Alice/Mayo uncertainty shifts R&D investment to China

And third, a series of Supreme Court decisions between 2010 and 2014 greatly decreased the scope of patent-eligible subject matter. The decisions established a two-step test for determining patent-eligible inventions known as the Alice/Mayo test, which restricts patents related to laws of nature, natural phenomena, and abstract ideas. Under the restrictions of Alice/Mayo, many once-patentable inventions became patent ineligible, resulting in the nullification of hundreds of patents. Through 2020, 60 percent of patents challenged under the Alice/Mayo framework were invalidated.

Ultimately, the key issue with these three changes is the increased uncertainty they inject into the U.S. patent system. The increased risk of a successful retrospective patent eligibility challenge at the PTAB, for instance, introduces significant uncertainty for start-ups and other small actors who rely on IP to attract financing. Moreover, critics of Alice/Mayo assert that the test is vague and unpredictable, which hampers start-ups, reduces investment, and ultimately undermines innovation. Kimberly A. Moore, chief judge of the U.S. Court of Appeals for the Federal Circuit, expressed that Federal Circuit judges were “at a loss” in how to apply the current patent eligibility provisions, while some IP legal professionals claim that they are unable to provide clear guidance to businesses due to Alice/Mayo.

Uncertainty—situations where the range and probability of outcomes cannot be predicted—hampers economic activity, and uncertainty in patent eligibility may encourage investors to avoid companies in patent-intensive industries. For instance, a 2022 study estimated that disease diagnostic technologies, which are highly impacted by Alice/Mayo, lost out on $9 billion in investment in the four years following its implementation. Another 2020 study found that the share of venture capital investment in patent-intensive industries such as semiconductors, pharmaceuticals, and biotech decreased from 50 percent in 2004 to 28 percent in 2017 in the United States, a time period which coincides with these changes. While the American Chamber of Commerce ranked the United States number one in its 2023 International IP Index, it identified “continued uncertainty over patentability for high-tech sectors” as a key weakness in U.S. IP protections.

This uncertainty is particularly troubling in the context of international technology competition, as some of the subject matter most affected by these changes is clearly patent-eligible in Europe, China, and other jurisdictions. A 2017 study identified 1,400 patents, including cancer and diabetes treatments, that were granted in China and the European Union but not in the United States due to Alice/Mayo. The uncertainty introduced by these changes may divert research and development investment away from the United States, thereby undermining the international competitiveness of U.S. businesses.

Conclusion

When it comes to its innovation competition with China, the United States has an inherent advantage in its strong IP system. And yet, poor policies and legal decisions place this key asset at risk.

Rather than devalue IP rights at home, the United States should clarify and strengthen its IP system. If the United States is to prevail in an innovation-based national competition with China, it should play the long game and preserve and invest in what has been to date a world-leading innovation system anchored on robust and secure IP rights.