Archive for July, 2015

Northwest Ohio’s Advantages as a Manufacturing Location

Thursday, July 30th, 2015

I was recently provided the opportunity to tour manufacturing plants in the Toledo, Ohio region by the Regional Growth Partnership (RGP), a privately held economic development corporation. Coming from drought-stricken San Diego where everything is brown to the lush green of Toledo was like being in paradise. I was even more impressed by the diversity and use of advanced technology, automation, and robots at the companies we visited. These were no “rust belt” companies.

John Gibney, V. P., Communications and Marketing, of RGP, was our tour host for the five plant visits we did over a two-day period. There were three of us journalists on the tour, Jill Jusko from Industry Week, Jenny McDonald from Manufacturing News, and myself as a freelance journalist. Also along were photographer Ana Duee from JobsOhio and Hannah Dixon of Development Counsellors International, RGP’s Public Relations firm that selected us for the tour.

As a 100 percent, privately funded economic development organization, the Regional Growth Partnership can operate beyond political boundaries. Investors include major corporations in the region, banks, utilities, universities and service providers such as law, finance, and insurance firms. The RGP offers a full range of traditional business development services, working in collaboration with its partners across the region to expedite and simplify the site selection process.

The RGP vision is that “Northwest Ohio and the adjoining Michigan region will be a premier global location for business and a leader in knowledge-based economic growth.” Their mission to achieve this vision is that “We will be the primary, private sector contributor to a collaborative regional economic development enterprise driving growth in jobs, capital investment, and wealth to Northwest Ohio and Southeast Michigan.”

The RGP serves as Northwest Ohio’s network partner for JobsOhio, “a private, nonprofit corporation designed to drive job creation and new capital investment in Ohio through business attraction, retention and expansion efforts.” The RGP is one of the six regional economic development partners of JobsOhio, known collectively as the JobsOhio Network. The Network “provides the necessary connectivity to achieve a One Firm, One State approach to selling Ohio.”

I asked John if the region had lost any major companies or divisions of during the depth of the recession, and he responded, “No, we did not lose any corporations. We had cutbacks and layoffs during the depth of the recession, but no actual company relocations.” He added, “We had a peak unemployment rate of 13.8% in June 2009 for the Toledo Metropolitan Area, but it dropped down to 4.8% by May 2015.

I also asked John what has been their biggest success story of recruiting a company to locate in their region, and he replied, “Brazilian firm Valfilm North America purchased the former Dow Chemical Company plant in Findlay, saving the 55 employees left over from Dow. The company expects to add an additional 80 jobs with capital investment in excess of $13 million. Findlay beat out sites in South Carolina and Texas in a competitive search process.”

In data provided by RGP, I noted that out of a total workforce of 635,057 in the 17-county Northwest Ohio region, there are 172,805employed in Manufacturing. I calculated that nearly 25% (24.8) of the workforce have associate, bachelor, or graduate degrees, and 63.7% are between the ages of 25-54, so it is a younger workforce that most regions.

As a director on the board of the San Diego Inventors Forum, I was most interested in the fact that “the RGP created Rocket Ventures, a business assistance and pre-seed venture capital organization that operates in an 18-county area of Northwest Ohio. Rocket Ventures, LLC’s mission is to prepare technology-based start-up companies for funding and sustainability by providing intensive business assistance, enhanced management services, and pre-seed investments. Its vision is to create high-tech, high-wage jobs and to generate wealth in Northwest Ohio. Eligible clients of the organization possess significant intellectual property for revolutionary technologies.” I know how important it is for startup ventures to be able to get the investors they need to go complete their product development process and get their product successfully launched in the marketplace.

