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Most debates about government funding of science and technology revolve around the extent to which the government should support research, usually measured in dollars. Those against government funding will point out crowding out effects and the dangers of government picking winners, while those for it will argue that because scientific discovery produces positive externalities it will be underproduced by a private market. What’s left out of these debates is the effect of how the government chooses to support R&D. Patents have been a standard method for centuries but their distortionary and monopolistic effects work to offset their benefits. Prizes can offer all of the benefits of patents without the costly second order effects.

Properties of Technology

Is it even realistic to believe that we can beat this? Because there is a ticking clock and although we've been aware of the climate change crisis for decades, we have done nowhere near enough to address it. We're only now becoming aware on a wide scale about this crisis. And we only have a few decades in which to address it. Is it even realistic? Is it possible that we need to go through a grieving process and recognize that our species is about to become extinct?

Well, I don't want to minimize the seriousness of this. I think it's absolutely critical that we turn around the declines that we're seeing, but I don't think it is impossible. And the reason is that we have an option for continuing our species, which is a different kind than the options for climate change, which is that we have technology now to reproduce even in the face of very severe decline. We have all kinds of all manners of assisted reproduction that allow us to have healthy children.

In reality, most of the environmental impacts of many consumer products, including soft drinks, are tied to the products inside, not the packaging, according to University of Michigan environmental engineer Shelie Miller.

And when it comes to single-use plastics in particular, the production and disposal of packaging often represents only a few percent of a product's lifetime environmental impacts, according to Miller, author of an article scheduled for publication Oct. 26 in the journal Environmental Science & Technology.

Like any advance, SynBio evokes sincere evangelical zeal in its practitioners, which is good in itself and helps spread SynBio ideas and technology throughout the public and private sectors.16 Informed, data-driven forecasting of what SynBio advances could enable is likewise good and helpful. Diffusing advances and faithfully predicting their impacts fuel hope, a virtue we cannot afford to lose in facing what has been called a global polycrisis.17 Like any crisis, though, this one creates opportunities for merchants of false hope, or hype. Hype flourishes when disoriented, poorly informed populations want to believe in easy solutions to difficult problems; SynBio can be–and sometimes is–pushed in this way as a techno-fix in areas such as atmospheric CO2 drawdown,18 nitrogen pollution in agriculture,19 and green jet fuel production.20 It is not that SynBio cannot contribute to these areas; it can. The problem is one of claims for the scale and timeline of the contribution that do not follow the engineering practice of running the numbers to get rough but robust estimates of how much a SynBio-based project could possibly do and how fast,21 and then sticking to these estimates when advocating and publicizing the project. A habitual disregard of what is involved in scale-up is an Achilles’ heel of the whole field. It is one thing to have a smart genetic construct showing a spectacular phenotype in a Petri dish or small bioreactor for a short period of time but a very different thing to have the same at an industrial or even global scale10 and following rigorous implementation standards. Going from one dimension to the other makes the whole difference between a merely intellectual exercise and a truly transformative development.22 Alas, the conceptual excitement occasioned by SynBio has thus far been more supported than scale-up technologies–unfairly considered a lower-rank endeavor.23 The solution is just to learn from and to follow sound engineering practices and traditions. Not doing so, in the long term, only weakens public trust in bioscience and biotechnology.

//DH

Finally, this study’s most important caveat is both a limitation and a strength of the empirical design. These findings are relevant to a specific group of patents—business-methods software—and it would be a mistake to extrapolate too far outside this context. There is every reason to think that patents play different roles in different industries, as a variety of the studies discussed in Part II indicate. Indeed, when these results are put next to those from prior studies, important distinctions begin to emerge.170 Farre-Mensa, Hegde, and Ljungqvist find that the average effect of patent approval on the likelihood of funding is 50%, but when contrasted, the results of the two studies suggest that there is important heterogeneity between industries.171 Startups in certain sectors of information technology are substantially more likely to receive investment after their first patent is approved (in their study), while in biochemistry (also in their study) and business-methods software (in this one), patent approval appears to have no effect.172 Given these differences, any “one-size-fits-all” reform proposal is inapposite.173

//DH

The fourth and final case in the eligibility quartet—Alice Corp. v. CLS Bank International—has been the most influential. The controversy that accompanied the decision was matched by the immediacy of its impact. Following the case, a wave of patentable-subject-matter litigation swept federal courts. In the succeeding five years, hundreds of patent invalidations were handed down, spawning complaints from litigants of inconsistency and unpredictability in patentable-subject-matter jurisprudence.92 The response from the PTO—the agency responsible for examining patent applications— was even swifter. On June 25, 2014, six days after Alice was handed down, the PTO issued its initial informal guidance to examiners.93 Following the guidance, there was a precipitous increase in application rejections in the affected PTO examination units. As I show in Part IV, the average allowance rate in the three business-methods technology centers fell from around 45% to less than 10% in the months following the decision.94

