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(Dr. Uma Suthersanen, Chair in International Intellectual Property Law, Centre for Commercial Law Studies, Queen Mary, University of London, United Kingdom“Utility models: Do they really serve national innovation strategies?,” pg online @ https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3139963 //pa-ef)

Indeed, there is a reasonable concern that larger market players may use utility models as a means of circumventing the more stringent criteria under the patent system and overuse the system in ways that make it hard for SMEs to compete. Certainly, the lack of substantive examination prior to grant will give rise to uncertainty for third parties when conducting infringement searches to ascertain what valid rights exist in a particular field of technology, which may act as an additional barrier to competitors and lead to abusive behaviour by foreign applicants.

(Dr. Uma Suthersanen, Chair in International Intellectual Property Law, Centre for Commercial Law Studies, Queen Mary, University of London, United Kingdom“Utility models: Do they really serve national innovation strategies?,” pg online @ https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3139963 //pa-ef)

Nevertheless, is this a sufficient basis for the introduction of yet another intellectual property right, notably as the right in question appears to undermine essential principles of the current patent law? All intellectual property rights are predicated on the notion that inventions and creative works are in the public domain unless such works fulfil various thresholds such as novelty or inventive step (in the case of patents), originality or distinctiveness (in the cases of copyright or trade mark). Partly in deference to the high societal costs imposed by the conferral of a proprietary right, which will stifle competition for a short duration, and partly to forestall duplication of patent protection for identical or similar inventions, the examination system is a major element of the patent regime. The justifications of the traditional patent law are reconfirmed during the examination process. Providing second-tier rights for inventions that fail to meet such standards undermines both the public-private boundary and the doctrinal bases of intellectual property rights. The worrying concern is that utility model laws can result in barring the entry of both new and competing substitutive products, 26 especially so in capitalist market-based economies where it is generally accepted that all market actors, including competitors, follow-on creators and consumers, should be allowed to freely use such public domain works which fall short of the required standards. Developing countries, in particular, should be cautious in broadening protection to cover all types of innovations – irrespective of whether they are minor and low-cost innovations, or whether they involve complex and cutting edge technologies such as biological and pharmaceutical products.27

(Amy, Professor of Law, Drexel University Thomas R. Kline School of Law, “The Antipatent: A Proposal for Startup Immunity,” pg online @ https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=2808&context=nlr //pa-ef)

Technological advance is expensive. Virtually all founders require outside capital to move their concept into a commercialized product. In many cases, traditional sources of lending are not available to startups, because nascent firms without any sales records represent significant uncertainty and lack sufficient tangible assets to secure a loan. Entrepreneurial companies can require years to deliver revenue, the scope of a new market is uncertain, and there are numerous variables that might assist or prevent success along the way.351 For many, funding sources that specialize in new firms, including grants and angel and venture funding, are the most viable options.352 Venture capital has played a significant role in the development of new ideas and technological innovation in the U.S.353 One study estimates that venture funding is responsible for between 8% and 14% of all innovative activity in the U.S.354 Further, venture funding delivers roughly three times the inventive results as the same amount spent in the corporate sector.355 Selection for funding by a wellknown venture firm can become a seal of approval that allows the startup to obtain additional backing from other sources.356 Some venture firms provide management advice and other advantages that facilitate a funded startup’s success.357 Indeed, sometimes the distinction between a forgotten invention and a successful one is that the latter obtained early venture funding, advice, and introductions to critical players within the industry. As one example, a CEO in the biometrics information field stated that the company’s patent position was “a key question that came up during negotiations” with prospective investors.358 One study concluded that patenting by specialized entrants viewed patents as “especially critical to these firms in attracting venture capital funds.”359 Another found investor’s perceptions of startups with patents are positive, overall resulting in increased valuations and a higher likelihood of offers for funding.360 Venture firms can be extremely selective, choosing to fund as few as six out of one thousand applicants.361 It has been said that startups must seek patent protection as a prerequisite to venture funding.362 The reasons include the belief that patents applications should be filed to facilitate market exclusivity, which in turn leads to superior returns on investment.363 Some point out that funding decisions can be made more confidently in firms that hold patents, because these rights are a proxy for the quality of the startup’s technology.364 Additionally, patents provide investors with some return on their investment as a revenue source, whether through licensing or sale, particularly if the startup should fail.365

