Overall unpredictability of patent eligibility is a larger internal link – the CP is insufficient

2. a. In your opinion, how has the current state of unpredictability surrounding Section 101 hampered research, development and innovation, particularly in critical industries like life sciences, diagnostics, and artificial intelligence?

21C’s Answer to Question #2a:

The current state of patent eligibility law has injected enormous uncertainty and unpredictability into whether inventions in many important fields will ultimately be held to be patent eligible. While there is a degree of risk inherent in all R&D, that risk is much greater when the research is transformational rather than incremental. Because transformational research is more basic, under the current law it is much more likely to be found patent ineligible as being “abstract,” directed to a “law of nature,” or claiming a “natural phenomenon.”

As prior Subcommittee witnesses who are involved in early-stage research have explained, the availability of reliable patent protection is essential to the invention and development of fundamental breakthroughs. Patents are needed to justify the formation of startups, to attract venture capital, and/or to license development partners to do the work needed to commercialize the invention. As Peter O’Neill, Executive Director of Cleveland Clinic Innovations, testified to this Subcommittee:

At Cleveland Clinic Innovations, we have an established process to assess inventions, based on their likelihood to be able to be developed into commercial products. Ability to get protectable intellectual property (usually in the form of a patent) is the first, and most influential factor in our assessment. If an invention can’t get intellectual property protection, usually that is a fatal flaw and the invention is abandoned at the point.”1

As we have also heard, if patent protection is not reliably available, further R&D won’t happen and nothing will be commercialized to the detriment of those who could have benefited from it.

It is true that in some fields, it may be possible to keep the invention as a trade secret, yet still commercialize it. Examples are the formulas for Coca Cola® and Listerine®, Google’s search algorithms, targeted personal advertising methods, and certain proprietary manufacturing methods. In other fields, trade secrets are not a realistic option because the invention is disclosed by its commercialization, because the risk of inadvertent disclosure or misappropriation is too high, or because the rules or regulations applying to the research activity and/or its commercialization demand public disclosure.

In certain situations, the nature of the business may make the availability of patent protection more or less important. For example, dependable patents are more likely to be of critical importance to small competitors or new entrants in an industry,2 whereas they may be less important to well entrenched and/or dominant competitors who benefit from other advantages, including, for example, established customer goodwill, supply chains, and other economies of scale.

In the software and entertainment fields, copyright protection often provides protection against copying, which perhaps explains the unprecedented recent influx of capital into the development of copyrightable content. While some forms of available clinical trial data protection may help to encourage the development of therapeutic biologics, these forms of protection are time limited and not available against competitors who conduct their own clinical trials and apply for BLA approvals for biologics that compete in treating the same or similar indications.

Current patent eligibility law also discourages research into products or methods that are likely to gain patent coverage through the issuance of only one patent, or just a few patents, as opposed to a great many patents. A breakthrough new drug is an example of an important invention that is often covered by no more than a handful of patents, whereas today’s mobile phones may be covered by hundreds of patents. In the event of product copying, the odds strongly favor the owner of hundreds of relevant patents over the one who has just a few, particularly in our current system in which there is a lower probability of success in defending the validity of any given patent.

Investors, startups, and established companies will not invest in research and development of inventions where the unpredictable nature of patent eligibility causes the projected return on the investment to drop below the levels that are required to justify the cumulative risk of the proposed undertaking. Current eligibility law is an important factor, but not the only factor, affecting the dependability of patent protection. Examples of other factors are the pro-challenger nature of USPTO IPR proceedings, the relative unavailability of preliminary and final injunctions to stop competitive infringement, and the availability of a number of other judgemade defenses that have evolved to make it difficult to successfully enforce valid patents. As many of the witnesses appearing before this Subcommittee have confirmed, inventive efforts relating to the life sciences and software industries,3 including those denying patent eligibility for isolated natural products,4 diagnostics,5 pharmaceuticals,6 methods of treatment,7 vaccines and antibiotics,8 personalized medicine,9 biotechnology products,10 genetic innovations,11 medical devices,12 computer implemented inventions,13 quantum computing,14 data compression algorithms,15 5G,16 blockchain,17 the internet of things,18 polar coding,19 electronic games,20 artificial intelligence,21 and many others are negatively affected and/or not being undertaken because of the effects of current patent eligibility law.

2. b. Absent legislative reforms – or some type of clarity from the Supreme Court – do you anticipate America falling behind in not only those key industries but other emerging technologies?

21C’s Answer to Question #2.b:

Unfortunately, yes.

The U.S. is rich in energy, minerals, and materials. Health, human life, and individual freedoms are highly valued in the United States, which is a free market economy governed by law. The American workforce is and promises to be highly educated. Our government, both directly and through grants made to our universities, supplies support for basic research. And American ingenuity, when properly supported, is still second to none. These attributes are important, but alone insufficient to maintain our industrial leadership.

In the past, we have been successful because a strong and reliable patent system has provided the incentive needed to attract the venture and investment capital needed to support the robust development of new technologies. These new technologies led to leaps in productivity and have enhanced our quality and enjoyment of life.

We have succeeded in the past by attracting massive amounts of private capital which have been invested on risky but potentially highly rewarding new technologies based on the promise that, if successful, their developers will enjoy a limited term of U.S. patent exclusivity within which to recover and make fair returns on their investments. However, as explained in my written testimony, over the past decade the confidence required by investors to make similar future investments has now eroded to the point where legislative reform is critical if we are not to slip behind to our foreign competitors. The passage of PERA is an important step towards restoring that confidence.