Regulatory Challenges for Innovation Policy (Blog Post)

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Blog Post
Title Regulatory Challenges for Innovation Policy (Blog Post)
Author Avesh Krishna
Content status Tabled
Graphics status None
Publication date
Notes Avesh to fix and find peer editor
©, 2016


Blog Post

The Founding Fathers had the foresight to include patents among the functions of the federal government in the constitution (Article I, Section 8). George Washington urged Congress to implement protections for innovation in his first State of the Union address resulting the third act of the first Congress: the Patent Act of 1790. The Framers’ recognition of the crucial importance of innovation to economic growth has served as the solid foundation of the free enterprise system.

This strong system of intellectual property protection needs to be updated to fulfill the Framers’ intentions. The balancing act of protecting intellectual property and preventing exploitation of those protections has proved difficult to accomplish. At either extreme, the value of patents and, in tandem, incentive to innovate, is diminished.

Due to lobbying from special interest groups and large corporations, the current patent system shortsightedly addresses scapegoats rather than solving chronic issues. Patent enforcement must simultaneously support innovation and protect intellectual property. Too much regulation hinders innovation by prolonging the time needed to move an idea into the market. No protection of intellectual property reduces the incentive to innovate and hinders economic growth. Poorly designed, intrusive government regulation leads to frivolous legal challenges.

The 2011 America Invents Act (AIA) was geared to assuage concerns about patent trolls -- entities that raise revenue by enforcing patents they acquire without implementing them -- while benefiting large corporations at the expense of small businesses and individual inventors. Small companies and individual inventors were forced to file earlier and are unable to patent ideas if they are brought to market before patenting. Additionally, smaller entities that lack capital may be unable to patent ideas or enforce their patents against large corporations due to higher costs under the provisions in the AIA. Large corporations and lobbyists have hoodwinked policy makers, convincing them NPEs are the largest threat to the patent system. In reality, they are but a minor threat, even for large corporations. Pending legislation, chiefly the Innovation Act and PATENT (Promoting American Talent and Entrepreneurship) Act, continues this unnecessary focus on fighting trolls, while doing little to resolve other issues regarding the patent system. Both the Innovation Act, introduced by Rep. Goodlatte of Virginia, and the PATENT act, introduced by Sen. Grassley of Iowa, fail to distinguish between Patent Assertion Entities (trolls) and NPEs, of which PAE’s are a subset. While many PAE’s are bad actors who only enforce patents to financial gain without innovating themselves, NPEs include small businesses and individual inventors who want to protect and license their intellectual property. Rather than reducing the threat that PAEs pose to small businesses, these bills will unfairly benefit large established corporations while harming small businesses. While this legislation may move forward in the next Congress, neither bill has made progress since moving out of committee.

Congress has failed to fulfill its constitutional mandate to protect intellectual property. In the resulting vacuum, many of the major reforms to patent policy has come from court decisions. The next major decision expected will likely involve the constitutionality of inter partes review (IPR) that was introduced with the American Invents Act of 2011. IPR enables third parties to challenge the validity of patents based on prior art evidence to an internal patent office board. Prior art is vaguely defined but can encompass any and all knowledge, products, previous patents, or publications that demonstrate use of the claims in the challenged patent before that patent was filed. IPR has led to an increase of challenges to the validity of patents. Opponents of IPR claim it harms small businesses and individual inventors by decreasing intellectual property rights. IPR has made it cheaper and easier to challenge patent claims without increasing the number of patents being invalidated.

MCM Portfolio LLC vs Hewlett-Packard, is pending petition from the Supreme Court and can be expected to be heard sometime before the end of 2017. This case calls into question whether IPR violates Article III of the constitution and if it violates the 7th amendment. The Article III issue arises since IPR is conducted before the Patent Trial and Appeal Board, an administrative division of the USPTO, rather than before federal judges in court. Following from this, the 7th Amendment, which guarantees a right to trial by jury, is claimed to be violated during the IPR process as there is no trial nor jury. We can expect a steady trickle of cases attacking provisions of the American Invents Act though the success of such cases cannot yet be predicted. To fulfill their constitutional obligation to protect intellectual property, Congress must act to reform the patent system. Inaction will harm small business and lead to jurists deciding matters that the Framers intended to leave to the legislature.


Original text by Avesh Krishna