The Regional Growth Partnership’s business development efforts are focused on six primary cluster industries:

  • Advanced & Alternative Energy
  • Advanced Materials & Manufacturing Technologies
  • Automotive
  • Bioscience
  • Food Processing & Agribusiness
  • Transportation & Integrated Logistics

Toledo and Northwest Ohio have been called the “Solar Valley” because of having nearly 2,000 people working in industries related to photovoltaic development. “Moving forward, Toledo and Northwest Ohio are uniquely positioned for success in the solar industry due to a manufacturing and glass-making heritage, world-class research and educational facilities, thin film next-generation photovoltaic expertise and supply chain resources and logistics. In addition, the State of Ohio in 2010 designated Northwest Ohio as a Solar Hub of Innovation.”

Two of the companies we visited are in the Advanced and Alternative Energy industry cluster and one was in the automotive cluster.

The first company we visited on our tour was First Solar, Inc., the largest solar assembly plant in North America and the overall company is the world’s largest manufacturer of thin film Cadmium-Telluride (CdTe) photovoltaic modules. Founded in 1999, First Solar was the first solar company to produce 1GW in a single year, break the $1/watt manufacturing cost barrier, and implement a global PV module-recycling program. While the company headquarters is in Tempe, AZ, the U. S. manufacturing plant is located in Perrysburg, a suburb of Toledo, to be in close proximity to their glass technology that is centered in the Northwest Ohio area. They have installed 10GW worldwide and have 3GW in their contract pipeline. After watching a video about the company, Mike Koralewski, Sr. Vice President, Module Manufacturing, Jim Koedam, Plant Manager, and Jay Lake, Manager, Manufacturing Training, gave us a tour of the main manufacturing building at the Perrysburg site that houses four production lines making their solar panels. The campus includes over one million sq. ft. of floor space and they are converting a warehouse to another production building. They have about 1,300 employees in Perrysburg. They also have six manufacturing plants in Malaysia.

We next visited the Rossford plant of Pilkington North America, Pilkington is part of the NSG Group, one of the world’s largest manufacturers of glass and glazing products for the architectural, automotive industry and technical glass sectors.? Founded in 1918, the company was transformed in 2006 with the acquisition of Pilkington plc, itself a global leader in the glass industry and the inventor of the Float Glass process.? The Pilkington name was retained as a brand for the Group’s architectural and automotive products.

Pilkington North America has five float glass lines in the U.S. ? Rossford, Ohio (2); Laurinburg, North Carolina (2); and Ottawa, Illinois (1). The company has approximately 4,700 employees in North America. The Rossford plant makes float glass for the automotive market and also fabricates glass for specialty transport vehicles, such as farm equipment.

V. P. of Sales and Marketing, Stephen Weidner, conducted the tour for us and told us that the Rossford plant has about 2.5 million sq. ft. of floor space and the glass float production line is as long as a football field. At the beginning of the line, the furnace melts the pure Silica in the form of sand, limestone, and other ingredients into a liquid at 2900o C, which is cooled down to 1,050o C as it floats over the liquid tin and then further cooled down to about 200o C by the end of the line, where robots handle the glass until it is scored and broken into the right size for the end product, stacked into “books” of glass, and cooled enough for human handling. This production line was truly an amazing sight to a person who is fascinated by all types of manufacturing processes.

We next visited the General Motors Powertrain plant in Toledo where the six and eight-speed transmissions are manufactured. Plant Manager Joseph Choate gave us an overview of the division and a plant tour of both the six and eight-speed transmission production lines. This plant has about two million sq. ft. of floor space and about 2,000 employees (1,844 hourly and 184 salaried). One interesting note is that he showed us a picture of the solar panels on a portion of the roof of the building supplied by First Solar, providing 10% of their power.

As a sales rep who has sold every kind of metal casting processing, I have never seen such complex, intricate die castings as those supplied to GM. I was also impressed with the integration of robotics and automation with the human production line workers, which essentially made their jobs easier to perform, ergonomically safer, and more varied because every worker is cross-trained for every job in both the six and eight- speed transmission lines. By the end of these three tours, I felt I had walked five miles.

