Category: Law
Theranos was Fraudulent, What About Its Patents?
In Launching the Innovation Renaissance I argued that patents should be given for specific inventions rather than just for broad “ideas”:
Thomas Edison invented and patented numerous products: the light bulb, the phonograph, movie film and much else besides. (At one point the patent office required that patents be accompanied by working models.) The invention of products typically requires the expenditure of sunk costs in a way that the creation of ideas does not. Today it is not necessary to implement an idea to patent it, and many patentable ideas are so broadly phrased that they could not be implemented in a model.
Edison famously said that “genius is one percent inspiration, ninety-nine percent perspiration.” A patent system should reward the 99 percent perspiration, not the 1 percent inspiration. In inventing the light bulb, for example, Edison laboriously experimented with some 6,000 possible materials for the filament before hitting upon bamboo. If Edison were to patent the light bulb today, he would not need to go to such lengths. Instead, Edison could patent the use of an “electrical resistor for the production of electro-magnetic radiation,” a patent that would have covered oven elements as well as light bulbs.
, who holds the Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation, points out in an excellent article that giving patents for vaguely stated ideas was exactly the problem with Theranos and its so-called patents.
Holmes found a more receptive audience at the USPTO. She says she spent five straight days at her computer drafting a patent application. The provisional application, filed in September 2003 when Holmes was just 19 years old, describes “medical devices and methods capable of real-time detection of biological activity and the controlled and localized release of appropriate therapeutic agents.” This provisional application would mature into many issued patents. In fact, there are patent applications still being prosecuted that claim priority back to Holmes’ 2003 submission.
But Holmes’ 2003 application was not a “real” invention in any meaningful sense. We know that Theranos spent years and hundreds of millions of dollars trying to develop working diagnostic devices. The tabletop machines Theranos focused on were much less ambitious than Holmes’ original vision of a patch. Indeed, it’s fair to say that Holmes’ first patent application was little more than aspirational science fiction written by an eager undergraduate.
…Two legal doctrines are relevant here. The “utility” requirement of patent law requires that the invention work. And the “enablement” requirement means that the application has to describe the invention with enough detail to allow a person in the relevant field to build and use it. If the applicant herself can’t build the invention with nearly unlimited time and money, it does not seem like the enablement requirement could possibly be satisfied.
The USPTO generally does a terrible job of ensuring that applications meet the utility and enablement standards.
Despite never having built a working product, Theranos accumulated hundreds of patents. These patents are now the only thing of value left but the patents aren’t valuable because of breakthrough science, the patents are valuable because they can be used to force people who do breakthrough science to cough up part of their return.
As Nazer puts it:
Accused of having lied to investors and endangered patients, the company leaves us with a parting gift: a portfolio of landmines for any company that actually solves the problems Theranos failed to solve.
The culture and polity that is Arlington, Virginia
Arlington officials say Amazon’s arrival will boost the number of visitors staying in hotels, motels and other lodgings. Starting in June 2019, 15 percent of any increase in its “transient occupancy tax” would go to Amazon, if the company meets specific targets for how much office space the new headquarters facility occupies.
The agreement says Amazon needs to occupy 64,000 square feet of office space by July 31, 2020, in order to qualify for the 15 percent payment. The required amount of space increases to 252,800 square feet by July 31, 2021, and to 5.576 million by July 31, 2034, the last year of incentive payments.
Here is more from WaPo.
The value of exploitative loans
I show that the same bias that causes someone to take an exploitative loan may also imply that the loan benefits them by causing them to purchase a product or service that they should, but wouldn’t otherwise, buy. I demonstrate the importance of this effect in a study of tax refund anticipation loans. I find that regulation curtailing these loans reduced the use of paid tax preparers and the takeup of the earned income tax credit, which is the second largest federal transfer to low-income households.
That is from a paper by Andrew T. Hayashi, via the excellent Kevin Lewis.
A modest proposal
So let me offer this modest proposal: When a child receives government assistance, we should deduct the cost from his parents’ future Social Security benefits. If one parent fails to provide child support, we should deduct the cost from his Social Security benefits alone; otherwise, the parents split the cost. Administratively, this seems quite manageable. Of course, this modest proposal means that many deadbeat dads will have to endure late retirement, but that seems a lot fairer than burdening taxpayers.
That is from Bryan Caplan.
