THE BLOG
03/18/2010 05:12 am ET | Updated May 25, 2011

Trying To Strangle American Innovation

America is a far more creative place than other nations largely because it relies on "small entity" inventors -- independent inventors, small companies with fewer than 500 employees, research institutes, and universities -- for its major innovations. Other countries, such as Germany and Japan, rely on large firms with more than 500 employees, called "large entities," for their major innovations.

This difference is of vital importance because what large entity and small entity inventors create is startlingly different. Big corporations seek marginal improvements. Small entity inventors seek transforming breakthroughs. Now a handful of large, U.S.-headquartered Big Tech corporations are attempting to thwart economic competition from these small challengers by lobbying Congress to weaken U.S. patent laws.

The arithmetic of innovation explains why the big guys are worried. The Small Business Administration reports that small entity inventors receive 13 times more patents per employee than the larger enterprises. Their patents are more significant as measured by citations, originality, and generality. They are also more closely related to breakthrough technologies in biotechnology, pharmaceuticals, medical devices, information technology, communications, semiconductors, computer hardware, and software. Far more so than large entities, small entities are more prolific in their creativity.

A partial list of breakthrough innovations by small firms includes biosynthetic insulin, electronic spreadsheets, personal computers, digital recording and sound, Web TV, high-resolution CAT scanners, microprocessors, optical scanners, pacemakers, portable computers, and soft contact lens, among thousands of others. These innovations changed our lives for the better, expanded our national wealth, and created millions of new jobs. Many of these inventors, moreover, are still actively creating.

According to the National Science Foundation, of the 30,000 firms that made expenditures for research and development in 2000, almost half of the expenditures came from 167 giant corporations with 25,000 employees or more. The results produced by these giant corporations were greatly different from those of the small entity inventors. The big corporations focused on modest, predictable product improvements and new uses for their existing products, while small firms focused on breakthroughs. Greatly simplified, small firms make breakthroughs and large firms produce incremental improvements.

Herein lies the problem for large corporations everywhere, what economists call "creative destruction." For leaders of most large entities, creative people working either independently or at small firms, private research institutes, or universities are their worst nightmare.

"Innovation is a hostile act as it threatens the status quo and those who benefit from it," wrote Paul Heckle, an inventor and a co-founder of Intellectual Property Creators, an independent inventors' group. Indeed, an independent inventor can devastate an entrenched interest almost overnight.

One of the most startling examples of such "creative destructive" comes from the late 1970s when Apple co-founders Steve Jobs and Steve Wozniak invented the personal computer and basically destroyed IBM's typewriter business, as well as dozens of other industries. Michael Dell, working out of his room at the University of Texas with a girlfriend assembling computers, invented a business model that enabled his tiny company, Dell Computer, to overtake IBM and Compact as the world's largest computer maker, in the process making him a multi-billionaire. A college student named Fred Smith wrote a thesis on how to create a "spoke and hub" overnight distribution system that was faster and more reliable than the U.S. Postal Service, raised financing, created Federal Express, and also became a billionaire. Invention is the magic of which such dreams are made.

Is it any surprise, therefore, that large corporations are now in trying to persuade Congress to weaken U.S. patent protections for small entity inventors? The heart of American innovation is a patent, which gives an inventor the exclusive right to the use of their creation for a set time and the means in federal courts to defend that right.

To weaken the economic challenge to them that a patent makes possible, a handful of large technology corporations led by Cisco, Intel, Microsoft and IBM are pushing legislation in Washington that would enable infringers to tie up patent holders in expensive and time-consuming litigation for almost the entire 20-year life of their patent. The law would also reduce what infringers would be forced to pay patent owners if a court finds them guilty, and, also, they want to change the 220-year U.S. rule that awards the patent to the first-person-to-invent. The proposed legislation would require the Patent Office to give the patent to the first-person-to-file -- a beat-the-clock race that would inevitably lead to much mischief, confusion and injustice.

The Big Tech corporations' political campaign is dangerous to inventors because patent law is one of the most complex areas of American law, and most Members of Congress know little about it. Moreover, most small entity inventors are unaware of the proposed changes, few have Washington lobbyists to present their case, and almost none make the deep-pocket political contributions that the Big Tech advocates do.

If Big Tech succeeds in Washington, a greatly weakened patent system is likely to destroy American innovation and invention-led job creation in the next decade just as banking deregulation a decade ago spawned a national financial collapse eight years later.