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As important as patent protections are, laws must balance what innovations are eligible to be patented. If eligibility is too narrow, we miss out on incentives to innovate in key areas. If patent eligibility is too broad, however, it will introduce more waste, inefficiency, and abuse into our intellectual property system. PERA would do the latter, resulting in less innovation and small businesses, manufacturers, and farmers falling victim to predatory lawsuits.

United States patent eligibility has long-established guardrails requiring that patented technology be useful, novel, and nonobvious. Among the areas that cannot be patented — for good reason — are laws of nature, natural phenomena and abstract ideas.

To begin with, the general sentiment is that the patent rights afforded to patent owners are expanding, while standards to grant patents are being lowered, which has a negative impact on competition and innovation. 15Link to the text of the note As put by Harvard professor John Lerner during his testimony before the House subcommittee: "We've moved toward this litigious point over the past two decades as the courts strengthened the rights of patent holders while the [*22] standards to grant patents were weakened. It's a 'perfect storm,' a complex and intensifying combination of factors that increasingly makes the patent system a hindrance rather than a spur to innovation." 16Link to the text of the note Scholars also argue that overly expansive patent protection weakens innovation by unnecessarily shrinking the public domain and deterring innovative activity by others. 17Link to the text of the note

Furthermore, there are widespread and growing concerns about the patent application process. The notion is that the PTO issues far too many "questionable" patents that are unlikely to be found valid when subject to the same scrutiny patents face during patent litigation. 18Link to the text of the note As Shapiro and Lemley have pointed out:

Here is the basic bargain offered by patent law: encourage the creation of useful new ideas for the long run by slowing the diffusion of useful new ideas in the short run. The second half of the bargain, the half that imposes costs on society, comes from the temporary exclusive rights, or monopoly privileges, that a patent holder enjoys. Under U.S. patent law, for a period of 20 years nobody else can manufacture or sell the patented product without the permission of the patent holder. This allows the patent holder to block competitors from the market, or extract licensing fees before allowing them to enter, and consequently charge above-market prices to its customers. Patent rights thus slow the diffusion of a new invention by restricting output and raising prices.

The imposition of these short-run costs, however, can bring net long-term benefits by sharpening the incentives to invent new products. In the absence of patent protection, the prospect of easy imitation by later market entrants can deter would-be innovators from incurring the up-front fixed costs of research and development. But with a guaranteed period of market exclusivity, inventors can proceed with greater confidence that they will be able to recoup their investment.

In this connection, a number of arguments become important. First, SMEs reliance on patents as a source of competitive advantage may be hindered by costs that either on average or at the margin are higher than those for large firms. Secondly, the ability to recognise and develop an efficient level of protection through patenting may be hindered in SMEs because they do not have sufficient internal competence to manage effectively this aspect of their business development. Finally, it may be argued that even where SMEs are able to recognise the importance of patenting and to put in place appropriate patents, they may be at a substantial disadvantage in enforcing their IP rights. This is 2 particularly likely to be the case with respect to larger firms who not only may have a sufficiently deep pocket to protect their own IP or challenge the IP of SMEs, but may have greater competence at both designing and defending their own patent position against emergent rival patents. Although the mainstream economic rationale is broadly accepted, a number of firm-specific and sector-dependent factors make the role of strong IP through patents and its effects on the strategy and performance of SMEs rather controversial.

Regardless of the theory to which one ascribes—the incentive to invent view, the prospect view, or variants thereof—the patent system unfortunately imposes key costs on society. First, by giving an exclusive right to its owner to make, use, sell, and offer to sell the invention, a patent raises the potential for the invention to be sold at a price higher than what it would command in a perfectly competitive market.6 To the extent there are no reasonable substitutes, a patent holder can charge a higher monopoly price for the invention and thus make more profit-per-item sold. The increased price forces some purchasers out of the market for the item, creating a deadweight loss.7 Second, the patent system can also burden society by impeding follow-on technology.8 Technology creation is cumulative; inventors build on the inventions of yesterday to bring forth new inventions.9 Patents can discourage follow-on research by preventing the inventor of an improvement from commercializing it to the extent that it infringes the first patent.10 The longer technology remains patented, the slower will be the cumulative research advances that build upon it. Although there are other costs to the patent system, the harms from monopoly pricing and follow-on impedance represent two of the most prominent. And, in general, the stronger the patent rights, the worse the harms. Thus, the prospect theory’s predilection for stronger patents would increase the patent system’s costs from higher prices and impediments to follow-on inventions

