Improving patent quality

I have to give the US Patent and Trademark Office credit for trying to improve patent quality after reading this in today’s New York Times – “U.S. Office Joins an Effort to Improve Software Patents”:

At a meeting last month with companies and organizations that support open-source software (software that can be distributed and modified freely), including I.B.M., Red Hat, Novell and some universities, officials of the patent office discussed how to give patent examiners access to better information and other ways to issue higher-quality patents.
Two of the initiatives would rely on recently developed Internet technologies. An open patent review program would set up a system on the patent office Web site where visitors could submit search criteria and subscribe to electronic alerts about patent applications in specific areas.
The third initiative is focused on the creation of a patent quality index that would serve as a tool for patent applicants to use in writing their applications. It is based on work done by R. Polk Wagner, an intellectual property expert at the University of Pennsylvania.

This is a good step forward in the type of industry-specific patent review processes we may need if we are to solve the quality problem.
Now if we can just get the legislative reforms moving as well . . .


Innovation and the environment

Yesterday, the OECD released its review of US environmental protection efforts over the past decade (the last review was in 1996). Depending on who you talk to the glass is half full or half empty. According to the EPA, the US is doing a great job: “EPA Press Release: International Panel Concludes U.S. has Improved Environmental Performance”:

The United States has significantly improved its environmental performance in the last eight years even as its economy and population have grown substantially, according to a report from the Environmental Performance Review Program of the Organization for Economic Cooperation and Development’s (OECD).

However, others, such as the Financial Times see the story differently – “US could do better on green issues, OECD concludes”:

As other nations increased their energy efficiency further in the face of rising fuel prices, the US risked falling behind in its international competitiveness if it failed to keep up, the report’s authors said. Using energy more efficiently would also help to combat climate change.

What the OECD environmental report card for the US actually said was, not surprisingly, more between this two:

A new OECD review of environmental policy in the U.S. recommends more efficient use of energy and water as a way to safeguard economic prosperity while protecting the environment and human health. Despite progress in some areas over the past decade, more effort is needed in others. The OECD recommends that the U.S. play a more proactive role in dealing with global environmental concerns.

What U.S. Ambassador to the OECD, Connie Morella, told me yesterday morning was that innovation was one of the reasons why the US came out as good as it did on the review. Many of those innovations are not new technologies, but management processes. For example, the report’s conclusions and recommendations specifically cites Massachusetts’s pesticide tax and Oklahoma’s tax credit for manure management as innovative economic instruments to reduce water pollution.
Now, manure management may not top the charts when it comes to the sexiest innovations. But given that farm run-off is one of the major sources of water pollution, manure is a major issue.
Other examples include the introduction of ecosystem management approaches for the Great Lakes, Chesapeake Bay, the Florida Everglades, the Gulf of Mexico and numerous watersheds; introduction of sustainable forestry practices on public lands; and the Government Performance and Results Act which has promoted co-ordination among government programs.
The report does tip its hat to technological innovations. But it real focus (and benefit) is on the management changes that would be useful if we are to continue to make progress. As the OECD press release concludes:

Overall, the OECD report urges the United States to increase the efficiency of its environmental management and energy use, projecting that doing so would yield economic benefits.

Innovative new technology and innovative management techniques — sounds like the classic winning approach to me.

Linking production and engineering

What is the locational link between production/manufacturing and research/engineering/product design? That is a key question underlying the I-Cubed Economy (and much of the debate on offshoring). Is product design and engineering tightly linked with the manufacturing process – as was argued a few years ago under the rubric of manufacturing matters? In other words, if production moves offshore, will product design and engineering naturally follow? Or is distance dead – and given information and communications technologies, engineering and design can be anywhere and production someplace else?
Economic history is ripe with examples of both. Clearly, the globalization of manufacturing over the past few decades (actually during the entire 20th Century) has shown that for mass produced goods, production and engineering can exist literally world apart. But a finer grain analysis of the globalization phenomena has also shown a strong local design/customization component to the process.
Far from being an academic question, this issue forms the implicit foundation of many views of our economic future and the economic growth process. Can the US economy survive as a “service” economy, where we handle the high-end engineering, research and product design portion of the production process? Or having lost the manufacturing portion, are we destined to lose the design part as well? Or, alternatively, has competition shifted from the mass manufacturing paradigm to solely a design/innovation paradigm — where the US maybe losing its competitive edge in innovation completely independent from what has happened in manufacturing?
A new study of the notebook PC industry in China sheds some light on this question:

China has become the world’s largest producer of computer hardware, driven by large scale investment by multinational and Taiwanese companies. At the same time, computer hardware production and employment in the U.S. have fallen by about one-third since 2000. A new concern is that knowledge activities such as new product development are being pulled along with manufacturing to China. Based on a study of the notebook PC industry, it is concluded that production is pulling some product development activity to China, although the shift is also driven by the availability of low cost engineering talent. While the U.S. has retained its role in marketing, concept design, and product planning, it has lost many of the engineering jobs associated with notebook design. The number of jobs affected is relatively small, but the movement of knowledge work may portend similar changes in industries with larger numbers of jobs at stake.

In other words, those parts of the process that require tacit knowledge of the market – product concept and product planning – are remaining in the US (as a major market for notebook PCs). But more and more of the activities that are related to the physical production process, including design and prototyping, are moving to China.
It is not clear whether this middle-portion of the process (design and prototyping) necessarily needs to shift to be near the production facilities. However, as the study authors explain, there are economic reasons for the shift:

Production and sustaining engineering clearly benefit from proximity to manufacturing, as production problems can be addressed immediately on the factory floor and engineering changes in existing products can be tested in production models from the assembly line. It also makes sense to move pilot production to China rather than maintain an assembly line in Taiwan just for this purpose. Then the question arises whether to move the expensive test equipment from Taiwan to China. If so, then there is more reason to relocate the design review and prototype processes as well.

The location-specific activity in this process is the front-end concept work. This is remaining in the US not because we are necessarily theoretically the best at it, but because we are a major market and it requires on-the-ground market intelligence. Other major markets, such as Japan, are also locations for this front end work. This may the future of China as well:

as China’s PC market continues to grow, and its users become more demanding, it may become the leading market at least for the Asia-Pacific region, and definition and planning of products suitable for the region may be done there.

The study ends with the following conclusion:

Product development, design, R&D and other innovative activities account for many jobs in industries such as software, IT services, electronics, aerospace, automobile, clothing, and pharmaceuticals. In some cases, these activities may be pulled along with manufacturing, or they may move to places where engineering and other creative skills are abundant and cheap. If so, our research suggests that China will attract a good share of the knowledge work associated with manufacturing industries, given its large pool of engineers and its role as a manufacturing center.

A sobering thought. But, issue might not just be how many US jobs will be shifted because of design following manufacturing. Rather it might be how many of the high-end knowledge jobs of the future will be created in other countries, rather than the US, to service those increasingly sophisticated markets.
If high-end design and product concept jobs require localized knowledge, then there is no reason to believe those jobs that service the US will leave the US. By the same logic, however, there is no reason to believe that US-based workers in these jobs will be able to service other markets. Americans will be designing for the US market, Chinese/Japanese for the Asia market, and Europeans for the European market.
This scenario completely contradicts the view that many, I suspect, have of the future of our economy. Under that view, the US will maintain its economic competitiveness by exporting design services, innovation and other intangibles. My tracking of our intangibles trade shows that this view is not sustainable. The increasing dispersion of design and innovation capacity – either following or independent of manufacturing capability – means that we need to seriously re-think our vision of the US economic future.
And the sooner we undertake that re-thinking, the better.

France rediscovers the apprentice

I recently came across this interesting tidbit in a story about the French apprentices in the International Herald Tribune:

Germanic cultures preserved the traditions and spirit of apprenticeship while revolutionary France destroyed the guilds and the apprentice system with it in the 1790s. The system was re-established in France but remains much less widespread than in Germany.