The polity that is Oregon
Oregon Gov. Kate Brown signed into law a first-in-the-nation rent control bill Thursday and called on the Legislature to turn its attention to funding new housing initiatives.
Because of an emergency clause, Senate Bill 608′s rent control and eviction protections go into effect immediately.
The details are somewhat less bad than that may sound at first:
The law caps annual rent increases to 7 percent plus inflation throughout the state, which amounts to a limit of just over 10 percent this year. Annual increases in the Consumer Price Index, a measure of inflation, for Western states has ranged from just under 1 percent to 3.6 percent over the past five years.
The rent increase restrictions exempt new construction for 15 years, and landlords may raise rent without any cap if renters leave of their own accord. Subsidized rent also is exempt.
Here is the full story, via Mike Tamada.
If you fear NIMBY, should you favor more immigration?
Many of today’s capitalists also want more immigration. Ocasio-Cortez also supports more immigration, which is confusing. According to Ricardo’s economic theory, expanding the population in the current environment will increase the cost of housing, health care, and higher education, just as it increased the price of wheat in the 19th century. This would hurt workers.
That is from Ronald W. Dworkin, “The New Rentiers: Ricardo Redux,” in the March/April 2019 issue of The American Interest, not yet on-line.
In general, facing up to the policy implications of a strict NIMBY world is something few wish to do. For instance, it seems to me that increases in the minimum wage, even if they initially went along Card-Krueger lines, would end up being passed along as greater benefits to landlords. All sorts of other attempts at amelioration could backfire as well.
Or do we live in some kind of intermediate NIMBY world on the coasts, where you get to complain about the land restrictions, but don’t have to live with the policy implications of strict NIMBY? Maybe so! But if so, I would like to see this argued for at more length.
In a world of smartphones, should pedestrians have fewer rights?
Pedestrian deaths plummeted from 6,482 to 4,109 from 1990 to 2009, federal figures show.
Fatalities then rose 45% from 2009 to 2017.
Link here. Who is the least cost avoider here? Here is my earlier post on liability and United Airlines. And here is another Coasean parable: “Guy Asks If He’s Wrong To Make Obese Man Pay Him $150 For Taking Up Part Of His Seat On A 5-Hour Flight.”
German on-line debt settlement markets in everything, austerity edition
German city seizes pug, sells it on eBay
The city of Ahlen seized the pug from a family as a way to settle the family’s debt. But the pug’s new owner is now suing the city, accusing it of giving a fraudulent description of the dog in the ad.
Here is the story.
World Bank affiliate is not shielded from all legal action
The new Supreme Court ruling seems to me bigger news than the play it is receiving:
International organizations based in the United States are not completely shielded from legal liability in American courts, the Supreme Court ruled Wednesday.
The 7-to-1 ruling directly involves an arm of the World Bank, which provides loans for projects in poor and developing countries. The decision could have implications for other similar organizations involved in financing overseas development.
The case centers on the Washington-based International Finance Corp., which provided a $450 million loan for the construction of a coal-fired power plant in the state of Gujarat in western India. Farmers, fishermen and a small village went to federal court in 2015 over alleged air pollution and water contamination from the plant.
Here is the full story by Ann E. Marimow. Once this door is open…And you also can consider this another move back toward nationalist organization of responsibility.
Not from The Onion
The UK government is due to hold emergency talks with industry leaders on Tuesday after discovering that the country doesn’t have the right pallets to continue exporting goods to the European Union if it leaves without a deal next month.
Under strict EU rules, pallets — wooden structures that companies use to transport large volumes of goods — arriving from non-member states are required to meet a series of checks and standards.
Wood pallets must be heat-treated or cleaned to prevent contamination and the spread of pests, and have specific markings to confirm that they legal in EU markets.
Most pallets that British exporters are using do not conform to these rules for non-EU countries, or “third countries,” as EU member states follow a much more relaxed set of regulations.
Here is the full story, via Catherine Rampell.
The effect of banning payday loans
n November 2008, Ohio enacted the Short-Term Loan Law which imposed a 28% APR on payday loans, effectively banning the industry. Using licensing records from 2006 to 2010, I examine if there are changes in the supply side of the pawnbroker, precious-metals, small-loan, and second-mortgage lending industries during periods when the ban is effective. Seemingly unrelated regression results show the ban increases the average county-level operating small-loan, second-mortgage, and pawnbroker licensees per million by 156, 43, and 97%, respectively.
