Presenting the Evidence for Patent Eligibility Reform: Part II – Harm to R&D Investment, Innovation and U.S. Interests

“Numerous studies have shown that the Supreme Court’s changes to subject matter eligibility law…have decreased confidence in the U.S. patent system… [and] decreased private investment in key areas of technology that rely on patents.”

R&DThe muddled state of patent eligibility law has direct and significant negative consequences for U.S. R&D investment, and for innovation in key fields of medical, economic, and strategic importance to the United States and its citizens. Uncertainty reduces R&D investment, as has been well-documented, and reliable patent protection mitigates uncertainty and generates increased R&D investment. As we explained in Part I of this series, the experts overwhelmingly agree on these points.

Rigorous Studies Have Shown the Adverse Effect on Innovation

Unsurprisingly, numerous studies have shown that the Supreme Court’s changes to subject matter eligibility law through Myriad, Mayo, and Alice have decreased confidence in the U.S. patent system, decreased private investment in key areas of technology that rely on patents, decreased commercialization of innovations in these areas, and created threats to America’s economic, social and national security interests. These include:

  • David O. Taylor, Patent Eligibility and Investment, 41 Cardozo L. Rev. 2019 (2020). Based on results of a survey of 475 venture capital and private equity investors, this report concludes that:
  • Investors overwhelmingly believe that patent eligibility is an important consideration in investment decisionmaking, and that reduced patent eligibility makes it less likely their firms will invest in companies developing technology.
  • Almost 40% of investors who knew about at least one of the Supreme Court’s eligibility decisions indicated that they had negative effects on their firm’s existing investments, while only about 15% of these investors reported positive effects.
  • For future investments, almost 33% of knowledgeable investors indicated that these cases caused their firms to either decrease future investment in affected areas, or shift investments out of biotechnology, medical device, pharmaceutical, and software and Internet industries into other areas.
  • Sixty-two percent (62%) of investors “agreed that their firms are less likely to invest [in companies developing patent-ineligible technologies] given the unavailability of patents, while only twenty percent disagreed.”
  • Sasha Hoyt, The Impact of Uncertainty Regarding Patent Eligible Subject Matter for Investment in U.S. Medical Diagnostic Technologies, 79 Wash. & Lee L. Rev. 397 (2022). In one of the most recent empirical studies available (Winter 2022), the author used venture capital investment data collected from PwC Money Tree and concluded that, in the four years following Mayo, investment in disease-diagnostic technologies was nearly $9.3 billion dollars lower than it would have been absent Mayo. The author reports that the results are statistically significant. The author also reports that, while the yearly investment totals for disease-diagnostic technologies have generally increased in the years following Mayo, they have increased at a lower rate compared to all other industries.
  • Mark F. Schultz, The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies, USIJ Policy Report (July 2020). This analysis of PitchPoint data from 2004 to 2017 shows that, while venture capital funding in general grew during that period, the share of money invested in patent-intensive startups focusing on critical technologies such as medical devices/supplies, pharmaceuticals, and biotechnology declined from over 50% in 2004 to about 28% in 2017. The share of funding for businesses developing patent-intensive, high-tech hardware, such as computer hardware and semiconductors, also dropped significantly. In contrast, less patent-intensive sectors (such as social networking, consumer finance, food and beverage, restaurants, and hotels/leisure) attracted a significantly larger share of venture capital in recent years. The study identifies the declining state of patent-eligibility law under Bilski/Mayo/Myriad/Alice as one of the “key changes” responsible for this substantial downward trend.
  • Kevin Madigan & Adam Mossoff, Turning Gold to Lead: How Patent Eligibility Doctrine is Undermining U.S. Leadership in Innovation, 24 Geo. Mason L. Rev. 939 (as updated Dec. 2019). This empirical study, which was updated in December 2019 identified 1,310 U.S. patent applications that were abandoned following eligibility rejections under the Alice-Mayo framework, and yet had issued patent family members in either China or Europe. The study also concludes that almost half of the abandoned applications (618 of the 1,310) were directed to diagnosis or treatment of important diseases like heart failure, cancer, Alzheimer’s disease, and diabetes. Given the robust evidence that R&D investment declines without patent protection—including Professor Taylor’s direct findings that investors stopped investing or shifted investments out of technologies that lost or could not obtain patent protection after Mayo/Alice—this study validates the conclusion that current §101 jurisprudence is not only negatively impacting patent grants, but is also harming innovation in areas critical to American healthcare and global innovation leadership.
  • National Security Commission on Artificial Intelligence, Final Report (Mar. 2021). In its final report issued in March 2021, the National Security Commission on Artificial Intelligence (NSCAI) concluded that, in contrast to China, “the United States has failed to similarly recognize the importance of IP in securing its own national security, economic interests, and technology competitiveness,” and that the U.S. “has not developed comprehensive IP policies to incentivize investments in and protect the creation of artificial intelligence (AI) and other emerging technologies.” According to this U.S. government report, one central reason for this “policy void” is the “legal uncertainties created by current U.S. patent eligibility and patentability doctrine,” a result of which is that the “U.S. could lose its prime position in IP global leadership.” at 201. The report further concludes that “U.S. courts have severely restricted what types of computer-implemented and biotech-related inventions can be protected under U.S. patent law” and that “critical AI and biotech-related inventions have been denied patent protection since 2010.”  Id. The NSCAI report further observes that, while the impact of current Section 101 law “might not be immediate, the long-term effects on AI and other emerging technology developments and competitiveness are concerning.”  Id.
  • Rocky Berndsen, Harrity LLP, Titans of Technology: Blockchain / The Top Companies in Blockchain Patents 2021 (Sept. 7, 2021). In this recent report on the blockchain patent landscape, the authors conclude that China is far outpacing the U.S. when it comes to blockchain filings, nearly 2-1 on issued patents and 5-1 on pending applications. The report does not explore the reasons for this major gap, but the disarray of U.S. eligibility law is certainly one of the most important reasons.
  • Shahrokh Falati, Patent Eligibility of Disease Diagnosis, 21 N.C. J.L. & Tech. 63 (2020). Analyzing a variety of data and sources, the author concludes that, “since the Alice decision, it has become much harder to obtain patents in certain industries, especially in the medical diagnostics and software industries.” The article identified further problems associated with trying to obtain patent protection for diagnostic inventions:
  • “Unfortunately, this has stymied the development of specialized software related to medical diagnostics, such as artificial intelligence (AI) for better deciding and diagnosing disease based on rapid readings and extrapolations of large data sets. The practical results of which have been that innovation goes where it has the best chance to grow.”

