Patents, spy balloons and outcompeting China: What our leaders are missing

The U.S. innovation system, the world’s best, has been the driving force of our country’s prosperity, technological leadership and national security for two centuries. This system is the most productive private-sector/government-sector partnership ever devised. Each partner does what it excels at best: The government funds vast research in basic scientific discoveries, mostly at research universities; private companies develop those discoveries into commercial products sold in the marketplace — lifesaving cures, robotics, and autonomous vehicles, to name a few.

Because public grants are plentiful and recently were expanded by $200 billions for cutting-edge technologies such as computer chips, artificial intelligence and green energy, politicians assume they have done all that is needed. What they miss is that converting basic science advances into useful products is extremely costly. For every public dollar provided, private dollars must match them five-, ten-, a hundred-fold — to turn the basic research into a commercial product.

These investments can be risky and very slow to provide any return. That is why the incentives must be large enough to overcome the unfavorable odds, especially when most efforts fail. For all of U.S. history, patents have provided the needed incentives. Without reliable patent protection, few corporate decision-makers or venture capital leaders would make the investments to support the breakthroughs.

And now, more breakthroughs are exactly what America needs to counter China’s accelerating technology surge. Think computer chips, genetic and personalized medicine, clean energy, artificial intelligence and other advanced technologies of the 21st century.

But we’re starting to lag behind China, which is devoting untold resources toward becoming the global leader. A recent Harvard Kennedy School report warned that China is set to overtake the United States, if U.S. policy does not change. And the recent Chinese spy balloon is a stark reminder that China has been purloining U.S. technology for years.

Intellectual property theft isn’t the only concern, though. Another is that U.S. patents are no longer reliable and strong enough. Why? Because of so-called “reforms” by courts and Congress chasing after the “troll” meme. These changes all weakened patent rights.

What confidence can financial decision-makers have when patents no longer can promise reliable protection? Lower confidence leads to lower investments.

All the legal changes have made invalidating a patent easier than ever. Since one of us retired from the patent appeals court in 2010, we have studied the changing law. The courts, especially the Supreme Court, expanded the ways a patent can be invalidated — long after the patent was approved by technical expert examiners in the patent office. The worst cases created unworkable rules for what is even eligible to be considered for patenting.

In 2011, Congress passed the America Invents Act (AIA) and created an administrative tribunal, the Patent Trial and Appeal Board (PTAB). The law allowed the board to cancel patents, whereas in the past, a patent owner had the right to a day in court. The PTAB since has canceled patents more often than courts.

The PTAB’s “kill” rate is so high because infringers and others are allowed to attack the same patent, over and over. Infringers also can attack a patent at the PTAB and the district court, simultaneously — which adds great expense, risk and distraction. It also adds delay of about two years or more, since courts usually allow the PTAB and related appeals to finish first.

If that weren’t enough, the Court of Appeals for the Federal Circuit, on which one of us served for 22 years, has changed the law about patent descriptions — creating a major threat to innovators who make complex, lifesaving medicines.

Finally, the Supreme Court has made it incredibly difficult to get an injunction, even for proven infringement of a valid patent. Previously, injunctions were routine; now, they are rare, which can be devastating for small innovators.

All these changes harm patent owners — to the benefit of accused and proven infringers. It’s no wonder that corporate leaders and venture capital executives no longer trust patents to protect inventions as before.

Giant companies such as those in Silicon Valley care far less about patents because, as market giants, they don’t need them. They practice “efficient infringement” — meaning that it’s more cost-effective for them to infringe because the system is stacked in their favor. Small startup innovators, however, lack a revenue stream to finance their innovations, necessarily depending heavily on outside funders. These emerging firms are critical to U.S. innovation because they historically have produced a disproportionately high percentage of breakthrough inventions, and reliable patent protection is critical to their survival.

Ten years into the AIA experiment, it is clear that the law’s benefits have been overtaken by unintended consequences. It is time for Congress to reassert its proper role and address the many weaknesses in patent law. U.S. patents today are less reliable and less valuable, and the rarity of injunctions unfairly skews the balance of power between technology creators and users of technology owned by another firm.

Improving the patent system — so that the U.S. can compete in the global innovation race with China — is a task best suited for Congress. It can make a broad innovation policy for the nation. It’s an issue that warrants an analysis of the vast economic data, which courts don’t consider when they are ruling on single cases. Besides, as unelected officials, judges are not accountable to the citizens, while politicians are.

We’ll almost certainly see more spy balloons from China. We need a national defense response, and part of that must be improving U.S. patents to ensure that they incentivize and protect the increased investment of private capital that America needs to outcompete with its primary economic and strategic rival.

The Hon. Paul R. Michel served on the U.S. Court of Appeals for the Federal Circuit for 22 years, the last six as chief judge, until retiring in 2010. He previously helped craft legislation as counsel to a U.S. senator, served in the Justice Department as associate deputy attorney general and was a Watergate special prosecutor.

Matthew J. Dowd is the founder and managing partner of Dowd Scheffel PLLC, a law firm focusing on intellectual property matters. He served as a clerk for Judge Michel.