Want to Revive the Economy? Restore the Patent System!

By Joseph Allen
April 19, 2017

Forgetting the lessons of the past is an expensive way to learn.

Ever notice how unrelated articles sometimes drive home a point beyond their focus? Let’s look at several which unintentionally underscore the importance of patents, as well as the danger weakening our system presents to the nation.

The first story is “Trump wants to cut billions from the NIH. This is what we’ll miss if he does,” a response to President Trump’s proposal to cut funding for the National Institutes of Health. The rebuttal highlights the impressive return on investment taxpayers receive as NIH supported discoveries turn into therapies protecting public health:

  • Over 27 years, 8.4% of NIH grants generate “patents for new drugs, medical devices, or other medicine-related technologies.”
  • A $10 million boost in NIH funding leads to a 2.3 increase in patents, each worth $11.2 M in 2010 dollars.  The funding increase would yield $34.7 M in firm market value.
  • NIH funded patents are cited by other patents at double the rate of private sector inventions. “Between 2003 and 2013, every patent generated by an NIH grant was cited, on average, by five future patents…”
  • NIH funded institutions spur the creation of new biotech firms. “A $1 million increase in the average amount of federal R&D funding associated with an increase of 5–58 percent in the number of local biotechnology firm births a few years later
  • Public sector research institutions (PSRI) generated ““virtually all the important, innovative vaccines that have been introduced during the past 25 years…”
  • “46.2 percent of new-drug applications from PSRIs received priority reviews (at the FDA), as compared with 20.0 percent of applications that were based purely on private-sector research, an increase by a factor of 2.3.”
  • “And the public sector is particularly good at creating drugs to cure deadly diseases. Of the 153 approvals of drugs that began at public research institutions, 40 were for the treatment of cancer and 36 tackled infectious diseases, the report found.”

However, this ignores a vital point: these inventions are only commercialized because private sector companies invest years of hard work and many times what the government spent on research turning early stage inventions into products.  When these projects fail no one at NIH or the universities loses their jobs, but the company may go under or be forced to lay off its researchers.  We lead the world in the commercialization of government supported research because entrepreneurs believe the patent system can be relied upon to protect them if their gamble succeeds.  If that trust is lost, the system falls apart.  And we’re being urged down that road, as the next story shows.

Many in Congress defending NIH’s budget just signed a letter to the President urging him to misuse the Bayh-Dole Act (which injected the incentives of patent ownership into the federal R&D system) for the compulsory licensing of drugs deemed to be too expensive. Ironically, that would destroy the commercialization of NIH supported patents being used to defend agency funding. It is also one more blow to our beleaguered patent system, which leads to the next article.

In “Our Patent System Needs More Than An IPR Fix“,  Chris Gallagher argues:

… PTAB’s parlous impact on investment in our patent system is undeniable. Throwing patents       out that window after costs are sunk developing their subject matter is counterproductive. And that is why the front end of PTO’s patent examination assembly line also needs fixing even more. If post-grant PTAB is where patents “go to die,” patents’ statutory presumption of validity is useless. Patent reformers say they should die, but if as the congressional patent reform narrative asserts PTAB is where so-called “bad patents” finally receive their well-deserved nullification, our patent system has lost its primary purpose. Yes, patents incentivize invention. But more important they protect investments in their subject matter’s development and public availability.

Accordingly, job one of Lee’s successor is returning “validity” to patents’ fading statutory presumption of validity.  This must happen early enough to incentivize support for upstream innovation investment now fleeing to China and the EU where ironically, patents are becoming more respected than in the USA.

Even worse, unscrupulous parties around the world know they can initiate post grant reviews based on fraudulent or deliberately misleading information forcing hard pressed companies to accept infringement or divert scarce resources into fighting off endless reviews. When fraud or misconduct is detected, there’s nothing the patent owner can do to hold abusers accountable for the damage they inflict.

Add to all this a string of court rulings against patent owners and it’s no surprise why their confidence is waning. So how important is confidence in the patent system to our economy?  A graphic in “Jamie Dimon: It’s clear something is wrong with the U.S. economy” may provide a clue:

Look at the spike after 1980 with the enactment of the Bayh-Dole Act  and Diamond v. Chakrabarty opened the door to the U.S. domination of the new field of biotechnology. Then in 1982 the creation of the Court of Appeals for the Federal Circuit restored confidence that patents could be effectively enforced. Then look at the plunge after confidence began eroding around 2005. While there are many factors beyond patents affecting something as complex as the U.S. economy, the coincidence is striking.