Fundamentally, state-backed protection of intellectual property serves an important function in encouraging innovation by protecting ROI. A U.S. patent grants the holder a right to exclude others from practicing—i.e., making, using, selling, or importing—the patented invention within the country. But the inefficiencies, lack of rigor, and hefty fees in the U.S. patent system cut against the value of patents. For small businesses with limited resources, these obstacles hit especially hard. For example, while the cost of filing a patent application is fairly predictable, it is almost impossible to forecast the total cost of obtaining a patent. The reason is that even the most seasoned lawyers cannot foresee how many rounds of rejections an application will face before it is allowed.

FALLS CHURCH, Va., April 5, 2011 /PRNewswire/ — For the first time, recent comments submitted to the government about abusive trademark litigation tactics and their effects on small businesses have been made available to the public, said Erik M. Pelton, managing partner of the trademark law firm Erik M. Pelton & Associates (or “EMP&A”).

Last fall, the United States Patent and Trademark Office (“USPTO”) issued a request for comments about “trademark bullying” as part of a congressionally mandated investigation into growing concerns that small businesses and entrepreneurs are unfairly disadvantaged in trademark disputes. The USPTO request defined a “bully” as “a trademark owner that uses its trademark rights to harass another business beyond what the law might be reasonably interpreted to allow.

Congress is once again trying to fix a very specific problem with a broad solution. We support the  underlying goal of protecting consumers from unsafe and defective counterfeit products. The problem is that SHOP SAFE tackles the issue in a way that would make it incredibly difficult for small businesses and individuals to sell anything online. It will do little to stop sophisticated counterfeiters and will ultimately do consumers more harm than good, by obstructing competition and hindering consumers’ ability to resell their own used goods.

Think about trying to sell something used online. Think about having a wool sweater that’s still in great condition but just doesn’t make sense for you anymore. Maybe you moved from Denver to Miami. So, as many of us do these days, you list your sweater online. You put it on eBay or Facebook Marketplace. Or a friend says they know someone who wants it and puts you in touch via email. You exchange the sweater for some cash, and everyone’s happy.

These and numerous other examples reveal what is at stake. Not only must policymakers proceed with caution when considering changes to the law, because it would hurt startups and hinder competition and innovation, but there are also other interests. Shifting liability to platforms for alleged infringement they have no knowledge of or involvement in would: give rise to “concerns about freedom of expression” and “free access to information,” implicate legitimate uses of someone else’s trademarks online, and restrict the “development of new technologies, including those capable of both infringing and non-infringing uses.”38 It would require platforms to “radically contract” their legitimate offerings, which would hurt small businesses, Internet users, Internet-enabled creators, and consumers that do (or could) rely on such marketplaces.39 And that “overreactive impulse [to over-takedown] carries a disparate impact on small businesses and smaller platforms, who are often ill equipped to defend themselves against potentially false claims of contributory infringement.”40 *

