Improvement to my "CLIP" IP Policy Idea

For reference please review my previous post about "Compulsive Licensing of Intellectual Property"... http://corpania.blogspot.com/2008/02/clip-compulsory-licensing-of.html Here's my newest improvement: "The Ten Million Users Threshold" In order to transition to my better system of Intellectual Property AND ALSO to prevent the problem of "being ahead of your time", modify the regular patent system to be "CLIP-Activated and EXTENDED for 10 years" as soon as an invention has 10,000,000 users. Might be a little tricky to define who is a "user" - (q.v. does a bus have one user, the owner, or all its passengers?). But in this way the inventors wouldn't be punished for being ahead of their time.  Douglas Engebart patented the computer mouse in 1970 but it didn't really take off until two decades later (after his patent expired). _____________________________________________________________ Here is the extended explanation of CLIP/CLIRP that I sent to Ian Lloyd, Professor of Information Technology Law at University of Strathclyde (who graciously gave me insightful feedback & encouragement). ----------- Proposal for Patent "CLIRP"                                                      March 5, 2008 ("Compulsory Licensing / Inventors Revenue Pools") By Dan Abrams http://www.linkedin.com/in/optevi         ABSTRACT Intellectual property must exist in some form to incentivize innovation and thus encourage progress. The current system of government-enforced monopoly is massively flawed because it literally precludes progress. The current system is not necessarily the best, nor is it only way to achieve the objective of progress. I have an alternate system that maximizes progress and enables profit-participation for inventors through the capability of what I call CLIRP "Compulsory Licensing Inventors Revenue Pools". My claim: Invention is primarily what makes life better for humanity over time, not business. Business is good primarily insofar as it encourages advancement for humanity. The current patent system may be good for business but not for advancement.   The goal of this proposal is to incentivize invention, discourage counterproductive litigation and end the suppression of progress. (Pretty ambitious, huh?) What this proposal does not attempt to address: "Simultaneous Invention" - which will always be a problem.   What is the purpose of the current system of patent protection? To encourage advancement by providing inventors with a profit incentive by means of a legally enforceable 20-year monopoly.   What are the motivations / positive implications of keeping the current U.S. patent system?   1) To reward advancement with a monopoly intuitively seems effective.   2) Giving the inventor total control over his/her invention intuitively seems fair.   3) Making it incumbent upon the inventor to profit from his own invention motivates not just the advancement itself but also its commercialization/popularization (so the idea is actually put in use by the public).   4) Making substantive changes to the current system would, at least initially, place a giant burden on the legal system. And such a burden would need to be significantly outweighed by the proposed solution.   What are the negative ramifications of the current system of patent monopoly?   1) A competitor that is threatened by a new invention has a motivation to purchase the patent rights for the sole purpose of killing its competition (e.g. hypothetically - old light bulbs that need to be replaced every year are likely way more profitable for a light bulb manufacturer than a newly patented light bulb that need only be replaced every 10 years.). It can do this by enforcing the newly acquired patent rights and thus preventing any use of that invention.   2) Businesses have a strong incentive to use their offensive patent rights to preclude competitors from any advancement that is remotely similar to their own. Instead of reasonably fighting over "rightful profits" companies actively quash progress with the help of the courts.   3) Businesses predicated upon IP have an incentive to be secretive and non-collaborative (which is antithetical to scientific advancement). This is particularly dangerous in the pharmaceutical industry where legitimate research data that are contrary to the product's claims of safety are intentionally excluded (q.v. VIOXX debacle where it was withdrawn from the market after defrauding the FDA and New England Journal of Medicine ). Secrecy in research can literally kill tens of thousands of Americans.   4) Inventors must also be entrepreneurs or else be otherwise beholden to businessmen to commercialize their ideas. This reduces the incentive to invent and further motivates smart and creative people to become businessmen instead of inventors. It shocks most people to learn that "Big Pharma" spends significantly more on marketing & advertising than it does on R&D. The skills and talents for invention do not completely match-up with those of a successful entrepreneur or businessman.   