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May 26, 2010


Hank Nothhaft

I would like to address some of the comments made in your May 26th Patent Litigation Weekly article, “International Trade Commission Rebuffs Big Tech, Keeps Door Open to NPEs.”

First, your characterization of Tessera. Tessera develops and licenses technologies that enable electronic devices -- such as cell phones, computers and cameras -- to be smaller and less expensive. We also manufacture and sell products based on this technology. We operate two manufacturing facilities, spend $65 million a year on R&D, and employ 470 people -- of whom more than 60 percent are technologists.

Second, this article doesn’t differentiate between “licensing companies” and “patent trolls.” By using the terms interchangeably, you confuse the genuine harm sometimes caused by “patent trolls” with the beneficial effects of “non practicing entities” (or NPEs) that invent and license valuable new technologies rather than manufacture these themselves.

In the research for my upcoming book from Harvard Business School Press -- entitled “Great Again!” and coauthored by journalist David Kline -- we discovered that it was precisely the ability of innovators to specialize in invention while leaving manufacturing and sales to others that enabled America to become the most innovative and successful economy in history.

The founders of our nation deliberately designed the American patent system to do what no other patent system in the world had ever done before -- namely, stimulate the inventive genius and entrepreneurial energy of the common man. And they succeeded at that task brilliantly.

Of the 400 iconic “great inventors” of the nineteenth century, more than 70 percent had only a primary or secondary school education. Half had little or no formal schooling at all. And many of the most famous names in American invention -- including Thomas Edison -- had to leave school early to support their families.

Without wealth of their own, these innovators could not commercialize their inventions. Instead, aided by publications such as Scientific American that were founded for the purpose of facilitating a market in new technology, they licensed their discoveries to enterprises or groups of investors that could.

Such licensing by 19th century NPEs, say economic historians B. Zhorina Khan and the late Kenneth Sokoloff, “made it possible for creative individuals to specialize more fully in inventive work.” And this in turn, they say, produced “higher rates of productivity in the generation of new technological knowledge.”

Only 13 years after the first patent law was enacted by Congress, the per capita patenting rate in the U.S. had far surpassed Britain’s -- until then the undisputed leader of the industrial revolution -- even though Britain still had more than twice America’s population. By 1860, the number of new inventions patented in the United States was an astonishing seven times the number in Britain, although our populations were by then approximately equal in size.

Patent assignment records from the 19th century show that 2/3 of all of America’s “great inventors” -- from Thomas Blanchard to Thomas Edison -- were actually NPEs who licensed their inventions rather than manufacture them themselves.

Without these innovators, there would have been no industrial revolution. And America would not have become the global leader in innovation that it is today.


Henry R. Nothhaft


I'm glad to see that the ITC is acknowledging what more courts and others will soon have to acknowledge: that NPEs (formerly, "patent trolls") are based on a valid and viable business model whose popularity will, I suspect, only increase with time. In fact, I'll bet that more and more companies will see fit to jettison some of their R&D in favor of pure licensing.

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