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A relatively simple way to boost the economy and make America even greater is to fix a patent system gone awry. In recent years, major changes to intellectual property policy by Congress, the courts and the executive branch have thrown the system out of whack, deterring inventors from the kind of innovation that creates jobs and growth.
A patent is an exclusive right to an invention, granted by a government for a specific term and is a property right. Patents let inventors profit from their investments and their sweat, and, by providing an incentive to innovate, they help all of society. It’s no accident that patents were enshrined in the Article I of the Constitution. The Founders understood that patent law helps “to promote the progress of science and useful arts” for all Americans.
But formulating a wise intellectual property regime is not easy. It must answer thorny questions, such as what is patentable and how hard it should be to challenge a patent right. Over the decades, the United States developed a patent system that worked exceptionally well. In recent years, though, abrupt changes have disrupted the equilibrium, harming the economy. Earlier this year, the U.S. Chamber Intellectual Property Indexyear dropped the United States from first to 10th in the patents and related rights category, tied with Hungary and below France, Spain and Italy.
Of the 10.6 million patents in force worldwide, the United States owns about one-fourth, but China’s share, now about one-seventh, “is growing fast,” according to the latest report of the World Intellectual Property Organization. “The number of patents in force in China has leapt from about 600,000 in 2010 to almost 1.5 million.” Last year, China accounted for 38 percent of all patent applications in the world, while the United States accounted for 20 percent. When calculated by applications per billion dollars of gross domestic product, the United States drops below South Korea, Japan, China, Germany and Switzerland.
This slippage has real consequences for American workers. Entrepreneurial innovation drives an economy, but U.S. startups are near a 40-year low, down by one-fourth since 2006. Jobs created by businesses less than one year old have dropped from 4.5 million annually at the turn of this century to just 3 million. Many new companies now prefer to locate in countries where patent rights are stronger and owners can enforce them by law. Partly as a result, the U.S. share of global venture capitalshrank from 83 percent in 1996 to 54 percent in 2015.
These declining innovation metrics help explain the sluggish productivity growth that is at the root of economy growing a full percentage point below the post-World War II average. “With regard to labor productivity itself,” said a report this year by the Bureau of Labor Statistics, “it has become clear that the United States is in one of its slowest-growth periods since the end of WWII.”
What has disrupted our patent system is a series of overreactions, including the America Invents Act, which, according to Wired Magazine, “will change patenting forever.” But patenting didn’t need an earth-shaking change. Paul Morinville, chief executive officer of Org Structure and an Indiana entrepreneur who heads an organization of small inventors called U.S. Inventor Inc., called the act the “single worst disaster in the 226-year history of the U.S. patent system.”
For example, one of the claims at the time was that litigation by patent holders against infringers was getting out of control. But the truth is that, while more than 3,500 patent cases were filed in the two years ending Jan. 1, 2014, in the Eastern District of Texas and the North District of California, just two of the defendants made a formal claim that the suit against them was frivolous or without merit.
The America Invents Act allowed new procedures that made it easier to invalidate patents that had been issued. “When you have a system that is issuing a thousand patents a day and then you have a system that when it looks at it a second time is invalidating two-thirds of them, and it’s the same system, most industries don’t work that way,” said John Whealan, a former U.S. Patent and Trademark official at a recent conference. This is affecting “the integrity of the system,” he added.
The real abusers of the patent system “can be punished and deterred by surgical means,” said Paul Michel, a retired U.S. Circuit Court judge, in testimony to the House Judiciary Committee. U.S. Supreme Court decisions, such as TC Heartland v. Kraft Foods Group Brands and Impression Products v. Lexmark International, have made it more difficult for inventors to enforce the patents they have been awarded. But help could be on the way. In Oil States Energy Services v. Greene’s Energy Group, the high court will decide whether a patent holder has the right to a conventional civil trial rather than the U.S. Patent and Trademark Office “inter partes review” that has been called a “patent death squad.”
Meanwhile, Congress and the President can help restore equilibrium to the patent system by supporting the Stronger Patents Act of 2017, a bipartisan effort by Sens. Chris Coons (D-Del.) and Tom Cotton (R-Ark.) to strengthen the property rights of inventors. If President Trump can get the patent system back on the right track, he will enhance American productivity, entrepreneurship, and economic growth, and create more good jobs powered by innovation. That’s what he promised, and that’s what we need.
James K. Glassman served as undersecretary for public diplomacy and public affairs at the U.S. State Department in the George W. Bush administration.