5) Patent infringement lawsuits are expensive and an unnecessary burden on the courts. The patent lawyers end up racking up limitless hourly fees on top of massive percentages of judgments and settlements. There is an incentive to use the patent monopoly as a pure business tactic (legitimate or not) to threaten to hinder the competition in order to extort lucrative settlements.   6) Most inventions that are patented are never commercialized to the point where the actual inventor sees revenue (let alone a profit above his costs of development and patent application).   7) Patent infringement lawsuits are litigated in courts where non-expert jurors have to "get up to speed on the basics of field" before the merits of the case can even be broached. This wastes time, money and legal resources while achieving less intelligent verdicts.   What is my solution? CLIRP ("Compulsory Licensing Inventors Revenue Pools")   The following is one possible implementation of the CLIRP concept. Of course, specific terms and aspects would be subject to political and legal wrangling as well as corporate diplomacy. I propose: for a 5 year window inventors applying for patents could select a traditional patent or a CLIRP patent. After that probationary term only CLIRP patents would be possible.   What is a CLIRP Patent? A CLIRP Patent confers upon the inventor 50 (fifty) years of profit incentive but not necessarily a monopoly. A CLIRP Patent confers upon the inventor the right to a monopoly only if no one else takes advantage of the "compulsory licensing" system.   How does the "Compulsory Licensing Inventors Revenue Pools System" work?   Synopsis: Companies put pre-set fees into "Inventors Revenue Pools" (annuities) that pay out to the appropriate, participating inventors. The Writers Guild of America's residuals system with binding arbitration would serve as a model.   BEFORE WE GO ANY FURTHER INTO CLIRP… UNDERSTAND A "POT-ODDS DISINCENTIVE SYSTEM"   I think the entire legal system should apply a "pot-odds disincentive system". The concept comes from the gambling theory of evaluating bets in terms of "positive expectation". That's when the structure of the bet is not in accordance with true odds. For example - If we were betting on the toss of a coin, a bet of a dollar to win a dollar would be considered fair because those are "true odds". If it's heads you win my dollar but if it's tails I win your ten dollars then that would be a positive expectation bet for me and terrible for you. Slightly more complicated: if I were to bet on a single roll of a six-sided die that it would come up "1" and you're betting it will roll anything else ("2", "3", "4", "5" or "6") then betting a dollar to win a dollar is a terrible bet for me and a positive expectation for you. But if I were betting a dollar to win twenty dollars then that becomes a desirable bet for me despite the fact that I will lose 5 times out of 6. Likelihood of winning doesn't necessarily dictate the positive expectation. For a bet to be worthwhile it need only give a greater payoff than the true odds would dictate.   How would this apply to the law? I think when civil judgments are being considered the "pot-odds" concept should be the guide. How much did you steal? What was the likelihood of getting caught? Multiply it out and that's the true odds payout. Then add a premium punishment on top of the true odds. In this way businesses couldn't calculate the value of breaking the law (e.g. illegally dodging taxes while betting on the low likelihood of getting caught or deciding to risk not going public about an unsafe product or even unsafely disposing of toxic waste because the fines aren't prohibitive). By having a pot-odds disincentive system businessmen (rational actors) will always have to "err" on the side of abiding by the law because breaking the law would always have a mathematically unbeatable penalty. ---- OK, back to the specifics of CLIRP… The Specifics of CLIRP   A company that did not invent or otherwise have inherent claim to a particular invention  may still use that invention, without permission from the inventor, so long as it abides by the certain strict rules of the CLIRP System. 1) That company not getting permission from the inventor must set aside the greater of 5% of the price or 10% of the profit of its good or service (by the definition of its business model that most favors the inventor) that will employ that CLIRP Patent in question to go into an "inventors' revenue pool" (IRP). The company would have to agree to "open the books" to independent auditors with a "pot-odds disincentive system"* that would penalize them at a premium above the likelihood of getting caught multiplied by the amount they attempted to improperly exclude from the IRP. This would encourage fair & honest accounting (not "Hollywood Accounting") for the inventors' share. 2) The inventors' revenue pool for that good or service is put in an escrow annuity account (in the safest/most conservative of financial instruments) that is regulated by a newly created branch of the USPTO called the "Inventors Revenue Pools Service". The annuity payments on a given product's IRP account would be distributed as defined by the inventors' relative shares in that IRP.  