Might this fact explain Germany’s rise as an industrial power? Maybe, maybe not. As I understand it, the German apprentice system is more advanced than the British system as well the French. The US has always lagged in our apprenticeship programs.
The apprenticeship system is an important mechanism for passing on tacit knowledge. Such knowledge is key in skilled areas; less so in mass production activities. So a country whose economic development was based on precision engineering, such as Germany, is more likely to benefit from an apprenticeship system than an economy build more on the mass production of consumer goods, closer to the British and American experiences
The transfer of tacit knowledge is also important in innovation and creative activities. But in the I-Cubed economy, formal apprenticeships may be much less important that informal mentoring and networking. A formal apprenticeship passes down very specific skills in a defined context. There is also often a rigid hierarchy and an end point of learning that defines “mastery” – although in truth, the real masters of a craft never stop learning. The ability to absorb tacit knowledge from multiple sources in an ever changing context is more important in the I-Cubed Economy. Multiple mentors are common, with different sets of skills learned at different points in one’s career.
So, rather than emulate the German apprentice program, France may do better in the future by emulating the American networking model. As much as that may pain my French friends to hear.

Innovation legislation – what about design?

I have been a strong supporter of the efforts of Senator Lieberman on competitiveness, and most recently with the National Innovation Act of 2005. In fact, Athena Alliance wrote a letter of support for the legislation, calling it “a step forward in addressing this challenge [of coping with the new I-Cubed Economy].” We specifically based our support on two provisions in the bill. The first is a study on valuation of intangibles. As our study on Reporting Intangibles pointed out, we are flying blind when it come to understanding and accounting for intangibles. This study will move us in the right direction.
The second provision is the creation of a President’s Council on Innovation. We believe that, properly focused, this Council could take a broad view of innovation and knowledge diffusion to include policies to foster non-technological ingenuity and creativity as well as science-based research and development – and in all sectors of the U.S. economy, particularly those in which rates of productivity and innovation have lagged, and in U.S. companies of all sizes, particularly small and medium-size companies. As such, it could serve as an important analytical and policymaking body, similar to that which was envisioned in Senator Lieberman’s previous legislation to create a Commission on the Future of the U.S. Economy (which we helped formulate).
However, I have always felt that the bill is only a step in the right direction – not the complete answer. It addresses the S&T issues, but not the broad innovation issues.
Niti Bhan, writing two weeks ago in Business Week – “A Competitive Nation, by Design” makes a similar point:

There can be no argument against the importance and validity of these initiatives, . . .
However, one must raise the concern: What about design? Is any of the increased funding to the National Science Foundation and other basic research focused on design methodology and tools, the building blocks of innovation? We’ve all heard the success stories in which design-led innovation has directly increased existing market share, grown new markets, added value to the bottom line, and raised the visibility of brands.
Take Google’s design philosophy of simplicity or Procter & Gamble’s (PG) emphasis on user needs — both examples of global giants recognizing the value of design. Yet there is no mention of design or the design industry in the National Innovation Act.

Yes, as I have railed about only yesterday, we don’t have the government programs focused on design. And we desperately need them.
Maybe we can all work together to make that the next piece of legislation.

UK innovation and creativity report

In my essay on innovation and creativity policy (UK leads; US lags), I mentioned that Chancellor of the Exchequer Gordon Brown commissioned a study by the British Design Council on the link between creativity/design and business. That Review of Creativity in Business was released early last month. Nicknamed the Cox Review, after Sir George Cox, chairman the British Design Council who headed up the study, the recommendations from the study are expected to show up in the next government budget submission to Parliament. According to Business Week – “Renewing Britain’s Legacy of Innovation”, one recommendation is moving ahead quickly:

. . .a program to encourage businesses and design students to think and work together. The government is now helping to set up higher-education centers to create pilot courses that combine business, engineering, technology, and creative disciplines in a similar way to Finland’s International Design Business Management program or the new Hasso Plattner Institute of Design at Stanford University in the U.S.

So, where are the US programs? Where are the programs to replicate the Stanford D-School?
Sadly, the answer is that the US is still fighting the last war. We are focused on innovation as S&T – not innovation as creativity.
The Cox Review uses the following definitions:

‘Creativity’ is the generation of new ideas – either new ways of looking at existing problems, or of seeing new opportunities, perhaps by exploiting emerging technologies or changes in markets.
‘Innovation’ is the successful exploitation of new ideas. It is the process that carries them through to new products, new services, new ways of running the business or even new ways of doing business.
‘Design’ is what links creativity and innovation. It shapes ideas to become practical and attractive propositions for users or customers. Design may be described as creativity deployed to a specific end.

