Reality Check: Patents Foster Innovation and Economic Activity

Critics of the patent system, and specifically the critics of software patents, would have the United States forfeit the future in favor of something that has never worked. Curtailing patent rights has never worked to produce more innovation anywhere it has been tried. So why would we try such an experiment in the United States when it hasn’t ever worked anywhere ever? Unfortunately, it seems that many of our leaders in Washington, DC, are listening to those who have fanned the flames and worked exceptionally hard to create an unhealthy anti-patent climate.

Newsflash — innovators are not evil. The fact that this even needs to be said shows just how far we have come and how pervasive the anti-patent climate has become. Rather than celebrate innovation day after day like the drone of a metronome we hear how patents are evil and how they stifle innovation. But if you actually look through the rhetoric you notice that those claims are made with zero supporting evidence, but that is because all of the available objective evidence directly contradicts the growing orthodoxy.

Once upon a time the United States celebrated innovators, and gave them a meaningful opportunity to reap the deserved reward from their hard work and ingenuity. Today, we vilify innovators as evil all because there are a handful of bad actors that engage in abusive patent litigation tactics. Of course, these tactics have nothing to do with patents substantively and everything to do with the fact that these bad actors are allowed to manipulate the judicial process and exploit inefficiencies in the litigation system that are wholly unrelated to the substance of a patent.

For goodness sakes, nothing in the pending legislation that is being inappropriately called “patent reform” would change anything for the better.

We hear all the time the story of the small business that is being sued for patent infringement on what appears to be a bad patent and in a situation where there isn’t any real evidence of infringement. These stories are all too common, we all know that in many instances the story is true. We know these small businesses report is real.

The trouble is the so-called “patent reform” would cripple small businesses that innovate and need patents, while at the same time not offering any relief whatsoever to those small businesses that are being targeted by the bad actors. For example, even if the fee-shifting provisions of the patent legislation were to be enacted, in order for any small business to get relief they would need to spend the hundreds of thousands of dollars (or millions of dollars) fighting and ultimately prevailing in court before the district court could ever order the patent owner to pay the attorneys fees of the defendant. If the case settles then no fees. My guess is virtually none of the small businesses being targeted by the bad actors have the money to pay attorneys to prevail in the first place, and even if they did they would have to worry about whether the patent owner simply would declare bankruptcy and never pay the attorneys fees anyway.

The problem is that Congress is not pursuing any reforms that would make the system better, or which would address any of the abusive activity that we all know goes on in the system. In fact, all that would happen would be that patents would be devalued, which means acquiring patents would become less expensive, which leads to more well funded patent trolls buying patents and engaging in bad behavior. Thus, the current pending legislation is far more likely to make the problem worse than to solve it.

[Varsity-3]

Proponents of patent reform will tell you that at least it will be easier to challenge patents and it will make patents weaker, as if weaker patents that are easier to challenge will somehow mean that the bad actors won’t find other ways to abuse the judicial process to shakedown large and small companies. Bad actors don’t care and if we kill the patent system to address the bad actor problem all we have accomplished is to kill the patent system, not to solve the real problem with judicial inefficiencies that can so easily be exploited.

As we dismantle the patent system no one seems to be asking the critical question: what about innovation? Only the most naive, intellectually challenged and ideological voices could believe that innovation will be maximized, or even exist, with a weak patent system that offers innovators little or no protection.

The inconvenient truth is that there is no evidence that a weaker patent system fosters innovation, but there is overwhelming evidence that a strong patent system does foster innovation, leads to growth, investment from abroad and a more prosperous economy.  Indeed, weak patent rights virtually guarantee innovation simply won’t happen. We know that because where there are weak patent rights, there is no innovation, and there is no economic activity. Indeed, if a weak patent system were the answer you would expect countries that have a weak patent system, or no patent system at all, to have run away innovation. What you see, however, is the exact opposite. This fact alone rather conclusively demonstrates that those who assert that patents stifle innovation are simply wrong.

The World Bank classifies countries based on gross national income (GNI) per capita. High income countries have a GNI per capita of over USD 11,456; upper middle income of USD 3,706 – 11,455; lower middle income of USD 936 – 3,705 and low income of USD 935 or less. Where do you suppose you see the most patenting? If patents inhibit economic growth and opportunities, then you would expect to see a higher percent of patents in the low income economies, but you don’t oddly enough.  You find that the overwhelming majority of patent activity is in the high-income economies — upward of 85% of patent activity is in high income economies in fact. With that being the case how can anyone with a straight face argue that patents get in the way of economic development? High-income economies where patent rights are strong see a tremendous amount of patent activity while those lower income, middle income and even upper middle income economies, where patent rights are not very strong and not very desirable, see very little patent activity.

The U.S. economy is based on intellectual property and the foundational intellectual property we have for the 21st century innovation based economy is software. We know from history that where patent rights are strongest is where companies locate, innovate and grow. Where patent rights are weakest there is no foreign direct investment, companies do not go there and economies suffer. Once upon a time the UK dominated in biotechnology, but now the U.S. is dominant thanks to a strong and liberal patent system. If we curtail software patents we will be forfeiting not a single industry, but an enormous software industry AND any number of other industries and sub-industries in various other technology fields that rely upon the development of software.  Think bio-informatics, for example.

So what is fueling the anti-patent hatred? It is a particular world-view or ideology that approaches religious zealotry.  It certainly isn’t anything that resembles factual truth or reality.

Year after year those who don’t believe in a patent system challenge Bayh-Dole claiming that it has been a failure. The problem is the facts suggest the exact opposite. By any rationale definition Bayh-Dole has been a success beyond the wildest dreams.  Bayh-Dole enables the patenting and commercialization of federally-funded university and non-profit institution research. Between 1996 and 2010, the economic impact of university and nonprofit institution patent licensing included:

• The impact on U.S. gross industry output is as much as $836 billion.
• The impact on U.S. GDP is as much as $388 billion.
• University and nonprofit licensing supported as many as 3 million jobs.
• In 2010 alone, academic and nonprofit research institutions spun out 651 new companies.

The basic science that led to the development by the biotech industry  and many life-saving medicines began with federally-funded research, including vaccines against hepatitis B and cervical cancer, cancer medicines, and human growth hormones. It has all been possible because of Bayh-Dole. Indeed, prior to the enactment of Bayh-Dole there were a grand total of 0… that is ZERO… drugs commercialized from underlying university research. Whether we like it or not, pharmaceutical companies are for-profit entities and that means that they cannot research and develop drugs for every disease, let along rare disease. Since Bayh-Dole became law 153 new drugs, vaccines, or new uses for existing drugs are fighting disease world-wide. See The Role of Public-Sector Research in the Discovery of Drugs and Vaccines, The New England Journal of Medicine, February 10, 2011. For more proof that Bayh-Dole has succeeded see: Intellectual Dishonesty About Bayh-Dole.

Wherever you look there is objective evidence that patents foster innovation, raises up economies and the resulting technology saves lives. The patent system has worked and it will continue to work for as long as Congress allows. The only real fear is that those who ignore fact and instead rely on thought experiments as proof will convince Congress that the factual reality we see in objective ways is a fiction.

Patents foster innovation and improve economies. Anyone who says otherwise is simply not telling the truth.