New Compelling Evidence of Anti-Innovation Bias

If a tree falls in the forest and no one is around to hear it, does it make a sound?  A recent study by the Sunwater Institute “Patent Quality in the United States, Findings and Suggestions for Policy Makers” should have landed with a deafening sound but has been largely ignored.  It finds that the United States Patent and Trademark Office (USPTO) has a pronounced bias against innovation, when compared with other countries’ patent offices. 

Professor Mossoff provides useful background.  As noted in a summary of his Mossoff Minute:

For over a decade, there has been a narrative driven by big tech that the U.S. patent system is broken, with a high percentage of “bad patents.” In this Mossoff Minute, Professor Adam Mossoff discusses a recent rigorous study by the Sunwater Institute (a nonpartisan think tank) that reviewed 20 million patent claims and found that only 7% of patents are erroneously granted by the USPTO, while 18% of valid claims are erroneously rejected! This evidence-based study refutes the long-standing claims of systemic issues and highlights the need for data-driven policymaking.

In this connection, a remarkable statistic is that: Google and its affiliates had at least 427 meetings at the White House during President Obama’s tenure, according to data from the Campaign for Accountability and The Intercept.  The Report attests to their effectiveness.  It appears they were similarly effective in influencing the Supreme Court and Congress.

Lasting Effect of False Narrative

The effect of this false narrative is difficult to overcome, as was likely known by Big Tech when they promoted it. As extensively discussed in the article referenced in the footnote, people continue in their initial belief even in the face of contrary evidence. They, including judges, ignore contrary facts, conjure new facts and theories, and engage in motivated reasoning to avoid any contradiction of their initial belief.  Justice Breyer was fully taken in by the ani-innovation cabal’s narrative as evidenced by numerous comments.  For example, he stated, “here are these things, for better words, let’s call them patent trolls, and that the Patent Office has been issuing billions of patents that shouldn’t have been issued.  I overstate ­­ but only some”.  At that time only 9,000,000 patents had been issued.

Damage Caused by False Narrative

 The effects of this anti-innovation bias for, among other things, national security, and job and wage growth are profound.  Charlie Munger once said, tell me the incentive and I will tell you the result.  Disincentives to innovate in the United States have coincided with a number of troubling trends.   This includes:

1. While the U.S. was busy destroying its patent system, China made its patent system much stronger. Today, China does not have such disincentives, which has enabled China, in just over a decade, to take the global lead in 37 of 44 technologies critical to our economic and national security.
   1. Many smaller inventors have abandoned the United States Patent system and no longer innovate. Absent innovation production will flow to the lowest cost producers, which will almost always mean exporting jobs.  As stated in the Study improper rejections may lead to those innovations not being commercialized and therefore never reaching the public. China’s startups now attract more early-stage investment, while similar startups in the U.S. attract less. That flip-flop enabled China to quickly overtake the U.S. in funding of artificial intelligence (AI) startups. As reported by The Verge, a 2018 report by C.B. Insights showed that “[China] accounted for 48 percent of the world’s total AI startup funding in 2017, compared to 38 percent for the U.S.” More recently, Reuters reported that U.S. startup funding was down 30% in 2023. These errors reduce the incentives for inventors to develop their ideas. Thus, the ultimate cost of these errors includes the economic value of the inventions that are not developed and commercialized.
   1. While there are effective corrective mechanisms in federal courts to address improperly issued patents, it is very important to note that there is not any corrective mechanism to address the failure to issue valid patents.  In this regard, we will provide evidence in a more extensive paper of how even the appeals process had been corrupted by the false narrative.  

Effect on Small Inventors

As you know, parties are more likely to act on their biases against the weakest parties, in this case small inventors.  This is likely why the Study shows that it is about 50% more likely that a patent held by a small entity will be challenged in the USPTO.  This is, in the dry words of the Study, “statistically significant” which means it did not occur by chance.  Discouraging innovation by small inventors is not good public policy.  After all, US innovation history shows that small inventors produce most of America’s critically important and groundbreaking inventions.  Therefore, prompt steps should be taken to remedy the causes of this disparity.

Bias not Confined to the PTO

The false narrative referenced above has influenced other important actors.  Among these is the Supreme Court which has issued a number of opinions with scant or no historical basis which disincentivize innovation.  The degree to which the false narrative took hold is stunning.  The late Justice Scalia went as far as using the pejorative and undefined term “patent troll” is his 2015 dissent in Commil v. Cisco.  When Congress passed the America Invents Act in 2011, the halls of Congress were echoing with a catchphrase that there “a special place in hell for patent trolls.” If Congress was subject to truth in labeling, this fraught legislation would be renamed the “China Invents Act.”

The Way Forward

The importance of incentivizing innovation should be obvious. The success of the American economy is largely dependent upon innovation.  Without innovation the lowest cost producers will be overseas, and jobs and investment will follow.  The findings in the Study show there is a problem.  Only those who are self-interested or are naive would conclude that the problem is limited to the USPTO. 

Legislation must restore patent rights.  Given the bias against innovation, any such legislation must, to the extent possible, provide clear and objective criteria for determining the validity of patents. 

The current anti-innovation posture of the USPTO is so problematic that severe action appears necessary.  One proposal would be to merge it with the National Institute for Standard and Technology (NIST).  NIST possesses technical expertise that appears to be absent in the USPTO.  Therefore, any such merger should assure that the USPTO director reports to NIST officials.  Also, civil service protections should be withdrawn for USPTO personnel for a period of time, for example, 5 years.  Our experience is a pro-innovation posture would be restored only if a number of recalcitrant USPTO employees were fired. 

Publius

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Publius is the collective pseudonym used by Alexander Hamilton, James Madison, and John Jay, three influential Founding Fathers of the United States. Together, they authored the Federalist Papers, advocating for the ratification of the U.S. Constitution. Hamilton, Madison, and Jay each brought their unique expertise in economics, political theory, and law to the essays, which continue to be revered for their impact on American political thought.

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