On August 18, President Trump signed an order launching a formal probe into Chinese theft of U.S. intellectual property. Although he was right to focus on IP theft, he picked the wrong target, because a much larger theft of American innovation and intellectual property is taking place right here at home.
For more than a decade, a series of legislative actions, regulatory decisions, and Supreme Court rulings have crippled patent rights in the U.S., especially for smaller and more innovative companies. Hundreds of billions of dollars’ worth of intellectual property value has been literally erased, to the detriment of our economy and America’s global competitiveness.
Take the America Invents Act of 2011, which established a new form of post-grant review of issued patents known as inter partes reviews (IPRs). In this IPR process, a U.S. Patent and Trademark Office administrative body called the Patent Trial and Review Board (PTAB) employs a very different (and controversial) standard for evaluating a patent’s validity than that long used by the federal courts — and with a much lower evidentiary requirement for proving the patent is invalid.
In practice, the new IPR process means that a patent upheld as valid and infringed by the federal courts can afterwards be taken by the infringing defendant to the PTAB and declared unpatentable. And that is exactly what has happened a great many times over the last five years.
Of the more than 5,000 patent challenges brought to PTAB since the September, 2012 inception of these IPRs, more than 80 percent have resulted in the cancellation of patent claims. Not surprisingly, 70 percent of those challenges have been brought by defendants facing infringement suits in U.S. courts. The net result has been the erasure of hundreds of billions of dollars’ worth of innovation and intellectual property.
No wonder Randall Rader, former chief judge of the U.S. Court of the Appeals for the Federal Circuit, called the IPR panel a “patent death squad” in BusinessWeek last year.
Meanwhile, a series of overly broad and ill-considered Supreme Court decisions have further weakened patent rights to the detriment of the economy. The 2006 Supreme Court ruling in eBay vs. MercExchange, for example, severely limited a patent owner’s ability to use its most effective tool in combatting the theft of intellectual property: the injunction.
As the factors laid out by SCOTUS in eBay have been applied by the courts, injunctions are nearly impossible to obtain, even in cases where there is little doubt of continuing infringement. And without the ability to stop infringers from continuing to sell infringing products — a tool still available to companies in Europe and even China — the most victims of infringement can hope for in U.S. courts is the imposition of financial penalties for IP theft.
This so reduces the risk of serious penalty for infringers that a new business term has been coined — “efficient infringement” — to refer to a large firm’s deliberate decision to steal the intellectual property of others because the cost of doing so is so minimal.
Other Supreme Court decisions such as Mayo Collaborative Services v Prometheus Labs and Alice v CLS Bank, meanwhile, have rendered whole classes of startup-generated innovation moot. As a result of the Mayo decision, for example, the invention of a novel test for detecting fetal genetic conditions in early pregnancy without having to employ the dangerous invasive techniques used previously was ruled “patent ineligible.”
These decisions have put billions of dollars’ worth of biotech investment at risk. And as Hans Bishop, CEO of the life sciences firm Juno Therapeutics, noted in Forbes recently: “Let us be clear: investments in the biotech industry are based entirely on patents. Without strong patents, we cannot raise money to find cures for disease.”
The brunt of America’s self-destructive patent policy is being borne by startups and small innovators. Big companies have vast resources to enforce their market power, whereas small companies … well, all they have are their innovations. And all that protects those innovations are patents — or used to, anyway. This weakening of patent rights has, unsurprisingly, contributed to a sharp decline in entrepreneurial new business formation.
And this is what makes our current patent policy so dangerous to the American economy. Because literally every major new industry of the last 150 years — including the sewing machine, electric power, automobile, aircraft, semiconductor, personal computer, software, biotech, mobile telephony, and Internet e-commerce industries — was launched by a small startup with a patented innovation.
According to the Kauffman Foundation, these new startup businesses have also been responsible for nearly 100 percent of net job growth in the United States since 1977. If you took startups out of the picture and looked only at large firms, job growth in the U.S. over the last forty years would actually be negative.
So my advice is to worry less about Chinese theft of U.S. intellectual property, and more about the damage we are doing to ourselves through our self-destructive patent policies.
David Pridham is the chairman and CEO of Dominion Harbor Enterprises, an intellectual property transaction and advisory firm.
The views expressed by contributors are their own and are not the views of The Hill.