The doctrine of contributory liability currently applied by U.S. courts is balanced and largely working well. Many small or early-stage e-commerce companies would not be able to afford the cost and risk of a legal framework that mandates proactive policing and/or holds companies liable for user-generated infringing content they have no knowledge of or direct involvement in. And any changes which shift the fundamental balance in the current law could have outsized and negative impacts on startups. Such changes would reduce the viability of existing and prospective startups—potentially forcing them out of the market—but it would also restrict options for the content creators and small businesses who rely on diverse e-commerce offering Doctrine of contributory liability, as applied by courts, and how e-commerce platforms routinely address alleged trademark infringement online Under prevailing case law, e-commerce platforms can be held liable for contributory infringement if they continue to supply services to users when they know or have reason to know that those users are engaging in trademark infringement.3 In practice, there is a “substantial convergence” in how liability is analyzed for trademark and copyright claims in this context. 4 Analogously, e-commerce platforms routinely implement systems for removing alleged trademark infringement they know of—e.g., upon receipt of a notice—just as they do for claims of copyright infringement.5 That said, as e-commerce platforms scale, and depending on several factors (including the type of content hosted and the volume of potential trademark infringement), many will develop and adopt technology or hire teams of content moderators to help flag potential trademark infringement.6 This is similar to the socalled “DMCA-plus” efforts certain platforms use to attempt to detect possible copyright infringement.7 Indeed, “the presence of infringing activity on their sites is contrary to the business interests of” ecommerce platforms. “Instilling consumer confidence in the integrity of their marketplaces is critical. Consumers who cannot trust the authenticity of the merchandise listed on a site will not long remain customers.”8 Developing technology and/or hiring moderators comes at substantial cost. For example, eBay invests as much as $20 million per year in trust and safety efforts—including running searches, deploying filters, and implementing buyer protection programs—with over 200 employees focused on combatting potential infringement.9 Alibaba has likewise developed technology to try and identify potential infringement, after significant investment, and takes further steps to monitor posts, look for anomalous transactions, assist law enforcement, etc.10 While these and numerous other e-commerce platforms do more than notice-andtakedown, the costs of doing so are far more than what a startup could afford.11 Overall, as the case law illustrates, “in most cases the courts are getting it right” and the current doctrine of contributory liability is resulting “in decisions that reward good behavior and punish bad behavior by platforms.”12 Current legal doctrine is working, and changes in this area of the law would put startups and their users at a significant disadvantage The prevailing approach U.S. courts take to contributory trademark infringement makes sense. Trademark owners are best suited to initiate the process of removing infringement from an e-commerce platform, because they know their own marks, and know what is infringing versus authorized, etc.13 Platforms, especially startups, are not able to do that, but they are able to remove allegedly infringing posts they know about and can communicate relevant information to trademark owners, accused infringers, and law enforcement. Shifting the current balance and imposing more liability on e-commerce startups would impose unsustainable costs and put early-stage companies at a distinct disadvantage. It would create an impossible and unaffordable task for all but the largest, established e-commerce platforms. For one, startups would be forced to try and constantly monitor user posts to detect potentially infringing ones. This would include expenses startups, operating on thin margins, could not cover, such as hiring teams of content moderators, developing or purchasing imperfect yet costly filtering technology, and setting aside litigation reserves to cover future legal exposure for user conduct.14 Trademarks are pervasive across the globe. There are over 2.6 million active trademarks in the U.S. alone.15 It would be impossible for a new e-commerce platform to learn, monitor, and identify alleged infringement of that many marks in the millions of products that are (or could be) posted on these sites. Volume is not the only problem—it is complex to identify specific instances of trademark infringement. Trademark owners are much better suited to know what might confuse their consumers and know what products they have authorized.16 Without trademark owners identifying infringement in the first instance, platforms will both over- and under-police, unintentionally blocking legitimate content and letting some infringement slip through the cracks.17 Likewise, technology and filters are not a solution, as these are both very expensive and inherently limited.18 As we have previously explained in the copyright context: Technology and filters have many inherent limitations which make them incapable of fully addressing online infringement. Filtering technology is imperfect, with often high false positive rates. It is categorically incapable of answering fact-specific questions of infringement, like fair use, licensing, and the exclusion of unprotectable ideas. But these filters are also out of reach for most startups. The most sophisticated tools are so expensive that the development costs are orders of magnitude above what a startup could afford. Offthe-shelf tools, which cannot screen much content on a multimedia platform, are also too expensive for early-stage companies to license and maintain. All filters are limited in the type of content they screen. And for many types of content, there are no filters. Finally, technology is easily circumvented. Users intent on uploading infringing content can easily modify files to avoid the filters.19 Indeed, the measures certain platforms deploy to try and prevent trademark infringement are not perfect, and counterfeiters already find ways around these measures. Even for platforms spending the most, and deploying the most sophisticated technology, it is impossible to keep trademark infringers off ecommerce platforms. For example, counterfeiters can just change their name or repost infringing items under a new name or different account.20 The limits of filters—which will fail sometimes (likely often)—and the fact that startups would be incapable of identifying and removing all infringement on their own also brings substantial litigation cost and risk. Expanding platform liability over users’ alleged IP infringement would put early-stage companies at risk of being sued out of existence. It would also discourage entrepreneurs and investors from developing new technology or pursuing new e-commerce business models.