We ended the day by meeting Paul Toth, Jr., President and CEO of the Toledo/Lucas County Port Authority, at the site of the development of the Overland Business Park, an 80-acre site being redeveloped. He told us that it was originally the site of the Willys-Overland plant that converted from bicycle to automotive manufacturing in 1910 and produced the Jeep brand products from the 1940s through 1987, when it was purchased by Chrysler. He said, “The Port Authority purchased the property in 2010 Chrysler during their bankruptcy reorganization and has razed the plant, except for one of the brick smokestacks.” Extensive grading is being done to level the land to provide easier access to the nearby I-75 interchange and two active Class 1 rail lines. We saw the first of several planned Class 1 spec buildings that is nearly finished. What was very interesting to me is that the Toledo Port Authority’s jurisdiction is not limited to land adjacent to Lake Erie or the two tributary rivers as the San Diego Port Authority’s jurisdiction is limited to land adjacent to the San Diego harbor. The Port Authority operates the Port of Toledo, Toledo Express Airport and Toledo Executive Airport, also known as Metcalf Field, and acquired Central Union Terminal from Conrail in 1994, which was rededicated in 1996 after a $3.1 million renovation.

In addition, the Port Authority entered the business finance arena in 1988 and has assisted in financing close to 300 economic development projects representing a total investment of more than $1 billion while helping to create and retain more than 15,000 jobs. The Toledo-Lucas County Port Authority operates the Northwest Ohio Bond Fund.

On day two, we first visited Plastic Technologies, Inc. (PTI), located in Holland, where Chairman and founder Thomas Brady, Ph.D., and President and COO Scott Steele gave us a thorough company overview and tour of their facility. PTI is the leading industrial source for preform and package design, package development, rapid prototyping, pre-production and material evaluation engineering of PET bottles and containers. PTI manufacturing capabilities include injection molding of preforms and blow molding utilizing these injection molded performs. I have seen the extrusion type of blow molding being done here in San Diego, but had never seen blow molding using injection molded performs, which is a much faster process.

We concluded our day with a visit to Surface Combustion, which is celebrating its 100th anniversary this year. Dan Goodman, V. P. Sales & Marketing said that Surface Combustion was founded in Bronx, NY in 1915 to utilize patents covering a heating concept called “surface combustion.” The company relocated to Toledo in 1924 to serve the growing Midwest industrial base and Toledo glass industry. Surface Combustion has used its technology to design and build a diverse array of thermal systems (furnaces) and equipment, such as atmosphere and vacuum furnaces, atmosphere gas generator equipment, and steel mill equipment. It became a family-owned business when William Bernard, Jr. became the majority owner and President in 1998. The 66,000 sq. ft. plant has four manufacturing bays capable of assembling equipment that could be as tall as 25 ft. and as long as 35 ft. in the highest bay, utilizing their 20-ton overhead crane.

There is interconnectedness between four of the five companies we toured. NSG Pilkington makes the glass that First Solar uses to manufacture their solar panels. GM Powertrain has First Solar panels installed on its building. GM Powertrain either directly or indirectly uses heat-treating equipment produced by Surface Combustion. The common reason why all these companies are located in the Toledo region is the abundant source of natural gas as an energy source. The Northwest Ohio region offers some of the lowest industrial electric rates in the Midwest (4.73 cents per kilowatt-hour for industrial electricity.)

A trained, educated workforce is also another advantage of the region served by the Regional Growth Partnership. In addition, recent tax reforms in Ohio have reduced the tax burden by up to 63%. Toledo is located with a day’s drive of nearly half the U. S. and Canadian industrial markets representing nearly 100 million people according to data from the Port Authority. All of these factors add up to making the Northwest Ohio region an attractive manufacturing location.

However, I can’t say it better than what President and CEO Dean Monske said at our dinner, “I am born and raised in the Toledo area but I have traveled the world extensively and gotten the opportunity to witness and experience a wide range of diverse economies. For me, I still come back to Toledo as the perfect place to build your business and love your life. So, yes, I am a passionate champion of this region. But for the Regional Growth Partnership, our biggest cheerleaders in selling Northwest Ohio are the corporate leaders who have lived around the world and chosen this area to live and raise their families. They are our greatest advocates.”

