An IP Tax, before It’s Too Late

While I was at Netroots Nation, I thought a lot about how the US could tax Intellectual Property. When I saw Honeywell’s CEO claim he should pay no taxes I thought about how much his tech relied on protecting patents. Of course, I was prepping for my panel on tax cheat Apple, which is in a big fight with Samsung. And Microsoft’s earnings last year largely stemmed from tax arbitrage, yet it has no product if people can just copy its software for free.

America’s companies don’t want to pay their fair share to America anymore. And yet most of our most successful international firms–particularly the software and film and ag and drug companies–rely on us to police their intellectual property rights. Having the global bully backing these companies’ intellectual property rights is a cornerstone to their business.

Case in point:

China has overhauled parts of its intellectual property laws to allow its drug makers to make cheap copies of medicines still under patent protection in an initiative likely to unnerve foreign pharmaceutical companies.

The Chinese move, outlined in documents posted on its patent law office website, comes within months of a similar move by India to effectively end the monopoly on an expensive cancer drug made by Bayer AG by issuing its first so-called “compulsory license”.

The action by China will ring alarm bells in Big Pharma, since the country is a vital growth market at a time when sales in Western countries are flagging.

As Yves notes, this is all totally legal, and probably a way for China to start challenging our IP on drugs more generally.

The intriguing part of this is that this Chinese initiative is completely kosher under WTO rules when life-saving medicines are too costly. Given the high prices put on certain AIDS and cancer drugs in dollar terms, they’re the perfect targets for an action like this. India gave a compulsory license for the manufacture of Nexavar which is used to treat kidney and liver cancers. China appears to be using the compulsory license threat to improve its bargaining leverage for some of the newer HIV drugs, such at Gilead’s tenofovir. China was excluded from a deal with a group of nations to buy tenofovir by paying cost plus a small royalty. Gilead has offered more concessions after the media leaked that China was considering implementing compulsory licensing.

Given that China has repeatedly shown it does not have a lot of respect for intellectual property, and it already makes many active pharmaceutical ingredients, one also has to wonder whether this program will serve, intentionally or by accident, to embolden companies that already make the ingredients to start selling bootleg drugs on the side.

It may already be too late–in spite of Obama’s announced “pivot” to Asia, we’ve kept our resources in the Middle East losing another decade long war there. China knows we’re not going to push on IP too aggressively (even ignoring the shaky dollar).

Nevertheless all these wars and all this bullying is really serving the purposes of the IP holders, not the average American. And yet, those IP holders don’t want to pay their fair share–or anything, really–to support all this global bullying.

Shouldn’t we tax those companies relying on us to enforce their IP?

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35 replies
  1. Phil Perspective says:

    When ever a dick(and union-buster) like the Honeywell CEO whines about having to pay taxes, this is the exact argument that should be used against them. We’ll never hear it from CNBC, but I’d love for Chris Hayes to somehow have this asshat on, well .. the Honeywell CEO might end up thinking of this:

    http://youtu.be/17lkdqoLt44

    Except for the turning on, of course.

  2. Phil Perspective says:

    And I just Tweeted this to Honeywell’s official Twitter handle, especially since, in trying to find Honeywell’s Twitter, I found out Cote is supposed to be on CNBC tomorrow(later today here on the East Coast). ;-)

  3. ondelette says:

    Gee, wonderful idea. How about a tax on blogging, by the word? After all, some bloggers are successful, and they can be assholes. So tax the hell out of them and don’t worry about whether or not that characterization really is representative or not.

    What makes you think that all the owners of IP are big companies like Honeywell, or big assholes like the Honeywell CEO?

    This highly resembles EFF, which takes money from people on the notion that it is fighting the good fight to protect privacy and preserve internet freedoms. Then it launches a project to neuter patents, because it claims that there are too many patent trolls out there and it should revere a model similar to CopyLeft. But even Richard Stallman says that patents and trademarks are too different to port the model from one to the other.

    Wonderful. So if you’re a small person working to protect your intellectual property and get back out of unemployment by starting from scratch, you can thank a bunch of stupid ranters among the blogging community who don’t know their asses from their elbows around IP and go off on rants that do nothing but help the high-tech giants, because of the model in their minds of what IP is, which isn’t at all accurate but they’ll weigh in on it anyway.

    You are totally ignorant but don’t let that stop you, just mouth off on any and all subjects and don’t worry about the damage you cause.

    Let’s look at the list so far for the last year or so, shall we?
    First to file. Who does that help?
    Challenges with burden of proof on the patent holder. Who does that help?
    “Anti-troll” measures designed to allow people to amalgamate IP from various patented techniques and declare it new and nix infringement liabilities. Who does that help?
    Tax on IP. Who does that help?

    If you answered that all of them slant towards big tech against garage projects — towards Google, Apple, Microsoft and against Joe Inventor and founder looking for funding — you win the prize. Only it’s a little bit worse than that. With tools like Innov-8 and the like out there (similar titles exist from Carnegie Mellon and PARC), the real winners are the companies which are looking to expand their base and sitting on lots of contractor money — Dow, IBM, defense and intel contractors, etc.

    Feels good to be supporting them don’t it, emptywheel?

    Idiot.

  4. Rayne says:

    @ondelette:

    Ad hominem isn’t necessary. Attack the idea.

    —–

    A caveat: I am not a tax accountant or tax attorney. I could be wrong in my suppositions. Please offer guidance if I’m incorrect–thanks.

    Some intangible assets are taxable, goodwill being a perfect example. Why is IP not considered taxable when it contributes to goodwill? One could make the case that IP is a component of goodwill, and therefore taxable already at key times like the sale of a business when the profits from sale of goodwill are realized and distributed.

    This means that small business owners are already taxed on IP upon certain events, if IP = goodwill.

    IP may already be taxable upon events like a sale; if a patent/copyright is sold, the proceeds may be taxed.

