The state of patent auctions

Over at IAM Blog, they have posted a recap of the most recent ICAP-OceanTomo patent auction. The headline of posting says it all: No big bids at ICAP OT auction as most lots go unsold; but value is created nevertheless. I’m not going to argue with Joff about whether value really was created. I agree that having the auction does create some new information about pricing. But I’m not sure this is the most useful or efficient way of creating and disseminating market price information. There are other mechanisms — harkening back to the earlier days of commerce — such as clearinghouses and broker surveys. I know that some of these already exist such as large expensive surveys of licensing transactions.
But we might want to think about other ways to pierce the veil of, as Joff puts it, “what is normally a very opaque world.” One way might be through enhanced corporate reporting (see our ealier report Reporting Intangibles: A Hard Look at Improving Business Information in the US). For example, there could be more detailed disclosure of what companies (and universities) sold and bought and the price. I realize that such disclosure will raise howls of protest about “confidential information.” But, the same cries were heard in the past about giving investors even basic information such as revenues.
On other point on the auction. The IAM blog posting has the follow analysis from Terry Ludlow of Chipworks: “High quality and valuable patents still sell for good prices where there is a valid business proposition – but, no-one is snapping up speculative high risk IP.” I think that is a succinct and insightful statement about the state of the market. Enough said.

Want growth? Invest in intangibles!

David Leonhardt’s piece in today’ New York Times on the various deficit reduction proposals reminds us that the best deficit reduction program is to increase economic growth.
Unfortunately, most of the so-called growth proposals miss a key element — the critical role development and utilization of intangible assets. Yes there is the general hand waving about the need for more R&D and education. But those are only parts of the answer — and highly incomplete and partly missing leading parts at that. They are both throwing money at the inputs to the process of creating and utilizing intangible assets without any attention to the larger whole.
More importantly, there are many other ways in which policy affect the development of intangibles. We have a tax policy that encourages investment in machines and building — but not the people needed to run them or the companies to occupy them. We have a federal budget process that tells us how much we spend on government salaries but not how much we invest in training government workers. We have an economic statistical system that can tells us with great precision how many tons of steel were produced but has no adequate measure of innovation or knowledge creation. We have a corporate reporting and accounting system that can place value on a company’s building but not on their patents.
In other words, we have a government policy geared toward a 2Oth Century model of the economy.
If we are serious about economic growth, here are a couple of very modest suggestions:
1) turn the R&D tax credit into a knowledge tax credit to increase investment in worker education and training. As I have argued repeatedly if we give companies incentives to conduct research or invest in new equipment we should also give companies incentives to invest in their most valuable asset: their workers.
2) look at the entire tax code to see where it helps and where it hinders investments in the development and utilization of intangible assets.
2) expand the Baldrige Award criteria include explicitly metrics for investment and utilization of intangible assets. The name of the Baldride Award was recently changed to emphasis the performance excellence (see earlier posting). However, that is not enough. Part of the power of the Award is its teaching potential. It is a self-administered assessment process. That assessment should go beyond productivity to embrace intangible assets as the new building block for economic growth.
3) expand the MEP Center so that they can explicitly offer service to help companies — especially small businesses — identify, understand, utilize and invest in their intangible assets.
4) create a federal budget analysis of how much the government spends in investment in intangible assets.
5) create better statistical measure of intangible assets — in both government statistics (such as the GDP measure) and corporate reporting.
For the most part, these actions will not cost a lot of money. The exception is the knowledge tax credit. But even that expenditure should be more than offset by the benefit gained to the economy.
These are small steps. But there are steps that can put us on a path to a 21st Century growth economy — one based on sustainable innovation not consumption bubbles.

Patents and innovation

Here is an interesting rant from and IP strategist (Jackie Hitter) Inventiveness and Patents Do Not Equal Innovation:

Few things infuriate me more than supposed experts who make statements along the lines of “patents are critical to innovation.” I have avoided stating my views widely in this forum because I didn’t want to get into a contest of one upmanship with my patent lawyer peers. However, in the last couple of weeks, several pieces of information have hit my radar screen that make this seem like the right time to go public with my views.
Let my position be very clear: we create a false dichotomy when saying “innovation is not possible without patents.” The issue is much more complex and nuanced than this: in a particular instance, patents may be critical to innovation, but they might also be only slightly important or-likely in the majority of situations-they might be wholly irrelevant to innovation.

Note that Jackie is not anti-IP. She is just anti IP-hype:

Ok, off my soapbox now. I need to edit a patent application for a start-up energy company where strong protection is the end-all, be-all for ultimate success. In short, the amount of effort we input into the patenting process will be exponentially proportional to the value of the innovation in the marketplace. The difference between our company’s patent strategy and that of most others is that we know the difference. I wish we were the rule, rather than the exception.

