The Independent Institute


SCOTUS Slaps Patent Trolls

In a unanimous decision (TC Heartland LLC v. Kraft Foods Group Brands LLC), the U.S. Supreme Court gave a kick in the rear to patent trolls. The Verge has this article on the case.

Patent trolls obtain patents not for the purpose of producing an invention or a technology but to license and enforce the patents. In other words, trolls have no plans to actually make the patented product or process; instead, they prefer to lie in wait, letting someone else do the heavy lifting and then suing just as the new creation is about to take off commercially. It is a shakedown process that threatens innovation.

In a nutshell the Court held that venue in patent suits exists where the defendant company is incorporated. Until this decision, a patent troll had great liberty to choose the forum in which to sue an alleged patent infringer and often chose plaintiff friendly locations such as the Eastern District of Texas. Typically, the defendant corporation had no ties with this district, which has been described as a “judicial hellhole.” But a prior appellate court decision held that suit was proper wherever the defendant sold products. So, for example, if Apple sells smart phones in east Texas, it was subject to venue there. No more. (For a discussion of venue in patent troll cases, see my book Patent Trolls, specifically pp. 50-51.)

The Electronic Frontier Foundation has this summary about the import of the ruling:

While today’s decision is a big blow for patent trolls, it is not a panacea. Patent trolls with weak cases can, of course, still file elsewhere. The ruling will likely lead to a big growth in patent litigation in the District of Delaware where many companies are incorporated. And it does not address the root cause of patent trolling: the thousands of overbroad and vague software patents that the Patent Office issues every year. We will still need to fight for broader patent reform and defend good decisions like the Supreme Court’s 2014 ruling in Alice v. CLS Bank.

Agreed. The war against patent trolls is far from over, but TC Heartland certainly improves the situation.

Three Haiku on Regime Uncertainty

Aphorism says

Personnel is policy

Trump’s team in chaos

No one knows what’s next

Actors and actions in flux,

Regime’s uncertain

Situation grim

Investment makes little sense

No prospect of growth



Another Bubble in the Making?

Moral hazard, easy money, and cheap credit have never produced good results. History is littered with examples of financial disaster brought about by monetary manipulation originating in central banks and then spreading to other parts of the system. One would think that the 2007/8 credit crisis, whose effects have not quite withered away, would teach politicians, central bankers, corporations, and consumers something about the causes of credit crunches and meltdowns.

Think again. The world’s four largest central banks have pumped more than $9 trillion into the system since the last financial crisis and brought about a world of absurdly low and even negative interest rates. The incentives generated by these policies and their effects—moral hazard, easy money, cheap credit—will lead, at some point, to the bursting of new bubbles.

Which ones? It’s never easy to say, but the United States has seen an unhealthy growth of subprime credit, and credit in general, in three markets—credit cards, auto loans, and student loans. It would not be a surprise if one of these brought about the next credit crunch.

Total credit card debt has surpassed the $1 trillion mark for the first time since 2009, student loans now amount to a total of $1.4 trillion, and auto loans are not far off at $1.2 trillion—an amount that dwarfs the pre-financial crisis peak.

Trinity Lutheran and a Response to Michael Stokes Paulsen and NRO

On May 3, The Wall Street Journal posted a short op-ed I wrote on the Trinity Lutheran case. (Sorry, but the op-ed is behind a pay wall; however, here is a blog post that gives some background to the case and my first impressions.) Professor Michael Stokes Paulsen, alleging I was “wrong on every count” with my opinions, took to NRO where he describes my op-ed as “bizarre” and says I lack basic knowledge of federal claims and federal jurisdiction. I especially liked his dig that his first semester law students have a better understanding of a plaintiff’s right to choose a forum than I do.

Rather than fire back with insults, I prefer to give the Professor the benefit of the doubt. The Journal imposed word-count of 550 and I confess it was difficult to make my points and adhere to this limit. So, I’ll just assume that this restriction and my choice of what to cut from the original piece, which was twice the length of the final version, led a fine scholar such as Paulsen to miss the entire point of the op-ed.