SHOP SAFE Will Entrench the Dominant Platforms It Claims to Target

The host of new regulations and increased liability created by SHOP SAFE would be catastrophic for competition in e-commerce. This regime would devastate smaller online platforms like Etsy, OfferUp, and other small platforms that allow third-party sellers because it applies to any platform with just $500,000 in sales in the past year—for comparison, Amazon had $364.38 billion in sales in the U.S. last year. So, while this bill seems to target tech giants like Amazon, their ample resources for regulatory compliance and deep pockets to fight lawsuits, really makes SHOP SAFE an opportunity to eliminate many of their smaller competitors through legislative games instead of offering better products or services.

Even copyright owners and the industry groups who represent them recognize the impracticability of voluntary, direct licensing for AI training data. They propose, instead, that Congress pass legislation to implement a statutory or collective licensing model.19 But such legislation would effectively require AI developers to remunerate rightsholders for a use that falls squarely within the protections of the fair use doctrine. The Supreme Court has warned against such attempts to “alter[] the traditional contours of copyright protection” by reducing its speech-protective limitations, like the idea/ expression dichotomy and fair use. Eldred v. Ashcroft, 537 U.S. 186, 219 (2003).

Moreover, a collective or statutory licensing scheme would prove administratively impossible to implement, as the Register acknowledged in a recent Congressional hearing.20 The most obvious problem is scale. Some of the most powerful AI models in existence today were trained on an enormous cross-section of all of the publicly available information ever published on the internet—that is, billions of pieces of text from millions of individual websites. For a very significant portion of those works, it is essentially impossible to identify who the relevant rights holders are, and thus there would be no viable way to get statutory royalties to the proper parties. Moreover, since this technology enables production of creative work at an unprecedented rate, the problem will compound over time. The Office has encountered similar costs and administrative problems with routing royalties to rights holders in administering the Music Modernization Act, where the total number of musical works in the entire ecosystem is something on the order of 25 million. In the context of AI training data, where the relevant quantity of works is almost certainly in the billions, these costs and problems would be multiplied by many orders of magnitude. The amount of “unmatched” royalties would be astronomical, leaving almost all creators with no remuneration at all.

Before turning to the legal issues, it is important to appreciate a few salient facts about AI technology and its development.

First, the only practical way generative AI models can exist is if they can be trained on an almost unimaginably massive amount of content, much of which (because of the ease with which copyright protection can be obtained) will be subject to copyright. For example, large language models are trained on something approaching the entire corpus of the written word.

C. License and Consent Requirements would Limit Competition and Inhibit Technological Progress (Q9)

Any requirement to obtain consent for accessible works to be used for training would chill AI innovation. It is not feasible to achieve the scale of data necessary to develop responsible AI models even when the identity of a work and its owner is known.28 Such licensing schemes will also impede innovation from start-ups and entrants who don’t have the resources to obtain licenses, leaving AI development to a small set of companies with the resources to run large-scale licensing programs or to developers in countries that have decided that use of copyrighted works to train AI models is not infringement. Moreover, without access to a broad set of training materials from varied sources, AI models may become biased or inaccurate. Other proposals that practically limit access to content, such as an opt-in or license system, suffer the same drawbacks.

