In an effort to reign in the American regulatory state, President Donald Trump issued an Executive Order dated February 24, 2017, which directed agencies to review all regulations looking for those that are outdated, unnecessary, or ineffective. The goal of these efforts is to streamline regulations by eliminating regulations that inhibit job creation, eliminate jobs, or that are inconsistent with government initiatives and policies.
Michelle Lee, Director of the United States Patent and Trademark Office (USPTO), recently formed the Regulatory Reform Task Force contemplated by the aforementioned Executive Order, although the Office has not released the names of those on the Task Force. Regardless of the anonymity of the USPTO Task Force, a progress report is due on or before May 25, 2017.
Frequently, the question gets asked whether patents are important for economic success and whether they are relevant to job creation or the existence of high paying jobs. The answer, of course, yes! That being the case, it would seem extraordinarily beneficial if the USPTO Regulatory Reform Task Force started their work with the common sense recommendation that regulations that inhibit the issuance and existence of patents should be repealed.
But allow me not to put the cart before the horse. Those who wish only the demise of the patent system will never believe that patents are responsible for economic advantage, job creation or lead to high paying jobs. So let’s start there first in an attempt to make it impossible for even those nay-sayers to honestly question the veracity of these claims. Obviously, what follows is not an exhaustive proof, but for fair minded and rational thinkers will provide support for what we in the industry know to be true.
2012 Report by the USPTO
A 2012 report by the USPTO titled Intellectual Property and the U.S. Economy concluded that patents are critical for job creation. The report Summary explained:
Innovation protected by IP rights is key to creating new jobs and growing exports. Innovation has a positive pervasive effect on the entire economy, and its benefits flow both upstream and downstream to every sector of the U.S. economy. Intellectual property is not just the final product of workers and companies—every job in some way, produces, supplies, consumes,
or relies on innovation, creativity, and commercial distinctiveness. Protecting our ideas and IP promotes innovative, open, and competitive markets, and helps ensure that the U.S. private sector remains America’s innovation engine.
That 2012 report also concluded that IP-intensive industries support a total of 40.0 million jobs, or 27.7 percent of all jobs in the economy, and contributed approximately $5 trillion, or 34.8 percent, to the U.S. gross domestic product (GDP) in 2010.
Focusing specifically on patents, according to the 2012 report patent-intensive industries specifically supported 3.9 million direct jobs and indirectly supported another 3.3 million workers in 2010. Patent-intensive industries also accounted for 5.3 percent of GDP, accounting for some $763 billion.
2016 Report by the USPTO
In 2016, the USPTO released Intellectual Property and the U.S. Economy 2016 Update, which updated the previously released 2012 report. This updated report begins by stating the obvious: “Innovation and creative endeavors are indispensable elements that drive economic growth and sustain the competitive edge of the U.S. economy.” The Executive Summary goes on to say: “IP-intensive industries continue to be an important and integral part of the U.S. economy and account for more jobs and a larger share of U.S. gross domestic product (GDP) in 2014 compared to what we observed for 2010.”
The 2016 report also concluded that IP-intensive industries support a total of 45.5 million jobs (up from 40 million in 2010), or about 30 percent of all jobs in the economy, and contributed approximately $6.6 trillion, or 38.2 percent, to U.S. GDP in 2014 — an astonishing increase of nearly $1.6 trillion from only four years earlier.
Focusing specifically on patents, according to the 2016 report patent-intensive industries specifically supported 3.9 million direct jobs and indirectly supported another 3.5 million workers in 2014. Patent-intensive industries also accounted for 5.1 percent of GDP, accounting for some $881 billion. It is perhaps interesting to note that although the percent of GDP decreased relative to patent-intensive industries, the raw dollar total increased by $118 billion as compared to four years earlier.
Furthermore, according to the 2016 report, workers in non-IP-intensive industries earned an average of $896 per week, but those in patent-intensive industries earned $1,560 per week on average.
Importance of VC Funding
Mario W. Cardullo is a distinguished engineer and someone who knows a thing or two about innovation, inventing and entrepreneurship. Cardullo has been a founder or principal in various technology companies and is the inventor of one of the basic patents for the RFID-TAG devices (i.e., E-Zpass), for which he was nominated for the Lemelson-MIT Prize (2003) and the Presidential National Medal of Technology (2004). In an essay titled Intellectual Property – The Basis for Venture Capital Investments he wrote:
One of the major problems faced by new technology seed and start-up enterprises is access to the first round of funding, either through debt or venture capital investment.