Posted in Economic Development, Jobs, Manufacturing, Technology | No Comments »

Defense Department’s Globalization of Supply Chain Threatens our National Security

Tuesday, July 21st, 2015

Over three years ago, I wrote an article (May 21, 2012), about the release of the Senate Armed Services Committee report on counterfeit parts in the Department of Defense supply chain. The Committee had found over 1,800 cases of counterfeit parts in just the Air Force C-130J and C-27J cargo plane, as well as assemblies used in the Navy’s SH-60B helicopter.

To address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by the Department of Defense and the defense industry, an amendment to the National Defense Authorization Act for Fiscal Year 2012 was adopted in the Senate and signed by President Obama.

Instead of implementing the requirements of the Act, it appears that DOD “has entered a new phase of its centuries-long development, the latest characterized by globalization of supply chains and the inability of U.S. defense contractors and laboratories to drive technological change” according to Richard McCormack, publisher and producer of the Manufacturing & Technology News, May 20, 2015 edition.

In this issue, McCormack reported on comments made by Bill Lynn, CEO of Finmeccanica North America and former Deputy Secretary of Defense from 2009 until 2011, at the April 29, 2015 meeting of the Center for Strategic and International Studies in Washington, D.C.

The defense sector and the U.S. military have “moved from being a net exporter of technology to a net importer,” Lynn stated, adding “When their R&D budgets are combined to total a scant $3 billion (or only 1.6 percent of revenue), the five biggest defense contractors — Boeing, Lockheed, Raytheon, L3 and Northrop — would not even make the list of the top 20 global companies that invest in R&D.”

Lynn told the meeting, “Those are things where the commercial industrial base is stronger than the defense industrial base and in many ways the key to maintaining our future [defense] technology edge is to be able to import those technologies into our defense industrial base… Since many of the underlying technologies now reside outside of the United States, DOD has to figure out how to deal with foreign corporations and state-owned enterprises that hold the keys to its success.”

McCormack noted, “The Department of Defense and its major contractors are now dependent on foreign manufacturers for many of the military’s most advanced weapons systems…The defense industry is a shadow of its former self, representing less than 3.5 percent of the U.S. economy, a position that continues to decline as defense budgets reach new lows with no chance of them growing faster than the economy.”

Lynn commented that ” DOD is slowly catching up to the structural change caused by globalization of technology and supply chains. It is wrestling with the regulatory and procurement systems it has in place to monitor and conduct business with foreign suppliers, but it has little time to waste.”

One of these regulations to which he referred is the Buy American Act that was passed by Congress in 1933. It required the U.S. government to give preferential treatment to American producers in awarding of federal contracts. The Act restricted the purchase of supplies that are not domestic end products. For manufactured products, the Buy American Act used a two-part test: first, the article must be manufactured in the U.S., and second, the cost of domestic components must exceed 50 percent of the cost of all its components.

After the end of the Cold War and the subsequent Gulf War, the provisions of the “Buy American Act” were eased to allow purchasing off the shelf commercial parts (COTS) from foreign countries by the Defense Department and other government agencies if they met the same fit and function of parts made to strict military specifications. Previously, parts, assemblies, and systems were required to be substantially made in the United States or in a NATO country, such as Great Britain, France, and Germany.

In the early 1990s, most commercial parts were still being made in the United States, with some outsourcing to the Philippines, Hong Kong, and Singapore, so this change was pretty safe. Permitting commercial parts to replace Mil. Spec. parts probably drove out of business the small companies that catered exclusively to the military and that provided traceability per Military Specifications for parts supplied to government agencies, military contractors, and subcontractors. This was all done in the name of cost savings. Now, however, most commercial electronic components and microchips are fabricated in China.

