is certainly a big one. Tax and regulatory burdens on start ups have reached a critical mass in the last 10 years. A fact recognized by President Obama when he signed an Executive order last Tuesday ordering the removal of burdensome regulatory rules on business. Also a problem are the post 9-11 immigration policies that are driving many of the world’s best and brightest scientists and engineers to other countries. But the biggest job killer beside the patent backlog is the systemic destruction of our high tech manufacturing capacity.

Patents in the Real World

But looking back, what strikes me is the surprisingly-variable role that patents played in the growth and success of the half-dozen trailblazing startup companies that I helped lead. For these startups, which collectively created more than 2,500 jobs, I raised approximately $1 billion from strategic and venture investors (who ended up with $3 billion in returns). And in the majority of cases, owning patents proved to be crucial to the funding and commercial success of my startup. But this wasn’t always the case. In several startups, patents were almost completely irrelevant to either the financing or the ultimate fate of the company. Understanding why this was so may offer some insights into both the value and the limitations of patenting.

Was Thomas Edison a Patent Troll?

But perhaps the most crucial element of the American patent system was that it did not simply encourage ordinary people to participate in inventive activity. It made it economically feasible for them to do so. By creating a market in which inventors with little or no capital could license their discoveries to enterprises that could then commercialize them, the patent system enabled unprecedented numbers of ordinary people to generate income from invention and thereby make it a full-time career. Which naturally generated even more innovation.