Her point is simple: patents are part of the innovation system, but only part that needs to be understood in context. And patents are bad measures of innovation.
Those are two points I completely agree with.

September trade in intangibles

The September trade data released this morning showed a slight improvement. The monthly trade deficit declined to $44.0 billion from $46.5 billion in August. This was slightly better than the $45 billion analysts had predicted. The good news was that exports increased and imports declined. As the chart below shows, the deficit in petroleum goods was generally unchanged (down $400 million) while the deficit in non-petroleum goods declined by $2 billion.
Our intangibles trade surplus was basically unchanged as well, rising ever so slightly by $70 million. Exports and imports of private services both increased — as did royalty payments coming in (exports) and royalty payments going out (imports).
However, our deficit in Advanced Technology Products grew in September. Exports grew by over $1 billion but imports increased by over $1.3 billion. The result was another record setting deficit as September was the worst monthly deficit since the government started publishing data specifically on Advanced Technology Products. June, August and now September have all set records. Aerospace exports picked back up slightly from last month — but so did imports. Electronics saw a reversal with exports dropping and imports increasing. In fact, imports increased in every category except biotechnology and flexible manufacturing. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Intangibles trade-Sept10.gif
Intangibles and goods-Sept10.gif
Oil good intangibles-Sept10.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.

Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

A test for health care and economic competitiveness

Health care costs have long been identified as a issue for economic competitiveness. For decades analysts have pointed to both the high cost of care and the high cost of health insurance as an economic drag, especially for small businesses. One of the elements of the new health care law was meant to ease that cost by creating a new marketplace — called health insurance exchanges — where small businesses can buy health insurance.
Now, here is where it gets interesting. The health care law essentially leaves it up to the states to administer these exchanges. Last Tuesday, a number of conservatives won governorships — many with the very explicit promise to scale back or eviscerate the law.
The result will be a natural experiment with the heath care system. A story in today’s Washington Post underscores the point:

The result, analysts say, is that two models are likely to appear: Democratic governors and legislatures are likely to emphasize vigorous regulation and government oversight, while Republican state leaders are likely to put greater stock in privatization and other free-market approaches.

Here is where the natural experiment come in. There will be a measurable outcome of each of these approaches: the impact of the system on the state’s businesses and economic competitiveness. So we will see.

Biotech grants announced

One section of the heath care legislation passed last spring was a programs of grants and tax credits to biotech firms for high-risk research — the Qualifying Therapeutic Discovery Project Program. In an interesting arrangement, the program was administered by NIH and the IRS. As the fact sheet notes, the program is targeted at “projects that show significant potential to produce new therapies, address unmet medical needs, reduce the long‐term growth of health care costs and advance the goal of curing cancer within the next 30 years.”
The IRS has now published a list of the winners. Over 4600 projects were funded. However, it is unclear how much impact the program will have. As a story in the Washington Post reports:

But with so many companies applying for a share of the money, many firms got much smaller allotments than requested and said the financial boost won’t go as far as they had initially hoped.

Still the program is a step forward. The program was designed to specifically help the smaller companies and start-ups. It was also designed to promote economic competitiveness — as the fact sheet notes:

In addition to supporting biomedical research to find life‐saving treatments, the credit’s allocation will also take into consideration which projects show the greatest potential to create and sustain high‐quality, high‐paying jobs in the United States, and to advance our competitiveness in the fields of life, biological, and medical sciences. Today, the biotechnology industry employs 1.3 million workers, and the industry continues to be a key growth engine for our economy.

The incoming GOP majority in the House has made no secret of its intent to prevent implementation of the health care act. I would hope they would take a close look at this particular part of the law — and support it. There should be an evaluation of how the programs was implemented. And Congress should then support a second round of funding.

October employment

This morning’s BLS data on employment for October showed some good news. While the unemployment rate remained steady at 9.6%, employment grew by 151,000 jobs. Economist had expected only 60,000 new jobs.
A disturbing note however was the fact that the number of employed persons actually dropped in the household survey. The employment rate is calculated using the household survey and the number of jobs created is calculated from the establishment survey. This is not the first time the two surveys are not completely in sync. The difference highlights the uncertain nature of the labor market right now.
Another piece of good news is that both the number of involuntary underemployed (part-time for economic reasons) and the number of workers involuntarily underemployed because of slack work declined in October. The number of workers who could only find part time work rose slightly, however. And the number of voluntary underemployed declined slightly. As the chart below shows, involuntary underemployed and slack work remain at high level.