The U.S. and China Launch High Risk Experiments in Innovation

us-china-gearsIt’s funny how seemingly unconnected things come together sometimes. A recent example for me was being interviewed by China Central TV (CCTV) on the Bayh-Dole Act a couple of days after stumbling on an article on the attempt by their government to foster innovation while cracking down on political dissent. While it’s easy for us to look askance at that proposition, we may be about to launch an equally quixotic experiment of our own: seeing if American innovation can survive the undermining of our patent system.

The article by NY Times writer Thomas L. Friedman China pushes for innovation while cracking down discusses how China and the US are looking at each other’s seemingly mystifying behavior in a number of areas and thinking “What’s up with you?”   The same question could be asked about mutual experiments in innovation policies that defy historic assumptions about what’s needed to build an entrepreneurial culture.

CCTV (their version of PBS) is putting together a multi-part documentary entitled The Road to Innovation. They are looking at what factors made innovation occur in the US, Europe and Asia. The day before we talked they filmed in Dayton, OH about the Wright brothers. The next stop after my interview was filming in Menlo Park about Thomas Edison. We sat for two hours at Senator Birch Bayh’s law firm in Washington, D.C. The CCTV producers identified the Bayh-Dole Act as an important component of our innovation system and were very interested in knowing how it helped successfully integrate federally funded research into the U.S. economy.

I began by discussing the importance of the secure ownership of private property as a founding principle of the American republic, and how it was extended to ownership of intellectual property under Article I, Section 8 of the Constitution which provides the protections of the patent system to inventors of even humble origin.

We covered the appropriate role of government in funding long range, basic research which cannot be done by the private sector, and how commercial development of resulting discoveries is a high risk entrepreneurial endeavor requiring the active involvement of the private sector. That led to the critical role a strong patent system plays as the lynchpin of Bayh-Dole’s ability to commercialize federally funded R&D as it protects industry’s investment while offering incentives for public sector institutions and their researchers to become actively engaged in subsequent development. Bayh-Dole also opened the door for innovative small companies to take federal research contracts without having to fear that resulting discoveries would be taken away from them. That paved the way for the SBIR (Small Business Innovation Research) program.


We also talked about why centralized technology transfer systems cannot effectively manage innovation as the results are so unexpected and unpredictable. I gave the example of Dr. Leland Clark at the University of Cincinnati who testified in support of Bayh-Dole summarizing the critical role the inventor must play in commercialization. In the 1950’s many scientists were looking for ways to detect the adequacy of oxygenation of blood by various machines. Clark worked on the project and showed the result to the director of his research institute who was not interested, but allowed Dr. Clark to file a patent. The technology was eventually licensed to a small Ohio company. Later a larger company became involved to ramp up production. In doing so they changed the design and immediately ran into serious problems. That led to speculation that the “Clark electrode” didn’t work and the project was about to be terminated. Clark intervened and showed that the problem was caused by the change in design and the small company resumed control of the project. Here’s how Famous Scientists describes the result:

More than almost any single invention, the Clark Oxygen Electrode has revolutionized the field of medicine for the past 50 years. The Clark oxygen electrode remains the standard for measuring dissolved oxygen in environmental and industrial applications.

No government bureaucrat, no matter how well intended, could ever have developed this technology. And no small company could have done so without patent protection.

We discussed how the pre-Bayh-Dole policies negating patent incentives for federally funded inventions had clearly failed. The government amassed 28,000 inventions with less than 5% being licensed and had never commercialized a single drug when discoveries were taken away from the inventing organization. The newly released study The Economic Contribution of University/Nonprofit Inventions in the United States: 1996-2013 that found a $1.18 trillion impact on our economy while supporting approximately 4 million American jobs was a good illustration of how far we have come under Bayh-Dole.

Yet, while saying all of this Friedman’s article was lurking in the background of my mind. The article points out how interconnected the US and Chinese markets have become, yet the countries are often baffled by each other’s conduct. For example, Friedman says China wonders why we blundered into the 2008 subprime mortgage meltdown and now oppose their efforts to establish an Asian Infrastructure Investment Bank.

