This chaotic area of law harms American innovation and competitiveness
Without Congressional consideration or endorsement, the Supreme Court has fundamentally altered the U.S. patent system by deciding that certain categories of innovation should not receive patents by widening the “judicial exceptions” to what is eligible to be patented under 35 U.S.C. § 101. Starting in 2010, over the course of four decisions, the Supreme Court has expanded beyond recognition three previously limited judicial exceptions — “abstract ideas,” “natural phenomena,” and “laws of nature.” This has led to the near-exclusion of new medical diagnostics from receiving patent protection and an uncertain landscape for computer-implemented innovations, where whether a patent is issued or upheld in court often depends on the examiner or judge.
The expansion of these judicial exceptions coincides with areas of cutting-edge innovation, meaning that the United States is losing, and will continue to lose, ground to its economic competitors — China and Europe — as innovators and companies migrate to where they can receive patent protection for the input of their labor and resources. Already, there are troubling signs that the United States was unnecessarily reliant on Europe and Asia for testing kits during the Covid-19 pandemic and has lost an estimated $9.3 billion in investments in medical diagnostic inventions. Other studies show China outpacing the United States in 37 out of 44 critical areas of emerging technology — coupled with other research showing the migration of venture capital overseas, the red flags for American innovation are adding up.
Judges from the appellate court that handles all patent cases have put themselves on record numerous times lamenting the strange constellation of precedent that makes them invalidate patents covering significant advances in medical technology and computer-implemented inventions that unquestionably would have been entitled to receive patent protection a decade ago. Testimony reflects the impact this is already having on new products and services for Americans as investors and companies are forced to walk away from promising early-stage ideas without certainty that they will be able to recover their investments.
What PERA does
PERA eliminates the judicial exceptions (“abstract ideas,” “laws of nature,” and “natural phenomena”) that have caused confusion due to their amorphous nature. In its place, PERA creates a framework for patent eligibility more aligned with how the Supreme Court has historically ruled prior to the chaotic decisions of the past decade. Accordingly, PERA will restore patent eligibility for innovations across the range of cutting-edge technologies that the public policy of the United States should promote — and such innovations will again be able to receive patent protection, provided that they also meet the remaining requirements of the Patent Act.
More specifically, PERA keeps the same basic categories of patent eligibility that have been in the statute since 1793 — an innovation must qualify as a “process,” “machine,” “manufacture,” “composition of matter,” or “improvement thereof.” Assuming at least one of those requirements is met, PERA specifies that the innovation cannot only consist of a (1) “mathematical formula”; (2) a process that is “substantially” “economic, financial, business, social, cultural or artistic”; (3) a mental process or a process that occurs entirely in nature; (4) an “unmodified human gene, as that gene exists in the body”; or (5) an “unmodified natural product, as that product exists in nature.”
To address edge cases, PERA provides that mathematical formulas from (1) and economic/social processes from (2) that “cannot practically be performed without the use of a machine or manufacture” are patent-eligible, given that they have concrete application in a physical product.
In addition, the bill defines “unmodified” as it relates to a “human gene” and “natural product” — with slightly different definitions for each. These definitions are designed to preserve the core holding of Association of Molecular Pathology v. Myriad that a human gene, even if isolated, is not patent-eligible, while re-establishing the longstanding principle that isolated natural products — like a new chemical compound from a plant — are patent-eligible.
Why PERA is the solution
PERA restores eligibility to critical emerging areas of technology where the United States risks losing more and more of its competitive advantage to other countries. It guarantees that the incentives exist in America for the brightest innovators and innovative companies to do their work in this country, bringing with them new products and services and high-paying jobs for American workers. PERA would start the process of reversing the harms outlined in the first part of this post.
PERA is the result of years of negotiation led by the bill’s sponsors, reflecting changes addressing legitimate concerns. Remaining criticisms often reflect the interests of incumbents who do not want to face patent-backed challenges from new startups or misperceptions that patent protection will permit the bundling of innovations, such as in the field of genomic testing. The experience in countries where patent protection for these innovations has remained strong shows that these concerns are unfounded and against the economic interests of the innovators, who stand to benefit from licensing their patents. A more comprehensive discussion of facts versus some of these “myths” can be found here for the life sciences and here for computer-implemented inventions.