    This brings us back to a problem of equity. Small business owners are more likely to pay a disproportionate amount of taxes on a sale of a business that includes IP; they’re more likely to participate in an acquisition rather than a merger. A merger may be far less likely to create a taxable event if shareholders/owners do not receive a distribution deemed income. Larger corporations can afford counsel to structure mergers in such a way that distributions are avoided, unless a distribution is preferred. It is simply not fair by virtue of size alone business shareholders/owners avoid paying a fair level of taxes.

    Ditto for sales of individual patents/copyrights; larger businesses may have means to avoid taxes on proceeds from such sales.

    Large businesses may also discourage innovation by patent/copyright hoarding–the same intangible assets they can shelter from taxation. Not every patent/copyright held by large corporations is one in which the business has invested research; an accumulation of patents/copyrights may be a preemptive move against competition. (This may have happened in the case of fuel cells, for example, keeping cheaper technology from reaching commercialization where it can compete with existing energy providers.)

    Identifying an earlier point at which to tax these accumulated intangible assets might discourage hoarding. If other businesses, particularly smaller businesses, can access patented/copyrighted material more freely instead of being thwarted by hoarders, we might see more innovation. This isn’t a tax revenue increase per se, but an improvement for our national interests.

    To recap:
    — Businesses may already be taxed on IP in the form of goodwill, but only upon certain events like sale of a business;
    — LARGE business can afford to structure events in a way that IP may not be taxable, avoiding equitable taxation;
    — There are other compelling interests besides tax revenue to be considered.

    How do we make taxing IP more equitable and more timely than it already is, while encouraging innovation?

  5. Snarki, child of Loki says:

    Okay, copyright idea. Let’s get back to copyright terms that the founders of the USA would have recognized: 14 year term, free of charge. That covers bloggers.

    Extend to 28 years? Pay a fee…$10K? Worth it for books, blogs/tech notes/etc have pretty much expired in usefulness by then.

    After that, extend in 7 year increments, with the price going up exponentially.

    Hey, if Disney wants to hold onto Mickey Mouse in perpetuity, fine, but they’ll have to pay for the privilege. This helps balance between private profit and public benefit, which is what copyright is *supposed* to do.

    Patents haven’t gotten the “to INFINITY and BEYOND!” treatment in time-extensions that copyright has, so needs a different “tax” mechanism.

  6. emptywheel says:

    scribe notes via email:

    ou seem to be forgetting the unfolding MegaUpload/Kim DotCom debacle, when it comes to the whole IP thing. You’ll recall the massive counter terra-level raid and all the draconian conditions placed on Mr. Dotcom and the near, if not total, destruction of his business.

    You should also recall that in the weeks and months leading up to the raid MegaUpload was engaged in both the preparations for an IPO (as I recall it, the accountants were already doing due diligence) and deep negotiations with Hollywood over their continuing to use and expand their use of the MegaUpload facility. It seems the Hollywood negotiations broke down shortly before the raid, over Hollywood wanting more and DotCom not willing to give it.

    So, there we have the USG called in to, and actually going ahead to, thug up on something Hollywood decided was a threat a couple weeks after they wanted to do business with him/it.

    Reminds me of something that one of my NYC Chinese-American friends told me about: seems a merchant in Chinatown was one of many getting abused by teenage Tong wannabes – shakedowns, busting up stores and the like. This merchant had a lot of standing due to his long involvement in the community, etc. Breaking a “rule” of the community, he called in the police and had the wannabes arrested.

    Families all have a big hue and cry and no one is happy, not the least the guys in jail. Bail hearing comes and, lo and behold, when the judge is setting bail for the knuckleheads, there’s our merchant and complaining witness to post it for them. Message: “I can put you into jail, and I can get you out of jail.”

    Of course, the merchant in that story also paid his taxes and didn’t complain about them.

  7. emptywheel says:

    @Snarki, child of Loki: Well, we should do that too. But my point is just that multinationals are usually selling IP in countries that could very easily either counterfeit it or reverse engineer it. The big reason they don’t is because we’re a military threat around the world. But these same multinationals use their structure to avoid taxes.

    That’s got to stop. Right now a bunch of people who aren’t benefitting from the military structure around the world are paying for it for the multinational IP owners.

  8. lorac says:

    Wow. Allow me to clear up a little confusion. Patents are rights to exclude others from practicing the claimed invention. Patents are national – NOT international. A U.S. patent is only valid in the U.S. and its territories. Patents are enforced in civil courts in actions taken by the patent owner.

    TRIPs, the international treaty that controls IP and that is a requisite of membership in the WTO, was widely perceived as being friendly to the developed nations and unfriendly to less developed nations. India has a requirement that a patent be worked, i.e. used in the country. The compulsary license, which was controversial, was based on a failure to work the patent. The U.S. in particular the DOJ forces many compulsary licenses based on anti-trust concerns.

    The changes in U.S. patent law, such as first inventor to file (a bit different than first to file) while perceived as less friendly to individual inventors, actually start to align our patent law with the rest of the world. In many fields, patent applications are routinely filed in other countries, meaning that companies / individuals / universities are already treating the system as a first-to-file. Inventors in other fields will have to adjust. IMO, there is much in the new patent law that is awful, but first inventor to file is not one of them. (I am a patent lawyer in biotechnology, which already acts as if the U.S. is a first to file system.)

    I’ll throw out a bit of a red herring just for amusement. In the U.S., state institutions (e.g., state universities) cannot be sued for infringement of patents even if they are making money off them. This is because of the 11th Amendment that prohibits suing a State in Federal court unless the State agrees. Yet, state universities can sue for infringement – and they do sue. Congress has tried several times to fix this issue and failed. It may be a violation of TRIPs to have a class against which no enforcement is possible. I personally have heard University officials “brag” about their right to infringe with impunity.

  9. Rayne says:

    This:

    “China knows we’re not going to push on IP too aggressively…”

    China knows this from the example of film industry IP alone. China is the single biggest pirate, and yet SOPA/PIPA legislation was written in such a way that it negatively impacts the U.S. public, demanding the government provide protections the industry could be paying out of their profits.