However, what really resonated with me was where Mr. Friedman says that while Chinese President Xi is cracking down on political dissidents and solidifying his power over the army, the country “has begun a huge push for ‘innovation,’ for transforming China’s economy from manufacturing and assembly to more knowledge-intensive work, so this one-child generation will be able to afford to take care of two retiring parents in a country with an inadequate social-safety net.”

“Alas, crackdowns don’t tend to produce startups“ Friedman adds.

Here’s how the article closes:

As Antoine van Agtmael, the investor who coined the term “emerging markets,” said to me: China is making it harder to innovate in China precisely when rising labor costs in China and rising innovation in America are spurring more companies to build their next plant in the United States, not China. The combination of cheap energy in America and more flexible, open innovation — where universities and startups share brainpower with companies to spin off discoveries; where manufacturers use a new generation of robots and 3-D printers that allow more production to go local; and where new products integrate wirelessly connected sensors with new materials to become smarter, faster than ever — is making America, says van Agtmael, “the next great emerging market.”

“It’s a paradigm shift,” he added. “The last 25 years was all about who could make things cheapest, and the next 25 years will be about who can make things smartest.”

Xi seems to be betting that China is big enough and smart enough to curb the Internet and political speech just enough to prevent dissent but not enough to choke off innovation. This is the biggest bet in the world today. And if he’s wrong (and color me dubious) we’re all going to feel it.

So will we be the “next great emerging market” driven by cheap energy and innovation from universities and start-ups? We have been blessed with an abundance of natural gas and new found oil reserves along with unparalleled creativity in our academic institutions and entrepreneurial small companies. But the continued assault on the patent system puts the second half of that equation at risk. A series of Supreme Court decisions have unsettled confidence in patents in ways we haven’t seen since the dark days of 1970’s. We have added additional uncertainties by seemingly endless post grant challenges to a patent’s validity. How many more blows can our patent system absorb? But one more looms just over the horizon.

The same research universities and start-ups that we are banking on to grow our economy are warning any who will listen that the pending patent reform legislation hangs a financial “Sword of Damocles” over their heads through the loser pays and joinder provisions. Under these bills small innovative companies and academic start-ups trying to stop large conglomerates from taking a free ride on their patents would have to calculate that losing an infringement suit could bankrupt them– and those unfortunate enough to have invested in their company. What good is a property right if it can’t be enforced?

The universities and small companies cited as the foundation for making the United States the place to build the technologies of the future require strong, dependable patents to succeed. The pending patent reform bills are a high stakes gamble that the forces that have always driven innovation no longer apply. I’d hate to see us join China in placing that bet. If Congress chooses to make that wager they can’t say they weren’t warned. Let’s hope they reflect and change course.

Let’s also hope that China realizes that innovation requires personal freedom—including the ability for creative individuals to own intellectual property. That’s a lesson we would do well to remember as well.

If we choose to weaken the patent system perhaps we’ll get a quick glimpse at their bumper sticker as others zoom by eclipsing our lead in innovation. It says: “What was up with you?”


Warning & Disclaimer: The pages, articles and comments on do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of Read more.

Join the Discussion

18 comments so far.

  • [Avatar for Anon]
    May 4, 2015 07:39 am

    An aspect of the fallacy that infects angry dude that is often overlooked is that the attempt to invent itself was typically not included in the definition of Person Having Ordinary Skill In The Art (the Supreme Court took a decidedly bad misstep in their efforts to twist PHOSITA to be a nominal inventor).

    The moment you jump on that slippery slope of including trying to invent as an ordinary skill you end up at the very thing that pre-1952 Supreme Court thinking pegged their view of the patent system on, and that Congress explicitly denied: that you need some type of Flash of Genius in order to elevate inventions to be “worthy” of obtaining patents.