(Amy, Professor of Law, Drexel University Thomas R. Kline School of Law, “The Antipatent: A Proposal for Startup Immunity,” pg online @ https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=2808&context=nlr //pa-ef)

Further, patents facilitate engagement with others, whether through collaboration, integration, or licensing.345 Invention and product development rely on a mix of inflows and outflows of knowledge.346 These interactions can be important for a number of reasons, including the development of products that require competencies from more than one specialty.347 These relationships are built on a more complex set of considerations that include inbound and outbound licensing of intellectual property rights.348 A company that lacks IP might be hindered in collaborative development, particularly if the proposed collaborator owns strong rights but cannot expect to receive any useful licenses in return.349 Further, patents facilitate contractual relationships with upstream suppliers and downstream manufacturers, and prevent such partners from converting themselves into competitive adversaries.350

(Amy, Professor of Law, Drexel University Thomas R. Kline School of Law, “The Antipatent: A Proposal for Startup Immunity,” pg online @ https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=2808&context=nlr //pa-ef)

Patents allow their owners to capture value from inventive activity and, under some circumstances, to contribute toward securing a com petitive position.339 To the extent that the startup can fund assertion of the right, patents can be valuable to secure a position against larger incumbents who may have superior production, resources, and distribution methods.340 A first mover that captures an early and strong patent position in an emerging market can gain significant advantages.341 For example, a robust patent portfolio can successfully stave off competitors for years. During that time, the inventive firm can experiment, redesign, and establish a market position before others begin to enter the field.342 A strong patent position can, under some circumstances, allow a firm to be the exclusive supplier of a product market, which enables the firm to build up other complimentary assets including trademarks, customer loyalty, and a distribution system.343 If successful, these assets provide the first patentee with a favorable position after the patents expire.344

Short-term impacts of increased openness appear mostly socially beneficial in expectation. The strategic implications of medium and long term impacts are complex. The evaluation of long-term impacts, in particular, may depend on whether the objective is to benefit the present generation or to promote a time-neutral aggregate of well-being of future generations. Some forms of openness are plausibly positive on both counts (openness about safety measures, openness about goals). Others (openness about source code, science, and possibly capability) could lead to a tightening of the competitive situation around the time of the introduction of advanced AI, increasing the probability that winning the AI race is incompatible with using any safety method that incurs a delay or limits performance. 54

Is faster technological progress and rollout of AI capabilities desirable?

This brings us to the second question about the short and near-term desirability of openness: supposing openness would speed technical progress and rollout of AI capabilities, would that be socially beneficial?

The WTO and the global trading system faced a major test during the GFC[global financial crisis]. Although advanced economies went into recession on a scale that matched the Great Depression in terms of output and financial losses, and trade flows collapsed globally (by 12 per cent in 2009), there was no significant rise in tariffs and other trade barriers. 4

In the wake of the GFC, ‘murky’, non-tariff-based protectionist measures were introduced by some governments. Some estimates of these measures suggest that they accounted for more than half of all protectionist measures in the post-crisis period (Aggarwal & Evernett 2013). Policies like local content provisions and industrial policies that restrict global trade were introduced. But after the GFC, most countries actually continued to liberalise tariffs, and changes in trade policy (via raising tariffs or taking anti-dumping action) contributed only about 2 percent of the observed drop in world trade in 2008---2009 (Kee et al. 2013). That is in major contrast to the effects of the Smoot-Hawley tariff wars during the Great Depression.

The most dangerous and damaging attacks required resources and engineering knowledge that are beyond the capabilities of nonstate actors, and those who possess such capabilities consider their use in the context of some larger strategy to achieve national goals. Precision and predictability—always desirable in offensive operations in order to provide assured effect and economy of force—suggest that the risk of collateral damage is smaller than we assume, and with this, so is the risk of indiscriminate or mass effect.