Collectively, the above studies and articles demonstrate that (1) unreliable patent protection depresses investment in R&D in key areas, including those that generate economic growth, lead to important innovations, and enable the U.S. to compete with China; (2) those investments have declined in the U.S. due to unreliable patent protection; and (3) patent filings in areas affected by Section 101 have dropped in the U.S. while, at the same time, increasing in China. Putting these points together, Section 101 is causing the U.S. to lose ground against China, and to decrease R&D investment incentives in key industries of major importance to America’s strategic and public interests.

In the next article in this series, we will detail the ample evidence demonstrating that current Section 101 law has harmed innovation by removing the incentives to develop and commercialize particular inventions of public importance.

Read the whole series:

Presenting the Evidence for Patent Eligibility Reform: Part IV – Uncertainty is Burdening Litigants and Courts, Threatening U.S. Competitiveness and National Security

Presenting the Evidence for Patent Eligibility Reform: Part III – Case Studies and Litigation Data Highlight Additional Evidence of Harm

Presenting the Evidence for Patent Eligibility Reform: Part IV – Uncertainty is Burdening Litigants and Courts, Threatening U.S. Competitiveness and National Security

Image Source: Deposit Photos
Image ID: 50105467
Author: iqoncept 

 

Image Source: Deposit Photos
Image ID: 46260043
Author: kchungtw 

Share

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com 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 IPWatchdog.com. Read more.

Join the Discussion

20 comments so far. Add my comment.

  • [Avatar for Curious]
    Curious
    October 15, 2022 10:53 am

    I think 3-4 CAFC judges and 2-3 SCOTUS justices would try before the ink dried after the President signed the bill.
    Not a chance. At best, they would try to find weak spots in the law. However, there is very little that they could (or would) do against a well-crafted law that eliminates the exceptions to 101. The anti-patent forces of the world have other avenues besides 101 to do their dirty work. They’ll focus their efforts there instead.

