The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 16, Issue 33: August 19, 2014

1. Patent Trolls: Their Threat to U.S. Innovation—and the Solutions
2. Lessons from Detroit’s Fiscal Mess
3. Iraq Intervention Sparks Sunni Insurgency
4. New Blog Posts
5. Selected News Alerts

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A menace is threatening technological innovation in America: the menace of patent trolls. Their modus operandi: Patent trolls make money—big money—through litigation, rather than by creating and selling products or services themselves. Typically, they acquire an overly broad patent and then lie in wait as the market for the patented product or service develops and becomes lucrative. Then they threaten legal action against firms they claim have violated their patent rights, often the most innovative companies in America. The cost to the U.S. economy is staggering, as William J. Watkins, Jr., explains in his forthcoming book, Patent Trolls: Predatory Litigation and the Smothering of Innovation.

From 1990 through October 2010, lawsuits initiated by patent trolls destroyed wealth valued at more than $500 billion. One cause of the problem is that trolls have discovered a jurisdiction where it’s especially desirable to file a patent lawsuit: the Eastern District of Texas, where the local rules are plaintiff friendly, the rocket docket keeps defendants on their heels, and an undereducated jury pool leads to Texas-sized damage awards (judgments in the hundreds of millions of dollars are not unheard of). But a more fundamental problem that patent trolls exploit is the outmoded nature of the U.S. patent system: the United States Patent Office issues patents for a uniform term of 20 years, even though the pace of technological innovation is faster in some industries than in others.

How might we slay the patent troll and thereby spark a renaissance of innovation? Reducing the patent term in sectors with shorter product lifespans, such as computer hardware and software, would help by denying trolls the use of older patents to shake down new inventors, Watkins explains. In addition, policymakers should consider creating a patent court system that would weed out junk claims. Watkins also recommends that we learn from the example of Europe, where laws restrict the number of product categories eligible for a patent. If and when lawmakers and courts adopt the numerous sensible reforms Watkins offers in Patent Trolls, the U.S. economy will become a much more welcoming place for the world’s most creative and productive minds, enabling the pace of innovation to quicken and greater prosperity to follow.

Patent Trolls: Predatory Litigation and the Smothering of Innovation, by William J. Watkins, Jr.

Exposed: How the Explosion of Patent Litigation Threatens the U.S. Economy In the New Independent Institute Book (Bloomberg BusinessWeek; Yahoo! Finance; others, 8/18/14)

Audio Interview: William J. Watkins, Jr. on Patent Trolls, (XMSatellite’s “Innovation Navigation” 6/18/14)

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On Thursday a U.S. judge will begin reviewing a restructuring plan for the largest municipal bankruptcy in American history—Detroit’s. The topic is especially near and dear to the hearts and pocketbooks of the city’s taxpayers and public workers: The Motor City has accumulated up to $20 billion in debt, including $2 billion in unfunded pension liabilities, of which $1.25 billion are owed to police and firefighters. But this case has repercussions that go far beyond Detroit, according to Independent Institute Senior Fellow Lawrence J. McQuillan.

Regardless of how U.S. Bankruptcy Court Judge Steven Rhodes rules on the restructuring plan, Detroit’s travails have already taught public workers across the nation a valuable lesson—or at least those workers who realize that old assumptions may no longer apply. In December, Rhodes ruled that Michigan’s constitution provides no constraints on the bankruptcy process. In other words, city and county workers can no longer count on their pensions remaining intact, even if they are fully vested in them. What does this mean for workers and taxpayers? McQuillan offers his answer in an op-ed for USA Today.

“First, it means that more transparency is needed in public finance, both day-to-day and in those rare occasions when bankruptcy may be looming,” McQuillan writes. “The Detroit experience also means that public employees, who routinely have lobbied for oversized pensions local governments can’t afford, need to realize that defined-benefit pensions may not be such a good deal after all.” Employees would benefit from switching to defined-contribution plans that are beyond the reach of municipal bankruptcy courts. Communities would also benefit from such a switch, because revenues would become available to fund other projects, including the servicing of older defined-benefit plans. The case of Detroit—which boasts a city-owned art collection valued at up to $4.6 billion—also highlights the need for taxpayers, creditors, and public employees to insist that all of a city’s assets be considered for liquidation during bankruptcy proceedings. “Selling nonessential government assets and switching to defined-contribution pensions would ensure that all earned benefits are paid and secure retirement systems exist in the future,” McQuillan concludes.

Detroit Bankruptcy Reveals 401(k)’s Virtues, by Lawrence J. McQuillan (USA Today, 8/18/14)

Soaring Pension Costs Devour School Budgets in California, by Lawrence J. McQuillan (The Beacon, 6/12/14)

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Should the Obama administration have intervened earlier to thwart the Sunni insurgent group known as the Islamic State in Iraq and Syria (ISIS)? Republicans such as Sen. John McCain and Democrats such as former Secretary of State Hillary Clinton have said as much. They’ve claimed that had the White House ordered the U.S. military to intervene earlier, while the group was focused on Syria, it wouldn’t have become such a formidable threat in Iraq. But these and other hawkish critics of the White House seem to have forgotten a crucial fact. They fail to mention that the militants originated in Iraq before they spread into Syria. ISIS owes its existence to the U.S.-led invasion and occupation of Iraq in 2003, according to Independent Institute Senior Fellow Ivan Eland.

“George W. Bush’s original interventionism has led to the Islamist radicalization of both Iraq and Syria,” Eland writes in the Huffington Post. “More U.S. intervention—as is happening now with air strikes to help the Kurds against [ISIS] in Iraq—will only lead to more of the same.”

Eland criticizes President Barack Obama’s recent decision to attack ISIS. The president should not have gotten involved, but had he flexed U.S. military might earlier, the insurgents likely would have become larger and better armed. “If Obama had poured greater amounts of weapons to more moderate opposition groups in Syria, ISIS would probably be even stronger today,” Eland writes.

Blowback from Further U.S. Intervention in Iraq, by Ivan Eland (The Huffington Post, 8/4/14)

No War for Oil: U.S. Dependency and the Middle East, by Ivan Eland

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From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language website here and blog here.

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