    Yes, the industry is quite profitable, in spite of piracy; they could pay for different mechanisms to prevent copying of their content, but they refuse to do so.

    The film industry insists it’s the public’s problem by using manipulated statistics, claiming job losses mount if piracy isn’t stopped by means including reduction of our access to internet resources. But if they are profitable now, without these additional jobs, without creating additional IP products, why would they increase hiring? What;s to prevent the industry from increasing prices on content because they’ve shut out all other competition, legal and illegal alike? But we’re supposed to take these manufactured numbers on faith and simply circle the wagons, cough up more tax dollars, reduce our personal freedoms, and protect their IP.*

    Meanwhile, neither the film industry nor elected officials take an aggressive stance targeting China’s piracy. Why is that?

    Don’t get me started on the other countries left untargeted, like Russia…
    ________

    * Should point out the acquisition of Summit Entertainment by Lionsgate Entertainment earlier this year, for $412.5 million. Summit owned the IP rights to the Twilight movie saga, which to date has earned $2.5 BILLION in ticket sales. Some of the acquisition was paid for by issuance of new debt (notes by Lionsgate) and cash on Summit’s books–money that might otherwise have been taxed if left sitting. Now it’s distributed into a less profitable entity, and in such a way that the taxes may be lower than the amount that would have been assessed on Summit’s cash. This marriage is not going to make more movies, even though the tax burden to both firms has been reduced.

    And they need us to protect them. Hah.

  10. Frank33 says:

    @emptywheel:
    To the public, Kim Dotcom is the Perfect Computer Pirate. But it is governments that rape, pillage and plunder

    “By all estimates, Megaupload.com is the largest and most active criminally operated website targeting creative content in the world,”

    The US Government siezed all his property and put him in jail. The real reason Hollywood ordered the Obama Administration to target Megaupload was because of a music video, criticizing RIAA.

    Yet the indictment seems odd in some ways. When Viacom made many of the same charges against YouTube, it didn’t go to the government and try to get Eric Schmidt or Chad Hurley arrested.

    It’s also full of strange non-sequiturs, such as the charge that “on or about November 10, 2011, a member of the Mega Conspiracy made a transfer of $185,000 to further an advertising campaign for Megaupload.com involved a musical recording and a video.” So?

    The money probably paid for a video that infuriated the RIAA by including major artists who support Megaupload. Megaupload later filed claims in US courts, trying to save the video, which it says was entirely legal, from takedown requests.

    The brilliant attorneys at the Dept. of (In)Justice) have a little pirate in themselves, such as prosecutorial misconduct, in this prosecution.

    It turns out that the US judge handling the case has serious doubts whether it will ever go to trial due to a procedural error.

    “I frankly don’t know that we are ever going to have a trial in this matter,” Judge O’Grady said as reported by the NZ Herald.

    Judge O’Grady informed the FBI that Megaupload was never served with criminal charges, which is a requirement to start the trial. .

  11. kathleen says:

    ot
    Glenn Greenwald word kicken warmongers asses
    http://www.salon.com/2012/06/12/what_might_cause_another_911/singleton/

    Today’s defense of President Obama from Andrew Sullivan is devoted to refuting Conor Friedersdorf’s criticism of Obama’s drone program. Says Sullivan:

    What frustrates me about Conor’s position – and Greenwald’s as well – is that it kind of assumes 9/11 didn’t happen or couldn’t happen again, and dismisses far too glibly the president’s actual responsibility as commander-in-chief to counter these acts of mass terror.

    This is exactly backward. I absolutely believe that another 9/11 is possible. And the reason I believe it’s so possible is that people like Andrew Sullivan — and George Packer — have spent the last decade publicly cheering for American violence brought to the Muslim world, and they continue to do so (now more than ever under Obama). Far from believing that another 9/11 can’t happen, I’m amazed that it hasn’t already, and am quite confident that at some point it will. How could any rational person expect their government to spend a full decade (and counting) invading, droning, cluster-bombing, occupying, detaining without charges, and indiscriminately shooting huge numbers of innocent children, women and men in multiple countries and not have its victims and their compatriots be increasingly eager to return the violence?

    Just consider what one single, isolated attack on American soil more than a decade ago did to Sullivan, Packer and company: the desire for violence which that one attack 11 years ago unleashed is seemingly boundless by time or intensity. Given the ongoing American quest for violence from that one-day attack, just imagine the impact which continuous attacks over the course of a full decade must have on those whom we’ve been invading, droning, cluster-bombing, occupying, detaining without charges, and indiscriminately shooting.

  12. ondelette says:

    @lorac: I think you’re full of shit.

    Yes, it aligns with the rest of the world. So what? Japan, a case in point, makes sure that first to file allows Japanese filers can always beat American filers to patent American inventions, and has done so since the 1960s. Align with that? Great.

    What you are making sure is that well funded inventors do well. Poorly funded inventors, or inventors who must disclose in order to obtain funding, get totally screwed by first to file. Run it through a couple of gedanken experiments and you’ll see. They already did with foreign patents — no money to file in places where first disclosure must accompany first filing in time, like China, Japan, and the EU. But now, if you need to publish in order to apply for grant money to get money to file in all those places, you will not be first to file. Understanding? Not everyone with research is affiliated with a university and has university or corporate bankroll.

    Similarly, with challenges that put the burden on the defender: Challenges have always been a matter of who brings the bigger stack of paper to the table. Now imagine a challenge between a big corporation and a small player where in addition to the bigger stack, the court has also given the the big corporation the advantage of putting the burden of proof on the little guy.

    EFF’s ideas about relaxing the rules for innovations that amalgamate are an invitation to use IP from the patents of others and claim amalgamation. The supposed reason is “patent trolls”, which undoubtably exist, but which is also probably an excuse for big companies to label small inventors who seem to them like thorns in their sides rather than like Polaroids to their Kodak products.