That is from Stefanie R. Ramirez, via the excellent Kevin Lewis.
NY State Budget Director on Amazon
The open letter on Amazon from Robert Mujica, New York State’s Budget Director, is on fire. It shines an unflattering light on many people involved in the Amazon decision but its analysis of twitter mobs goes well beyond Amazon.
In my 23 years in the State Capitol, three as Budget Director, Amazon was the single greatest economic development opportunity we have had. Amazon chose New York and Virginia after a year-long national competition with 234 cities and states vying for the 25,000-40,000 jobs. For a sense of scale, the next largest economic development project the state has completed was for approximately 1,000 jobs. People have been asking me for the past week what killed the Amazon deal. There were several factors.
First, some labor unions attempted to exploit Amazon’s New York entry. The RWDSU Union was interested in organizing the Whole Foods grocery store workers, a subsidiary owned by Amazon, and they deployed several ‘community based organizations’ (which RWDSU funds) to oppose the Amazon transaction as negotiation leverage. It backfired.
…Organizing Amazon, or Whole Foods workers, or any company for that matter, is better pursued by allowing them to locate here and then making an effort to unionize the workers, rather than making unionization a bar to entrance. If New York only allows unionized companies to enter, our economy is unsustainable, and if one union becomes the enemy of other unions, the entire union movement – already in decline – is undermined and damaged.
Second, some Queens politicians catered to minor, but vocal local political forces in opposition to the Amazon government incentives as ‘corporate welfare.’ Ironically, much of the visible ‘local’ opposition, which was happy to appear at press conferences and protest at City Council hearings during work hours, were actual organizers paid by one union: RWDSU. (If you are wondering if that is even legal, probably not). Even more ironic is these same elected officials all signed a letter of support for Amazon at the Long Island City location and in support of the application. They were all for it before Twitter convinced them to be against it.
…Furthermore, opposing Amazon was not even good politics, as the politicians have learned since Amazon pulled out. They are like the dog that caught the car. They are now desperately and incredibly trying to explain their actions. They cannot.
…Third, in retrospect, the State and the City could have done more to communicate the facts of the project and more aggressively correct the distortions. We assumed the benefits to be evident: 25,000-40,000 jobs located in a part of Queens that has not seen any significant commercial development in decades and a giant step forward in the tech sector, further diversifying our economy away from Wall Street and Real Estate. The polls showing seventy percent of New Yorkers supported Amazon provided false comfort that the political process would act responsibly and on behalf of all of their constituents, not just the vocal minority. We underestimated the effect of the opposition’s distortions and overestimated the intelligence and integrity of local elected officials.
Incredibly, I have heard city and state elected officials who were opponents of the project claim that Amazon was getting $3 billion in government subsidies that could have been better spent on housing or transportation. This is either a blatant untruth or fundamental ignorance of basic math by a group of elected officials. The city and state ‘gave’ Amazon nothing. Amazon was to build their headquarters with union jobs and pay the city and state $27 billion in revenues. The city, through existing as-of-right tax credits, and the state through Excelsior Tax credits – a program approved by the same legislators railing against it – would provide up to $3 billion in tax relief, IF Amazon created the 25,000-40,000 jobs and thus generated $27 billion in revenue. You don’t need to be the State’s Budget Director to know that a nine to one return on your investment is a winner.
The seventy percent of New Yorkers who supported Amazon and now vent their anger also bear responsibility and must learn that the silent majority should not be silent because they can lose to the vocal minority and self-interested politicians.
…Make no mistake, at the end of the day we lost $27 billion, 25,000-40,000 jobs and a blow to our reputation of being ‘open for business.’ The union that opposed the project gained nothing and cost other union members 11,000 good, high-paying jobs. The local politicians that catered to the hyper-political opposition hurt their own government colleagues and the economic interest of every constituent in their district. The true local residents who actually supported the project and its benefits for their community are badly hurt. Nothing was gained and much was lost. This should never happen again.
Even if you think the end result was fine, as I do, this was a political fiasco for New York. Amazon was wise to exit when they did because the pecking of the chickens would only have intensified as they sunk investments.