    What is so often misunderstood is that the worth of obtaining patents has undergone an awakening, and the mission of the Office has been successful to the extent that people are desiring patents and trying to invent.

    It is a mistake beyond depravity and beyond all reason to then attempt to use this very awakening to deny the fruits of those efforts and elevate the bar based on some mere notion that “there are too many patents.”

    Innovation begets innovation – it should surprise no one that patent numbers should climb.

  • [Avatar for Gene Quinn]
    Gene Quinn
    April 30, 2015 04:48 pm

    angry dude-

    If the fact that more than 1 inventor comes up with an invention makes the invention obvious we might as well close the Patent Office. Thank goodness you are wrong and that is not the standard. If it were the standard there were never be a patent granted to anyone on anything.

    It is also absolutely ridiculous to suggest that something is obvious because someone else came up with the same thing.

    You claim you are an inventor on some unidentified patent. Under your own standard you would be nothing more than a thief from the public domain because it would only be a matter of time before someone else invented the same thing.


  • [Avatar for Anon]
    April 30, 2015 04:38 pm

    You assume your own thinking is correct, angry dude.

    It is not. This has nothing at all to do with probability theory – elementary or otherwise.

  • [Avatar for angry dude]
    angry dude
    April 30, 2015 03:06 pm


    It’s not magic – just elementary probability theory

    If more than 2 or 3 parties run to PTO screaming “I invented the way to do fax to email” then either this thing is obvious to every competent engineer (which it is) or some of them are lying

  • [Avatar for Anon]
    April 30, 2015 01:18 pm

    angry dude,

    There is no magic number in “just two parties.”

    My comments stand. Your understanding of “obvious” is deficient.

  • [Avatar for angry dude]
    angry dude
    April 30, 2015 11:38 am


    I said “more than 2 parties” if you haven’t notice

    I understand how it works, or rather how it should work

    Yes, you can have true independent invention, e.g. Bell and Gray coming up with same telephone at about the same time, the first one at the PTO wins the patent
    This is fair

    But what I noticed is that sometimes there are multiple parties (more than 2) starting making exactly the same thing at about the same time, claiming they “invented” it independently

    In such case either patent is obvious and therefore invalid or they just lifted that “thing” from someone’s published patent application or other doc – go prove it

  • [Avatar for Anon]
    April 30, 2015 10:11 am

    angry dude,

    You suffer from a serious mis-perception as to what obviousness means.

    The race to the patent office (under either First to Invent, First to File, or First Inventor to File) necessarily includes the idea of multiple racers. Your view of any invention requiring an absolute singularity of an inventor is simply not in accord with any patent system ever contemplated by the United States. Your view is a serious arm-chair misconception that often drives a simply improper view of patents and the patent system, and needs to be ruthlessly eradicated.

  • [Avatar for angry dude]
    angry dude
    April 30, 2015 09:42 am

    2Slashdot Reader:

    you understand that if more than 2 parties truly had “same idea” at the same time, then this “idea” shoud not be patentable as it is obvious ?
    More often they claim to independently come up with the same idea after anonymously reading published patent application – this I witnessed first hand.
    Polygraph might help

  • [Avatar for Night Writer]
    Night Writer
    April 30, 2015 07:43 am

    Aldo, I basically agree with you. The 1952 Act was written by someone that understood the system and was trying to reform it (including reforming the role of the SCOTUS). The current legislation is written by people that seek to turn the system more and more into a system only for the international corporation.

    As to China, I know a bit about what is going on in China. The Chinese know that the system is terrible right now, but I think they figure that they will get it going like this and refine it to a real system. The Chinese (from what I’ve been told) are laser focused on creating companies like Korea as created.

    Again, I think the only way to save the patent system is to document its demise. We need to document when our bridges fall.