    The patent world is increasingly “streamlined”. It now looks as if the only inventors it recognizes are those affiliated with large organizations, be they corporations or universities. You yourself are parroting that kind of language.

    The reason I’m telling you to run thought experiments is to just try to imagine what it’s like for the unfunded researcher with a copy of a NOLO book or two, no money for a pinstriped patent lawyer, publishing wherever is cheapest as a prelude to an application for a government grant that will have to compete with institutions who have people sitting on the funding committees, who will have to do provisionals first even though that precludes international patents, and see what kind of Catch-22s your “Gee I think first to file is a good idea” looks like then.

    The minute you’d so much as squeak about your stuff, you’d have ten companies trying to hire you. Ten fake interviews — they have no jobs behind them, they’re just mining you to get information to try to be “first to file” because they have patent lawyers as permanent employees. Trust me. That’s how the game really works.

  13. ondelette says:

    @Rayne: Anybody can “hoard”. I’ve seen the smallest S-Corporation hold out and deny everyone license to its technology and I’ve seen huge corporations completely snuff ideas for no good reason, too. Size never seemed to be the issue. Personality of the person holding the decision making authority in the entity that owned the commercial rights did.

    How do you stimulate innovation? What do you mean by innovation, first?

    A lot of what I was complaining about boils down to the fact that what was called for in the Constitution no longer exists.
    Article I, Section 8 establishes the PTO “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Except that the copyrights have been extended by all intents and purposes to 150 years, which pretty much calls into question what “limited Times” means at all, which is why people want the “amalgamation” stuff (notice that’s copyrights, not patents) and corporations frequently call the IP generated by their employees “works for hire” and take the commercial rights, so they aren’t enjoyed by the Inventors at all, which may be okay, but the system has become sufficiently skewed by this, and by the rise of big laboratories at these corporations and universities that we get, coming from other countries and from these institutions, impetus for “first to file” as a “streamlining” process.

    But filing nowadays almost surely requires a lawyer, and an expensive one, to fully protect an idea from a similar expensive lawyer. So “first to file” is not just a barrier to entry, it’s a change from the words of the Constitution, which granted the exclusive right to the “Inventor”, not to the “First Filer”. Previously, many patents in history have been thrown out because the “First Filer” was not the first to publish an idea, and therefore not the inventor. The idea went into the public domain, in such cases, very often.

    But, well, it brings us into alignment with other countries, like the ones whose eager filers show up at technical conferences and take digital photographs of all the posters — there must be a reason why they need to innovate before the conference proceedings come out.

    There isn’t a solution to your problem Rayne, except to fund inventors by hiring them. The first departments cut during recessions, during cost savings and productivity increases, or by “Job Creating” firms like Bain Capital, or by innovative wizzes like Steve Jobs, are the advanced tech, research and development, or “blue sky research” departments. The universities have concentrated the wealth to an unprecedented degree at “flagship” schools — one of the reason why the public universities are so strapped for cash. And we increasingly pass laws against garage startups — what pose as garage startups are actually university incubates coming from an incredibly small number of departments. Maybe that’s why we don’t have enough invention to support the economy anymore.

  14. greengiant says:

    The problem is the tax regime hocus pocus which has reduced the effective tax rate for Apple, Google, GE, etc, etc, etc.
    The financials and internationals go double dutch irish twist, and leave the US workers, local businesses and corporations with paying full fare.

    When a big company makes an international sale, the first thing accounting does is figure out which country, err “subsidiary” is going to make the sale to minimize taxes at both ends. Not to mention decisions to stock consumables spares in Singapore or Amsterdam or somewhere to accomplish the same end.

  15. Frank33 says:

    “Upload To Me Today”, is a video produced by MegaUpload. This video is a Federal crime. The Government can censor intellectual property. And this intellectual property is being censored by Hollywood.

    Aesthetically, I recommend the video because I am a ranting blogger and know nothing about music videos. Those clowns in the In-Justice Dept need some propaganda videos to promote a positive image of their trampling Constitutional rights. It is not fair that only the Pentagon and Washington Post gets taxpayer money for propaganda. For instance, faded rocker Ted Nugent could do a video about the benefits of “Fast and Furious”, guns to Mexico-win-win.

  16. Rayne says:

    @ondelette:

    “There isn’t a solution to your problem Rayne, except to fund inventors by hiring them.”

    First, this doesn’t look like solely MY problem. Based on your comments, I’d hazard a guess this is more YOUR problem than mine, when not our nation’s problem.

    Second, hiring inventors is yet another way bigger business hoards IP. Employees sign over all their inventions, in some cases even their thoughts about inventions before the invention even becomes patent- or copyright worthy, and it goes into the corporate vault. I can point to key lawsuits in the software industry where employees of one firm migrate to another, and they are “handcuffed” from doing any new work in their field of specialty until a suit by their former employer is resolved with regard to claims of IP theft (Ex. see Kai-Fu Lee). This infringes on the rights of individuals, when caught up between corporate squabbles.

    I’ll take issue with the claim that small businesses hoard IP. Show me one that would deny a sale of a patent/copyright solely to prevent competition or make money on trolling a la SCO, and then you’ll have identified a hoarder. Small biz doing this are very few and far between; larger corporations are more likely to do this as the ownership initiative is diluted across numerous shareholders, and buffered or filtered by layers of management. You point out the need for legal counsel and imply the barrier this represents to small business; it is this inequitable burden that encourages less innovation by small business.

    (And by innovation, I mean ideation and creation of new, patent-able/copyright-able works.)

    You’re right that the Constitution is being ignored–but that is the heart of the problem addressed so frequently here in this blog. Fixing this is not increased employment of inventors, but electing both representatives and justices that believe in the Constitution and in serving the people, not corporations. Then laws protecting IP may more closely represent the founders’ intent of “promot[ing] the Progress of Science and useful Arts,” to the benefit of the common welfare and posterity.

