Today, the U.S. Court of Appeals for the Federal Circuit threw out the 25% royalty rate rule of thumb for calculating damages in a patent infringement case (see the Wall Street Journal “Court Changes Law on Patent Damages“). The court said the 25% rule of thumb was arbitrary and that damages needed to be tied to a fact based reasonable royalty rate. That fact based rate, obviously, needs to be based on the value of the patent to the patent licensee – and gets us back to that pesky need for good valuations of intangible assets.
As OceanTomo’s in-depth analysis of the case notes, “Today’s decision follows generally a trend by the Federal Circuit to require a fact specific nexus between a claim for damages and the patents in suit.” It also puts more pressure on get the valuation issue right.
FYI — from Bruce Bartlett The Very Real Threat of a U.S. Debt Default. Bruce is not exactly a flaming liberal (having worked for both Ron Paul, Jack Kemp and Ronald Reagan and having served as a columnist for Forbes).
This is something that I have also been privately talking about for a couple of months. I watched the drama unfold on the debt ceiling in the mid-1990’s when I was working for a financial newsletter. We almost crashed the US economy then. It might really happen this time.
Defaulting on the US debt would very far reaching consequences as it would wipe out one of the largest intangible assets America has — our creditworthy status. This drama will play itself out in the next few months. Stay tuned.
Apropos yesterday’s posting on structural versus cyclical unemployment, here is an interesting posting by Catherine Rampell in the Economix blog of the NY Times — The Jobs They Are A-Changin’:
A large fraction of displaced workers who have found new jobs have had to switch careers, and most of those career-changers have downgraded to a lower-paying job, according to a new report from Rutgers’s Heldrich Center for Workforce Development.
The report, by Jessica Godofsky, Carl Van Horn, and Cliff Zukin, follows the situation of unemployed individuals originally interviewed in August 2009 and then re-interviewed in March 2010 and November 2010. Disturbingly, only a third were employed by last November. Of those 40% found work in a new field. And almost 70% of those who found work in new areas took a pay cut.
By the way, only 22% percent of those who found work in other fields had taken a class or re-training course.
For the currently unemployed, the meaning of the term structural unemployment has a different meaning. Economists use the term to signify a structural shift in the labor market — from one set of jobs to another. For the unemployed, that structural shift means something else: downward mobility.
That also means a loss of workers skills and a waste of human capital (intangibles assets). And a diminution of the American economy.
Let us begin this New Year with an old debate. One of the ongoing debates in economics right now concerns the nature (and causes) of the persistently high rate of unemployment. The question is whether the unemployment is cyclical or structural. In other words, is the high unemployment rate due to a lack of demand. In which case hiring will pick up once consumers and businesses start spending and investing again. Or is the high unemployment due to structural changes in the economy. In this case, old jobs have been lost permanently and new jobs are being created and the unemployment rate therefore is a function of the mismatch between the old skills of the unemployed workers and the new skills needed in the new jobs.
This has been an ongoing debate as the recovery seem to have failed to take hold in the labor market (for example, see my posting from last summer). Just recently, James Surowiecki’s latest piece in the New Yorker – “The Jobs Crisis” provided an excellent summary of the debate.
The difference has large implication for economic policy. If cyclical, the solution is to stimulate demand. If structural, then a different set of policies is called for.
My answer to the question as to whether it is cyclical or structural is yes. It is both. There is a huge demand component to this recession. Financial markets froze; consumer spending and business investment plummeted. No one can or should deny that. Thus, steps to stimulate economic growth were necessary, and apparently successful.
But every recession in the past three decades has been structural. Jobs were permanently lost in some sectors and new jobs created in others. As I’ve stated before, the recession of the early 1980’s was the first recession of the I-Cubed Economy where workers were not placed on temporary layoff but permanently fired. Companies and workers were “downsized” rather than laid-off. Involuntary part-time work was the response of people downsized.
This was part of the switch away from the industrial economy. In the industrial economy, temporary lay-offs were the way of buffering the labor force from cyclical downturns. Workers were kept around for the next upturn — with either union-based or government-based unemployment payments to maintain family income until the recall.
In the I-Cubed Economy, that process has disappeared. Workers have to find new jobs — often in new industries. Cyclical downturns now lead to structural changes.
So the argument about either/or is misplaced — and a dangerous diversion. It has become a rationale for doing nothing. One of the flaws in the debate is assumption that there is little governments can do to correct structural unemployment. Or, as Surowiecki notes, “if unemployment is mainly structural there’s little we can do about it: we just need to wait for the market to sort things out, which is going to take a while.”
I strongly disagree. [As an aside, I should noted that Surowiecki’s general thesis is that the structural argument has been used as an excuse for not taking action on the demand side — which I strongly agree with.]
We need to confront the need for new policies — not just argue the either/or. When you think of the situation as a both/and then we can begin to get a grip on the problem. That means adopting both stimulus policies to deal with demand and labor market policies to deal with the structural shifts.
Unfortunately, the labor market policies of today continue to be geared toward the labor markets of the industrial age. For example, we provide government support for unemployment insurance and re-training once people lose their jobs. But we have few programs to upgrade workers’ skills and keep them competitive so they don’t lose their jobs in the first place. That is way I’ve been advocating a knowledge tax credit, and tying to unemployment benefits to job sharing and worker training.
There are numerous other policies I’ve mentioned before, including these from a paper I wrote a decade ago (Making the Global Economy Work for Every Worker: An Agenda for Expanding the Winners’ Circle:
• Building a rapid re-employment system. The Workforce Investment Act of 1998 made a promising start toward turning the crazy-quilt of government re- employment and adjustment assistance programs into a comprehensive system. Government policy should take the next steps to: 1) directly tie the unemployment insurance system to the training program in a comprehensive re-employment framework and 2) replace the multitude of specialized adjustment assistance programs with a broad- based adjustment program. Our goal is a seamless system driven by choice, competition, and information. This system would give workers information about training and education opportunities, vendors, and the job market, letting them make informed choices.
• Creating a lifelong learning system. The New Economy has blurred the distinction between learning and work. Skills are no longer something taught once and for all. To succeed, workers must constantly adapt their abilities and knowledge to new employment circumstances and technologies. To meet this need, we must develop new public-private systems to give workers continual opportunities to learn and upgrade their skills, regardless of their current job status. Government’s role should be to facilitate and leverage private resources to ensure both workers and companies get the tools and skills they need to prosper in this new environment.
• Promoting worker empowerment and ownership. Workers need more control over their jobs, their financial resources, and their futures. We must foster true worker empowerment in the workplace through incentives, educational activities, and new labor laws. We must revise the pension and health care system to give individuals more control over these important parts of their lives. We should strive to give workers a greater financial stake in their companies and the health of the New Economy. And we must help all Americans share in the prosperity by helping to build wealth and assets.
I’m sure there are many, many more good ideas out there as to how to address both cyclical and structural unemployment.
But simply saying the market will eventually sort it out is unacceptable. In the I-Cubed Economy, people are our most important asset. And accepting high unemployment simply means throwing that asset away. That is not a recipe for either economic growth or market efficiency. Markets thrive where they make the most productive use of their key assets; markets fail where they waste those assets. And right now, the labor market is wasting key assets and thereby failing.