State Use of Cyber Attack Is Consistent with Larger Strategic Aims

We note that, already under both international15 and domestic16 patent law, an approach that makes use of liability rules is available in certain circumstances: this happens in the case of compulsory licenses, which may be issued in situations of need for pharmaceuticals and other products without the consent of the patent holder, and which require the licensee to remunerate the patent holder.17 Liability is also a structuring principle in other areas of intellectual property: U.S. copyright law, for example, has codified a compulsory license for making and distributing phonorecords.18 However, in addition to being limited to certain products, current legal embodiments of liability approaches are only available as a last resort.19 By contrast, the regime proposed in this Article would be based on a codified compulsory license from the outset.20 As further discussed below, this would reduce both uncertainty

[From Cite]

a)With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such—

(1)action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

We note that, already under both international15 and domestic16 patent law, an approach that makes use of liability rules is available in certain circumstances: this happens in the case of compulsory licenses, which may be issued in situations of need for pharmaceuticals and other products without the consent of the patent holder, and which require the licensee to remunerate the patent holder.17 Liability is also a structuring principle in other areas of intellectual property: U.S. copyright law, for example, has codified a compulsory license for making and distributing phonorecords.18 However, in addition to being limited to certain products, current legal embodiments of liability approaches are only available as a last resort.19 By contrast, the regime proposed in this Article would be based on a codified compulsory license from the outset.20 As further discussed below, this would reduce both uncertainty [*2034] and transaction costs.21 Moreover, and once again unlike existing approaches, our proposal would apply to any products qualifying as subpatentable innovation, irrespective of the field of technology.22

Second tier patent regimes unquestionably devote themselves to the protection of subpatentable innovation, innovation that falls into the gap between patent and copyright protection. But it is not the case that in the absence of second tier regimes, all subpatentable innovation goes unprotected. In the United States, state trade secret law can be used to protect that range of subpatentable innovation that meets minimum requirements of confidentiality and value. The TRIPs [footnote omitted] agreement imposes similar standards worldwide.3°4 Fundamentally, then, the United States has chosen to protect a limited range of subpatentable innovations through a mixed property/liability regime 30 5 built around a well-established concept of trade secret misappropriation,30 6 leaving the remainder of subpatentable innovations to the public domain.

In a regular patent system, all users partially subsidize the cost of clearance by paying fees to the examining agency and receiving a substantive examination prior to the grant of patent protection. By contrast, in a second tier patent regime without pre-grant substantive examination, the responsibility for applying the substantive standards of patentability is shifted to the judiciary, and the costs are correspondingly borne by the litigants. In practical terms, the result is that private actors will more frequently face the need to procure clearance opinions to ensure that their proposed activities do not infringe valid second tier patent rights. Those clearance opinions will unquestionably be highly complex, given the elusive nature of the relaxed inventive step standard. This could translate to greatly increased costs of doing business for all enterprises in a given area of technology, and SMEs are presumably least well-positioned to handle such costs.186 Another possibility is that private actors will routinely find it necessary to initiate administrative revocation proceedings. Experience with post-grant opposition in Europe may indicate that the costs of such procedures will be significant.18 7

Second tier patent regimes generate inherently insecure rights, 178 and many of the difficulties that would plague owners of second tier [footnotes omitted] patents in attempting to enforce their rights can be attributed to the inherent uncertainties of second tier protection. 79 There are legislative fixes, but they run squarely contrary to the goal of enhancing access for SMEs that have limited litigation budgets. For example, the proposed Australian Innovation Patent System would require the owner of an innovation patent to request substantive examination from the Australian patent office, and await its completion, prior to initiating or even threatening an infringement action. 180 This requirement places [footnotes omitted] the second tier patent owner in a worse position than a regular patent owner in seeking a rapid judicial intervention.'" Likewise, second tier proposals envision subjecting second tier patents to administrative revocation.' 8 2 Because third parties can participate fully in such proceedings, they are generally much more costly and complex than ex parte examination, again suggesting that the second tier patent owner is actually in a worse position than the corresponding applicant for a regular patent. 1 83

(J.D. expected May 2010, Michigan State University College of Law, specializing in Intellectual Property Law; B.S. 2007, Michigan State University College of Engineering, “From Germany To Australia: Opportunity For A Second Tier Patent System In The United States,” pg online @ https://heinonline.org/HOL/Page?handle=hein.journals/mistjintl18&div=16&g_sent=1&casa_token=&collection=journals //pa-ef)

