USIJ Report Reveals Consequences of a Weakened U.S. Patent System

By Gene Quinn
August 3, 2020

“The draconian shift away from the world’s most permissive and welcoming patent system has been stark. It has had a disproportionate impact on startups, universities and smaller entities focusing on research and development.”

USIJ Report - https://depositphotos.com/5073168/stock-photo-consequences-road-sign-clipping-path.htmlThere is a symbiotic relationship between innovation and patents. The innovation that we say we most want is cutting-edge innovation that requires time, money and determination to bring into being. This paradigm shifting innovation or technology that can be characterized as disruptive creates the leaps forward and solves society’s greatest problems. Witness the race for vaccines and treatments to address the COVID-19 pandemic gripping the globe.

Innovative leaps forward lead to the formation of new startup companies and, frequently, to the birth of entire new industries. It is with this type of most desirable innovation that we see enormous job growth, and the greatest benefit to society.

A Major Shift

Unfortunately, paradigm shifting innovation does not come cheap. And patents are the lifeblood of this type of disruptive innovation. Those within the industry know this to be the case, and today the Alliance of U.S. Startups and Inventors for Jobs (USIJ) released a report detailing a comprehensive study that confirms the importance of patents and the consequences of a patent system in the United States that has veered away from strong protections for innovators and toward rules and laws that make it ever easier for implementers to copy the innovations of creators without remuneration.

The report finds that the slanting of the U.S. patent system against venture capital (VC)-backed startups in R&D-intensive industries has resulted in a major shift of venture capital away from life sciences, semiconductors, core wireless, medical technologies, and other capital intense industries to social media, consumer finance, hospitality, and other sectors where reliance on R&D is nonexistent or insignificant.

Indeed, interviews with leading inventors and investors conducted by the USIJ for the report show that changes to the patent system are causing VC investment to flow away from key life sciences investments. “We are less likely to address issues such as cardiovascular disease and chronic diseases such as diabetes and kidney conditions,” explained one VC. “These high-impact types of diseases are not being addressed like they would have been previously.”

Innovation Unfriendly Terrain

Why is that the case? Undoubtedly, because of the uncertainty of U.S. patent law as pertains to patent eligibility. Since the U.S. Supreme Court decided the quartet of cases in Bilski, Mayo, Myriad, and Alice, the interpretation and implementation of the law as applied to medical diagnostics, biotechnology and software has been oppressive. Even innovators in the areas of artificial intelligence and machine learning innovations have found difficult, if not impossible terrain. And it is impossible to patent medical diagnostics in the United States, period.

The draconian shift away from the world’s most permissive and welcoming patent system has been stark. It has had a disproportionate impact on startups, universities and smaller entities focusing on research and development. It has affected these entities most because larger entities are risk averse and the very act of innovating requires asking new questions with an open mind and attempting to improve or disrupt existing markets. Smaller entities take risk, which is why when patent law and policy cuts against the risk takers the consequences for the future of innovation are severe.  And those responsible for funding startups and R&D intensive companies have noticed.

According to the USIJ report, 74% of those surveyed said that patent eligibility is an important consideration in firm decisions whether to invest in a company, and 62% said that their firms were less likely to invest in a company developing technology if patent eligibility makes patents unavailable.

Money in Flight

Obtaining funding is already difficult enough, and startups that are most likely to engage in the type of paradigm shifting research that will lead to real disruption in wide swaths of the U.S. technology sector are immediately behind the eight ball, so to speak, because a significant majority of VCs that would otherwise be interested in investing are not, because of U.S. patent eligibility laws.

Other findings in the USIJ report confirm this bias, and flight of money away from innovation and into safer investments not based on research and development:

  • The share of money invested in patent-intensive startups that develop critical technologies such as medical devices pharmaceuticals and biotechnology has declined, dropping from over 50% in 2004 to about 28% in 2017.
  • Less patent-intensive sectors such as social networking, consumer finance, food and beverage, and restaurants, hotels and leisure have attracted a significantly larger share of venture capital in recent years.
  • There has been a precipitous decline in the relative share of funding going to companies developing products in the pharmaceutical and biotech sectors. Overall, the sector experienced a 20% decline in share of funding.
  • VC investment in pharmaceuticals went from a 7% share of all investments in 2004 to a 0.79% share in 2017.
  • In 2008, the share of all VC funding going to medical devices was nearly 12% of all VC funding. By 2015, the share halved, dropping to less than 6%, where it currently remains.
  • The share of funding for businesses developing patent-intensive high-tech hardware, such as computer hardware and semiconductors, has dropped significantly.
  • Startup companies creating semiconductors now receive less funding in both relative and absolute terms, as they received not just a smaller share of funding but about $1 billion less in funding from 2013–2017 than they did from 2004–2008.