The President has authority to waive the Act in response to the provision of reciprocal treatment to U.S. producers. Under the 1979 GATT Agreement on Government Procurement, the U.S.-Israel Free Trade Agreement, the U.S.-Canada Free Trade Agreement, the North American Free Trade Agreement, the Central American Free Trade Agreement, and the Korea Free Trade Agreement, access to government procurement by certain U.S. agencies of goods for the other parties to these agreements is granted.

If the Trans-Pacific Partnership Agreement is approved, the procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in the 10 other countries.

In fact, it was reported by Reuters in January 2014 that “The Pentagon repeatedly waived laws banning Chinese-built components on U.S. weapons in order to keep the $392 billion Lockheed Martin Corp F-35 fighter program on track in 2012 and 2013, even as U.S. officials were voicing concern about China’s espionage and military buildup.

Lynn doesn’t seem to think that there is anything dangerous in allowing more foreign participation in the defense industry, saying “that changing perceptions about foreign involvement in the defense industry are similar to what happened in the U. S. auto sector…Americans and their representatives in Congress were skeptical about foreign nameplates. But as foreign auto companies started building technologies in the United States and hiring American workers, the tide turned…The politicians care about the jobs, they a\care less about the nameplate.”

It is incomprehensible to me to compare what happened to the U. S. auto industry to what is happening to the U. S. defense industry. The whole purpose of the defense industry is to protect our national sovereignty and national security. How can anyone in their right mind want to make our defense supply chain vulnerable to the foreign country, namely China, which has a written plan to replace us as the world’s super power? The Chinese are never going to bu9od plants in the U. S. to make parts for our defense supply chain. They have just stolen our technology to build up their own military power as evidenced by the “uncanny” similarity of China’s newest stealth fighter, the J-31, as well as the Chengdu J-20 fighter jet, to the F-35 Lightning II advanced fighter jet.

Does anyone believe that we will get any parts and assemblies need by our defense industry when China has decided we are so weak that we cannot stop their aggression in Asia. We are not even safe to have parts sourced in Taiwan, South Korea, the Philippines, Malaysia, Indonesia, or Vietnam. These countries would all be targets for takeover by China once they lose their fear and respect for U. S. naval and air power.

When President Eisenhower warned us about the military-industrial complex, little did he know that the military-industrial would be superseded by the consumer-importer complex, which has led to the virtual demise of the military-industrial complex.

Congress must act to strengthen the Buy American Act, not weaken it, eliminate the incentives for offshoring, and provide incentives for bringing manufacturing back to America. We must protect the supply chain for defense and military products and systems, so that Defense Department can fulfill its primary mission of defending our country. If we don’t, we are setting ourselves up for eventual defeat by our future enemies.

 

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Posted in Manufacturing, National security, Outsourcing | 1 Comment »

Patented Technology is Key to RoadLoK’s Success

Tuesday, July 14th, 2015

There is no lack of ingenuity and innovation in the U. S. today. Each year, thousands of new products are invented, and but most are never produced. Knowing how to use technology to create a product doesn’t mean you know how to manufacture it and get it to market. Obtaining a patent is a key factor in achieving success, but you also need to recognize the limitation of your knowledge and expertise and utilize experts in fields you need, such as product design/engineering, patent/licensing, material/process selection for prototyping and production manufacturing, and marketing.

I recently had the opportunity to interview Adam Xavier, founder and CEO of New Hampton Technologies dba RoadLoK Security, who is an example of an inventor and entrepreneur who successfully got his product patented and into the marketplace.

His company distributes products worldwide under the brand name RoadLoK. The company specializes in the design and production of model-specific vehicle locking systems for motorcycles, scooters and off-road power sports vehicles. The RoadLoK is the only locking system that safely and effectively prevents rollaway theft. The system is designed to be permanently mounted on a motorcycle, thereby eliminating the need for storing the lock while riding. The system’s permanent mounting eliminates all momentum, making it virtually impossible to damage calipers and fenders. This is accomplished while also protecting the rider, should the rider forget to unlock the system before attempting to ride off.