//DH

The problem at the heart of this indeterminacy is a lack of evidence. We simply do not know enough about how the patent system actually works.20 The dominant justification for intellectual property is its “incentive” function, by which a temporary grant of legal exclusivity is intended to encourage the creation of valuable new expressive and technological innovation.21 But pinning down the incentive effect of any particular intellectual property regime has long been a difficult—verging on intractable—empirical task.22

//DH

C. The Holy Grail: Causality

Finally, some have also argued that concerns about PERA should be ignored because the expanded availability of patents, in and of itself, would enhance U.S. competitiveness. While providing a comprehensive response to this claim is beyond the scope of my testimony, it should suffice to point out that the majority of patents granted by the USPTO claim foreign inventions and were issued to foreign applicants. The principal effects of enacting PERA would thus be to incentivize foreign innovation and enrich foreign patent owners. This would come at the expense of U.S. businesses and consumers, because substantially all the harms with respect to increased liability, greater business uncertainty, and higher litigation costs would fall on those doing business in the United States, with most of these costs ultimately being passed on to American consumers in the form of higher prices. There can be no serious argument that subsidizing foreign innovation or enriching foreign entities at the expense of American consumers and businesses somehow benefits the United States. This alone should cast serious doubt on claims that an unprecedented expansion of patent eligibility is justified simply because it would allow for increased patenting.

In sum, HTIA and its member companies are deeply concerned about the broad expansion of patentable subject matter that would result from the enactment of PERA as currently drafted. Both empirical evidence and historical experience indicate that expanding patent eligibility to include nontechnological subject matter will undermine incentives to invest in technological innovation and impose substantial dead-weight losses on the U.S. economy, thereby harming U.S. competitiveness at a time when retaining our technological and economic advantages relative to adversarial nations is critical to our national security.

Maybe it is not such a surprise that Chinese patent holders can assert U.S. patents against U.S. companies. What is perhaps more surprising, though, is that one of the venues where Chinese patent holders do this is a federal agency established to protect U.S. companies from unfair foreign competition.

The U.S. International Trade Commission (“ITC”) is an independent administrative agency that adjudicates unfair acts of importation into the United States.⁴⁸ Under section 337 of the Tariff Act of 1930, the ITC investigates patent and other IP infringement as a species of those unfair acts, and has powers to exclude infringing articles from importation.⁴⁹ Because the importer of infringing articles is sometimes outside the jurisdiction of federal courts, the agency serves an important purpose of policing and enforcing IP rights at the border, making the ITC investigation an important tool for mitigating IP theft by foreign nations such as China.⁵⁰

Besides complicating American companies' freedom-to-operate determinations, Chinese-held U.S. patents could be directly asserted against American companies, tying them up in potentially years of costly litigation. The Chinese telecommunications giant Huawei, for example, is reportedly the fourth most prolific patenting company in the United States, receiving 2,836 U.S. patents in 2022 alone.29 In 2020, Huawei sued Verizon for infringement of several telecommunications patents; that lawsuit followed a 2016 suit against T-Mobile US.30

Huawei has close ties with the Chinese government,31 and the idea that a national government might sponsor or coordinate patent litigation against American firms is not farfetched. Countries including France, Japan, and South Korea have established "sovereign patent funds" intended to aggregate and often monetize a country's patents around the world.32 State-sponsored entities such as Australia's Commonwealth Scientific and Industrial Research Organisation have vigorously asserted patents against American companies.33 And the U.S. Chamber of Commerce has warned about the possibility that China could use a sovereign wealth fund to instigate a "suit against an American company in a sensitive industry such as military technology," and thereby obtain "highly confidential documents containing proprietary information regarding sensitive technologies" through the ordinary and compulsory discovery processes of litigation.34

This glut of low-quality patents cannot be ignored for at least three reasons. First, it strains the USPTO's limited examination resources, potentially delaying the issuance of valuable patents representing commercializable innovation.24 Second and more importantly, it crowds the space of potential liability for American innovators and businesses. A company entering a market often conducts a "freedom to operate" analysis, assessing what patents cover a certain technological area and what licenses the company needs to negotiate. In doing that analysis, the company must wade through all the patents in the relevant area, high-quality or not. A mass of patents from China could multiply this search and legal analysis cost many times over.25 Indeed, these filings may render it more difficult for American firms to protect their own IP rights, as they constitute facially cognizable prior art that could potentially draw out the patent examination process.26

Several pointers suggest how a glut of low-quality foreign patents could end up interfering with domestic innovation. In the analogous field of trademark law, scholars have already worried that high-volume applications for trademark registrations from China are crowding the market so much that the United States might be "running out of trademarks."27 And in the early 2000s, a glut of software patents of questionable validity enabled a variety of patent assertion business models to spring up and harass technology companies and Main Street businesses for decades.28 History suggests that China's strategy of inducing high-volume patent filings regardless of quality may have substantial implications for the American economy.