If your invention were used for 50 years (like the first TV) you would be handsomely rewarded but get a diminishing share of the pool as progress is made on your invention (e.g. maybe a miniscule share for non-tube TVs). 3) Distribution of shares in the IRPs: Every year, annuity payments from a given IRP would be distributed to all the inventors of record for that product. This would be determined initially by the corporation (based on standardized guidelines) but subject to binding arbitration much like the Writers Guild of America's screen-credit arbitration process. A newly created independent authority/organization (Inventors Arbitration Service) would evaluate the merits of inventors' contentions that they deserve a greater share than some other inventor. 4) The standardized guidelines would be established by an expert task force (blue ribbon commission) for each industry. There would be less incentive to "game" this system (compared to the current monopoly/exclusion system) because companies know they have to pay a set amount into the IRP so they shouldn't care as much about how it's split up. The current monopoly system has such vastly, varying extremes of outcomes that litigation is unavoidably a huge part of the game (q.v. the NTP / Blackberry lawsuit). An example of standardized guidelines for a new computer printer might take existing distributions of inventor shares (all necessarily publicly available on the internet) as precedent balanced against the company's (or ultimately the arbitrator's) assessment of the value of the new invention to that particular product. So if the printer previously used 24 CLIRP Patent inventions but now used a new wireless technology then maybe the floor for the new invention would be 4% and the ceiling would be 20% of that IRP. If one invention replaced another then that would be reflected in that inventor's share of that particular IRP. Distributions of IRP annuity payments (i.e. royalties) could be effectively paid to rightful inventors similar to the longstanding residuals process of the Writers Guild of America. 5) Of course, inventors and licensors could voluntarily agree to not use the CLIRP system. They could negotiate flat-fees or other compensation agreements however they see fit. The CLIRP system would only be used in the absence of a voluntary agreement. The CLIRP system prevents the prevention of progress and encourages voluntary agreements that are less burdensome than CLIRP's strict rules.   What are the benefits of the CLIRP system? 1) Encourages innovation with a longer profit cycle without "killing any progress". 2) Better inventions are more likely to be effectively brought to market because CLIRP-enabled competition doesn't bind the inventor to a particular company (a current variable which can only hurt the chances of the best product being best implemented commercially). In the current system, either the new invention is better or worse than what already exists. If it is better and the particular company with the monopoly is anything short of excellent then the chance of the best product prevailing are diminished. On the flip side, if the new product is worse but is superbly marketed then the success of the better product that already existed is therefore diminished in the current patent-monopoly system. This happens all the time with modern pharmaceuticals that need only be proven safe (by FDA's standards) and not necessarily more effective than the existing medications. In the US alone, there are untold billions wasted on new treatments that are demonstrably less-effective than older treatments & medications. 3) This ends the Diophantine-like problem of multiple inventions (variables) being present in particular products where a consumer must choose between product "A" that has inventions 1,2, 5,7,9 and product "B" that has inventions 1,3,4,5,6,8. Because the consumer currently can't isolate which inventions it prefers (because competitors have rival monopolies with their patents) better inventions are unjustly bound to worse ones yielding less-than-meritocratic results. 4) Businesses using the CLIRP system would have a known, quantifiable cost system for invention. This would be excellent for transparent, predictable accounting. 5) CLIRP reduces the risks and costs of lawsuits. There is also a de facto limit to any damages that could potentially arise from infringement. And that limit is already factored into their accounting (because the money has been set aside for the IRP). Potentially aggrieved inventors can only contest their share of an IRP and not prevent use. Business' costs of litigation should drop substantially if not tremendously. No factory would ever shut down over IP concerns. 6) There would be less incentive to develop "me too" technology that only nominally differentiates itself from a previous invention because the arbitrator's decisions about IRP share would be more savvy than a jury's. Consequently, more development would go into genuine breakthroughs that would stand the test of time. Think of 50 years of CLIRP / IRP share revenue for an AIDS vaccine as opposed to developing yet another version of Lipitor. 