Introducing a licensing requirement for the development and adoption of generative AI systems would have profound economic implications.

Barrier to Entry: Given the vast number of works an AI training dataset might need to use—and the fact that thousands or millions of individuals might own those works—obtaining licenses for all underlying content becomes a significant challenge. This could act as a barrier to entry for smaller companies or startups that lack the resources to negotiate and secure such licenses.

It doesn't need to be an economist to realize that, high and unpredictable inflation is not good for business confidence because they cannot be sure of what their costs and prices are likely to be. As a result, this uncertainty could lead to a lower level of capital investment spending. In fact, a high rate of inflation is widely considered to be damaging for an economy. What's more important is that money becomes worthless with very high inflation.

It's a common trend that inflation occurs when an economy grows due to increased spending. However, we're not sure what method will be applied by the central bank to keep inflation under control. Whatever the method might be; we hope it would be sustainable.

What are the main challenges facing businesses in terms of IP protection? The main challenges are registry issues, backlogs, delays in trademark and patent registration, lack of experts in patent claims drafting, the cost of protection, lack of awareness of IP rights among SMEs, and IP lawsuits. What are the steps involved in the patent registration process? The most important step in the patent registration process is the drafting of the actual patent application, which needs to encompass as much of the innovative processes as possible and be written with the expectation of opposition in mind. What is the cost of trademark registration? To register a trademark, one can expect to pay between $225 and $325 per class code, not including search or attorney fees. What is the issue with IP awareness among SMEs? In Africa, over half of the SMEs have never heard of intellectual property due to a lack of awareness-raising efforts in the business world. What is the impact of IP lawsuits on businesses? IP lawsuits can be time-consuming and expensive, with a price tag of between $2.3 and $4 million. They can also be detrimental to a company's reputation. What is the solution to the lack of awareness of IP rights among SMEs? Raising public awareness of IP through media outlets and government initiatives that reach commercial settings is the first step in solving the lack of awareness issue.

“The copyright and patent laws we have today look more like intellectual monopoly than intellectual property,” wrote Brink Lindsey and Steven Teles in their recent book about the U.S. economy. Concerns about overprotection of intellectual property acting as a barrier to innovation and its diffusion are not new. But they have gained greater salience now that knowledge has emerged as a dominant driver of economic activity and competitive advantage.

Digital technologies have enabled the emergence of an “intangible economy,” based on soft assets like algorithms and lines of code, rather than physical assets like buildings and machinery. In this environment, intellectual-property rules can now make or break business models and reshape societies, as they determine how economic gains are shared.

