Capital and labor are the lifeblood of the American economy, and their value depends on continued innovation. Since the 1950s, economists have measured the impact of innovations and other factors on U.S. growth and gains in productivity. A recent analysis found that between one and two-thirds of these gains can be properly attributed to innovation, far outweighing increases in the capital stock and improvements in worker skills and education.
However, today the economic development of the country is in danger. Giant corporations that dominate their respective markets have appropriated the valuable innovations created by startups and small companies. This new process of acquiring the innovations of others eliminates incentives for creative, entrepreneurial people to figure out how to turn their new ideas into new products and technologies—and undermines economic conditions and ecosystems. that support and promote innovation.
Innovation does not happen by chance. This requires sustained investment in research and development and a political and economic environment that supports start-ups and new investments. It also requires strong legal protection of innovation and enforcement of property rights.
This protection is so important to the nation’s long-term progress that it is enshrined in the Constitution: Article 1, Section 8, gives Congress the exclusive power to “promote the advancement of science and useful arts, by protecting authors and inventors for a limited time.” promote”. Exclusive right to their respective writings and discoveries.
Accordingly, Congress has created patent laws to protect the inventor’s exclusive right from infringement and, if it chooses, to sell or license that right to a portion of the economic benefits arising from the innovation. In exchange for
For the past generation, advanced telecommunications and information technologies have transformed almost all American industries. At the same time, the process of developing new technologies and other products has changed as the tech industry has become more concentrated.
Nvidia, Apple, Microsoft, and Alphabet are the four largest companies in the economy, with a combined market cap of more than $12 trillion — or 44% of GDP last year. Managing their huge operations and markets demands most of their resources and attention. However, to maintain and grow their immense value, giant companies must continue to innovate. In response, their most recent innovations have been widely conceived and developed initially by startups and young companies that patent new ideas and then sell them or themselves and their exclusive rights to large corporations. Companies try to sell.
This process of innovation creation and development can be very effective. Innovators focus on the risky process of developing something new on a small scale in hopes of huge rewards for selling their ideas to large companies that can afford the costs of completing development and mass-producing the new technology. are This system ultimately depends on protecting the intellectual property rights of the small innovator, because without those rights, there is no reward.
What happens when a large company that relies on innovation but little of it itself ignores the rights of the original innovator? An innovator can sue, but that involves a lengthy and expensive legal process that pits a small startup or young company against a behemoth corporation that often dominates the market. It’s David vs. Goliath, and Goliath has the weapons to overwhelm David.
Legal and economic observers of this severe imbalance have pointed to the increasing use of what is called “effective infringement”. This is what happens when giant S&P 500 companies knowingly infringe on the patents of small innovators and appropriate their innovative ideas without notice or payment. This is called “efficient” infringement because the major infringer has calculated that it costs less to kill an innovator by exhausting its resources and patience in a protracted legal battle than by licensing or buying the patent. .
Effective infringers also know that the law and many of the courts deciding these disputes have changed in ways that favor Goliath. The most powerful way for a small innovator to protect patent rights is to prohibit alleged infringers from using the patent while the dispute is being decided. However, such rulings have become rare in recent years. Without the existential threat of an injunction to protect the small innovator’s exclusive property rights, Goliath companies are practically incentivized to ignore them.
And even when a major corporate infringer loses a dispute, other changes to the laws that used to govern these cases would make the awards far less damaging than the actual economic losses to the infringer. Yes, the fair share of real economic benefits realized is very small. by the violator.
A recently filed high-profile case involving one of the core technologies for artificial intelligence may illustrate these corrosive dynamics for everyone to consider. This includes a startup of which I am a board member, called Xockets, which more than a decade ago developed and patented the basic DPU chip that enables big data AI operations. Xockets is now suing Nvidia, the world’s largest manufacturer of DPU chips, and its customer Microsoft, for infringing our patents on the technology that helped Nvidia’s meteoric rise to become the world’s largest. , which is worth more than $3.4 trillion.
Xockets’ case is that Nvidia and Microsoft committed effective infringement by appropriating a DPU chip protected by a small innovator’s patent and then colluding to boycott Xockets’ efforts to sell or license the exclusive rights to it at a reasonable price. are committing Specifically here, David has gathered the resources to take on this Goliath, and the court is considering enjoining Nvidia from using the DPU chip in question. This case can serve as a lesson for large companies that consider taking advantage of small companies that create great success. (Nvidia and Microsoft did not respond to requests for comment about the points raised in this article. Microsoft has argued in court that our claim does not meet the injunction threshold.)
The outcome of our case can be an instructive lesson for young technicians. Going forward, ownership of their breakthrough innovations may depend on whether the world’s biggest and richest companies, which are destined to become even bigger and richer, are the innovators. Willing to recognize proprietary rights and pay to use their achievements. If this is the outcome, economic logic teaches that there will be fewer breakthroughs in the future and fewer investors willing to invest in innovation—and most Americans will continue to lose productivity gains and income gains. .
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