I asked how he got the idea for his product, and Adam said, “My twin brother Eric and I were sitting in the outside seating area of a bar the summer after we graduated from college and saw a man forget to take off his lock and tip over his motorcycle. We started talking about a better idea for a lock and drew a sketch on a napkin. The next day, we searched to see if there was a lock similar to our idea, but didn’t find one. We took our sketch to a CAD designer to turn our idea into a design that could be manufactured. A friend from college, Matt Tomosivitch, who had become a machinist, made our first prototype. Matt is now the chief engineer of our company.

Continuing, Adam said, “We made a video of our lock that showed how it worked. We wrote a comprehensive 60-page business plan. We filed for a provisional patent in July 2005. Then, we sent our video to local investor network group in New York and were kicked down to the group in our area, Orange County. The director contacted us, and we gave our pitch in December 2005. We got our first investment check from the Orange County Capital Development Group on February 16, 2006. This investment was enough to get us to our first trade show in March, the International Motorcycle Show in Atlanta, GA.

Adam said that they set up their first office in Middleton, NY and later moved to Newburgh, NY. They spent two years of R&D to finalize the design and raised another $3 million over three years to get into full production. They used 3D printing to make new prototypes as they improved the design. They received a lot of mentoring and hands-on help from their angel investors.

Their first utility patent was granted on December 23, 2008 after their third attempt at an “office action” at the patent office. They got their second patent in 2010.

When they started the company, Adam said that they wanted to keep everything made in the U. S. They used www.thomasnet.com to find all of their vendors. They have seven major vendors for all of the different parts of their product, and they are located in Illinois, North Carolina, New York, and Texas. Their mission is to produce a high quality product, so all of their vendors are ISO 9001-2008 certified to meet the exacting requirements of their customers.

They later moved to California because they needed to have face-to-face communication with their two biggest customers, one located in Murrieta and one in Corona, CA. California also has the biggest population of motorcycle riders.

The executive offices are now located in Santa Monica, CA, but their product is manufactured in Salisbury, North Carolina and assembled to order at their plant in Torrance, CA. Since the RoadLoK is produced to order, production is not automated and does not utilize any robots. They are looking at doing more vertical integration of parts manufacturing. Their screw-machining vendor in Chicago makes two parts, and the patented design of their locking pin has 5 components made by three different vendors.

They started to implement lean principles in 2009 and changed one component from a square rod to an extrusion, which reduced material waste by 62%. They have been working towards reducing other material waste and time since then.

Their original plan was to focus on after-market sales of the product for the first two years and then license the product to motorcycle manufacturers on a non-exclusive basis similar to how the airbag is licensed to car manufacturers. Now in its 9th year of operations, RoadLoK’s largest customers are KTM Sportmotorcycle and Ducati with others to be announced within the next year.

When asked how his company has been impacted by competition from offshore in Asia, Adam said, “We don’t have any direct competitors offshore, just cheaper substitute locking mechanisms. We are selling in Australia, Japan, and China and recently selected a company to partner with to produce parts in China to sell to the Chinese market. We have started the process to file a patent in China. We need to have manufacturing plant in China to sell to the Chinese market because of the high import duties. Brazil is another county we are looking at to set up a manufacturing plant because of the high import duties. There would be a win/win benefit of jobs to the community and provide a much-needed product for the people.”

I naturally asked how the recession affected his company when they were only a little over two years old when it started in late 2008. Adam said that they were spending about 85% of their time setting up a distributor network and program to sell to dealers utilizing direct sales persons. But, motorcycles are purchased with discretionary income, which dried up during the recession as people lost their jobs. So, their direct sales to motorcycle riders through distributors/dealers dropped drastically. To survive and grow, Adam said, “We had to reduce our direct sales staff and reduce our travel costs. We changed our sales model to online retail sales and direct sales to motorcycle manufacturers. This model has helped us grow and succeed. We have also started R&D on the next generation of vehicle immobilizers to other two or more wheeled vehicles that do not have a transmission.”