  • [Avatar for aldo]
    April 30, 2015 06:01 am

    with all due respect,

    i have been doing business in china for many years – some innovation does come from the factory floor so to speak & china has become the factory floor for most of the world.

    a few years ago the government started giving cash incentives for patents filed – this has produced an increase of applications and issued patents – not very valuable ones from what i have seen.

    at the end of the day, having a simple patent system that rewards innovators and not those seeking un-earned rents is part of what has made america thrive. the proffer that any person with a better idea can improve their life & the lives of others is a simple winning formula that inspires.

    unfortunately our system has devolved into a complex mess that rewards deep pocketed entities at the expense of many others, including true innovators – until we fix this problem, we all suffer…

    at the end of the day governments best role is to try to maintain a level fair marketplace while minimizing un-earned rent seeking activity and not trying to centralize the spirit of innovation, but rather let individuals have the freedom the create.

    patent systems must rely on marketplace activity to allocate resources to resolve disputes quickly and economically while getting out of the way of innovation – this spells registry system with resolution mechanisms – jefferson understood this but congress decided otherwise… who do you believe was the better innovator?… how many inventors are making the rules for innovation?

    hope this is helpful.

    blessings & be safe,

    x-it inventor
    big lather inventor

  • [Avatar for Slashdot Reader]
    Slashdot Reader
    April 29, 2015 11:10 pm

    Angry Dude,
    I dont think patent market values are based on the amount of innovation in the patent. Instead they are based on how many companies have had the same idea and are making money from it. No bank ever looked at the Alice patent but it was very valuable at one time.

  • [Avatar for Fish Sticks]
    Fish Sticks
    April 29, 2015 10:25 pm

    @Night Writer, I agree. Unfortunately, there are no “adult” politicians left in D.C.

  • [Avatar for Night Writer]
    Night Writer
    April 29, 2015 09:08 pm

    Fish Sticks, basic science research is extremely important to innovation just as patents are. Losing either one is a giant loss and losing both is the end of science and innovation in the US.

  • [Avatar for Anon]
    April 29, 2015 07:19 pm

    Fish Sticks,

    If nothing else, the Bayh-Dole Act showed that leaving innovation in the hands of the government is a perpetual mistake, as it was only when the possibility of non-government fruits appear that the system flourished.

  • [Avatar for Fish Sticks]
    Fish Sticks
    April 29, 2015 06:27 pm

    Basic science research financed by the federal government is the key to innovation in the U.S.

  • [Avatar for Night Writer]
    Night Writer
    April 29, 2015 05:55 pm

    I think that is right angry dude. I just wonder if there aren’t ways to measure the decline. My guess is that the corporations are thinking that innovation can be moved to cheaper markets, but you need to get rid of patents first.

  • [Avatar for angry dude]
    angry dude
    April 29, 2015 04:24 pm

    Night Writer,

    Innovation in US was hurt long before AIA and Alice.
    Just look at patent value decline, median patent sale figures – from early 2000s to present (NOT including Nortel’s and Motorola’s and similar corporate buys – those are artificial)
    e.g. Ocean Tomo’s patent auction sales were declining steadily year after year, until they became closed corporate transactions outlet (ICAP)

  • [Avatar for Night Writer]
    Night Writer
    April 29, 2015 01:24 pm

    Wow that is a great article. China I think wants to be more like Korea than the U.S. My guess is that what we are going to see is a massive reduction in innovation in the US. The problem is the dismantling of the US system is going to be complicated and occur in steps and will see some counter examples.

    It is very odd to see China realizing that patents are how Korea, Japan, Germany, UK, and the US became leaders in innovation, and at the same time have the US dismantle their patent system.

    I am afraid the realities are that the US is in for some serious economic shock and it will be probably 20 more years in the coming.

    To my mind, the only way we have any hope of saving the patent system is to be able to come up with objective measures to illustrate how innovation is hurt by -for example–the current AIA and Alice.

    And, to your point on China and freedom, my guess is that the Chinese will be able to make it work. You are free to do whatever you want as long as you don’t criticize the government. They can make that work. It is scary, but China has arisen as a new form of government.