  17. ondelette says:

    @Rayne:
    I see. So inventors should be unemployed because otherwise businesses might profit from them? Did I say who should hire them? Or on what terms? But you’d rather they weren’t hired at all. Oh, and not our nation’s problem? Just why is that? Not enough invention to sustain the economy was what I said. And it happens to be quite true. The nation lacks a manufacturing base that is sustainable, and it’s because it hasn’t kept pace with real invention or invention of things that produce sustainable economy.

    Your “Second” isn’t something I’m unfamiliar with. But that doesn’t mean nobody should hire inventors. It just means they should be hired on different terms. What? They should sit on street corners with tin cups until you figure out how to keep big companies from “hoarding IP”? Size doesn’t produce hoarding, I already told you that. What produces it is greed. Go forth and solve that one. It isn’t about “big companies” it’s about the dream of ill-gotten gains.

    You’ll take issue with it? You don’t know what you’re talking about. People do it all the time. Demand exclusive contracts or refuse to give contractual rights out altogether, believing that they can make more money without licensing their patents. And you know what? There’s nothing really that wrong with it, unless you throw your lot in with the Apples and Googles of the world who want zero obstacles. How do you think Kodak lost to Polaroid? They assumed that Polaroid would make a deal when Goliath violated their patent rights but they didn’t. They refused to license. So what does that make Polaroid? An “IP hoarder”? An “obstacle to innovation?” Not at all. They were stopping a mega-company from copying their stuff. That’s all.

    Who said all such denials are trolling? Only big high-tech companies. There is some trolling out there, but some of it is just people who own IP who are well within their rights to refuse a license to someone who asked for it. If that bothers you, too bad. It really is in the Constitution, and you really are the product of a brainwash if you think it’s evil on face value.

    The laws as originally construed do promote the sciences and arts. The original inventor makes a reasonable profit from the invention or authorship for a reasonable time — twenty years — and then the work goes into the public domain. Very simple. You want to change that because you think that the inventor shouldn’t have the right to “hoard” if the inventor sees fit? Tough. The way it is now, the inventor must also be rich and connected to derive any benefit at all, and you, Rayne, are supporting a world in which the inventor should be unemployed and have their inventions stolen before one dime is made. That makes you, not me, the tool and lover of the corporations. If you haven’t actually been the inventor, perhaps that’s why you don’t see it very clearly. And yes, I worked for 7 years for such a small corporation which hoarded. S-Class for 5 of those years, never above 140 employees. As at all places where I’ve worked, I invented my ass off. You were still using what I invented to watch Suzanne’s Late Late Night up until very recently, and might still be. Any other stupid comments, grasshopper?

  18. Rayne says:

    @ondelette:

    1) “So inventors should be employed…”

    Just employing inventors won’t solve the IP problem. Corporations already hire inventors every single day and it’s not changing AT ALL what you see as a deviation from the Constitution. Greater hiring levels over the last two decades didn’t help either; past increased employment levels merely deferred the mess we’re in now.

    Ask yourself what’s changed about hiring inventors and the deviation from the Constitution — it’s not the actual employment. It’s the agreements signed by employees, the vlaws themselves that protect the corporations’ management of IP, and the tax code.

    2) “People do it all the time.”

    Um, you continue to cite examples of mega-corporations–not people–that hoard IP. You’ve failed to cite examples of SMALL businesses that hoard IP, although you claimed upthread they do.

    Facts would be nice here. How about citing a small business that trolls? Should be publicly available court records. And by trolling I mean like SCO (background for which you’ll note I linked); they make virtually nothing, didn’t actually create the IP they’re suing over, and live off proceeds of court cases. Cite away.

    3) “…and, you, Rayne, are supporting a world…”

    It’s quite clear from your ranting in this thread you’re expounding on a personal pet peeve while going ad hominem about things you know nothing about. In this case, you know jack about me. Nothing.

    I’m a small business. Me. JUST me. It’s my name on the tax return and on the checks to taxing authorities.

    I know quite a number of small business owners because I support them as a contract service provider. They range from small manufacturers to media businesses, mom-and-pop sole proprietorships to C-corp plants of 150 employees, each of them relying heavily on their own source of IP. I helped with documentation and drawings for one of these firms pursuing several patents.

    I’ve worked for several Fortune 100 companies where I had to sign away rights to any ideas or inventions I developed during the time I was employed there, along with forfeiting any future ownership and profits based on new ideas or inventions that might have been based on anything I thought of while sitting in their corporate offices. I’ve worked with their ideation departments, in product development, in technical service, and for their legal and finance departments. I have a pretty damned good idea what these transnational corporations are thinking when they’re managing their IP. I’ve shredded tons of paper for them to that end; I’ve single-handedly killed a new manufacturing product in beta because it was so ridiculously lame.

    I’ve done contract work doing competitive intelligence for Fortune 100 companies–in particular, monitoring open source technology development that pissed them off. It gave me great pleasure to bill the hell out of them while reporting that open source technology was kicking their asses.

    Oh, and I write occasionally for a small online magazine promoting open source technology. You know, that free stuff that kicks Honeywell’s and Microsoft’s butts.

    Don’t tell me I don’t know what I’m talking about, or that I’m supporting them when you clearly know jack about me.

    If you come back without facts, at least address the issues in the post. The problem remains that mega-corporations are using taxpayer resources as well as national commons, without paying their fair share in taxes. IP is one of their tax-sheltered assets; if you don’t like the idea of IP being taxed, suggest a reasonable alternative constructively.

  19. earlofhuntingdon says:

    “Shouldn’t we tax those companies relying on us to enforce their IP?”

    If mom and pop America can be tasked with the cost of imposing and enforcing IP protections that overwhelmingly benefit America’s largest corporations, what’s not to like? Only a lobbyist or political fundraiser might say, “Nothing”. But they have more juice in Washington than Main Street Americans.

