Ethics in Our Political System

A society’s ethical behavior is shaped from the top.  Unfortunately, our political body…all the way through the ranks of Congress…is riddled with corruption. 


“For three weeks in June, for instance, the members of a joint House and Senate committee worked to draft final rules for regulating the financial industry in the wake of its 2008 meltdown. During that time, the 35 members of the drafting committee collected $440,000 in donations from that same industry, which was then lobbying heavily for looser rules.” --- the watered down, useless Frank-Dodd bill was the result.


“Earlier this month, the chairman of the Senate committee overseeing tax policy, Sen. Max Baucus (D-Mont.), gave himself a birthday-party fundraiser – on the same day that the chamber took its first vote on an $858 billion tax package that would provide breaks to wealthy citizens and business interests.”


Baucus who is a member of the deficit super-committee, is a poster child of unethical behavior and abuse of power.  In the 2008 financial meltdown…Baucus “stepped out of an apocalyptic meeting, picked up his phone, and put his money into funds that would rake in more if the markets tanked.


Congress does not have insider trading laws even though they are the ultimate insiders.  By why should we need such laws to regulate the behavior of our Congresspeople?  Our leaders serve at our pleasure not theirs.  It is an honor and a deep responsibility to serve in Congress.  Unfortunately it seems that, all too often, members of Congress are using their positions of power to enrich themselves.  As my father liked to say, “absolute power corrupts absolutely!”  Some of the bad behavior is a consequence of our system of political campaign financing and lobbying.  It is critical to reform this area of politics. 


Once corruption takes hold in our highest offices and is implicitly tolerated by a quiet electorate, it’s a very short journey to third-world status.  Let’s get off this path of decline now!


Patent Reform


The US Constitution provides for the granting of monopolies to inventors in return for their teaching their inventions to society.  It is a bargain society strikes with inventors to increase the overall welfare of society.  How far our patent system has departed from that arrangement!  We have a system in which patent trolls can hoard patents for the sole purpose of extorting profits away from the innovators and the creators of value in our society.  The system is also used to block competition from start-ups rather than protecting those startups.  The cost of litigating patents is too high for most startup companies to afford.  Therefore the threat of litigation is enough to prevent financing of startup companies or enough to drive startup companies into bankruptcy.  If that doesn’t happen then typically the defendant will cough up $300,000 to settle with the plaintiff to avoid financially ruinous litigation.  This exactly what happened at the first startup company I worked for: we were sued for patent litigation by a large company that was threatened by our technology.  They were not able to identity which of our products was allegedly infringing or how our products were infringing!  The suit was absurd and frivolous; nonetheless, we settled. 


A good snapshot into the state of our patent system is provided in this edifying transcript from This American Life.


We need to reform our patent system.  A simple way to curb abuses of the patent system would be to raise the bar on what it takes to bring a patent infringement lawsuit:


  1. The concept must have been brought to practice[1] by the plaintiff.  The patent holder can’t circumvent this requirement simply by developing the product for sole purpose of bringing the lawsuit.
  2. Either (a) the plaintiff must be the original assignee of the patent, or (b) the patent must be relevant to the market the plaintiff's business is in. 


A loser pays system would be useful too (see next topic). 


Tort Reform


70% of all litigation in the world happens in the United States of America.  In America it is all too easy to bring forth frivolous lawsuits.  The cost of litigation and even the threat of litigation is a huge source of friction for the economy.  It increases the cost of insurance, it hinders innovation and it represents a large, direct cost to business.  In 2006, the direct cost of litigation in the United States was $247 billion!  As a fraction of GDP, that is three times the cost of litigation to the United Kingdom.  Because of the high cost of lawsuits, even if you successfully defend yourself you still lose.  Many of us have been included in class-action lawsuits in which each member of the class receives a couple of dollars in the payout settlement whereas the lawyers make millions.  These cases give us first-hand experience that the real beneficiaries of the American legal system are the lawyers, and only the lawyers.


In other countries including most of Europe there is a “loser pays” system which significantly reduces nuisance and frivolous lawsuits.  There are many variations including penalties for rejecting a settlement offer when the final outcome is less than what was offered.  The system must include payment for the cost of lawyers and expert witnesses.  In Alaska, which has always had a loser-pays rule, tort suits constitute only 5 percent of all civil legal matters—half the national average.


A good report on loser pays is available here.


[1] In order to be granted a patent, the invention must be non-obvious, novel and enabled.  Enabled means that there’s enough information in the patent application so that one skilled in the art could re-created the invention.  By bringing the patent to practice, the plaintiff will have demonstrated enablement.