D. Concerns with Implementation

Fundamentally, because a second tier patent regime shifts responsibility for the determination of "soft" obviousness to the judicial process, each trial of a second tier patent, invariably involving an exhaustive validity attack, is potentially more complicated than a corresponding trial of a regular patent. 7 4 It also seems unlikely that any responsible second tier regime would confer a statutory presumption of validity on second tier patent owners, or impose an elevated standard of proof for overcoming any such presumption. 1 75 [footnote omitted]

Worse yet, it seems improbable that a court operating under established principles of equity jurisprudence would be willing to grant preliminary injunctive relief on a claim of alleged infringement of a second tier patent. Federal Circuit jurisprudence requires a regular patent owner to establish a likelihood of success on the merits on validity as part of the showing for preliminary injunctive relief, notwithstanding the presumption of validity. 76 Making such a showing for a second tier patent would be extraordinarily difficult. 177 The virtual elimination of temporary relief may be devastating to SMEs, who might otherwise have turned to the preliminary injunction as a lowcost source of leverage in eventual settlement negotiations.

Cost is no doubt the major obstacle impeding SMEs access to patent systems worldwide. In addressing this concern, however, second tier patent proposals focus strictly on the reduction of acquisition costs. It seems quite safe to assume that second tier protection would certainly be characterized by lower fees (filing fees, issuance fees, and postissuance maintenance fees). 162 In addition, by avoiding the creation of a [footnotes omitted] Community level right, the EU neatly avoids questions about the costs of translations, another major component of costs for would-be patent applicants.163

A number of questions should be raised about the proposition that second tier protection brings reduced costs. First, looking strictly to government fees, one should question the likely magnitude of the cost reduction. National patent offices in Europe and the United States, as well as the EPO, are embarking on cost reductions for the regular patent system even as the second tier proposals are being considered. 164 Claims that second tier protection offers generous reductions in fees may prove to be seriously inflated.1 65

(J.D. expected May 2010, Michigan State University College of Law, specializing in Intellectual Property Law; B.S. 2007, Michigan State University College of Engineering, “From Germany To Australia: Opportunity For A Second Tier Patent System In The United States,” pg online @ https://heinonline.org/HOL/Page?handle=hein.journals/mistjintl18&div=16&g_sent=1&casa_token=&collection=journals //pa-ef)

E. Alternatives to a U.S. Utility Model System Another argument against implementing a second tier system is that unlike some of the countries analyzed, the United States has other intellectual property protection laws that may overlap with some of the situations in which a second tier patent would be used. Such laws include the unfair competition laws in the United States, which discourage confusingly similar commodities in the consumer marketplace. Another related system is the design patent system, which may be able to offer some protection to inventions that are covered by second tier patents. This does not seem like a persuasive objection, however, because design patents overlap with utility patents in an identical manner and this has not caused problems. The trade dress laws also overlap by offering a means to protect consumers from confusingly similar product packaging and external appearance. Overall, these systems do not offer the same benefits as a second tier patent and therefore should not hold back the implementation of a second tier patent system.

The proposal set out below44 inttroduces a codified liability rule that

would impose a built-in compulsory license favoring subpatentable innovators. Unlike patents or other exclusive rights regimes, however, this proposal does not give rise to the blocking effects of a regime of exclusive rights, nor does it discriminate against fields of technology, as is the case with most sui generis regimes.45 So far, intellectual property policy has proved to be a poor fit for certain types of socially valuable innovations that depend on market-based results, thereby often yielding chronically inadequate incentives at the outset. This occurs when would-be investors in innovative and socially valuable products cannot or do not anticipate recouping their front-end costs owing to the risk of unbridled free competition,46 which may obviate any suitable reward for their initially risky investments.47 One recent example in the public spotlight was the “structure, sequence and organization” of computer programs,48 which in most non-patentable cases may no longer qualify as copyrightable subject matter in the aftermath of the recent Supreme Court decision in Google v. Oracle. 49 In other subject matter areas, even when an intellectual property right becomes theoretically available, incremental innovation in certain socially valuable goods may remain subject to a risk of underfunding and underproduction through current market conditions. A noteworthy example of this latter situation arises in research and development (“R&D”) on certain chronically underfunded diseases (e.g., neglected tropical diseases50 and rare diseases51), where market limitations inherently restrict the incentives flowing even from an exclusive right.52.