    Yours is a great question. I’ve rarely seen it asked outside of technical blogs, almost never in the MSM. I agree with the answer implicit in it. One might as well have asked, however, whether John D. Rockefeller should pay his own freight to ship his oil when he had the market power to force the railroads to charge his competitors a shipping surcharge – equal to the cost of shipping J.D.’s own oil – then remit that as a cash kickback to Standard Oil. Aka, free shipping. One of many tools used by a monopolist in order to remain a monopolist.

    An army of tax lawyers, accountants and “consultants” sell tax “management” strategies by the bucketful to big and small companies. Standard fare is for a supranational company to “own” its IP through an offshore, wholly-owned subsidiary established in a tax haven jurisdiction, often in the Caribbean. CaribbCo then licenses “its” technology to other companies in the same corporate group. The subsidiaries that commercialize the IP thus send part of their revenue back to CaribbCo and acquire a tax deduction in their higher tax-cost jurisdiction. That arrangement is usually only a part of a multi-part tax avoidance structure.

    One caveat is that the offshore tax haven has to abjure tax, nationalization, audits, and the like, and not require that any substantive activities actually take place there.

    Formal (transfer pricing) tax rules require license fees to be comparable to arms-length rates that an unrelated third-party would charge. Given the paucity of national tax authority auditing budgets and the ready availability of high-compensation tax advisers, it is relatively easy for a supranational company to achieve de facto tax avoidance.

    Under US rules, the profit from offshore, non-US revenue remains untaxed until it is repatriated to the US. A company with only modest international ops or growth can keep those funds offshore a long time. Or it can wait for the inevitable tax holiday irresponsible politicians offer from time to time. In exchange for bringing those funds back to the US, 35% rates might drop to 5%, a reduction of 85%. If the holiday coincides with a loss making year for the company, the tax paid could still be nil. What’s not to like?

  20. person1597 says:

    Just wanted to thank everyone for the discussion.

    The dilemma from my point of view is how to sustain intellectual independence. Yes, IP protection is important for the big guys as well as the little guys. Securing rights for IP is hit and miss affair unless you’re really lawyered up for it.

    I’m a little guy even though I patented a gadget while consulting at PARC many years ago. Heck, I could have bought the rights to the patent but chose to go windsurfing instead. That was fun, but in retrospect, a bit short sighted.

    When it comes to innovation, the inventor has a dilemma — come up with something elegantly useful — or focus on marketability.

    I don’t want to give up my independence as a technologist but have found it nearly impossible to sustain my personal economy without some beneficial relationships.

    Abandoning patents in process happens alot. Had I not abandoned another patent pursuit, perhaps I’d be suing a certain video game console manufacturer for infringement. I gave up too soon! No bucks, no Buck Rogers.

    Conversely, if you are a big successful plaintiff then those earnings are surely taxed.

  21. earlofhuntingdon says:

    @emptywheel: Exactly. Offshore markets where US IP is commercialized often have either higher taxes than the US, enforce them differentially against foreign companies, or are rife with illegal but tolerated copiers. In at least one large Asian market, it is the army that heavily invests in some of the companies that specialize in pirating foreign technology. Periodic demonstrations that the government is serious about stopping pirating are largely street theater.

    And as you say, the enforcement costs to the US taxpayer go way beyond the cost of US governmental trade and IP compliance monitoring organizations. They include costs to support international bodies and the military, which has on the order of 1000 bases worldwide.

  22. emptywheel says:

    I should explain, btw, why I’ve been thinking about this. Obviously, we’re being gutted bc the corporations and other rich people are taking from the US, but not returning anything in exchange.

    I thought of a tax because 1) it would make the dependence of many (certainly not all) US companies visible and 2) would also make visible the degree to which most of our exports rely on IP which is illusory without the enforcement mechanism. A lot of pundits like to talk about knowledge industry as if they’re clean of all downsides, such as the need to remain the big bully, and that seems really dangerous to sustain (not least bc it allows them to remain predisposed against making real stuff (aside from non-GMO ag, which we also do).

  23. earlofhuntingdon says:

    @emptywheel: Another option is to tax global income regardless of whether it is deemed to have been returned to the US. Or staff and empower IRS auditors, instead of sending out newbies every two or three years to audit corporations whose tax staffs have decades of experience playing hide the revenue-and-profit pea. Ditto regarding the SEC and DoJ prosecutors. All of these three-headed dogs of compliance seem to have put been put to sleep with a little music.

    International tax policy, an admittedly complex area, is also an expression of the generalized obeisance government now gives to the modern corporation. It’s part of the problem, as well as a potential cure.

    The “state”, after all, is comprised of more than its formal institutions and rules. It includes informal practices. Most of all, it includes significant non-state actors and their relationships with those institutions. The chief such actor is now the corporation, and the voice and pocketbook through which it talks: the lobbyist.

  24. ondelette says:

    @Rayne:

    Okay, Rayne. First off you have a large number of totally factual errors in what you’re writing, and you’re using the term ad hominem for basically anything that you don’t like — but I could easily argue that your contention that I’m not arguing facts and am just stating my own pet peeves and have no examples of small businesses (I stated a case of an S-Class corp with <140 employees which hoarded and you are dismissing it totally) is argumentum ad hominem too. So just simmer down with that line of reasoning. I am arguing facts.

    Troll is a very specific kind of patent "misuse" allegation, cf. EFF, for instance. It has to do with IP brokers who buy up patent rights from small companies that are going out of business to obscure patents that are too broadly stated and using them to threaten patent action against players who will probably settle. It isn't hoarding.

    Hoarding is when a company won't license rights on a patent. The big company version is when it owns the rights and won't do anything with it, denying the innovation its existence. I'm super familiar with it, as are most inventors who've seen their work not developed. You can't go back and get your work freed from the big company because any interest you show in it causes the big company to believe it has market value and the price skyrockets out of your ability to buy.

    The small company version is to believe that you shouldn't license your technology to anyone at all because that would be money not made that you could be making yourself. Tons of small companies do this, and sometimes they are right, sometimes they are wrong. Sometimes, a big company even files anti-trust against them and obliterates them. You are trying to say it doesn't happen? You are nuts.