At base, I wanted to tackle the issue of why acrimony reigns in our law and politics. Trinity Lutheran Church v. Comer, in my opinion, provided a microcosm of what ails us. In modern American politics, every issue is a national issue where the winners take all. We no longer have a functioning federal system where states can serve as laboratories of democracy. Health care, the regulation of “controlled substances,” and marriage are all examples of the one-size-fits-all system. Because of the demise of the federal system, opposing parties fight to the death and give no quarter to opponents.

Trinity Lutheran is but another example of this. Much of the chatter on the internet about this case looked at long-term national policy implications of the decision. In general, conservatives wanted the decision of the lower courts overturned in hopes this would further open the door for right-wing pet programs such as use of vouchers in religious schools. The Left, distrustful of the “opiate of the masses” and still believing that more money is the answer to the education crisis, wants to keep children in government schools and preserve a wall of separation between church and state. Many on the Left, in opposing the Gorsuch nomination, warned that he could be the deciding vote in the case.

Pope Francis’s Failure to See Entrepreneurs as Good Samaritans Undercuts the Poor

On April 25, a videotaped talk by Pope Francis was released at the international TED conference in Vancouver, Canada. The 18-minute talk, titled “Why the Only Future Worth Building Includes Everyone,” can be viewed here.

Francis highlighted three themes, beginning with the observation that community is central to human existence:

[L]ife flows through our relations with others. . . . [E]ach and everyone’s existence is deeply tied to that of others: life is not time merely passing by, life is about interactions. . . . [W]e all need each other, none of us is an island, an autonomous and independent “I,” separated from the other, and we can only build the future by standing together, including everyone.

A better future is attainable, Francis said, but only if “we don’t lock our door to the outside world.” Peaceful social interactions are key to healthy communities and strong societies.

Next, Francis stressed the moral responsibility of every person to put themselves in the place of others, to see the world through their eyes, and to help those who are less fortunate. This “solidarity” of mankind, the pope explained, was exhibited by the Good Samaritan in the Bible who personally sacrificed to help a stranger in need who was found along a dirt road. As the parable relates, the Good Samaritan displayed true compassion by sacrificing his time, effort, and money to help.

Francis hopes that solidarity will become the “default attitude in political, economic, and scientific choices, as well as in the relationships among individuals, peoples, and countries.” He views the story of the Good Samaritan as the story of today’s humanity, where “thousands of human beings, or entire populations, [are being left] on the side of the road. Fortunately, there are also those who are creating a new world by taking care of the other, even out of their own pockets.”

Finally, Francis urged people in power to “act humbly”:

Please, allow me to say it loud and clear: the more powerful you are, the more your actions will have an impact on people, the more responsible you are to act humbly. If you don’t, your power will ruin you, and you will ruin the other. There is a saying in Argentina: “Power is like drinking gin on an empty stomach.” You feel dizzy, you get drunk, you lose your balance, and you will end up hurting yourself and those around you, if you don’t connect your power with humility and tenderness.

The themes in Francis’s TED talk are very much in the tradition of classical liberalism: community, open social interactions, helping others, and humble, transparent institutions. What is troubling about Pope Francis is that he spends much of his time traveling around the world advocating for policies that undermine these goals.

Since becoming the Roman Catholic Church’s 266th bishop of Rome in March 2013, Pope Francis has endorsed a larger and more powerful role for governments around the world and for international organizations. As Hayeon Carol Park and I show in “Pope Francis, Capitalism, and Private Charitable Giving” (part of a special symposium of The Independent Review titled “Pope Francis and Economics,” Winter 2017), Francis frequently lambastes capitalism and calls for more government redistribution of wealth and property, aided by international organizations to facilitate these transfers.

Rather than “humble” institutions, Francis calls for centralized governments and international bodies to act with hubris, replacing their plans and values for those held by individuals. The government-coerced-redistribution model favored by Francis has left a trail of tears and destruction everywhere it is pursued. Foreign aid, often government-to-government transfers, generally props up dictatorial and kleptocratic governments that murder and steal from their own people. Governmental and multinational spending is often used to bail out cronies of corrupt government authorities for failed business and banking ventures, at the expense of the “discarded people,” as Francis calls them.

