Early Stage Innovation’s Chance to Save Itself

By Chris Gallagher
February 24, 2017

Research futureCongressional pursuit of HR 9-type comprehensive patent reform seems to have slowed. Maybe inventors, investigators and investors can breathe easy for a while. Or not!  Unless universities and others engaged in early stage commercialization can convince Congress now that Bayh-Dole-based commercialization is the bridge created by Congress to connect past and future congressional R&D funding to the public benefits of jobs, growth and medical progress contemplated by its annual R&D appropriation, trouble lies ahead. R&D funding on one side of the commercialization bridge must reliably cross to its public benefit other side or Congress will invest its billions elsewhere. This bridge connects congressional investment with private sector investment and can fail on either side.

Google was just tagged with a $ 20M patent infringement damages award.  Despite AIA’s built-in deterrents, big tech’s efficient infringement business model exposes information and communications technology (ICT) firms to similar damages. On a pure cost-benefit basis the enforcement shield provided by HR 9-type legislation is still compelling to ITC component aggregators. Beyond denying court access to most patent holders, HR-9 reduces their components’ costs, which increases their share of consumers’ product point-of-sale purchase price. Moreover, although their substantial past investments in PR-spawned patent trolls, junk science analysis, academic analytic blather and indirect judicial influence are getting stale, they haven’t reached their “sell by date”. To be sure big tech titans have new pressing priorities and no longer have a president in their thrall. But as long as Representatives Goodlatte and Issa run IP issues in House Judiciary, any IP legislation that comes their way can be converted into all or any part of HR 9. This session more than one eligible bill may be on its way to House Judiciary. And worse, in the year’s burgeoning budget battle, R&D funding is a tempting target.

House Judiciary Chair Goodlatte publicly admitted that recent judicial responses to issues addressed by HR 9 have reduced its urgency. His IP Subcommittee Chair Issa has indicated that the HR 9 issues are more likely to be addressed on a “modular” rather than on a comprehensive basis. Both blame universities for stalling HR 9 after it had earlier passed the House by a vote of 325 to 91. They have said that fixing the venue problem would be considered depending on how it is addressed by the SCOTUS in the now pending Heartland case.  Senator Hatch has said that fixing the venue problem should await Heartland but also said however it is decided, the venue issue needs to be addressed by Congress.

Then there’s the Alice/Mayo controversy outlined and explained in an IPWatchdog post by Manny Schecter.  A number of major IP players including; The American Bar Association’s Section on IP, AIPLA, IPO and PhRMA have expressed the need for a Section101 fix. IPO is already circulating a draft bill. It thus seems highly likely that if and when the House and Senate Judiciary Committees find the time to deal with Alice/Mayo, patent reform will be in play again.

Apple’s recent attack on Qualcomm’s licensing model has had some wondering whether efficient infringers have concluded that in light of SCOTUS and AIA, further barriers to patent enforcement by under-resourced patent holders proposed in last session’s HR 9 and S.1137 are no longer as important as otherwise undermining the bargaining power of well-resourced component licensors. Some larger firms in their component supply chain are simply not susceptible to efficient infringement, devaluation’s pricing beat-down, or HR-9’s litigation costs and sanctions. Apple’s recent US court challenge to Qualcomm’s licensing business model may be a sign that big ICT aggregators have found “bigger fish to fry” in their quest to pay less for product components. Efforts to increase their margins by compressing component pricing have driven congressional patent reform. Now according to Qualcomm CEO Steve Mollenkopf’s response to Apple’s suit,  “They want to pay less than the fair value that Qualcomm has established in the marketplace for our technology even though Apple has generated billions in profits from using that technology.”  Read the full article here

Whatever happens, research universities, inventors and small business and the venture capital community must use this temporary “lull” to explain to their congressional delegations why and how Bayh-Dole commercialization is the congressionally-created bridge to the public benefit Congress relies on when it annually appropriates $130 bn. to R&D. Despite all of today’s  happy talk about infrastructure, replacing ACA and tax reform, budget issues still lie at the heart of DC’s current chaos. Deficit hawks are circling existing expenditures like buzzards. Every dollar appropriated in the past for R&D has been eye-balled by every special interest wondering how to keep their pet programs off the chopping block. That’s why early stage innovation interests and especially research universities should heed the words of William Bonvillain, who directs MIT’s Washington Office:

“Citing federal budget trends, with an expected tax cut and infrastructure spending program as well as a possible dismantling of the Affordable Care Act, William Bonvillian, director of MIT’s Washington office, said that discretionary federal spending is set to be squeezed. That, in turn, can be expected to hit scientific research budgets, he said, and in turn, the federal and university based research community. “There is going to be a challenge” to research and development programs, Bonvillian said. “We’re going to need to tell the story, that R&D is actually a key part of the solution, it’s part of growth. But the challenge this time in telling that story is going to be even greater than usual.”

Universities in particular must explain to their congressional delegations why R&D must continue to be funded and why its Bayh-Dole based commercialization bridge must be protected so federal funds already in the pipeline can produce the future jobs, growth and beneficial scientific progress they expected when they voted formerly to support R&D. Unless they establish strong support for R&D AIA’s current deterrence, exacerbated by HR 9’s choke-hold on private sector investment inevitably will lead to reductions in already flatlined congressional R&D appropriations. The budget battle is already fully underway behind the scenes. Next week when President Trump addresses Congress it will move to center stage. House leadership wants that move to go smoothly.

Unless universities actively justify their commercialization of federally-funded R&D, other influential interests on the Hill who care little about future scientific study, but care a lot about their own survival, will now perceive R&D’s annual funding as a bridge to their own survival. This is no time to wait and watch from the sidelines.

Read more at Ipstrategic.com

The Author

Chris Gallagher

Chris Gallagher is President of IP Strategic.com and a perennial selection to The Best Lawyers in America. Having spent years as one of the most influential and highly regarded advocates in the New Hampshire Legislature and state administrative agencies, Chris is now focused primarily on federal policies in Washington, DC. Chris has been involved in nearly every substantial New Hampshire economic regulatory initiative over the last 25 years. He has served as general counsel for the New Hampshire Bankers Association and has represented New Hampshire utilities, hospitals, insurers, aggregate manufacturers and numerous other entities. This experience provides him with a uniquely respected voice on Capitol Hill, enabling him to communicate effectively with members whose federal decision-making must reflect and respect the complexities of their home-state constituents.

A frequent speaker and commentator in local and national media on policy issues, regarding financial services, privacy, business and government, Chris has testified on financial services issues before U.S. House and Senate Committees and has been a panelist in Capitol Hill briefings on intellectual property issues. He can be reached at chris@ipstrategic.com

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