Improving Innovation Climate Critical to US Economic Future

Yesterday the Partnership for American Innovation (PAI), which is comprised of Apple, DuPont, Ford, GE, IBM, Microsoft and Pfizer, submitted comments responsive to a request for public information published in the Federal Register back on July 29, 2014, titled Strategy for American Innovation. Some may recall that in February 2011, President Obama released a Strategy for American Innovation, which described the importance of innovation as a driver of U.S. economic growth and prosperity, and the critical role the government plays in supporting the innovation ecosystem. The Office of Science Technology Policy and the National Economic Council are now tasked with updating the document to create a revised Strategy for American Innovation.

One can hope that this group of venerable American innovators will be able to get through to decision makers who will be responsible for charting the new innovation and intellectual property strategy. Notably missing from the PAI, however, is Google, who will certainly have different views.

Google is known to be one of the primary advocates of watering down, if not outright destroying, the U.S. patent system. This is interesting because Google is a top 10 patenting company according to data from the United States Patent and Trademark Office for 2013. They have also spend tens of billions of dollars acquiring patent portfolios that now due to their lobbying efforts are practically worthless. Regardless of Google’s schizophrenic approach to patents, the arm of Google that seems to loathe patents and the U.S. patent system has particular influence in Washington, DC. Both current and former Google executives are known to have the ear of the White House, which is largely to blame for the substantial anti-patent sentiment flowing from the White House. Unfortunately, all of this suggests that whatever the new strategy for innovation will be it will be one that incorporates significant anti-patent positions support by Google.



Just the Facts

To remind the White House of just how important a strong intellectual property system is for the U.S. economy the leading innovators that make up the PAI explained the following in straight forward and easy to understand terms than even an anti-patent bureaucrat should be able to understand.

  • “IP-intensive industries contribute $5 trillion in economic activity to the American economy every year and are responsible for 40 million jobs, nearly half of private sector employment in the U.S.”
  • “The protections afforded by America’s IP system motivate venture capitalists to invest in new startup companies, which are a huge driver of job creation in our nation. IP enables the return on investment a company needs to invest billions every year in research, allows them to bring new products to market, and accelerates the pace of innovation.”
  • “Without IP protection, businesses shift their R&D resources and commercialization strategies toward the types of innovations that cannot be easily duplicated by competitors. Heavy reliance on this practice clearly limits collaboration and can decrease the overall pace of innovation.”
  • “The public disclosure provided by the patent system provides valuable information to other inventors, and enables knowledge transfer through licensing, cross-licensing and joint agreements.”
  • “For many innovators, the success of their efforts lives or dies on the ability to secure quality IP rights quickly.”
  • “Without these high quality assets, innovators will be hard-pressed to develop the technology that leads to increased jobs and exports. And these assets are at risk. There is a vocal minority waging an ongoing, increasing and significant assault on patent rights. Unending legal challenges to patent eligibility, driven by an organized campaign to redraw legal interpretations of abstractness and indefiniteness, are creating uncertainty about the future of patent protections that will ultimately make it harder to invest.”
  • “Heated rhetoric often based on the bad behavior of a few patent assertion entities has fueled an environment where a company is demonized for good faith enforcement of its hard-earned, legitimate property rights. The corresponding policy discussions lead our country away from a balanced IP system that enables collaboration and innovation.”
  • “[W]e risk creating a system where foreign competitors gain a competitive advantage by patenting their ideas while copying American IP without consequence.”
  • “Our IP system is a major contributor that has allowed the U.S. to lead in innovations for more than 150 years.”

The conclusion of the PAI is simple: “The United States must continue to protect and champion our innovators who rely on intellectual property in our innovation economy… improving the climate of innovation policy is crucial if the United States hopes to retain its global economic leadership.”



Why It Matters

Patent law has always swung like a pendulum. The law swings between extremes, spending very little time in the middle. It is easy to get caught up with the shifting laws and even easier to start looking at the trees instead of the forrest, worrying where there is really no need to become so distressed.  Lately, however, there has been an ever increasing and significant assaults on patent rights, which are destroying the high tech economy in the United States.

The assault on patents comes after many years of outsourcing good paying jobs in the manufacturing sector. You have no doubt heard that the manufacturing jobs are gone and they are not coming back, to paraphrase Bruce Springsteen. With the loss of those manufacturing jobs not only do once thriving communities become ghost towns, but we have lost a tremendous amount of intellectual property, which has been the only thing that we seem to make in America any more. By and large we are exporting our intellectual property so foreign companies and subsidiaries around the world can engage in manufacturing.