    Realistically, fully half the CAFC do not give a darn about statutes, the Constitution, and the record before them . . . and the remainder will not call out the bad acts of their fellow judges. I’ve seen it too many times.
    Just because your client lost a decision that was 100% predictable based upon how the law was being applied doesn’t mean that the whole system is corrupt. This is not a good look for you.

    if a CAFC Panel grossly misrepresented case law, and violated the APA and the Constitution (as interpreted by 70 years of Supreme Court precedent without exception) while outright lying about the record before them even to the point of fabricating “quotes,” how many of the remaining CAFC judges would call out their fellow judges on rehearing for even a single one of such ethical and legal infractions?
    As I said, the result of Killian was 100% predictable based upon both Supreme Court case law and particularly based upon Federal Circuit case law. How could you have read the myriad of CAFC decisions issued since Alice and think that Killian had any hope of prevailing at the CAFC? Your only hope would be at the Supreme Court. However, if you’ve been following the cases that have been petitioned for cert and gotten denied, it should be painfully clear that Killian has both the wrong facts and the wrong client to prevail at the Supreme Court. The Supreme Court has swept aside far better vehicles for change. And do you want to know why? Because they aren’t interested in change.

    BTW, why do you continue to say that the CAFC “violated the APA”? Any credibility you have as an attorney is immediately destroyed by that statement. The APA governs how federal administrative agencies make rules and how the adjudicate administrative litigation. They key part here is that it applies to federal administrative agencies — not the CAFC. In fact 35 USC 551(1)(A) of the APA explicitly states that “‘agency’ … does not include … the courts of the United States.” Simply put, the CAFC cannot violate the APA. This has been pointed out to you many times (including by Chen in Killian) yet you still make these clearly-incorrect accusations.

  • [Avatar for B]
    B
    October 14, 2022 11:50 am

    @ Curious “If Congress were to stamp out the exceptions to statutory subject matter, do you seriously believe that the Federal Circuit would try to introduce them back in 5 months?”

    I think 3-4 CAFC judges and 2-3 SCOTUS justices would try before the ink dried after the President signed the bill.

    “Realistically, it would be 10 or 20 years before the courts would try to start nudging their way back . . . ”

    Realistically, fully half the CAFC do not give a darn about statutes, the Constitution, and the record before them . . . and the remainder will not call out the bad acts of their fellow judges. I’ve seen it too many times.

    But let me ask you a question: if a CAFC Panel grossly misrepresented case law, and violated the APA and the Constitution (as interpreted by 70 years of Supreme Court precedent without exception) while outright lying about the record before them even to the point of fabricating “quotes,” how many of the remaining CAFC judges would call out their fellow judges on rehearing for even a single one of such ethical and legal infractions?

    One?

    Two?

    More than two?

  • [Avatar for Curious]
    Curious
    October 14, 2022 09:45 am

    The available quantity of stupidity in our courts is limitless. You’d have twenty years of respite from the Supreme Court but at most twenty weeks from my the Federal Circuit.
    If you truly believed that, then get out of the business.

    If Congress were to stamp out the exceptions to statutory subject matter, do you seriously believe that the Federal Circuit would try to introduce them back in 5 months? Realistically, it would be 10 or 20 years before the courts would try to start nudging their way back on after countless Google/Meta/Microsoft paid-for law review articles decrying how their massive profits are being (minorly) impacted by patent litigation lawsuits.

    Real change needs to happen via Congress. The Courts are too dependent upon their composition (i.e., who has the votes) to ensure any real lasting change.

  • [Avatar for B]
    B
    October 14, 2022 08:22 am

    @ Curious “ I’ll take a heroic effort from Congress today and
    take my chances that SCOTUS won’t be moved to muck things up over the rest of my working lifetime.”

    The available quantity of stupidity in our courts is limitless. You’d have twenty years of respite from the Supreme Court but at most twenty weeks from my the Federal Circuit.

