A businessman selecting a Patent Concept button on a clear screen.
The United States has the world’s largest and most innovative economy, and our patent law framework has played a major role in this success story. At the beginning of the 21st century, the U.S. maintained the strongest system for patent protection. It was the envy of the world, but soon thereafter, it came under attack from problematic judicial and executive branch actions.
The weakening of American patents has coincided with growing international challenges to U.S. technological leadership, particularly from China. This presidential administration or the next should reverse course and, in tandem with Congress, reinstitute a strong patent-policy framework to promote vibrant, innovation-driven American economic growth.
Before corrections can be made, however, it’s important to understand the slow degradation of the patent system and the consequences. In the coming days, I’ll outline three different sets of challenges and a path to reform.
The Constitution authorizes Congress to create patent rights. The resulting system has been key to the growth of the high-tech American economy. This has been true for other countries with strong patent systems, as detailed by Stanford Professor Stephen Haber. The World Trade Organization’s TRIPS Agreement, which the U.S., China, and Russia have signed, requires member nations to authorize and enforce patent protections for the full range of technologies.
Patents grant innovators an exclusive property right to their invention for a period of time (20 years from filing for most U.S. patents) while adding to the stock of public knowledge by describing in detail the invention and best means of producing it. Patent holders are legally authorized to sue those who infringe for damages or to sue “enjoin infringers” from continuing to use their technology, but issuance of patent injunctions is not automatic under U.S. law.
Patents Spur Innovation, Economic Growth And Competition
Technological innovation generates new products and processes, thereby contributing mightily to economic growth. Numerous economic studies find that patents help spur the R&D that fuels all of this. Indeed, patent rights create a “market for inventions.”
Licensing agreements allow patent holders to transfer their rights to third parties. This allows inventors, who may not be experts in manufacturing or marketing, to profit while enabling the widespread adoption of their new technologies that spur economic growth. Innovation economics expert Professor Daniel Spulber describes this process in detail in his 2020 book The Case for Patents.
Furthermore, patents promote competition to the benefit of American consumers. Prior to the 1980s, U.S. antitrust enforcers deemed patent-licensing restrictions anticompetitive. But economic research came to recognize that such restrictions actually facilitated the adoption of new and rival technologies that would enhance competition for the consumer’s dollar.
This new learning caused enforcers to adopt a generally permissive, bipartisan stance toward patent licensing beginning in the early 1980s. This was reflected in enforcement guidelines released 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 restraints is instructive:
“Field-of-use, territorial, and other limitations on intellectual property [patent] licenses may serve procompetitive ends by allowing the licensor to exploit its property as efficiently and effectively as possible. These various forms of exclusivity can be used to give a licensee an incentive to invest in the commercialization and distribution of products embodying the licensed intellectual property and to develop additional applications for the licensed property. . . . They may also increase the licensor’s incentive to license, for example, by protecting the licensor from competition in the licensor’s own technology in amarket niche that it prefers to keep to itself.”
Obama-era FTC Chair Edith Ramirez stated in 2017, “A strong and competitive IP licensing system benefits consumers and fosters innovation.” Similarly, under President Trump, Assistant Attorney General for Antitrust Makan Delrahim emphasized in 2018 “that the increase in innovation spurred on by the patent laws leads to expanded consumer choice and enhanced competition in the long run.”
U.S. Patent Rights Under Recent Assault
Unfortunately, actions in recent years by the Supreme Court and federal policymakers have combined to weaken the U.S. patent system.
Until 2006, patent holders could presumptively obtain a court injunction that ordered infringers to stop using their invention (akin to a landowner’s legal right to eject trespassers camping on their property). But the Supreme Court’s 2006 decision in eBay v. MercExchange eliminated that presumption in favor of an uncertain four-factor “balancing test.”
Patent scholar Adam Mossoff explains that this “resulted in a significant reduction in availability of injunctive remedies for patent infringements, especially in the context of patents on standardized technologies, such as standard essential patents covering WiFi or 5G telecommunications technologies in mobile devices.”
This weakens incentives to invest in the R&D needed to develop new patented technologies, and thereby is a drag on technological progress and economic growth.
Patentable subject matter has also been narrowed. Section 101 of the U.S. Patent Act basically says “anything under the sun” can be patented, if it is novel and inventive: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor.”
But four Supreme Court decisions between 2010 and 2014 created exceptions to Section 101 that threaten innovative activity, as described by Professor Adam Mossoff in January 2024 Senate testimony:
“These decisions severely restricted the inventions and discoveries that have long been considered patentable for over two centuries in the U.S. patent system … [They] have created a tremendous amount of uncertainty for innovators and severely restricted the patent eligibility of high-tech and biopharmaceutical innovations … [They have] had a negative impact on both inventors and the companies working in the innovation industries that invest millions of dollars in creating the new products and services that drive economic growth, job creation and higher standards of living. Thus, [they are] … undermining the longstanding comparative advantage by the U.S. in the world in securing reliable and effective patent rights for all innovators.”
In my next post, I’ll look at recent international threats to the strength of the patent system. Later, I’ll turn to current U.S. developments that weaken patents and suggest a set of reforms to reverse the decline.