Patent Trolls in Texas Take Another Hit
Plaintiffs in patent lawsuits used to flock to the Eastern District.of Texas because they could sue anywhere in the United States and the Eastern District has long been notoriously friendly to plaintiffs. In 2016, Marshall, Texas with a population of only 24,000, was home to an astonishing 25 percent of all patent filings in the U.S. In May of 2017, however, the Supreme Court ruled unanimously in TC Heartland v. Kraft Foods that plaintiffs can’t forum shop to find a friendly court. Instead patent plaintiffs must file in districts where the company being sued is incorporated or where it has an established place of business.
Businesses are now responding to the Supreme Court’s rule by shifting their establishments. Apple, for example, looks like it will close both of its retail stores within the Eastern District of Texas and instead open a new store in Dallas, just south of the Eastern District of Texas border.
The Georgist equilibrium comes to Greece?
The 63-year-old has been been trying to buy an apartment ever since she was evicted from the home she rented for 32 years – when it was bought by Chinese investors two years ago.
“I want some security in case the same thing happens again,” says Ms Hynes, originally from Ireland. She earns a modest salary as an English teacher, while her Greek husband’s monthly pension was cut from €1,500 (£1,315; $1,690) to €500 during the country’s economic crisis, which began in 2010.
“When we were evicted there were still apartments selling nearby for €100,000. Now I can’t find anything under €250,000. These are Chinese and Russian prices. Not Greek.”
Greece’s financial crisis a decade ago shrank the country’s economy by more than 25% in the following years, but there are finally signs of improvement.
The property market, once completely dead, is on the rise – house prices in Athens rose 3.7% last year…
The boom appears to be driven by a controversial “golden visa” scheme, in which non-EU citizens receive residency and free movement in the EU’s Schengen zone, in exchange for investing in property.
The worry is that foreign investors are benefiting while ordinary Greeks miss out.
Many EU countries including the UK, Portugal and Spain, have golden visa schemes, but Greece has the lowest threshold. Investors receive five-year residency after purchasing €250,000 of property, making the country a new hotspot for foreign buyers.
Here is the full Jessica Bateman BBC story, via Ray Lopez. Does a culture of renters bring a bohemian, non-complacent dynamic urban core? Or a bunch of whiners who oppose economic progress? Or both?
Are the New York subsidies to Amazon really so outrageous?
No, as I explain in my latest Bloomberg column, I do not think New York should have offered Amazon the tax break. Still, the polemical outrage over this proposed policy seems to me out of hand. It simply wasn’t that costly, unusual, or unfair. Here is one bit:
Consider, by way of illustration, entitlement and discretionary spending on the federal level. A program such as Social Security or Medicare is done entirely by formula, as it should be; large companies cannot lobby for higher payments or lower taxes for their workers. Much of discretionary spending, by contrast, is research grants and procurement contracts. One company or researcher wins, and the others do not. Furthermore, the government will usually offer different prices and terms, based on how much value it thinks the winning bidder can bring to the project. All of which is to say: Discretionary spending requires … government discretion.
Viewed in the context, critics of local development subsidies are also critics of government discretion. Or, to frame the issue in a duller way: They do not believe local governments should treat economic development as a procurement problem. That’s a defensible position, but it is not obviously correct.
Another analogy is with private shopping malls, which commonly charge much lower per-unit rents to anchor tenants, maybe even subsidizing them. That is based on the view that a famous retail chain or movie theater can help other businesses in the mall by attracting customers and burnishing the overall image of the place. When a local government offers tax incentives to relocating businesses, it is in a sense acting like a shopping mall, which treats tenant recruitment as a kind of procurement problem. Offering differential rewards to prospective tenants is standard practice.
And note this point about fixed assets:
When a large company is going to make a significant investment in an urban area, it is hoping for support in terms of infrastructure maintenance or improvement, and indeed it invests on that basis. The reality is that municipalities often have difficulty fulfilling their obligations anyway. (This also holds true, unfortunately, for even basic promises to ordinary citizens. Ridden the New York City subway lately?)
In other words, Amazon cannot walk away from NYC the way a street vendor can move to South Carolina and set up a barbecue shop. So they will be taxed harder ex post, if only in “in kind” terms, namely inferior services for the company and its employees. The lower tax rate upfront is in large part an offset to this expected time consistency problem.
By the way, Singapore, Singapore, Singapore. And I thank Garett Jones for the shopping malls point.
Daniel Nazer