Venture capitalists want to know where an invention or innovation fits in the marketplace with reference to existing and potential competitors. The potential investors also want to know if the invention or innovation offers a dramatic and sustained advantage, and whether there is compelling evidence to warrant building a business based on the invention or innovation. They seek to evaluate both the strength of an innovation and the ability of the entrepreneur to motivate commercialization…
One of the most important issues evaluated by venture capitalists is the security of intellectual property. Normally, a strong patent position is desired and the issues of ownership of intellectual property need to be well understood…
Obtaining funding from Venture Capitalists matters greatly. Roughly 600,000 new businesses launch in the United States each year, with about 1,000 new businesses receiving their first venture capital funding each year. See Connecting the Dots. What that means is that .167% of new business receive venture funding. So the deck is enormously stacked against you if you are planning on starting a business and raising venture capital. That being the case, you certainly don’t want to make it more difficult to acquire VC funding.
According to a Patent Survey conducted by the University of California Berkeley Law School, many investors place a premium on patents when making investment decisions. In fact, 67% of firms surveyed indicated that the existence of patents were an important factor in their investment decisions. Indeed, 73% of VCs indicated a premium on the existence of patents before investing in biotech companies, 85% for medical device companies. Even 60% of VCs indicated placing a premium on patents before investing in software companies. Therefore, it doesn’t matter what industry you are in, significant percentages of VCs place a premium on patents when making funding decisions. With it already being so unlikely that VC funding will be acquired, why would anyone want to make it any more difficult by ignoring patents?
Venture backed funding can be critically important for a company that wishes to go public. Indeed, VC backed companies have consistently made up a large percentage of those companies that go into an Initial Public Offering (IPO), with the percentage reaching a high of nearly 60% during the dot-com era. See How Much Does Venture Capital Help the U.S. Economy? Given the importance of venture capital, and the strong preference for patents VCs have, it starts to become clear how and why patents play such an enormous role in the U.S. economy. The importance is only further increased when you understand “92% of the job growth for young companies occurs after their initial public offerings.” See Venture Impact. So if we want large numbers of those high paying jobs in patent-intensive industries we need to get companies to IPO, which absolutely requires an attractive ecosystem for VCs to operate. This means we must have a strong, vibrant patent system that will attract investors to engage in the speculative investing necessary to fund those risky, exciting young companies.
Why would we want to have a system that makes it difficult to obtain and keep patents once they are issued knowing how critical they are to VC funding decisions?
If you are not blinded by an agenda you must recognize that patents are linked to economic success, job growth and high wage jobs. If President Trump is serious about making America Great Again and dismantling the regulatory bureaucracy that stands in the way of those individuals and companies that will lead America to the 4 percent growth he wants, he will demand the USPTO once again become a patent friendly agency. It is particularly time for the USPTO to lift the foot off the throat of certain sectors of the biotechnology community and pretty much the entirety of the software industry. It is well past time for the USPTO to stop acting as an arms dealer by selling patents (which takes many years to achieve) and selling patent challenges.
There are a great many regulations, as well as interpretations of cases from the Supreme Court and Federal Circuit, that directly and unambiguously inhibit the issuance of patents, or make them quite easy to challenge (or harass). The very existence of the Patent Trial and Appeal Board (PTAB) is for the express purpose of providing a forum to kill patents. Of course, the PTAB itself is a legislative creation, but the decidedly anti-patent manner in which the proceedings are conducted could be changed with Executive action. Furthermore, since the PTAB judges are not independent (i.e., they report to the Director of the USPTO) philosophical and ideological change could be made with relative ease if there is the political will to see it through.
Indeed, President Trump would do great good if he took a page from President Reagan’s book when he fired the air traffic controllers on strike. Why shouldn’t President Trump fire all those patent examiners who have for years not issued a patent? Perhaps they are not “technically” on strike, but they are obviously engaged in some kind of game playing or work slow down akin to a strike, and they continue to get paid, receive bonuses and benefits and they haven’t seen a patent application in years and years worth issuing? Not even in Art Units thoroughly and completely dominated by the likes of Google, Microsoft, Apple and other tech giants? Who is fooling who?
President Trump may very well be politically naive, but this can be done. But will this anonymous Regulatory Reform Task Force actually make suggestions calculated to lead to economic growth for the United States? Will the Patent Office have the political will to actually follow through with both the spirit and intent of the Executive Order? Time will tell.
COMING SOON… Identification of specific regulations the USPTO should eliminate.