Patents are the Key in the Race to Out-Innovate China

Judge Paul Michel (Ret.)

Technology innovation today is more the result of encouraging investors than inventors. America’s technology talent is ample. It is diverse and dispersed among national labs, research universities and companies, large and small.

It’s inadequate investment holding us back in the urgent innovation race with China.

And the source of tech investment is less the government than the
private sector. It is the private sector that must invest many times more than government to actually get improved products and cures to the public.

To unleash the vast capital resources of venture firms and like sources, what is necessary are strong and reliable patents. Sure, in some cases, they will respond to other incentives, but in most, they will require patents to protect their large, repeated and risky bets on small and creative firms. Those firms, however, are vulnerable to predatory infringement by large competitors. Patents are their only protection.

How else can we encourage investment in the 21st Century’s disputed technologies, those in which China seeks to surpass us? Especially when these investments are so expensive, slow to mature and risky as to realizing any profit.

Tech investment in China operates very differently. China’s government
controls virtually all the money needed to advance its tech innovation. But ours does not. Here, voluntary decisions by innumerable private actors control the flows of most innovation investments. Will the monies flow to safer bets on hospitality and entertainment, social media apps, etc.? Or will they flow to riskier but vital technologies like hypersonic missiles, cyber security, 6G, genetic medicine, green energy, sustainable agriculture, artificial intelligence and the like?

Ours, of course, is a market economy. No doubt about it. No chance of that changing, either. Nor should it. But, given that reality, realistic policy must energize massive private investments in the advanced technologies that count most in the innovation race with China.

According to a recent study by an Australian think tank, China now equals or leads the U.S. in
37 of 44 new technologies. That should alarm our policymakers. We have no time to waste in reversing this trend.

In addition to China’s
government, also investing heavily in innovation are its private companies. How was that accomplished? China greatly strengthened its entire patent system. It even created numerous specialized patent courts at both the trial and appellate levels. America did none of that.

Moreover, trials in China are far
faster and cheaper; remedies for proven infringement are stronger, especially injunctions which are routine there, although rare here.

In addition, what inventions are even eligible for patenting is both broader and clearer in China than here. Other patent rules are also more predictable in China. Uncertainty, of course, deters investment.

In short, China upgraded its patent system while we degraded ours.

Our need to incent investments extends beyond startups to established firms, even very large companies. Business executives, too, are placing bets when they decide whether to apply part of their revenue stream to innovation, hoping to develop new products. The same risks concern them as they concern venture capitalists. To arrive at a “yes” decision, both types of managers need incentives that are strong enough to outweigh the perceived risks, which are substantial.

This basic reality is one thing our leaders, media and the public must grasp. The other is that patents are usually required to adequately incent and then protect the investments, for nothing else will suffice to generate the yes decision.

The obvious conclusion is that our leaders must power up our patent system. And fast. But before that can happen, the press and public must understand these realities.

Let’s hope they get tuned in quickly. Then we may see surging support for action in Congress.

Judge Paul Michel was chief judge of the Federal Circuit, the nation’s top patent court, until his retirement in 2010. He currently serves as a board member of the Council for Innovation Promotion.

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