William Easterly demonstrates convincingly that even as foreign aid into Africa soared during the 1980s and 1990s, African economies performed worse. He thus writes in his book The White Man’s Burden, “Remember, aid cannot achieve the end of poverty. Only homegrown development based on the dynamism of individuals and firms in free markets can do that.”

The most effective path to lifting people from poverty by the millions is decentralized market-based entrepreneurship. Recent progress in China and India, where hundreds of millions of people have escaped some of the worst poverty on earth, was the result of governments expanding economic freedoms. Francis does not recognize that what he advocates around the world undermines the core institutions of capitalism needed for this process to work successfully.

His call to weaken private-property rights and decrease economic freedom results in slower economic growth, and shrinks the surplus that people use to start new businesses, hire more employees, and engage in effective private charitable giving. Unfortunately, the approach Francis advocates generally results in more human suffering, not less, thus undercutting his call to help the poor. He does not see the contradiction between his TED talk and his actions around the world to strengthen government power and undermine entrepreneurship.

Fortunately, Francis’s talk hints at the most effective approach to lifting people out of poverty, which is market-based entrepreneurship. Francis said, correctly:

The future of humankind isn’t exclusively in the hands of politicians, of great leaders, of big companies. Yes, they do hold an enormous responsibility. But the future is, most of all, in the hands of those people who recognize the other as a “you” and themselves as part of an “us.”

This aptly describes the entrepreneur, who dedicates his or her life to solving problems faced by others, and invests and risks his or her own time, effort, and money for the good of others. Entrepreneurs are true Good Samaritans. Jesus said people should follow the example of the Good Samaritan, who did not wait for a government program, but rather acted to personally help address someone’s problem.

Francis challenged each of us to be part of the solution, “to use our hands and our heart to comfort the other, to take care of those in need.” Again, this describes the entrepreneur, who is alert to other people’s unmet wants and seeks ways to satisfy these wants (see, for example, the classic 1973 book Competition and Entrepreneurship by Israel Kirzner). Most of the time, entrepreneurs are humble, toiling scattered around the world and often losing their investments in ideas that don’t pan out (the exception being entrepreneurs under crony capitalism and other forms of corrupt governments who are bailed out by governments—the “gin” at work).

Francis said:

[T]he future does have a name, and its name is hope. . . . Hope is the virtue of a heart that doesn’t lock itself into darkness, that doesn’t dwell on the past, does not simply get by in the present, but is able to see a tomorrow. Hope is the door that opens onto the future. Hope is a humble, hidden seed of life that, with time, will develop into a large tree. . . . A single individual is enough for hope to exist, and that individual can be you.

This again describes the entrepreneur, an individual with a dream that is turned into an idea which becomes reality and transforms the world for the better. Entrepreneurs create the future, or, as Francis would say, they create “a new world.” Whether it is defeating diseases or improving transportation or advancing communications or providing better water or sewage systems, entrepreneurs, not governments, are responsible for the great leaps forward—they are responsible for the hope. History demonstrates that governments tend to destroy hope, both with weapons and with obstacles to innovation.

The most effective anti-poverty program is a job. The most effective development strategy is sustained private investment by market-based entrepreneurs. Unfortunately, Pope Francis undercuts both with his worldwide crusade against capitalism.

* * *

Lawrence J. McQuillan is a Senior Fellow at the Independent Institute and a contributing author in the Independent Institute book, Pope Francis and the Caring Society, edited by Robert M. Whaples, with a foreword by Michael Novak.

Review: Guardians of the Galaxy Vol 2 Romps Through Space with Purpose

Chalking up Guardians of the Galaxy Vol. 2 as a just a fun romp through the universe with the galaxy’s most dysfunctional family would be easy. But the film, like the Marvel comics that inspired it, is much more. Writer-director James Gunn (Slither, Dawn of the Dead, Guardians of the Galaxy) has done an artful job fusing humor, action, first-class special effects, and social commentary to create a story that provokes deeper questions about the nature of man and the rise of tyranny.

