Insider Patenting: How Fannie Mae Chief Got the Patent for Cap and Trade in 2006

John Bambenek

Just one day after the Democrats seized control of Congress, the Chief Executive of Fannie Mae, Franklin Raines, received the patent for a residential cap-and-trade system (Patent 6904336), What this means is that Raines, along with several colleagues who also “own” the patent, could stand to make huge amounts of money if the cap-and-trade regime was ever brought to the residential marketplace. What does this have to do with Fannie Mae? Absolutely nothing.

To understand the implications, a little discussion about patenting is needed. Patents are basically “ownership” rights to an invention. If you invent something, you can license it to others to produce and collect royalties. Each year, thousands of patents are sent to the US Patent Office for consideration. Many “patent houses” simply put in very general patents so they can turn around and sue businesses later for “stealing” their inventions. Sometimes it’s legit, many times its bogus.

As examples, Amazon holds the patent of “one-click purchasing”. Litigation ensued on that. There’s a patent on a “self-executing webpage” which is the reason why a few years ago Microsoft had to convert Internet Explorer to not automatically play media as soon as someone visited a webpage. (i.e. why you have to click a YouTube video for it to play).

Here is where things get interesting. Cap-and-trade legislation literally creates an asset out of thin air. It requires some means to “value” the asset and some means to trade it. In essence, it would lead to government created assets and trading mechanisms. However, when this patent was awarded and applied for, cap-and-trade was not even on the public radar yet.

It is important to remember a few things. Franklin Raines has privileged access to Congress and politicians. He knew and could talk to them about what they were thinking and what they planned to do. As head of a government corporation, he also had a degree of access to the Patent Office to help “smooth the way” to get a patent.

What happened here has all the marks of “insider patenting”. While technically legal, Raines was able to use inside information to put a patent into place before government action created a new marketplace that would require the creation of this systems. The result would have been huge amounts of cash to him and his “co-inventors” and likely, a few patrons on Capitol Hill as well.

This is also likely the first (and probably not the last) case of apparent insider patenting. As big government grows more and more into industry, insiders like Raines will be able to use advanced knowledge of legislative actions to put himself out in front with patenting and ensure he will make piles of cash. What this shows is that the only innovation big government breeds is innovation in new ways for unethical self-enrichment.

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