Technology is part of those definitions – but only part.
With the Cox Review, the UK has at least conceptually made the leap from looking at a technology-led economy to an innovation & creativity-led economy
We need to do the same.

Expanding patents

While the Supreme Court is wrestling with the issue of patents, the PTO seems to be actively expanding the scope of what can be patented. First, in September, the PTO (or more specifically the Board of Patent Appeals and Interferences) ruled that a business process need not be tied to a computer program in order to qualify for a patent (Ex parte Carl A. Lundgren). According to IP attorney Barry Schindler,

The Lundgren decision swings the door wide open for businesses to apply for patent protection for any novel business method. As a result, businesses should now seek U.S. patent rights for any unique business method covering every conceivable business operation, such as methods of billing clients; hiring employees; marketing products or services, such as financial services and banking products; or simply obtaining funding.

Meanwhile, a Washington area attorney – Knight and Associates – is pressing the PTO to issue “Storyline Patents” to cover the story plot:

Like software, a fictional story may include two valuable features: the underlying storyline and the particular expression of that storyline. Like software, the latter is clearly protectible under copyright law. And, like software, the former should be protectible under patent law.

And the Blackberry patent battle continues, as the Wall Street Journal reports (NTP Wins Time To File Defense In RIM Dispute) with NTP plotting its next move:

NTP shareholder and co-founder Donald Stout said that the company’s lawyers aim to get their response filed before the 30-day extension is up. “We’re not trying to slow it down,” he said. “Our view is, let’s get on with it. We want to go as fast as possible.” Stout said the company asked for the extra 30 days to allow one of its experts to help craft the response.
Even if NTP’s patents are all rejected, NTP still has the right to appeal within the patent office, a process that would take until late 2006, Mr. Stout said. He says that while he expects the patents to be rejected, he believes that NTP will be vindicated when it appeals through the patent office’s Board of Appeals and Interferences.

The most recent issue of Business Week calls all this “The Patent Epidemic.” They point to the lowering of the obviousness standard as the root of the problem:

How to determine when an invention is “obvious” is one of the most critical and contentious issues in patent circles. Over the past two decades, critics say, the hurdle for passing the obviousness test has been steadily lowered, and the U.S. is now awash in a sea of junk patents. Some are just plain silly, such as a patent for “a method [of] exercising and entertaining cats” (basically teasing them with a laser pointer), or another for “an animal toy that a dog may carry in its mouth” (which not only sounds suspiciously like a stick but also looks like one in the patent drawings).
But many perceive a serious threat. A coalition of businesses, including Microsoft (MSFT ), Cisco Systems (CSCO ), VF, Hallmark Cards, and Fortune Brands (FO ) has jointly filed its own brief in the KSR case asking the Supreme Court to take corrective action. Two dozen intellectual-property law professors have made a similar filing. Massive overpatenting, the professors say, “creates an unnecessary drag on innovation,” forcing companies to redesign their products, pony up license fees for technology that should be free, and even deter some research altogether.

In the above mentioned case, Teleflex vs KSR, the companies are asking the Supreme Court to review whether a combination of two technologies is obvious (and therefore non-patentable) or novel (and therefore patentable).

KSR’s defense is simple: U.S. law does not allow patents for inventions that are “obvious.” Nothing could be more obvious, KSR says in court filings, than a combination of “preexisting, off-the-shelf components” that each perform “exactly the same function” for which they were originally designed. In essence, KSR’s argument is that Teleflex may as well have patented the combination of the refrigerator and the light bulb. Rodger D. Young, Teleflex’s attorney, counters: “The fact that Device A and Device B exist does not make it…obvious that they should be put together.”

If this case is accepted by the Court, it will join a number of other patent cases under review, such as eBay vs MercExchange (see my earlier posting “patent litigation“). With patent reform legislation stalled in Congress, the Court may end up re-writing the patent law. Let us hope that they can strike the right balance: continuing to provide the protections needed to produce and utilize intangible assets while reigning in the overpatenting which threaten the Intangible Economy.