America needs new innovation policy that prioritizes patents and growth

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The United States has the world's largest and most innovative economy, and the U.S. patent legal framework has played a major role in this success story. At the beginning of the 21st century, the United States maintained the strongest patent protection system. It was the envy of the world, but it soon came under attack from questionable judicial and executive branch actions.

The weakening of U.S. patents coincides with growing international challenges to U.S. technological leadership, particularly from China. The current or next Administration must reverse course and work with Congress to re-establish a strong patent policy framework to foster vibrant, innovation-driven U.S. economic growth.

But before making any fixes, it is important to understand the gradual deterioration of the patent system and its consequences. Over the next few days, I will outline three distinct challenges and paths to reform.

The Constitution authorizes Congress to create patent rights. The resulting system has been key to America's high-tech economic growth. This is also true in other countries with strong patent systems, as detailed by Stanford University professor Steven Haber. The World Trade Organization's TRIPS Agreement, signed by the United States, China, and Russia, requires member countries to grant and implement patent protection for all technologies.

A patent gives an inventor exclusive ownership of his or her invention for a limited period of time (20 years from the date of filing for most U.S. patent applications) while adding to the public's body of knowledge by describing in detail the invention and the best way to make it. Patent owners have the legal power to sue infringers for damages and to sue to stop infringers from continuing to use the technology, although the issuance of patent injunctions is not automatic under U.S. law.

Patents promote innovation, economic growth and competition

Innovation leads to new products and processes that contribute greatly to economic growth, and numerous economic studies have shown that patents encourage the research and development that drives all of this. In fact, patent rights create markets for inventions.

Licensing agreements allow patent owners to transfer their rights to third parties, allowing inventors who are not experts in manufacturing or marketing to benefit while enabling the widespread adoption of new technologies that drive economic growth. Professor Daniel Spurver, an expert in innovation economics, details the process in his 2020 book, “The Case for Patents.”

Moreover, patents promote competition, benefiting American consumers. Prior to the 1980s, U.S. antitrust enforcement agencies viewed restrictions on patent licenses as anticompetitive. However, economic research came to recognize that such restrictions actually encourage the adoption of new, competing technologies and increase competition for consumer dollars.

This new knowledge led enforcement agencies to adopt a generally tolerant and bipartisan stance toward patent licensing beginning in the early 1980s, as reflected in the Enforcement Guidelines issued jointly by the Department of Justice and the Federal Trade Commission in 1995 and updated in 2017. The guidelines' discussion of the beneficial aspects of licensing restrictions is thought-provoking.

Restrictions on the field, region and other aspects of intellectual property use [patent] Licensing can serve pro-competitive purposes by enabling licensors to exploit their property as efficiently and effectively as possible. These various forms of exclusivity rights can be used to give licensees incentives to invest in the commercialization and distribution of products that incorporate the licensed intellectual property and to develop additional applications of the licensed property. … They can also increase a licensor's licensing incentives, for example, by protecting the licensor from competition for proprietary technologies in a market niche that the licensor wants to monopolize.

“A strong, competitive IP licensing system benefits consumers and spurs innovation,” FTC Chair Edith Ramirez said in 2017. Similarly, under President Trump, Assistant Attorney General for Antitrust Makan Delrahim emphasized in 2018 that increased innovation fostered by patent law leads to greater consumer choice and stronger competition in the long run.

U.S. patent rights have come under attack recently

Unfortunately, a combination of recent actions by the Supreme Court and federal policymakers have weakened the U.S. patent system.

Until 2006, patent owners could presumptively obtain a court injunction ordering an infringer to stop using the invention (similar to a landowner's legal right to evict trespassers camping on their land), but the Supreme Court's 2006 eBay v. MercExchange decision eliminated that presumption in favor of a less certain four-factor balancing test.

Patent scholar Adam Mossoff explains that this has significantly reduced the availability of injunctive relief against patent infringement, particularly in the context of patents relating to standardized technologies, such as standard essential patents covering WiFi in mobile devices and 5G communications technologies.

This reduces the incentive to invest in the research and development needed to develop new patented technologies, thus hindering technological progress and economic growth.

The subject matter that can be patented has also been narrowed: Section 101 of the U.S. Patent Law basically provides that anything that is new and inventive may be patented. This means that if anyone invents or discovers a new and useful process, machine, manufacture, or composition of matter, or a new and useful improvement thereof, he or she may obtain a patent for it.

But four Supreme Court decisions between 2010 and 2014 created exceptions to Section 101 that threatened innovative activity, as Professor Adam Mossoff stated in January 2024 Senate testimony:

These decisions severely restricted inventions and discoveries that had been considered patentable in the U.S. patent system for more than two centuries. [They] It has created great uncertainty for innovators and severely limited the patent eligibility of high-tech and biopharmaceutical innovations. [They have] This has had a negative impact on both inventors and businesses working in the innovation industries, who invest millions of dollars in developing new products and services that lead to economic growth, job creation and improved standards of living. [they are] This would undermine America's long-standing comparative advantage in the world of ensuring reliable and effective patent rights for all innovators.

In my next post, I will discuss recent international threats to the strength of the patent system, then I will address recent moves in the United States to weaken patents and propose a series of reforms to reverse patent decline.

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