 

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 7 Comments comments. Join the discussion.

  1. ipguy August 3, 2020 5:08 pm

    The abuse of 101 rejections by the USPTO is still rampant. I’ve seen a number of 101 rejections of dependent claims where the independent claims themselves were NOT rejected under 101. I recently saw a PTAB decision where the Examiner was reversed on all prior art rejections but, in a footnote, the PTAB panel strongly implied that the Examiner’s next step should be to make a 101 rejection. The actual language was:
    In the event of further prosecution, we leave it to the Examiner to determine whether the claim passes muster under [section] 101. See USPTO, 2019 Revised Patent Subject Matter Eligibility Guidance, 84 Fed. Re. 50 (Jan. 7, 2019). Although the Board is authorized to reject claims under 37 C.F.R. [section] 41.50(b), no inference should be drawn the Board elects not to do so. See Manual of Patent Examining Procedure (MPEP) [section] 1213.02.
    Presumably, the Examiner already thought the application passed 101 muster, but the clear ‘inference’ from the Board is that the Examiner should go back and hit the Applicant up with a 101 rejection in the next action.
    Are Administrative Law Judges in any other agencies allowed to come up with their own reasons for rejecting an application (e.g., immigration, tax)?

  2. Night Writer August 3, 2020 5:57 pm

    I think this is right that the money is leaving and the small companies are leaving the USA.

    What we see is that the few large companies and the few heavily funded start-ups continue to use the patent system but consider most of the patents as junk or near junk. What has happened is that it is almost impossible to assert a patent against a large company but a patent can devastate the finances of a small startup.

  3. Paul F Morgan August 4, 2020 9:51 am

    “Unfortunately, paradigm-shifting innovation does not come cheap.” Yes such innovations often result from more basic [versus specific product improvement] R&D, which is less and less funded by private industry or venture capital. That argues for more government support for basic research in major public problems. As for 101, other than for medical diagnostics, most 101 rejections are for software function claims, rather than paradigm-shifting innovations in the many other potential technologies.

  4. J.T. August 6, 2020 9:31 am

    “As for 101, other than for medical diagnostics, most 101 rejections are for software function claims, rather than paradigm-shifting innovations in the many other potential technologies.”

    Paul, you shouldn’t lightly dismiss “software function claims” as non-paradigm shifting. “Software function claims” have had a major impact on the way we currently live. See, for example, Google’s page rank patent, U.S. Pat. No. 6,285,999. I’d bet you’ve used this innovation today. Or Dropbox’s network folder folder synchronization patent, U.S. Pat. No. 8,825,597, detailing a method that we rely on particularly heavily in our current era of remote work. Paradigm shifting innovations can come from a new software function just as readily as from other fields of endeavor.

  5. Paul F Morgan August 6, 2020 12:40 pm

    J,T. that is all true, but what current writers mean in talking about the need for “paradigm-shifting innovation” is solutions for major world problems, such as diseases, mental health, climate change, sea level, non-polluting energy, less dangerous and polluting transportation, potable water from sea water, etc. Those and other major accomplishments are not going to be achieved just new software or electronic data manipulations, and thus are not going to be nearly as impacted by Alice-101 rejections, or nearly as easily funded.

  6. Anon August 6, 2020 1:50 pm

    J.T.,

    Mr. Morgan wears a thin disguise when it comes to protecting actual innovation.

    It is no accident that his words show disdain for the particular choice of ‘wares’ in the computing arts that MOST enables innovation.

  7. Anon August 8, 2020 9:40 am

    Mr. Morgan, you r post at 5 merely shows your lack of understanding of software and, as you put it, “electronic date manipulations.”

    You focus FAR too much on the aspect that the ‘ware’ is ‘soft’ and FAR too little on the fact that THAT aspect of ‘soft’ is what provides for the FAR more efficient solutions to not just the problems that you list, but to the ENTIRE thrust of innovation.

    The history of innovation shows that interconnectness, serendipity, and a LACK of ‘directed aim’ as to what comes next are equally, if not more, than important that ANY ‘five year State dictated’ plan.

    The attempt to deny patent protection to the ‘wares’ that are ‘soft’ has direct, immediate, and lasting ill effects on ALL innovation effort.

    May I suggest that you spend less time trying to denigrate the type of innovation that happens to be in ‘wares’ that are ‘soft.’ and maybe a bit more time studying innovation itself?

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