Some believe they can introduce even more uncertainty into the system with impunity. Last year’s patent “reform” bill would have tilted the field even more against patent owners. Others think the biopharma industry is now so dependent on NIH/university partnerships that if we undermine Bayh-Dole these alliances  will continue unabated because companies have nowhere else to go. “Your Cancer Drugs May Soon Be Discovered in China” should shake that belief:

China, long the world’s supplier of cheap pharmaceutical ingredients and copycat pills is emerging as a major producer of new medicines: biotech drugs. After the U.S., China   now boasts the second-largest number of clinical trials including biologic treatments-produced using biological matter… according to data from the National Institutes of   Health.

The world’s biggest drug companies have taken notice.

It then chronicles how our companies are licensing technologies and establishing major R&D centers in China.  These charts explain why:

China is strengthening its patent system while adopting a Bayh-Dole policy for its research universities.  If we stand idly by as our system deteriorates, innovative companies will seek greener pastures abroad.

While it’s easy to despair, the good news is that we’ve been in this swamp before and found our way out. When I joined that staff of the Senate Judiciary Committee in the 1970’s patents were viewed with suspicion, falling under the jurisdiction of the Subcommittee on Antitrust and Monopolies (you can imagine how that went). The U.S. had an entrenched policy that inventions made with federal funding would be made available to any and all.  These beliefs were deeply ingrained with vested interests fiercely defending them.

Yet a few Congressional leaders realized these policies were failing and concluded that restoring the incentives of the patent system, coupled with the decentralized management of technology away from Washington, was the better path.  They passed Bayh-Dole, which President Reagan immediately embraced. Combined with renewed support for the patent system, the U.S. enjoyed an economic renaissance, again dominating every field of technology.

The old arguments that patents inhibit innovation, and non-exclusivity with compulsory licensing leads to a brave new world are now in vogue.  We’ve stood at this fork in the road before. It requires courage to reject the easy path downward and restore the system which created our prosperity.  If we lack the will, we have no one else to blame as we plunge deeper into the mire. That’s the last place anyone wanting to drain the swamp while growing the economy should go.

The Author

Joseph Allen

Joseph Allen is a Featured Contributor on IPWatchdog.com, and a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.

Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. He is our resident Bayh-Dole expert, and will write frequently about Bayh-Dole and issues surrounding the commercialization of university research.

In 2008, Joe founded Allen & Associates, through which he offers consulting services assisting clients in technology transfer issues, including developing effective communication strategies with national policy makers.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 17 Comments comments. Join the discussion.

  1. angry dude April 19, 2017 10:45 am

    Too late…

    The doc said ‘to the morgue’, to the morgue it is!

  2. Paul Morinville April 19, 2017 10:55 am

    Angry Dude. You and Night need to put on your big boy pants and start fighting. We are so close to overturning the PTAB right now. I actually believe we can do it. This week I am in the Senate and offices that were on the other side just 2 years ago are on our side now. The Supreme Court is asking the right questions. Now is the time to raise a little hell, not to throw up the white flag.

  3. SV inventor April 19, 2017 11:15 am

    I agree. The pendulum will swing back the other way. It’s not a question of if, it’s a question of when. And now sure seems like an opportune time. But what we really need are a couple landmark court decisions to go in the favor of small inventors who can’t afford legal counsel. And that is the reason for the white flags we are seeing. How can you get in court to turn the tide and make the big boys cough up their revenues when you can’t even afford an attorney?

  4. angry dude April 19, 2017 11:47 am

    Paul,

    And what are they gonna do to all those serial willful corporate infringers in SV and elsewhere ?

    Right now its a no-brainer decision for those CEOs to efficiently infringe and ignore patent holders with less than e.g. 10-20m in assets (they do those checks…)

    PTAB might or might not go away but the problem will remain

    This administration (or any other administration) will not sacrifice stock values of big tech infringers to restore confidence in the US patent system
    But that’s what it takes unfortunately – stocks will plummet if all infringed tech patent holders come out of woodwork and demand their dues in multiple courts across the country
    With PTAB and IPRs removed there will be nothing to stop it (assuming neutral courts and return of contingency litigators who were scared away by the previous events)
    It’s being accumulating for many many years
    Will the Trump administration sacrifice google or apple or oracle stock ???
    Me thinks not

  5. Paul Morinville April 19, 2017 12:10 pm

    Angry, there is a choice. Keep the GAFA Mafia stock price artificially inflated (although I disagree with this) and allow our economic engine to move to China, thus damaging job creation, economic growth and national security, or we can fix the patent system and reverse it.