Adam had read my article on “Which Patent Reform Bill Doesn’t Destroy the American Patent System?” and said, “Our having a patent pending was key to getting investors and having a patented product has been the key ingredient to our success as a company. Investors want the protection of a patent, but they wouldn’t take the risk of being made personally liable. There is no way that we could have gotten investors if our investors had been personally liable for defending our patent in a patent infringement lawsuit.” Note: Adam was referring to the “Loser Pay’s provision of H. R. 9 and S.1137.

If we want to have more successful companies manufacturing products in America, then we need to protect our American Patent System and stop H.R. 9 and S. 1137 from being passed. Instead, we need to pass the Strong Patents Act of 2015, S. 632, which will “Enact balanced reforms to reduce abuse while sustaining American leadership in innovation.”

 

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Posted in Innovation, Manufacturing, Patent Reform, Technology | No Comments »

Fight to Stop Fatal Patent Bills Heats up

Tuesday, July 7th, 2015

Thanks to support from inventors and inventor groups all over the country, Randy Landreneau and Paul Morinville of US Inventor and Independent Inventors of America are continuing their fight to stop the bad patent bills: The House’s Innovation Act, H. R. 9, introduced by Rep. Bob Goodlatte (R-VA) on 2/05/2015, with the “Manager’s Amendment” version passed by the House Judiciary Committee on 6/11/2015, and the Senate’s PATENT Act, S.1137, introduced by Senator Grassley (R-IA) 4/29/2015, with the “Manager’s Amendment” version passed by the Senate Judiciary Committee on 6/04/2015.

In the latest email update from Mr. Landreneau, he reports that he held 65 meetings with House Congressional staff in the last two weeks of June to educate them on why H.R. 9 would crush American innovation. He attached his latest paper, The Innovation Act is Fatal to the American Innovation Ecosystem and Mr. Morinville’s latest paper, We’ve Been Googled.

In his paper, Morinville states, “H.R.9 creates a Patent System without Inventors. Over the last decade, Google and others have spent hundreds of millions of dollars to lobby Congress and produce an ingenious ‘patent troll’ narrative, which distorts the reality of invention in America. In this decade long war on inventors, H.R.9 is the Google lobby’s latest accomplishment. Not surprisingly, H.R.9 is not directed to fixing the fictional problem of ‘patent trolls.’ Instead, H.R.9 mounts its considerable damage on the patent system in general, specifically harming inventors and small patent-based businesses.”

Morinville explains, “If this bill becomes law, inventors will not be able to enforce their patent rights against moneyed corporations like Google. However, moneyed corporations like Google will still be able to enforce their patents against small businesses with even more devastating consequences to those small businesses. Patent litigation is about risk and cost versus reward. If risk or cost is too high in relation to reward, a patent cannot be enforced.”

In is paper, Landreneau states, “With presumptive Loser-Pays, regardless of the merit of any case, the party that does not prevail will automatically owe the other side its legal costs, which could exceed $1,000,000. To avoid this, the non-prevailing party will be forced to re-litigate the case to prove each point objectively reasonable.” He further explains that in addition to making every case more expensive, there will be an additional, even more damaging effect on independent inventors.

The independent inventor will almost always require a contingency attorney to stop the theft of his or her property. Under presumptive Loser-Pays, his attorney will have to be willing to go the extra mile, after losing, for no pay. This will cause many independent inventors to not be able to find representation and have any access to justice.”

Why is this important? Because most new technologies, especially break-through or disruptive technologies come from individual inventors who either start a company or license their technology to companies that are more able to take them to the market.

As a director on the board of the San Diego Inventors Forum, I see new consumer products and break-through technology introduced at our monthly meetings, and the best compete of these compete in our annual inventors’ contest for best new consumer product and best new technology. Our next inventors’ contest will be held on August 15th. All contestants must have applied for a patent before they can participate. The future success of their product or technology is contingent upon their having a patent they can protect from infringement. Their ability to raise the financial investment they need to bring their product to the marketplace depends upon their being able to protect their patent. No investor will take the risk of investing in a product or technology that cannot be protected.