Short-sighted decisions by CEOs and the lack of any leadership, let alone meaningful leadership, in Washington, DC, has placed America on the path of economic ruin. As we outsource manufacturing we are handing over the follow-on innovation that will take place on the factory floor.  Therefore, by outsourcing manufacturing to the lowest bidder abroad not only have we destroyed the working middle class in America, but we are increasingly turning over our last economic advantage. It doesn’t have to be that way, manufacturing can come back to the U.S. with a few pro-manufacturing policy changes. This would benefit the middle class, the U.S. economy as a whole and would lead to replenishing our national intellectual property coffers.

On top of the anti-patent climate that is making it extremely difficult, if not impossible, for innovative start-ups to raise capital, America has become one of the least business friendly tax systems in the world.  It is an undeniable reality that corporations will locate, or re-locate, to places where the regulatory and business climates are more favorable. We have seen that most recently with respect to companies fleeing what is a horribly uncompetitive corporate tax structure in the United States. Large companies are increasingly leaving the United States, employ an inversion strategy to avoid U.S. corporate taxes. Even the chief proponent of higher taxes on the wealthy, Warren Buffet, is participating in taking Burger King out of the United States for tax purposes. But Burger King is hardly the only company to employ inversion to avoid U.S. corporate taxes. So popular are tax inversions that the Obama Administration is taking executive action to make them more difficult. So rather than work to streamline the tax code, make it fairer for everyone and remove disincentives for doing business in America the government in its current state cannot do anything truly useful at least until after midterm elections are over. To call this perpetual dysfunction pathetic would be insulting to other things that are merely pathetic!

Unfortunately, from an economic standpoint we know that a restrictive view can be patented will cost the United States industry and economic opportunity. It is undeniably true that the United States became the world home of biotech because laws in the rest of the world were far less favorable than the laws in the United States, thanks in no small part to the Supreme Court’s decision in Diamond v. Chakrabarty.

It is widely known that the Supreme Court’s decision in Diamond v. Chakrabarty was instrumental in the creation of a dynamic and flourishing biotech industry in the United States. “By finding that subject matter derived from nature is eligible for patenting if it is modified by man into something new, useful and unobvious, the Court provided assurance to biotech companies and their investors that emerging technologies are protected by the patent system even if they could not have been foreseen when the system was created 200 years earlier,” explained Jim Greenwood, President and CEO of the Biotechnology Industry Organization, in June 2010 on the 30th anniversary of the decision.

We have thoroughly destroyed the manufacturing capabilities of the United States and in the process decimated middle class America. The Supreme Court is forcing an anti-patent agenda on the courts, which makes it increasingly difficult climate for those in the biotechnology and software industries, two industries that employ large number of Americans and provide extremely high paying jobs. Companies are also simultaneously fleeing the U.S. for corporate tax purposes and/or refusing to repatriate trillions of dollars earned over seas else it would be taxed once again by the IRS. In short, we are shooting ourselves in the foot over and over again, then taking the time to thoughtfully reload and recommence shooting in said foot. There is no real reason for optimism given the political climate in DC and the reality that innovative advances that are now stalled in the patent system have historically carried us out of recessions and onward to prosperity; something that just won’t happen given the current manufacturing, patent and tax policies and laws.



It is hardly shocking that industries develop where the laws are most favorable and that companies leave when the business climate changes. Yet, we are at a place and time when true innovators are being vilified. It is laughably naive to believe that investors that back major corporations, or investors that back fledgling start-ups, will continue to do so without the expectation of a competitive advantage. The U.S. patent system has always provided that competitive advantage to companies who innovate, but it is now in jeopardy of becoming obsolete because the only patent that is valid is a patent that hasn’t been reviewed by the U.S. Supreme Court, the Federal Circuit or the Patent Trial and Appeal Board of the USPTO.

To realize that all patents that are litigated will be at some point declared invalid is depressing, but even that characterization only scratches the surface. There are trillions of dollars sitting on the sidelines waiting for a better tax and investment climate in the United States. That money will continue to sit on the sidelines as long as corporate tax policy remains confiscatory and start-ups that could otherwise be the giant employers or tomorrow are strangled by lack of capital due to eroding patent rights and a hostile government.

Innovator friendly manufacturing, tax and patent policy is sorely needed to get America moving in the right direction. So too is true leadership. But is that even possible given the 24/7 news cycle and reality that both parties are always positioning themselves for the next election?


EDITORIAL NOTE: This article was updated at 10:15am on 9/26 to reflect that Google is a top 10 patenting company according to data from the USPTO. An earlier version of the article said that Google filed more patent applications than any other company except for IBM.


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One comment so far.

  • [Avatar for Anon2]
    September 25, 2014 01:17 pm

    Excellent article.

    It is a reality check everyone needs to consider, and insofar anything can be done, act upon.