Why C4IP Supports the Patent Eligibility Restoration Act (PERA)

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 invention. 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 patents 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 judicially created exceptions for inventions eligible to receive patent protection — provided that the innovation then also meets the remaining requirements of the Patent Act. In its place, PERA recreates statutory exceptions that are more aligned with how the Supreme Court has historically cast its judicial exceptions prior to the chaotic decisions of the past decade. For example, instead of the amorphous judicial exclusion of “abstract ideas,” PERA prohibits “a mental process solely performed in the human mind” and a “mathematical formula” claimed in isolation. Likewise, instead of the judicial exceptions that have been interpreted to almost categorically exclude medical diagnostics (“laws of nature” and “natural phenomena”), PERA would exclude a process that “occurs in nature independent of, and prior to, any human activity,” “[a]n unmodified human gene, as that gene exists in the human body,” and “[a]n unmodified natural material, as that material exists in nature.”

In addition, PERA also clarifies that certain areas that common sense dictates were never reasonably intended to be encompassed by the patent system — such as a method to propose marriage — are excluded. To this end, PERA prohibits the patenting of “a process that is substantially economic, financial, business, social, cultural, or artistic.”

For the different new categories of exclusions, PERA also provides a roadmap for how much technology must be incorporated into an innovation for that otherwise-excluded innovation to again be patent eligible and patentable subject to meeting the remaining requirements of the Patent Act. For example, although PERA prohibits the commonsense exceptions noted above, PERA also provides that if an innovation in this otherwise-excluded category is integrated into “a machine or manufacture” such that the “process cannot practically be performed” without either of them, such an innovation is 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.

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