    Don't even try to demand examples and say that if I won't provide them it doesn't happen. I won't name my small company example for the same reason I don't post on FDL anymore. I protect my pseudonym and you would know who I am if I did. End of story. But it isn't hard to find them. They advertise gadgets on Atlanta boiler room late night TV ads all the time in low tech. Polaroids instant developing was one famous example that wasn't a very small company (although much smaller than Kodak) but it illustrates the principle, so it's a good example to use. It's also a very common thing to do among people who don't have outside advice. And no, it isn't called trolling. Your concepts of patent battles are way too simplistic.

    And just so you know, and are very very clear: open source is almost always about copyright, not patent. As I mentioned in my first comment, even Richard Stallman says there is a vast difference between the two, and so would I. The Catch-22 I was mentioning about unaffiliated researchers before is very real:

    Pile up a couple of years of research and you have the following dilemma directly attached to both the current international patent scene and federal funding scene and to the "First to File" rules very directly: In order to protect each piece of that research (each patent's worth of work), you need approximately $20,000 in total fees including lawyer's fees. For a couple of year's worth, that could top $100K, and you won't be doing it without funding. In order to get funding, you need to go public, as in publish or patent, to be able to cite, to apply for funding with a chance of getting it, since all funding entities, government or venture, will want to see evidence of peer review. The minute you do that, in multiple foreign venues (China, Japan, EU), and in the U.S. if you have "First to File", you need to have filed before the documents become public. Consequently, the money you need to go public is conditional on going public and if you go public, you need to go public unprotected, but the ideas are only worth the money to fund you if you protect them before going public.

    Oh, should I have been publishing and patenting all along? With what? Are you saying all ideas take less than 6 months to develop or something? Then you prove my point about the country not doing the kind of research and invention that produces enough jobs.

    That’s what I was trying to say. It says, of course, that the person who gets screwed by the rules you are advocating, is the inventor. I’ve worked in companies where I signed away commercial rights, too. I know all about the system you are talking about. I even know about patent documents, the ones that get published automatically 2 years after filing, that don’t get pursued if you leave, that are also proprietary to the corporation and represent the worst of both worlds because there is no credit or IP for them and yet there is a filing and no one else can pursue them or really develop them.

    But the one thing I know that you don’t know is that I know what I’m talking about, because I’ve done unaffiliated research. That isn’t the same as going into business for yourself, that’s doing research without an affiliation. Research that nobody but yourself payed for and nobody but yourself owns. That needs to be both published and patented and hasn’t been funded yet and has no implicit lawyers attached. Research that needs to complete before it can be published because of the unaffiliation, but once completed will then cost a lot to nail down. Just the way you talk I know you don’t have a clue of what that’s like.

    I don’t suppose, listening to you, that you have done anything of the sort and don’t know what it’s like to have full notebooks that belong to you, not some company. Notebooks that you now can’t take forward into innovation without losing them to a system that believes that there is no one like you in existence who isn’t a very powerful university (there are probably plenty of people like me, they are probably in the same don’t talk mode as I am). Which isn’t fair because it isn’t true that all inventors are universities or companies.

    The Constitution envisions people like me. You apparently can’t. When it’s civil rights it’s fine to be one exception in 300 million, because everyone feels the chilling effect of, “There but for the grace of God go I.” When it’s patent rights, then, well, screw the grace of God, you expect me to just jump on that pyre and roast myself for your open source din din and screw the Constitution. Why? Because you think you know what all innovation is? Anyone who thinks the world can be reduced to open source software deserves to hear this again: You don’t know what you’re talking about.

  25. harpie says:

    This may or may not be related [since I’m having a difficult time understanding the subject], but might prove to be of interest to some:


    Notebooks Shed Light on an Antibiotic’s Contested Discovery

    by Peter Pringle; NYT; 6/12/12

    EVIDENCE A lab notebook belonging to Albert Schatz, left, with his supervisor, Selman A. Waksman, and discovered at Rutgers helps puts to rest a 70-year argument over credit for the Nobel-winning discovery of streptomycin. […]

  26. newz4all says:

    0 Admin Trade Document Leaked, Revealing New Corporate Powers And Broken Campaign Promises

    A critical document from President Barack Obama’s free trade negotiations with eight Pacific nations was leaked online early Wednesday morning, revealing that the administration intends to bestow radical new political powers upon multinational corporations, contradicting prior promises.

    The new leak follows substantial controversy surrounding the secrecy of the talks, in which some members of Congress have complained they are not being given the same access to trade documents that corporate officials receive.

    “The outrageous stuff in this leaked text may well be why US trade officials have been so extremely secretive about these past two years of trade negotiations,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

    Lots more at >>>>

    http://www.huffingtonpost.com/2012/06/13/obama-trade-document-leak_n_1592593.html

  27. P J Evans says:

    @Snarki, child of Loki:
    My thought on perpetual copyright/trademark was that a company can do that for one (and only one) item. the cost to the company is a percentage of the gross receipts as long as that item is under copyright or trademark – and if they stop using it actively, the copyright/trademark status reverts to what it would be if the company had never held a perpetual right. (IOW, if they paid for it so it wouldn’t go into the public domain, and then let its use lapse, it would immediately become public domain. With no possibility of the company getting it back.)

  28. Snarki, child of Loki says:

    @P J Evans: Okay, but you know how movie studios manipulate their numbers to prevent paying profit shares? And how book publishers now use “on-demand” printing to claim that titles never go out of print, and thus prevent copyright reverting to authors? I’d expect it to be seriously gamed, with a subsequent regulation/evasion arms race.

    Since the subject of this post is “IP taxation”, it’s not just a matter of having a rational IP scheme, but also to capture some fraction of the value of the IP for the public good.

    That is one feature about the “pay to extend” that I suggested. Hard to game. Doesn’t matter whether they “use” it or just prevent others from using it. The only questions are “do you want to extend?” and “did the check clear on time?”.
    Less confusion on “who owns the copyright to this old (abandoned?) title?” that bedevils Gutenburg Project and similar publishers.