7) There would be a massive reduction of lawsuits and lessening the burden on the already clogged judicial system because of the new "IAS" arbitration process. 8) Due to the set IRPs, there is an incentive to be collaborative and build upon each other's ideas. An invention can't "make or break" one specific company. Competition would now ensure the best inventions have the best chance of success independent of a specific company. The inventors (and/or companies employing researchers & inventors) would get the maximum revenue directly attributed to the advancement itself (its share of an IRP) and not be unnecessarily tied to a specific company. Consequently, the best ideas can be maximally utilized because the playing field has been better leveled. (Of course the company holding the CLIRP patent would still have some competitive advantage because it would be getting revenue from its own sales plus its share of its competitors' IRPs whereas the competitors would be giving up revenue, in the form of IRP shares, to the CLIRP patent holder. But that is the whole point, to encourage innovation.) 9) Because of the creation of IRPs to be managed and potential IRP share buyouts, the banking sector may be a strong supporter for this proposal.   What are the downsides to the CLIRP system? 1) Trashes precedent and abandons decades of established legal theory (undoubtedly throwing a lot of patent litigators temporarily out of work or maybe into the newly created arbitration system). 2) Unclear how/if business would ultimately embrace/reject the CLIRP Patent system. 3) Creates a new government bureaucracy ("Inventors Revenue Pool Service" within the USPTO) to regulate the potential legion of Inventor Revenue Pools. 4) Creates a huge new bureaucracy of expert arbitrators for the IAS ("Inventors Arbitration Service"). Potentially creates an equally or more contentious situation in the arbitration system.       CONCLUSION:   The discussion and ultimate implementation of the CLIRP system (or something similar) will undoubtedly encourage more innovation than the current system. We stand on the shoulders of giants. We can't possibly climb as high if some shoulders are "off limits". CLIRP enables everyone to innovate and improve while still benefiting from a profit incentive/reward system (which I think is more meritocratic than the current monopoly-patent system).   CRITICISMS & RESPONSES     1) Why an annuity? Why not simply distribute IRPs at the end of every year?   With an annuity the benefits get paid out over many years which serves as a check on short-term gaming of the system and outright theft. If a disreputable company could distribute as it sees fit immediately then there would be little recourse if it were later proven that a particular inventor was wronged. Whereas with an annuity the payouts distributed in a given year would only be a fraction of the total worth which allows for subsequent claims to be fairly addressed. Also, with modern automated online banking, micropayments to many inventors is indeed viable (q.v. paypal or "Google Adsense" payouts to web affiliates).     2)  I invent a printer.  You sell computers and printers.  So you market your product like this: buy a computer, get a printer free.  Your valid accounting books show that printers are a net zero at best and a negative advertising cost at worst.  So you can therefore not pay me anything on my printer invention.  (similar with printer + ink business model).   This is indeed a problem. But it already exists in the current patent system so my CLIRP solution is at least no worse. Also, remember that my solution is such that the pool is based on the entire business model's revenue (including both the computer & printer in terms that most favor the inventor with the burden of proof squarely on the company to disprove the inventor's claims). Or better yet, the blue ribbon commissions could establish reasonable industry-specific standard ways of dealing with this issue of complex business models. Practically speaking, over enough time precedent normally handles the kinks in these kinds of issues.     3) I invent part of a printer.  I make 1/100th of a printer and so do 10 other inventors.  We each make a unique component in a basic way.  The company takes on the challenge of combining the patents together and in the mean time it invents a lot of good ways to combine them, reduce cost, eliminate components, and generally improve the product.  If the printer sells for $100 who is going to decide how much I make?    The company would still make the initial distribution based on blue ribbon commission's guidelines. If an inventor feels aggrieved he can take it up with the arbitration service. This sort of thing happens all the time with the WGA's credit arbitration system and most everyone sees the benefit of it over any other known alternative.     4) Risk vs Reward.  Because this puts the full incentive on the inventor without any risk, it severely punishes the business which tries to monetize the patent.  