Could patent density in the United States explain the hesitancy of companies to center their R&D in the states? The chance of litigation mounts when the market is saturated with patents—known as a patent thicket.160 This is because, as a primary concern, a large volume of patents in an industry increases the odds that an inventor may accidentally infringe one of them.161 For example, approximately 250,000 active patents are used in the modern smartphone, ignoring the dormant patents that can also form the basis of an infringement lawsuit.162 Even if an inventor detects each blocking patent, the existence of a thicket raises the costs of innovation by forcing the inventor to design around the anticommons.163

Patent thickets also create troublesome incentives to wage meritless litigation.164 Some bad faith litigants have overwhelmed practicing entities by acquiring thousands of patents regardless of the patents’ quality. This type of action allows an entity to essentially weaponize their own patent thickets:

With regard to the balancing test in the context of patent eligibility specifically, the primary concern with imposing limits to broad eligibility relates to preemption.201 The three judicial exceptions are "the basic tools of scientific and technological work."202 Allowing single parties to exercise a monopoly over such broad rights would "inhibit further discovery by improperly tying up the future use of[] these building blocks of human ingenuity."203 Some empirical evidence specifically analyzing the impact of the Alice decision has found that "an overly permissive intellectual property rights system can slow the very growth it was intended to promote."204

With these broad principles in mind, there exist conflicting views on the role of patent eligibility in promoting innovation. The theory behind patent subject matter eligibility,205 as well as its criticisms and defenses have been extensively covered.206 Some view a meaningful eligibility threshold as important to prevent broad patent rights that can impede more than promote the progress of "science and the useful arts."207 The proliferation of an astronomical number of software patents creates patent thickets that can make it incredibly difficult (and expensive) [*35] to facilitate the incremental innovation common in the industry.208 As a classic example, Professor Mark Lemley cites to the Wright Brothers' broad patent written in functional language that stalled innovation in flight for many years.209

Expanding Patent Eligibility Limits Innovation and Competition

Supporters claim that patent eligibility practices in the wake of the aforementioned Supreme Court decisions hinder innovation and investment in critical technologies like AI, personalized medicine, and diagnostic testing. On the other hand, critics assert that the PERA would restore an earlier patent regime that granted patent protections too broadly, making it difficult for true innovators to navigate complex and far-reaching patents that limit entry into the market.

a. How has the current state of patent eligibility inhibited the development of next generation technologies?

The current state of patent eligibility hasn’t inhibited the development of next generation technologies. HTIA member companies are at the forefront of technologies like AI and quantum computing, are among the largest patent owners in the world, and have experienced no negative effects from the current jurisprudence. In fact, the available data suggest that current patent eligibility law has advanced the development of next generation technologies.

Moreover, the benefits of the Alice decision are not limited to the relative increase in predictability. Other empirical studies have, for example, separately concluded that the Alice decision directly resulted in increased R&D investment,15 was correlated with increased sales by software firms,16 that “Alice was associated with a significantly higher likelihood of receiving a new round of VC funding” for tech startups,17 and there was “a positive association between Alice and both R&D spending by software firms and patenting by firms that held relatively more software patents prior to the Court’s opinion.”18

In sum, the current patent eligibility jurisprudence is neither unpredictable in its outcomes nor harmful to venture capital or R&D investments. Rather, it is Alice and its progeny that encourages and protects technological innovation.

Among other things, the territorial nature of patents explains why current concerns about IP theft in China are largely unrelated to U.S. patent law.12 By both statute and constitutional requirement, the text of a patent is required to reveal the inner workings of a new technology with sufficient detail such that others are able to make and use the same technology.13 That text is published such that anyone around the world can read the patent, and it makes little sense to say that anyone can "steal" publicly available information outside the ambit of U.S. patent law. Instead, IP theft typically refers to misappropriation of trade secrets and other proprietary information, through industrial espionage or forced disclosures through compelled joint ventures.14 Trade secret and industrial espionage laws would be the proper focus of this Subcommittee's attention to deal with such issues.

Intelligence services, science and technology investments, academic collaboration, research partnerships, joint ventures, front companies, mergers and acquisitions, and outright theft via insiders and cyber intrusions, begin the comprehensive and strategic framework for how China implements their strategy.

China continues to successfully utilize “non-traditional” collectors to conduct a plurality of their nefarious efforts here in the U.S. due to their successful ability to hide in plain sight. The non-traditional collectors, serving as engineers, businesspersons, academics, and students are shrouded in legitimate work and research, and oftentimes become unwitting tools for the CCP and its intelligence apparatus.

Property protection. China’s rise has been accompanied by massive theft of American intellectual property. U.S. military commanders in the Pacific say that the Chinese often weaponize and field that property faster than the U.S. does, even though the insights originated in America. While the technology sector has made big strides in implementing better cybersecurity, there is more Washington can do to help. Until recently, little was done to penalize companies like Huawei that may have benefited from the misappropriation of U.S. intellectual property. Sanctions against foreign actors who aim to undermine the competitiveness of U.S. technology companies need to be a bigger and more consistent feature of federal policy. Washington’s response to the threat of espionage and cyber intrusion shouldn’t be aimed just at the perpetrators—it should also be aimed at the foreign companies that benefit from illegal behavior.