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Imagine that you are the founder of a small biotech company. You have spent millions of dollars and years of time developing a new diagnostic test for a blood disease. You are about to revolutionise your field.
But if you are a researcher in the US, you may very well not get a patent for your game changing discovery, because recent shifts in the system mean that your invention is no longer protected. Or you may get a patent, but it could be challenged in a non-court adjudication system, allowing other firms to quickly invalidate your intellectual property.
Unable to fully monetise their investment, your investors lose interest, and begin funnelling their money to other innovations in places like Germany, or China, where such research is better protected. Suppliers and talent begin moving there too.
This is not a fairy tale, but an amalgam of many stories I have heard in the past few weeks. They have come from a variety of American investors, entrepreneurs, academics, lobbyists and lawyers who believe that the US patent system has swung radically in the wrong direction.
Over the past 15 years or so it has moved, they say, from a system that was arguably overzealous in granting patents, to one in which the country’s top minds can no longer monetise their research. This is a state of affairs that could have dramatic consequences for US competitiveness in a world in which most economic value lives in intellectual property.
How did we get here? Back in the early 2000s, when the dotcom bubble burst, many companies were left with nothing of value except their patents, which were then bought up by financial companies or larger tech entities that then tried to milk some cash from them. At the same time, the ecosystem of software suppliers that served the burgeoning commercial internet and smartphone markets began to broaden.
The majority of those companies had legitimate technologies and ideas to protect. But some — so-called “patent trolls” — were playing a game of legal arbitrage, filing as many patents as possible in order to get larger companies to settle with them for the use of their technology.
By the time that President Barack Obama came to office in 2009, the patent troll narrative had reached fever pitch. It was a story-line that was supported by the largest tech businesses — the likes of HP, Cisco, Apple, and more recently Google and Facebook. Such companies have business models that are very different from, say, life sciences companies or small software suppliers that depend on one or two patents. The iPhone, for example, incorporates technologies involving thousands of patents. Google and Facebook depend on cheap or free inputs — from software to data — to keep minting money. So, it is no wonder they pushed for a major overhaul of the US patent system, the first in 30 some years, which reached its climax in 2011 with the passing of the American Innovation Act.
This Obama-era legislation created a new non-court adjudication body, the Patent Trial and Appeal Board. Then head of the US Patent and Trademark Office, David Kappos, had helped craft the rules in such a way that the head of the patent office had tremendous leeway in decision making. The idea was to save time and money with the non-court “inter partes” process, and indeed, patent claims went from taking three years and $2m dollars to settle, to being done with $200,000 in 18 months.
But the biggest tech groups were not satisfied. Having knocked out their troll problems, they began to see that they could also push back against suppliers’ patents, which would reduce their own input costs.
A number of companies began lobbying for even more anti-patent legislation. A worried Mr Kappos pushed back, but was eventually replaced by Michelle Lee — Google’s own former head of patent strategy. In recent years, the PTAB has become a “powerful shield” for those accused of patent infringement, leading former chief judge Randall Rader, who led the court in charge of patent appeals, to label it the “death squad” for IP.
Pushing back on patents has been great for Big Tech, which of course has its own IP to protect, but increasingly monetises data and IP created by others. But the US software supply chain, as well as life sciences, have been collateral damage. While the complexity of global business makes it tough to show clear causality between lax patent protection and the loss of innovation and jobs in the US, the trend lines do not look good. According to one study, the shifts in patent regulation have cost the US economy $1tn. Venture capital money into biotech is sharply down from 2015 to 2016.
Anecdotally many investors say they are considering moving money away from the US, towards Europe and Asia. That is worrisome, since these are exactly the kind of highly skilled jobs that the US should be looking to keep.
Still, the pendulum may be about to shift again. The Trump administration has nominated Andrei Iancu, an LA-based lawyer who has worked with clients in both pharma and Big Tech, to be head of the USPTO. The US Supreme Court will also soon hear a case questioning the legality of the entire non-court patent adjudication system.
It will be a chance for lawmakers to think about exactly what kind of digital ecosystem they want to create.