    Really, when 7 year extension costs $1M, many companies will pay but many will not. Their choice. Next extension is $2M, then $4M, then $16M. When it costs upwards of $1B for Disney to extend “Steamboat Willie” for another 7 years they’ll have a real cost/benefit decision to make. What’s going on here is that we can use the duration of copyright to select out “high value” vs. “low value” copyright, with a higher tax on the higher value.

    Patents are a much tougher proposition, because it’s much harder to use the duration of validity to separate out low-value and high-value, while still wanting to keep the barriers to initial filing relatively low,

    So you have to mess around with corporate accounts, offshored income, etc. It’s a huge mess. Made worse because the entire patent system is seriously broken, so much of the discussion is aimed at “fix the system” prior to “capture some value”.

  29. ondelette says:

    @harpie:

    The way to look at it is to imagine the notebook as being the pure invention. For it to become a discovery, it will need to be published in a peer reviewed journal. For it to become property, it will need to be patented. For it to become an innovation, it will need to be exploited by being either licensed or developed into some various kinds of products that will be sold that then create money.

    The question is who should own the property, and have the say over who makes the money. The Constitution envisions a world in which the person who wrote the notebook does, but only for a limited time, after which the society does. This is fair, because it encourages people to write notebooks, and eventually contributes to the commonwealth.

    But in modern times, meaning the last ten years or so, people have become enamored of the idea that the very last step, going from the notebooks to the products, which they’ve labeled innovation, is more important than the invention, and have elevated the “innovators” like, for instance, Steve Jobs, to the status of gods. They want all obstacles out of their way, and among them, the fact that a patent holder can say no to a license, or can name their price. For a very long time, as well, there have been companies that have decided not to go forward with inventions for whatever reason. The most famous was Xerox and the graphic interface developed at PARC, which it worried would drive their copiers out of business by creating the “paperless office”. Luckily, it was stolen in a corporate espionage theft by Steve Jobs, mimicking the theft of the transistor radio by Sony from Western Electric. This is one form of hoarding. The other form is when a small company or individual decides to hold fast to the exclusive rights to an invention, so the invention never gets developed commercially. “Innovators” and others refer to people who won’t license patents that as a result aren’t going anywhere as “hoarders”.

    At the same time, because people have been patenting at such high rates, due to the fact that they have allowed innovations such as business process and software to be patentable, people have written very broad patents, and companies have failed with them, and people have actually established businesses that do nothing but buy up these companies to get their patents, and then go around suing for infringement on the broad patents hoping to get settlements. Those people are called “patent trolls”.

    Other countries have different methods for filing, and some resolve disputes by first to file. The article you cited shows the traditional way of solving disputes in the U.S. which is first to invent or first to discover. It takes a lot more work, but it’s more honest. First to file relies on everyone having equal access to the patent system. So barriers like money, fast-tracking, lack of in-house lawyers, lack of access to lawyers at all, and so forth are presumed not to exist in first to file. In Europe, where researchers generally have access to funding, perhaps that might be closer to true. In the U.S.?

    Some of us who invent (do R&D) treat our work the same way an artist or musician treats their art. When we are let go, we continue to work, we just don’t get paid, until we get hired again. If that goes on for a while, that can get to be a substantial corpus. It can even interfere with getting work. It’s identical to art or music. It’s passion. Rayne refers to what I’m talking about, which I admit is personal, but is by no means limited to me anymore than there is only one artist or musician in the country, as a “pet peeve”. So let’s go through this pet peeve, shall we?

    I have hundreds of pages in notebooks. Translated to journal articles, it would still come to hundreds of pages — the size of a very terse book (I’ve already published what I could without filing, so far about 40 pages). If it were parceled the way large corporations parcel for patenting, it would come to dozens of patents with 20+ claims a piece. So the “pet peeve”, valued as they value things in the corporate R&D departments easily values just in filing costs at greater than the value of a house. It’s my career and my life, and it’s always been this way the same way an artist always paints.

  30. Rayne says:

    Speaking of patent trolling, something for the grist mill:

    “Defensive Patent License” created to protect innovators from trolls
    The first rule of Patent Club is you do not sue members of Patent Club.
    by Jon Brodkin – June 12 2012, 1:05pm EDT
    source: http://arstechnica.com/tech-policy/2012/06/defensive-patent-license-created-to-protect-innovators-from-trolls/

    Interesting concept. Would like to see Apache Software Foundation move to this; its current Apache License (APL) caused the dust-up between Oracle and Google over Java components included in Android.

    Java was migrated to a GNU general public license (GPL) by its progenitor, Sun Microsystems, prior to Sun’s acquisition by Oracle. Some of the Java components used in Google-developed, Linux-based, Android are under GPL, muddying the licensing of a substantial portion of Android released under APL. GPL and APL are both forms of freeware licensing, though, with only slight differences regarding attribution of sourcing–hardly grounds to claim infringement.

    Google won the dust-up, but it was the lawyers for both sides who really made out since all of this software was open source. There was no room for Oracle to claim infringement.

    If the big hitters in freeware coding moved toward this new DPL, they might save themselves a bunch of cash.

  31. newz4all says:

    Trans-Pacific Partnership: Larger than NAFTA?

    Leaked documents reveal disturbing truths about a trade deal 0 admininstration’s negotiating that could grow bigger than NAFTA

    “The leaked document,” says Todd Tucker, the research director of Public Citizen’s Global Trade Watch division, “shows that in all of the major respects, this is exactly the same template that was used in NAFTA and other agreements that President Obama campaigned against.”

    “This is what happens when you get an administration that is pretty much in the lap of corporate America,” said Chris Townsend, the political action director for the United Electrical, Radio and Machine Workers of America and a longtime Obama critic. “That’s who they perform for, and that’s who most of them will go to work for after they lose the election in November.”

    http://www.salon.com/2012/06/14/trans_pacific_partnership_larger_than_nafta/singleton/

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