Column: How intellectual property rules help the rich and hurt the poor

Economy Oct 28, 2016 2:54 PM EDT

Increasing intellectual property rights (IPR) poses a risk to both consumers and economic growth. The United States scored 4.9 out of 5 in 2005, up from 3.8 in 1975, according to the Park index for evaluating the strength of patent protection. 1 This trend has continued to gain strength, as evidenced by the over one billion dollars awarded to Apple for its infringement case against Samsung. Economic considerations dominate the arguments favoring this trend towards strong IPR, namely the "incentive to invent" theory. This rationale, however, falls short in its justification for continuing to strengthen IPR. Firstly, the "incentive to innovate" theory fails to discuss the implications stringent IPR have on consumers. Secondly, the Endogenous Growth Model demonstrates the role imitation plays in fostering economic growth. Finally, this article will examine a policy solution to these conflicting social and economic standpoints. The "incentive to invent" rationale appears to satisfy capitalist ideals. This rationale relies upon the presumption that the propensity for a prospective inventor to invent would be increased by protection against imitators. This protection secures an inventor's investment of time and capital with the prospect of market control, thereby gratifying Lockean notions of property and profiting from the fruits of one's labor. This article will argue that, while IPR justification is valid, greater incentives for innovation and economic growth can be achieved by balancing IPR with appropriate levels of imitation; at the same time maximizing utility for society as a whole. Effect on Consumers and Society Through Waste [*49] Patent holders incorporate high levels of rent protection activities (RPA), to ensure rent is paid by imitators. 2 RPA discourage cumulative innovations, advancements on existing innovations, thereby forcing R & D towards horizontal innovations, essentially just differentiations of an existing patent. 3 For example, iPhone software and Android software are the result of horizontal innovations, they both achieve similar functionality but were developed independently (infringement suit aside) to avoid patent infringement. In contrast, vertical innovations, or cumulative innovations, resemble a step-by-step process of imitation followed by improvement (this process is discussed at length in Competition, Imitation and Growth with Step-by-Step Innovation 4Link to the text of the note). This process is analogous to "standing on the shoulders of giants," where previous ideas are seen as building blocks for future developments. To the degree that strong IPR allows only horizontal innovations among competitors, "incentive to invent" holds true, but how much do these innovations benefit society? Resources would be better spent advancing technology rather than simply developing similar technology a different way to avoid infringement. Society is ultimately left advancing at a slower rate than the equilibrium between imitation and IPR protection. A company's goal is to reduce competition. IPR allow for horizontal innovations, so companies have been increasingly utilizing design patents as additional barriers to entry. 5 6 Design patents are the stylistic, in essence the fashion, components of a product that may be valuable to clothing companies, but do little to enhance the utility of a technology product. A company will invest in hoarding design patents, making it difficult for a competitor to avoid infringement, even after independent development. The adverse effects of incentivizing design patents in technology as quasi-RPA are twofold: 1) innovators will be discouraged from attempting enter the market due to an additional barrier and 2) societal advancements will be even further slowed. With the continuation of this trend, [*50] resources will be increasingly allocated away from utility enhancing R & D and placed towards fashionizing technology. Despite, its "incentive to invent" rationale, strong IPR create a number of disincentives for potential innovators. Effect on Economic Growth In contrast to strong IPR, the Endogenous Growth Model discourages disincentives towards imitation. 7 The Endogenous Growth Model relies on innovation to stimulate economic development, 8 so why are IPR an inefficient means for growth? When IPR are highly protected, monopolistic effects occur as a result of the high levels of RPA. 9 With strict IPR, patent holders will typically be the industry leaders, so by utilizing effective RPA they create barriers against competition giving them price control. This creates the monopolistic effect of unfair pricing with little incentive to innovate. Furthermore, it increases benefits for allocating funds into RPA instead of R & D. Aghion et. al. uses the Endogenous Growth Model to suggest some imitation will mitigate these monopolistic effects. The logic behind this idea is that through imitation competitors are placed on a more level playing field. The ultimate result of the Aghion et. al. system is that the "top" will be in constant flux; terms as market leaders will be cyclical. In this competitive atmosphere resources would be better spent on vertical innovations instead of RPA. IPR protection will be sufficient to compensate investment through cyclical market leader profits. In fact, incentives for prospective inventors and start-ups will be increased by the greater prospect to be a market leader. In summary, economic growth depends on vertical innovation, 10 and the allowance of imitation improves the quality and rate of innovations. Advocates for strict IPR protection argue that U.S. firms receive investments over firms abroad because of our strong protection and enforcement. If the U.S. were to reduce its IPR protection, the gap between domestic investments and investments abroad may shrink. However, more firms in close competition [*51] coupled with increased economic growth would mitigate investment risks. Consider the following relationships: 1) diversity reduces investment risk while lower IPR protection increases diversity among competitive firms; 2) economic growth reduces investment risk while lower IPR increases economic growth. These relationships would encourage a greater quantity of investments mitigating the potential loss to foreign innovators. Overall, the benefits from a policy encouraging some imitation with moderate IPR protection could greatly improve societal welfare.