  • [Avatar for Curious]
    Curious
    October 13, 2022 08:24 pm

    You are so 100% correct, but then again the bone-heads in black robes have a way of screwing things up despite heroic efforts of Congress.
    We haven’t had “heroic efforts of Congress” as it pertains to patent law in 70 years. I’ll take a heroic effort from Congress today and take my chances that SCOTUS won’t be moved to muck things up over the rest of my working lifetime.

  • [Avatar for B]
    B
    October 13, 2022 02:12 pm

    @ Curious “ Section 101 from the Patent Code.
    Absolutely the wrong approach. Removing 101 from the Patent Code
    merely gives the judiciary a free hand to do whatever they want. 101 needs to be rewritten to put shackles on what the Supreme Court can or cannot do.”

    You are so 100% correct, but then again the bone-heads in black robes have a way of screwing things up despite heroic efforts of Congress.

  • [Avatar for Curious]
    Curious
    October 13, 2022 11:35 am

    Remove the judicially-metastasized Section 101 from the Patent Code.
    Absolutely the wrong approach. Removing 101 from the Patent Code merely gives the judiciary a free hand to do whatever they want. 101 needs to be rewritten to put shackles on what the Supreme Court can or cannot do.

    There is nothing you can say (e.g. for the record), no words you can write, and nothing you can do to prevent SCOTUS and the CAFC from quickly — yet again — turning your good intentions into their innovation weapon of choice.
    Wrong. The Supreme Court has relied upon statutory stare decisis in interpreting 101 — in other words, Congress’s silence is acquiescence as to what the Supreme Court has already done. If Congress was to write the exceptions out of the books (or severely curtail them), the Supreme Court would be bound by what Congress writes.

    Congress is the only permanent solution to the problem. An en banc decision by the Federal Circuit that limits the scope of Alice would also be helpful, but we need 7 votes, and I’m not sure we even have 6 (Stark and Cunningham would be the potential 6th and 7th votes).

  • [Avatar for Dozens]
    Dozens
    October 13, 2022 10:55 am

    Just echoing NW—thanks for writing this. This is an excellent summation of the relevant evidence.

  • [Avatar for Night Writer]
    Night Writer
    October 12, 2022 07:20 pm

    https://www.youtube.com/watch?v=0mQj0Vr_Nk4

    I think this is relevant.

  • [Avatar for Night Writer]
    Night Writer
    October 12, 2022 07:18 pm

    Thanks for writing this.

  • [Avatar for B]
    B
    October 12, 2022 06:21 pm

    @ InventorX “If I invent a metallic alloy which defies gravity by 18%, but is not “antigravity” but only “gravity-resistive” to some significant extent, which patent office would I run to ? None !!”

    Best to keep your Upsidaisium a trade secret according to Judge Richard “Wrong Way” Taranto. https://en.wikipedia.org/wiki/Upsidaisium

  • [Avatar for Pro Say]
    Pro Say
    October 12, 2022 03:49 pm

    Richard asks: “How do we get out of here?”

    There is one way out, and one way only:

    Remove the judicially-metastasized Section 101 from the Patent Code.

    No amount of verbal gymnastics performed on 101 stand a chance against the patent-hating SCOTUS and CAFC.

    As they’ve well demonstrated; decision after decision after decision; they will twist, turn, and even outright lie to yet again turn any “new and improved” Congressionally written changes to the Patent Code; including to Section 101; into a patent-killer.

    Senators Tillis, Coons, and your other conscientious, caring, well-meaning committee colleagues:

    There is nothing you can say (e.g. for the record), no words you can write, and nothing you can do to prevent SCOTUS and the CAFC from quickly — yet again — turning your good intentions into their innovation weapon of choice.

    For the good (and indeed for the security) of our country, you must remove Section 101 so that it can never again be used to cripple U.S. innovation.

    America’s future is in your hands.

  • [Avatar for Model 101]
    Model 101
    October 12, 2022 02:35 pm

    All patents do today is teach competitors how to do it.

    Don’t waste your money on a patent.

    They are worthless.

  • [Avatar for PTO-Indentured]
    PTO-Indentured
    October 12, 2022 01:40 pm

    @PTO-Indentured

    Amendment:

    “The largest (and most valuable) one is in China.”

    The smallest one of the three is (for now) in the US.