    I believe the administration will fix it. They just need to hear from those who have been harmed and understand what happened.

    Now is the time to raise hell. Loudly.

  6. angry dude April 19, 2017 12:29 pm

    Paul,

    You don’t think big tech stocks e.g. Apple are inflated ?

    Just give them some time – patents or not they will crash
    (Apple is losing competition left and right)

    Same with Google

    Monopolies don’t last forever (unless propped up by the government)

  7. David M. April 19, 2017 1:25 pm

    Excellent perspective of why the current patent environment is similar to the 1970’s. President Reagan with the CAFC established a more certain set of rules for inventors and the economy prospered. Today, we have a very uncertain situation as evidenced by ALICE, PTAB, etc. that discourages invention by the very group that stimulates job growth, the small businessman. Seems we have gone backward in time to uncertainty. Albert Einstein quote, “Insanity: doing the same thing over and over again and expecting different results”

  8. EG April 19, 2017 1:36 pm

    “Now is the time to raise a little hell”

    Hey Paul,

    I suggest raising much hell possible with Congress when it comes to IPRs. IPRs were a very bad idea, and unconstitutional to boot-Congress needs to be told never EVER to enact such nonsense again.

  9. Night Writer April 19, 2017 2:56 pm

    You know who decided this was correct? Jimmy Carter back in the 1970’s and it worked.

  10. Caesar Salazar April 19, 2017 5:00 pm

    I see a lot of these articles are following a similar trend… aka “the patent system sucks and needs to be fixed.” In this case does the squeaky wheel get the grease or does the nail that sticks out get hammered first?

  11. Anon April 19, 2017 5:40 pm

    Caesar,

    That depends – are you feeling “shamed” into being a nail?

    😉

  12. Tiburon April 20, 2017 10:47 am

    PTAB and IPR’s will not be overturned in the near future. Google has $80Billion cash, $0 debt, and gaining $50million daily. They are bigger than all of Pharma combined. Only Apple is bigger.

    The only thing that might change Google’s mind is if their patents in play against Uber are threatened.

  13. FRANK LUKASIK April 21, 2017 9:34 am

    Stop expiring Patents for non-payment of Maintenance Fees (1,500 every Tuesday) and go back to the First-To-Invent Patent System.

  14. Anon April 21, 2017 10:56 am

    Frank,

    Your same plea merits the same reply.

    Please do not become one of those that merely repeat something but are unwilling (or unable) to intelligently discuss that which you are asking for.

  15. Night Writer April 22, 2017 10:18 am

    @12 Tiburon: I agree with you that Google is the obstacle. But, what will eventually happen is the USA will lose its edge on innovation (which is already happening), and it will be so bad that eventually there will be an effort to strengthen patents.

    My bet: we are going down. Innovation will move to Asia (and Germany and the UK). Giant monopolies like Google will rein for another 20 years and then eventually fall. The big loser: USA. Big winner: Asia and a few people that own stock in Google.

  16. Frank Lukasik April 22, 2017 12:57 pm

    ANON: I spent $8,400 to the Supreme Court to make my case to stop expiring 1,500 Patents every Tuesday for Non-Payment of Maintenance Fees.

  17. Anon April 22, 2017 3:21 pm

    Frank,

    With all due respect, so what?

    You have evinced no understanding or even the glimmer of wanting to understand the topic that you want to (plainly) whine about.

    The entire structure of the maintenance fees including expiration for non-payment is a structure that is (fairly) well known and understood before dime one is spent on obtaining a patent.

    You may not like something – but your “liking” simply is not the “cause” that you make it out to be, and your penchant for throwing out comments like some great injustice has been done while you ignore the history, plain facts and supporting law and policy of that which you want to whine about simply engenders NO sympathy.

    Nor should it.

    Now if you want to frame your actual complaint in some meaningful manner, I would be attentive and at least hear you out. But if all you want to do is whine because you do not like something (and show no interest in even understanding why that system is like it is), then I will point out that what you are doing is merely – and only – whining.

    Excuse me, but there are more important and pressing matters than even bothering to skip over something you merely do not like.

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website