What Poor Patent Protection Costs Us

A new book titled, Great Again: Revitalizing America’s Entrepreneurial Leadership, by Silicon Valley entrepreneur Henry Nothhart, looks at the obstacles facing U.S. companies today — including high corporate taxes and government overregulation — and offers advice on how to fix it. One of his targets is the U.S. patent office.

According to a review of Great Again in today’s Wall Street Journal, Nothhart states that 1.2 million patent applications are waiting for approval, three times the number from a decade ago. While agreeing with Nothhart that the U.S. Patent Office obstructs rather than nurtures business, reviewer Nick Schulz also acknowledges “chronic underfunding [of the office] by Congress, which in the past 10 years has diverted to other uses more than a billion dollars in fees collected by the office.” Schulz is a fellow at the American Enterprise Institute and editor of American.com.

Also in today’s Wall Street Journal, columnist Matthew Slaughter refers to a report in May from the U.S. International Trade Commission (ITC) called “China: Effects of Intellectual property Infringement and Indigenous Innovation Policies on the U.S. Economy.” The ITC had asked 5,051 U.S. companies to “gauge the incidence and extent of infringement of their copyright, trademark and other intellectual-property rights in China,” according to Slaughter. The result: The ITC estimates “that all U.S. IP-intensive firms lost at least $48.2 billion in 2009 alone — perhaps as much as $90.5 billion — from foregone sales, royalties and license fees.”

The companies also estimated that if IP rights in China were better protected, their annual revenues would increase by as much as 20% — more than $100 billion a year, Slaughter states, adding that higher revenues would create the need for a bigger labor force, which in turn, could lead to more than 900,000 new jobs.

Stronger patent protection, it seems, is a no brainer when it comes to leveling the playing field and encouraging innovation. “Improving operations at the U.S. Patent Office is a bit like spending money on roads,” says Wharton legal studies and business ethics professor Richard Shell. “It is strengthening the market infrastructure.” The amount of money it would take to fix the patent office, he adds, “is a rounding error compared to what was spent on TARP (the Troubled Asset Relief Program) or the auto industry bailout. We’re not talking about a lot of money here. So in that sense, it is an excellent investment that would certainly pay off in the long run.”

U.S. companies, meanwhile, are not shy about suing other firms for alleged patent infringement, Knowledge@Wharton noted in a recent article. Apple has sued HTC; Motorola has sued Research in Motion and Nokia has sued Apple. Companies often are looking to solidify their positions as a front runner and are willing to use their intellectual property as a weapon in their arsenal, the article points out.

Slaughter, who is associate dean and professor at Dartmouth’s Tuck School of Business and was a member of the Council of Economic Advisers from 2005 to 2007, suggests that strong IP protection would also be a boon to China, given its goal of expanding employment to knowledge-based industries, including IT and clean energy. “China will not become a global leader in innovation if its government does not safeguard the fruits of its research and development,” Slaughter writes.

Or, as Shell says, “when China becomes the innovator rather than the imitator, it will begin to significantly strengthen the patent system.”

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"What Poor Patent Protection Costs Us." Knowledge@Wharton. The Wharton School, University of Pennsylvania, [06 June, 2011]. Web. [25 October, 2014] <http://knowledge.wharton.upenn.edu/article/what-poor-patent-protection-costs-us/>

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