The 2024 patent landscape and roadmap for future prosperity

In my last two articles, I highlighted the danger posed to America’s patent-based global leadership in technology and innovation by U.S. Supreme Court rulings and foreign events. Today, after examining recent actions by the U.S. executive branch to undermine patents, I will propose specific reforms to restore the viability of the U.S. patent system.

The proposed new interpretation of the Bayh-Dole Act would significantly restrict innovation in federal and university laboratories

As I recently explained, the Bayh-Dole Act was passed on a bipartisan basis in 1980 in response to the rampant waste of federally funded research and development dollars at national laboratories and large research universities. The Act allowed the issuance and licensing of patents for inventions developed in these laboratories.

Before licensing went into effect, less than 5 percent of federally funded inventions were licensed. The vast majority of patentable inventions were then licensed, resulting in commercial activity that created millions of well-paying jobs, thousands of new startups, and over $1 trillion in economic output, benefiting a full range of high-tech industries.

Bayh-Dole also authorizes the federal government to “step in” on patents for inventions created with taxpayer funds – to require a patent holder to license its patent to other applicants. The terms of this license must be “reasonable in the circumstances”. The performance of the march is limited to special circumstances related to the availability of the invention and the health and safety of the state. The march has never been called before.

Last December, the Commerce Department’s National Institute of Standards and Technology proposed a “draft framework” that would allow marching to be used to control “excessively high” prices. These unprecedented price controls would significantly discourage patenting in federal laboratories and sharply limit the flow of spectacular economic growth-creating innovations that come from Bayh-Dole patents. In fact, such price controls would make the expensive research and development needed to obtain patented inventions an unwinnable proposition.

A February 2024 bipartisan letter to President Biden from two former Commerce secretaries, one former NIST director, and six former heads of the Patent Office “beg(d)” the President to withdraw the draft framework. Expert officials emphasized that “adopting a refined framework would destabilize our country’s entire technology transfer system, which is critical to American innovation.”

Drug price controls will limit the number of new breakthrough drugs

The Inflation Reduction Act of 2022 authorizes the federal government to negotiate price controls on “small molecule” pharmaceutical products purchased by the government under the Medicare system, the development of which is driven by forward-looking patent protection. The production of these drugs would suffer greatly under this new policy, as explained in a 2023 paper by University of Chicago researchers Tomas J. Philipson, Yier Ling, and Ruiquan Chang:

“We conservatively conclude that the IRA policy of pricing selected small molecule drugs for 9 years after market entry will reduce their expected revenues in the US market by 8.0%, which translates into a reduction in research and development investment by almost 12.3%, or 232 .1 billion dollars over 20 years. Over the same time frame, we find that there will be 188 fewer small-molecule therapies, including 79 fewer new small-molecule drugs and 109 fewer post-approval indications for these drugs. We found that this forgotten innovation is expected to result in a loss of 116.0 million years of life due to missed opportunities to improve health.”

Recent changes in antitrust policy are challenging patents and technology standards

The Trump administration has promoted pro-patent antitrust policies, embodied in the Department of Justice’s March 2018 “New Madison Approach” (honoring “Father of the Constitution” James Madison) and the December 2019 Joint Policy Statement issued by NIST, the Department of Justice, and the Department of Patents Office of Standard Essential Patents (SEP).

SEPs encompass technologies needed to implement specific industry standards and are essential for the diffusion and adoption of technological innovations throughout the economy. In short, New Madison’s approach and joint statement emphasize that federal enforcement authorities will not interfere in negotiations between SEP holders and potential licensees on price and terms. Additionally, SEP holders would be free to refrain from contacting third parties and seek injunctive and other relief for infringement. The government would not support policies of standard-setting organizations that sought to limit economic returns to SEP holders.

The Biden administration later rejected this pro-innovation approach. President Biden issued an executive order on competition in July 2021 that called for a reversal of antitrust and patent policies and explicitly referenced the Joint Policy Statement. The administration withdrew the Trump administration’s statement and released its new draft policy statement to the public in December 2021.

The new statement proposes micromanaging the scope of negotiations between SEP holders and potential licensees and takes the view that SEP holders should not be able to seek injunctions. After significant criticism, the administration decided not to finalize and publish it. However, it did not reinstate the 2019 statement. Thus, SEP holders face significant antitrust uncertainty that did not exist until recently.

More generally, both DOJ and FTC leadership have expressed new antitrust concerns regarding the use of patent rights. This new enforcement philosophy creates additional disincentives for pro-innovation investments in patenting.

The road to reform lies ahead of us

All of the serious problems I have outlined for the U.S. technology-based economy created by patent weakening must be addressed immediately. Technological advancements around the world are progressing at breakneck speeds, more than ever before. China’s high-tech challenge has raised the stakes, making it clear that our patent system must be restored to strength.

Congress may address court-created statutes of limitations for remedies and patentable subject matter. There are bipartisan bills currently circulating to restore the presumption of injunctions for patent infringement and eliminate judicial hurdles that limit the types of inventions that can be patented. This or the next administration should work closely with Congress to agree on appropriate legislative tools to achieve these goals.

Reversing the actions of the executive branch that challenged patents requires decisive action by the president. President Biden or his successor should, through executive orders and memorandums, direct federal agencies to fully restore federal policies that support strong patent protections at home and abroad. The executive order should authorize the White House IP czar to report directly to the president to ensure agency compliance with these directives.

Here are four other specific federal actions: :

1. The National Institute of Standards and Technology should strongly support the pre-existing Bayh-Dole March Agreement, providing better and stronger protection for patents originating from federal and university laboratories.

2. The U.S. Trade Representative should strongly oppose any WTO waiver or weakening of patent protection under TRIPS and should advocate for strong global patent protection.

3. The Department of Justice and the FTC should issue guidance that fully reflects the Trump Administration’s approach to New Madison, reissue the Trump Administration’s guidance on SEPs, and provide additional guidance to the public to ensure that federal antitrust enforcement does not interfere with compliance with legal use of legal patents.

4. Finally, as I have previously recommended, the President should firmly state that unjustified Chinese attacks on U.S. patent rights will be met with appropriate sanctions. This could form part of a multi-pronged strategy including:

(1) a coordinated allied diplomatic message to China on the need to change its policies;

(2) measurable improvement in Chinese behavior, enabling progress to be assessed;

(3) efforts to accelerate Western technological innovation; AND

(4) a policy that allows Western companies to continue to engage with China, subject to measures that limit China’s ability to exploit Western markets and resources and create incentives for China to change its behavior.

Swift and decisive joint action by Congress and the executive branch can restore the primacy of the U.S. patent system and help ensure long-term American technological leadership. The time to act is now.