Say for instance that you invent a printer but the parts wear out in 13 months and the business has to take a huge accounting write off because you failed to test this aspect of the invention.  Are you required to pay back all of your royalties on the printers that are returned?   I disagree that there isn't any risk for the inventor. The inventor puts in time and resources into R&D when the idea is most risky (e.g. it could already be invented, the desired implementation may not be physically possible etc.). And I disagree that it severely punishes the business that tries to monetize the patent.  With CLIRP the business would now have a known cost structure to use the COMPULSORY LICENSING patent. They can and should always first try to negotiate a VOLUNTARY LICENSING agreement on whatever terms are mutually agreeable. The strict requirements of the compulsory situation are actually meant to discourage not making a voluntary agreement. The compulsory licensing aspect only ensures that progress can't be stopped by legal force of the government.   Regarding the business losses, this is an interesting point. I expect the blue ribbon commissions to address this. But my initial thoughts are: 1) Losses could indeed be accounted in some way against revenue for the pool or 2) Losses could also simply be "a cost of doing business" and not used to punish the inventor because the business losses could easily be the fault of numerous people other than the inventor.      5) Simultaneous invention.  This subject is really important in internet patents. As soon as something becomes self evident another flurry of spin off ideas occur as inventions. Typically these involve combining the new concept with other existing concepts in novel ways.  But when one million people use Facebook every hour more than 1 may have the same idea.  Your idea seems to imply that the first one to file the patent can buy the biggest couch and bank account.    This is also a problem already extant in the current system. So again my solution is at least no worse. But my system provides a much better remedy, the IAS (Inventors Arbitration Service). The IAS would be way better at resolving these issues compared to the absurdly expensive and slow court system (q.v. the WGA's successful credit arbitration system).     6) Why have any profit incentive at all? Why not be communists like the "Open Source" movement?   "Open Source" requires that the innovation not be monetized and that revenue can only be earned from "service contracts". This perversely encourages poor innovations that require lots of service (and thus more revenue). This conflict of interest is also antithetical to optimal progress. 7) With the whole new IAS system wouldn't there be more litigation?   I really don't think so. Part of the problem with regular litigation is how absurdly slow it moves. It can take years for a lawsuit to get to court and a decade to finalize. In the meantime progress is stifled and myriad issues become moot. Professional arbitration is much faster, especially when there are specific, predetermined guidelines. Binding arbitration also doesn't have to deal with unlimited appeals (that divert money & resources to the legal community instead of the inventors & businessmen). The WGA's credit arbitration system works very well as a model.   8)  Also, it doesn't seem this system cures the main problem with patents today (in the mind o the patent holders), and that is that Indian and Chinese companies are happy to ignore these patents, and as their industries get more and more capable of producing patented products, the whole patent system stops being so useful. And in 50 years, US purchasing power could be so low that threats of embargo and boycott should be pretty much meaningless. On the whole, I basically agree. But as those countries get richer and if CLIRP indeed makes the legal licensing possible and easier then I think they are more likely to "play by the rules."     9) Wouldn't CLIRP encourage people to throw their own incrementally different patents into the pool, so they can wring profits out of it? Patent for patent's sake, heck if it's useful. Now, if a patent isn't used, it doesn't earn money. Your system would seem to encourage deadbeats, no?   I think you may not appreciate how rampant that disgusting behavior is within the current patent system. Because such patents can get injunctions to stop competitors the incentive is in fact higher in the current system than it would be under CLIRP. Also, I think my system's arbitration service would be considerably better able to handle complicated matters compared to undereducated jurors.     SPECIAL THANKS FOR THE CRITICISMS GO TO: Justine Coates, Marta Almli, Timothy Sharpe, and Chris Robbins.   And thank you, dear reader, for considering this entire proposal. Good karma to you.   Regards,   Dan Abrams   CC: Jim Garrison, Jane C. Ginsburg, Dean Kamen, William M. Landes, Senator Patrick Leahy, Lawrence Lessig, Richard C. Levin, Stephen A. Merrill, Robert P. Merges, Steve Perlman, Richard A. Posner, Mark Webbink. _____________________________________________________________