I will not repeat a discussion of what is wrong with H. R. 9 and S.1137 that I discussed in a previous article, “Which Patent Reform Bill Doesn’t Destroy the American Patent System?” but suffice it to say that these bills would essentially destroy the American Patent System. The Loser-Pays clause would make it virtually impossible for independent inventors and small businesses to protect a patent and get investors. Only large corporations would be able to absorb the costs of patent infringement litigation. The economic benefits of patents granted in different metropolitan areas of the U. S. could come to a screeching halt if either of these two bad patent bills is passed. Either bill would squash the American innovation that is so essential to our national prosperity and the prosperity of many metropolitan areas.

In a February 2013 Brookings Institution report, “Patenting Prosperity: Invention and Economic Performance in the United States and its Metropolitan Areas,” an analysis of national and metropolitan area invention from 1980 to 2012, revealed:

  • “The rate of patenting in the United States has been increasing in recent decades and stands at historically high levels.
  • Most U.S. patents—63 percent—are developed by people living in just 20 metro areas, which are home to 34 percent of the U.S. population…the metro areas with the highest number per capita are San Jose; Burlington, VT; Rochester, MN; Corvallis, OR; and Boulder, CO.
  • Inventions, embodied in patents, are a major driver of long-term regional economic performance, especially if the patents are of higher quality.
  • Research universities, a scientifically educated workforce, and collaboration play an important role in driving metropolitan innovation.
  • Patents funded by the U.S. government tend to be of especially high quality, and federal small business R&D funding is associated with significantly higher metropolitan productivity growth.”

Of interest to those of us in California is the fact that when comparing the average granted patents per year and the patents per million residents from 2007-2011, California ranks very high. The report states “… a few large metros notably changed their share of U.S patents. At the top, San Jose moved up from ninth to first, and San Francisco moved from seventh to fourth, moving ahead of Chicago, Philadelphia, Detroit, and Boston. Seattle and San Diego moved up 15 and nine places, respectively, to become seventh and eighth. Meanwhile, Austin and Raleigh moved up 41 and 55 places, respectively, to become 11th and 20th. Cleveland fell 10 slots from 13th to 23rd, while Philadelphia fell from fourth to 13th.”

In his paper, “The Innovation Act, H.R.9 is Fatal to the American Innovation Ecosystem, Randy Landreneau explains why H. R. 9 would be harmful, saying, ” A key reason that America has out-innovated the rest of the world for 200 years is the way the unique American Patent System has not only encouraged individuals to innovate, it has also facilitated the flow of capital into the resulting innovations. A key ingredient in this successful recipe has been the ability to stop the theft of the intellectual property represented by a patent, which results in a valuable patent asset that can be used to attract venture capital and build a successful enterprise… An early-stage investor in a start-up that fails often ends up with little more than the patent. If he then has limited patent rights and significantly greater risk in defending the patent, as is being proposed, then the patent asset loses significant investment value. In a scenario that is already high in risk, the changes proposed by The Innovation Act will severely reduce investment, and the incentive for American innovation will be lost. What is being proposed destroys the innovation ecosystem that has enabled America to be the world leader in innovation.”

 

It is expected that the House will vote on H.R.9 the week of July 13th, so it is critical that we add our voices to its opposition now. The Senate’s S. 1137 will be on the Senate floor soon as well. More attention seems to be paid if you call the Washington, D. C. office of your Congressional representatives and senators than their local office. If you don’t know the names of your representative or senators, search online or call the main switchboard number 202-225-3121 and ask for your representative or senators. Tell your representative to oppose H. R. 9 and tell your senators to vote “no” on S.1137. Ask your senators to support the Strong Patents Act of 2015, S. 632. Don’t let them destroy the goose that lays the golden egg ? the American Patent System that fosters American innovation, which provides jobs and prosperity to our country.

 

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