The action, and the humor, starts with the opening credits as audiences are re-introduced to the bickering siblings of circumstance: Peter Quill (Chris Pratt, Guardians of the Galaxy, Jurassic World, Passengers), Gamora (Zoe Saldana, Star Trek, Avatar, Colombiana), the irreverent Drax (Dave Bautista, Riddick, Spectre), the raccoon weapons master Rocket (voice of Bradley Cooper, American Sniper, Silver Linings Playbook), and woodland creature Baby Groot (voice of Vin Diesel, The Fast and the Furious, Chronicles of Riddick, xXx). They begin Volume 2’s journey by defending the Sovereign race, headed by Ayesha (Elizabeth Debicki, The Great Gatsby, Everest), against an interplanetary monster. Presumably the Guardians have taken on this task to recover Gamora’s sister Nebula (Karen Gillan, Doctor Who, Guardians of the Galaxy, The Big Short), who was imprisoned by the Sovereign race’s leader.

Carl Christ—Eminent Yet Sensible Econometrician and Mentor Supremo

I transferred to the Department of Political Economy at Johns Hopkins University in 1966 to continue my work for the Ph.D. degree, which Hopkins awarded me in 1968. During my two years at Hopkins, I never took a course from Carl Christ, a highly regarded econometrician and macroeconomist there. Yet Carl turned out to have a critical effect on my career as an economist because—strange to say—he was not only a sound economist and econometric pioneer, but a very, very nice guy.

The Health-Care Insurance Quagmire as a Linguistic Problem

The House of Representatives has just passed a statute it represents as “repealing and replacing Obamacare.” This legislation, now awaiting what promises to be major challenges in gaining the Senate’s approval, does amend certain aspects of the Obamacare setup, but all in all the changes are less than earth-shaking, and the previous system will continue in important regards even if the House version should gain approval in the Senate.

One critical aspect of the continuity is the requirement that, absent certain state-level options that might but need not be implemented, health-care insurers will still be forbidden to deny coverage to anyone because of a preexisting condition.

Under Obamacare, insurers had to charge people the same amount, regardless of their health status. The AHCA [American Health Care Act] would change that, allowing states to apply for waivers to charge sicker people more if those people had a gap in their insurance coverage. Those states would then get $138 billion over 10 years to help defray costs for sick people by creating high-risk pools, among other things.

The idea behind this provision is that it would make health insurance cheaper for people who are relatively healthy, while sick people would be in their own, subsidized risk pool. As they debated on the House floor Thursday, Republican members consistently assured their audience that their bill would still protect preexisting conditions. (source)

Government Schools: Sowing the Seeds of Our Destruction

Several years ago, the Independent Institute honored Andy Garcia at our unforgettable Gala for Liberty (other honorees that evening were Bill Bowes and Desmond Tutu).

There was not a dry eye in the house (including his) as Andy Garcia recounted his memories of leaving his home, Cuba, at the age of 5.

Once the Castros had seized power, they passed a law giving the State full rights over all children. As I had been taught by my true-believing Marxist Development Economics professors at Stanford, this is how you build the “New Man” that makes Socialism the ideal society.

Cuban parents not wanting their children to be raw material for Marxist experiments, instead made the ultimate sacrifice and turned their children over to the Catholic church’s Peter Pan project, under which their children were flown to live in freedom with families in the United States—not knowing if they would ever see their children again, and many of whom did not.

Trump Looks Forward to 4% GDP Growth

I take everything Donald Trump says with a grain of salt, including his claim that he believes the US can boost its GDP growth to 4% or even 5% a year. He’s quoted here saying he really believes it, but I hope it’s just more of his bluster.

Why would he think GDP could grow that rapidly? Perhaps because he thinks that as president, he can enact policies to create that growth. But if that’s what he thinks, his thinking is wrong and potentially dangerous.

Government policy does not cause GDP to grow. Private sector entrepreneurship is what causes growth. Government policy does influence economic growth, but mostly by interfering with private sector activity. Venezuela is today’s prime example of the way that government policy can affect economic growth.