Certainty key to preventing innovation from moving to China – PERA broadens patent eligibility to restore US technological leadership

One of the key concerns from innovators is that, absent additional clarity in this space, we’re going to start seeing American companies start developing their inventions overseas in jurisdictions which have broader standards of patent eligibility.

Do you agree with that concern and, if you do, what evidence have you seen to suggest that technological inversion is already occurring?

In the twenty-first century in which global telecommunications technologies and the development of sophisticated global supply and distribution chains make possible efficient transfer of technologies and investments throughout the world, commonsense dictates that innovators and firms will move their investments, R&D activities, patents, and ultimately their manufacturing and commercial activities based on these patents to other jurisdictions. Even before modern telecommunications technologies in mobile devices and efficient cargo-container shipping, inventors historically moved jurisdictions to create and patent their inventions. There are many examples, but two famous inventors who emigrated to the U.S. for precisely this reason are Nikola Tesla, the inventor of AC electrical systems and the first wireless electronic transmission systems, and Dr. Leo Baekeland, the inventor of the first synthetic plastic (trademarked as “Bakelite” after his name) and now known as the Father of the Plastics Industry. As in the past, when innovators moved to the U.S. given the promise of reliable and effective property rights in the fruits of their inventive labors, innovators today will shift to other jurisdictions that offer the same promise of reliable and effective patents in those jurisdictions. It is even easier today than in the past, as Telsa and Baekeland physically moved to the U.S. from their native countries to invent and work in the U.S., but this is no longer required of innovators who seek to move their R&D and commercial work to other countries, specially global competitors who explicitly are seeking to displace the U.S. as the global technological leader, such as China. Thus, significant historical evidence and economic principles inform us that technological innovation and growth in innovation economies occur where reliable and effective property rights are secured to individuals and companies, but I do not have more specific data on this shift occurring right now other than the study of comparative patent grants detailed in my answer to Question 5.

5. In 2019 you testified that you conducted a study of U.S. patent applications from 2014 to 2017 and found that of nearly 1,700 patent applications rejected by the USPTO on eligibility grounds under the current Mayo-Alice framework, virtually all of them were granted by China, the European Patent Office, or both.

These findings seem to confirm the worst fears of retired Judge Paul Michel and others, that Europe and China are embracing patent protections on promising inventions while the U.S. makes it harder – or impossible – to protect these innovations.

Are you still concerned about this trend today, and do you think legislation like PERA can stop the flow of innovation overseas?

Yes, global competitors, especially China, have a comparative advantage to the current U.S. patent system, which is significantly weakened given the indeterminate and restrictive patent eligibility doctrine, among other changes to the U.S. patent system in the past fifteen years. With respect to patent eligibility doctrine in the U.S., nothing has substantively changed in the law since the publication of Kevin Madigan’s and my article in 2017.15

As a preliminary matter, we published an update to our article in 2019, clarifying and updating the data. This included correcting some accidental false positives in the original dataset on patent applications at the USPTO that received initial or final § 101 rejections and were ultimately abandoned in the United States, only to be granted patents in Europe, China, or both.16 The updated 2019 dataset confirms that 1,310 patent applications in the U.S. were abandoned following initial or final rejections under the Alice-Mayo inquiry, and yet had issued patent family members in either China or Europe. Even accounting for the corrected number of patent applications— 1,310 patent applications versus the originally reported 1,694 patent applications—the number of U.S. patent applications that fell victim to the Alice-Mayo inquiry, while these patents were ultimately granted in foreign jurisdictions like China, is significant.

The U.S. has long been a global leader in technological innovation, but this leadership is threatened by the indeterminacy and lack of protection provided under U.S. patent law for a whole range of inventions—from classic industrial inventions to today’s biotech and high-tech inventions. This is confirmed by data on the number of patent applications in recent years in the U.S., China, Europe, and other jurisdictions published by the World Intellectual Property Organization (WIPO). Consistent with predictions about the negative impact of the Mayo-Alice framework, WIPO reported a 1.6% drop in U.S. patent applications in 2018.17 This was the first decline in patent applications since 2009, when the U.S. was in the midst of the Great Recession, and the 2018 decline in patent applications was the first decline not associated with an economic recession or war. U.S. patent applications again decreased in 2020 and 2021, and had the USPTO had only a small 0.5% increase in 2022 (the last year for which we have published numbers on patent applications).18 The decline in U.S. patent applications during the COVID pandemic years of 2020 and 2021 was not matched by other jurisdictions, as patent applications increased in Europe, South Korea, and China in 2021 while the U.S. suffered another decrease in patent applications that same year.19 The 0.5% increase in USTPO patent applications in 2022 likely masks a comparative disadvantage given the significant increase in patent applications by China-based inventors in the USPTO. Thus, if one removes the patent applications from China-based inventors from the total 2022 numbers, it is likely that there was another drop in U.S. patent applications for 2022. This is evidence of a continuing, if not worsening, problem in U.S.-based innovation losing its leading edge compared to global competitors like China, where the government has expressly announced a policy of investing in and developing technologies to become the new leader in the global innovation economy.

PERA directly addresses this problem by abrogating the Mayo-Alice inquiry and confirming other substantive and procedural protections for innovators under § 101 that have long existed in U.S. patent law, such as mandating the assessment of the claimed invention as a whole. It returns patent eligibility doctrine to its status prior to the Mayo-Alice inquiry as only a “threshold test” relative to the distinct and separate patentability requirements of novelty (§ 102), nonobviousness (§ 103), and disclosure (§ 112).20 Historically, courts very rarely used patent eligibility doctrine relative to the patentability requirements of novelty, nonobviousness, and disclosure, and PERA essentially reestablishes this earlier doctrinal approach. For example, it prohibits the UPSTO or courts wrongly intermingling the patent eligibility analysis and the nonobviousness analysis, which the Supreme Court expressly authorized the USPTO and courts to do in its formulation of the Mayo-Alice inquiry.21 In our 2019 update to our dataset on rejected patent applications in the U.S., we confirmed this improper and indeterminate intermingling of distinct patent doctrines—patent eligibility and nonobviousness—in which we identified a significant overlap between UPSTO rejections of the patent applications in the dataset under both § 101 and § 103.22

In sum, PERA effectively reestablishes the original function of patent eligibility doctrine that guided the UPSTO and courts for almost 200 years in which the U.S. first achieved and sustained its unprecedented global industrial and technological leadership.