Not if the Senate votes to pass the Patent Reform Act, which Alan Tonelson explains, will further destabilize the U.S. economy.

The U.S. economy is battling two major, intertwined enemies today – pervasive financial uncertainty and feeble growth in the real economy. Why, then, is the Senate Democratic leadership so eager to bring up a patent reform bill that can only greatly worsen both problems?
Nothing has fueled the ongoing credit crunch more than uncertainty. No one knows how far the sub-prime mortgage mess will continue to spread through the U.S. and world economies. No one knows how many more faltering banks and brokerages the Federal Reserve can bail out – if our foreign creditors allow the Fed to persist. And no one knows when ever looser U.S. monetary policies will trigger a dollar meltdown and in turn a deep, protracted global economic slump.

Yet the credit crisis has revealed that too much capital has gone into ludicrously complicated, recklessly leveraged housing-related investment – not to mention the hyper-consumption it generated. By the same token, it’s now obvious that too little capital has gone into the output of competitive goods and services – the only reliable foundation of long-term prosperity.

Indeed, Washington has poured record amounts of stimulus into the U.S. economy since 2001, especially by driving interest rates down to 50-year lows and keeping them there, and by turning a modest federal budget surplus into enormous deficits. The result, however, hasn’t even been close to record growth.

A genuine economic cure involves encouraging not more consumer spending but more production, the basis of which must come from more innovation. And as numerous inventors, intellectual property-based companies, and universities have told legislators, if the Patent Reform Act passes, they’ll have to think hard before investing in new R&D – because their breakthroughs will become much easier to steal.

The proposed patent reform now before the Senate (S.1145) takes the stability and predictability of our 200-year-old, Constitutionally-mandated patent system and throws it away. Among its most objectionable features, the bill would create new procedures to challenge the validity of a patent throughout its entire life. In other words, neither inventors nor investors could ever know whether they own a valid patent.

The bill would also create significant new obstacles for patent holders seeking to enforce their rights or win just compensation from intellectual property thieves. In particular, a higher bar would be established for proving “willful infringement,” whose stiff penalties are powerful deterrents. More important, the legislation also greatly restricts time-honored litmus tests used by judges to determine infringement damages, and replaces them with methodologies that reduce the value assigned to patented technologies in most products. Thus the rewards of innovation would be further limited.
And, as if foreign intellectual property theft was not already epidemic, the bill would require Internet posting of pending patent applications for all the world to see while the U.S. Patent Office deliberates. If this patent reform succeeds, foreign intellectual property thieves – whose increasingly bold piracy Washington has fought for decades – would get a long, free look at the nuts and bolts of America’s newest inventions. Could anyone imagine a better way to supercharge the competitiveness of foreign economies at the expense of U.S. entrepreneurs and working people?

America’s founding fathers knew that the nation’s prosperity and security would depend heavily on a financial/technological covenant: Private sector inventors would bear the financial risks needed to create valuable new products and processes, and government would ensure that their successes reaped appropriate returns. That’s precisely why the Constitution itself charged Congress with creating and overseeing a strong patent, trademark, and copyright system in the first place.

Moreover, contrary to the claims of the patent “reformers,” over the last two centuries, Congress, the Patent Office, and the courts have understood the need to change with the times. Especially during the last 50 years, they have put into effect scores of legal and regulatory changes to accommodate and further stimulate technology’s rapid evolution.
With the economy now so deeply troubled, America needs increased innovation – and the new factories, jobs, and other forms of genuine wealth it creates – more than ever.

Scrapping the Patent Reform Act will safeguard the time-tested, dynamic patent system that has given U.S. inventors and businesses the incentives needed to make America the world’s long-reigning technology leader. Approving the legislation will undo this historic achievement, and deepen our dangerous national addiction to financial gimmickry, foreign capital, and skyrocketing national and personal debt.

Alan Tonelson is a Research Fellow at the U.S. Business and Industry Council Educational Foundation in Washington, D.C. A contributor to the Council’s AmericanEconomicAlert.org Web site, he is also a consultant to CNN anchor Lou Dobbs and the author of The Race to the Bottom (Westview Press, 2000). The views expressed here are his own.


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