  • [Avatar for PTO-Indentured]
    PTO-Indentured
    October 12, 2022 12:21 pm

    Our On-Going Gifting of TRILLIONS of US Dollars to (Not Just) China:

    Only one of the three multinational corporations — having a combined 70% share of the Global eCommerce Market — is a US company. The largest (and most valuable) one is in China.

    See below how our Great American Patent Giveaway of the fastest growing global retail market is being handed over to foreign entities, losing trillions in revenue / billions in US taxes, aided by US vacillations and (intentional?) ambiguities in subject matter eligibility — bolstered by AIA and its dubiously-valid creation: the PTAB.

    US Ever-Declining Share of Global e-Commerce:

    2015 – 22.2%
    2016 – 20.7%
    2017 – 19.4%
    2018 – 18.3%
    2019 – 17.6%
    2020 – 16.9%

    Down, down, down, down, down …

    Ironically: ‘Economics 101’

  • [Avatar for InventorX]
    InventorX
    October 12, 2022 11:18 am

    Keep in mind that the Sup. Ct. ruled 100 yrs ago that bleached flour and sodium benzoate do not qualify as foodstuffs since their use violates the Pure Food and Drug act of 1906; but, its never been enforced.

    It seems clear that pressure from larger industries can be a key factor in ‘how’ matters are enforced, regardless of Court decisions.

    If I invent a metallic alloy which defies gravity by 18%, but is not “antigravity” but only “gravity-resistive” to some significant extent, which patent office would I run to ? None !!

    The general agreement by parties involved in the patent system 3 decades ago is non-extant, there is no agreement on enforceability due to extra-Judicial forces, and it is difficult to imagine that being rectified anytime soon. Oh, the humanity !

  • [Avatar for B]
    B
    October 12, 2022 09:54 am

    @ Anon

    I repeat that: (1) fully half of the Federal Circuit has no interest in clarifying Alice-Mayo and will lie to protect their capricious judicial veto of patents, and (2) the SCOTUS is too arrogant to reverse decades of their lunacy.

    The black-robed crowd lacks the integrity to do what is right.

  • [Avatar for Anon]
    Anon
    October 12, 2022 09:05 am

    I realize that it may be difficult in a formal court submission to give credit (where credit is due) to “Anon of the Internet,” but this is the second of my two prongs of my Kavanaugh Scissors for cutting the Gordian Knot.

    If the law changes (is corrected), I will be satisfied.

  • [Avatar for Richard T Whipple, PhD]
    Richard T Whipple, PhD
    October 12, 2022 08:50 am

    I wish first to convey my thanks to Judge Michel, Director Kappos, and Mssrs. Salsberg and Dowd for reviewing the current state of the US patent system, as affected by these SCOTUS decisions.

    As a professional who has, for the last 16 years, provided opinions for PCT applications in biotechnology, and who lives in the world’s nexus of biotech, I have watched these developments with alarm. While it is possible to operate a business that provides medical diagnostics (Given the focus of the last 2 decades on personalized medicine, at least some degree of engagement in this sector appears to be required for the further advancement of medicine) at present the expectation would be that such endeavors are part of a commodities domain, with low margins (and even those driven more by cost containment and market fraction than by the essential technology). Hardly the stuff that attracts investors.
    Moreover, given that there is only so much that the USPTO can do, and public sentiment being biased against cost drivers in the medical domain (explaining that enhanced diagnosis actually drives costs down while providing better outcomes seems a mission more targeted to insurance execs than the general public), are we stuck in the doldrums of history, waiting for a case with appropriate features to work its way to certiorari, and, hopefully, a course-corrective decision?
    Or is there any hope (with current political conditions) for a statutory overhaul of 101 that would better align us with the rest of the world, and reinvigorate investment?
    We know we don’t want to be where we are. How do we get out of here?

  • [Avatar for concerned]
    concerned
    October 12, 2022 05:48 am

    My little invention would not make any Hall of Fame. It would help a lot of people with unfortunate circumstances.

    I have a “Letter of Intent” from a major player that is deemed worthless without the patent.

    Money did not motivate me in pursuing my objective. The social harm from the s101 mess cannot be measured.

Add Comment

Your email address will not be published. Required fields are marked *