For more than a decade, almost every branch of the federal government has taken action to curb what has been seen as an “explosion” in patenting and litigation. The results have been palpable.
A patentee who brings an action against an infringer is now often required to fund multi-instance proceedings before a federal district court, the Patent Trial and Appeal Board (PTAB) and, in some cases, the Board of international trade. Extensive judicial interpretations of the “abstract idea” and “law of nature” exclusions mean that patents covering software or medical diagnostic inventions operate under a cloud of potential invalidity.
Even if they succeed in defending validity and demonstrating infringement, growing percentages of patent holders are likely to fall into court-created categories for which an injunction is virtually unavailable.
This shift towards a low intellectual property trajectory is based on widely held beliefs that:
- patent litigation is largely brought for nuisance reasons by “patent trolls”,
- the United States Patent and Trademark Office (USPTO) regularly grants patents for trivial inventions, and
- the proliferation of patents generates litigation and transaction costs which often result in obstacles to innovation.
Although these views were defensible to some extent a generation or more ago, they have since become devoid of evidence and policymakers who have continued to act to restrict patents have failed to take into account the negative effects on innovation and investment that have now emerged on technology markets dependent on patents.
A once axiomatic guide has been forgotten: The costs attributable to a strong patent system must always be weighed against the gains arising from the role that patents play in attracting investment in R&D and commercialization efforts that convert R&D into new and innovative products and services. .
Importance of patents for innovation
Skeptics argue that patents are somehow not necessary to support innovation. This argument has no credible support in the life sciences sector which has the most direct impact on human well-being. The gap between the costs of R&D and testing a new drug and the imitation costs borne by an entrant is simply too large for private capital to enter the market without the promise of legal exclusivity.
In addition, patents allow smaller innovators to be competitive, notably by monetizing their R&D through contractual structures that outsource the testing, production and distribution functions that are necessary to bring a new drug to market. Consider the partnership between BioNTech and Pfizer to develop a vaccine against Covid-19: a patent-based alliance between a small company specializing in innovation and a larger company that has expertise in the ‘heavy truck’ required to put an innovation on the market.
Outside of life sciences, skeptics may rightly point out that some IT companies do not rely on patents to support innovation. Yet, this is often because large platform-based companies can monetize innovations by embedding them into systems technologies that have a strong customer base and are difficult to replicate.
By implication, other companies seeking to develop components for established platforms, or cutting edge technologies to challenge those platforms, are relying on patents to obtain a return on R&D through licensing and other contractual relationships that avoid the huge costs involved in building an end-to-end system. final route to market. These relationships translate into “win-win” innovation by promoting the diffusion of technology among producers, which in turn promotes adoption of the technology by consumers.
Balanced policy emerged
Under the leadership of Makan Delrahim, the recent head of the Department of Justice’s antitrust division, and Andrei Iancu, the recent director of the USPTO, a more balanced patent policy has emerged, which takes in seriously the dependence of life science and information technology market innovators on strong intellectual property rights.
At DOJ, Delrahim rethought the agency’s policy on standards-critical patents in a way that recognizes the reliance of chip design companies on patents to monetize their R&D investments, including through licensing relationships with device manufacturers.
At the USPTO, Iancu adopted sensible “due process” changes to the inter partes exam processes which have provided patent owners with more meaningful opportunities to defend the validity of patents when challenged by applicants.
As the Biden administration takes hold, it is worth considering what steps can be taken to maintain this balanced approach towards designing an innovation ecosystem that deters patent abuse in companies. litigation while ensuring that legitimate inventors can rely on patents to achieve a commensurate return on their high risk investment.
It should also be borne in mind that the United States has a particularly large intellectual property trade surplus with the rest of the world. Institutional devaluation of patents through court rulings, legislative acts, and administrative actions is counterproductive and risks hampering the ability of American innovators to obtain a fair return for their valuable contributions to the global economy. know.
All three branches have previously taken aggressive steps to deter abuse of the patent system. In doing so, they have excessively devalued the incentives for innovation. Restorative progress has been made, and the new administration must continue on this path to ensure that spurring innovation remains a primary objective.
As one of us documented in a recent book, the United States has a long history of technological breakthroughs by inventor-entrepreneurs who have relied on the patent system to challenge incumbent companies that can outdo all of them. parameters, except innovation. For too long, patent and innovation policy has been dominated by one-sided rhetoric that neglected the constructive uses of patents to support innovation and facilitate cooperative partnerships that ultimately deliver value to companies. consumers.
Innovators and the investors who support them are unlikely to undertake the difficult task of disrupting technological paradigms without significant expectation of exclusivity if this goal is achieved. A robust innovation ecosystem requires a commitment to a robust patent system.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
David J. Kappos partner of the Corporate Department of Cravath, Swaine & Moore LLP and former Under Secretary of Commerce and Director of the United States Patent and Trademark Office. He is widely recognized as one of the world leaders in the field of intellectual property.
Jonathan M. Barnett is Torrey H. Webb Professor of Law at the Gould School of Law, University of Southern California. He heads the Law School’s Media, Entertainment and Technology Law program and is the author of Innovators, Firms, and Markets: The Organizational Logic of Intellectual Property (Oxford University Press 2021).