SPARK US Innovation Opposes PERA: A Call for Amendment to Protect American Innovation

The United States has long been a beacon of innovation, driving global advancements in technology and securing economic and national security through intellectual property protections. However, this leadership is under threat, and SPARK US Innovation, a group dedicated to advancing critical emerging technologies (CET), is sounding the alarm. SPARK opposes the Patent Eligibility Restoration Act of 2023 (PERA, S.1546/H.R.3152) in its current form, arguing that it fails to address critical flaws in U.S. patent eligibility law. Without significant amendments, PERA risks perpetuating barriers to innovation, particularly in fields vital to America’s future, such as artificial intelligence, quantum computing, and advanced communications.

The Decline of U.S. Technological Leadership

In 2007, the U.S. led in 60 of 64 critical technologies essential for economic and national security. Fast forward to August 2024, and China has surged ahead, dominating 57 of these fields, including 5G/6G communications, AI algorithms, quantum sensors, and semiconductor fabrication. This shift is not solely due to China’s technological advancements but also America’s self-inflicted wounds, particularly through judicial decisions that have weakened the U.S. patent system.

The Supreme Court’s 2014 Alice Corp. v. CLS Bank International decision introduced a vague “abstract idea” exception to patent eligibility under 35 U.S.C. § 101. This ruling established a two-step test that has proven disastrous for innovators. In the first step, courts determine if a patent claim is directed to an abstract idea. If so, the second step evaluates whether the claim includes an “inventive concept” that transforms it into something “significantly more” than an abstract idea. However, the test dismisses “conventional and routine” computer activities such as data processing, storage, or calculations—as insufficient to confer eligibility.

The stark consequences were almost immediate. A 2017 report revealed that, in the two years following Alice, federal courts invalidated 66.5% of challenged patents, with the Federal Circuit invalidating a staggering 91.9%. The U.S. Patent and Trademark Office (USPTO) rejected 36,000 patent applications under § 101, with 5,000 abandoned. Many of these inventions, particularly in CET fields like AI, quantum communications, and robotics, were granted patents in the European Union and China, where no equivalent “abstract idea” exclusion exists. This discrepancy has allowed China to outpace the U.S., capturing 48% of global AI startup funding by 2018 compared to the U.S.’s 38%.

The Stakes: Critical Emerging Technologies

The technologies at risk are not abstract academic pursuits but pillars of modern society. China’s lead now encompasses fields like advanced radiofrequency communications (5G/6G), photonic sensors, post-quantum cryptography, electric batteries, hypersonics, drones, nuclear energy, photovoltaics, and advanced integrated circuit design. These are the building blocks of future economies and defense systems. Yet, under Alice, nearly half of these 57 critical technologies are ineligible for patent protection in the U.S. because their core components—often mathematical formulas or software processes—are deemed “abstract.”

The Alice test’s circular logic exacerbates the problem. By stripping away “conventional” computer activities like data processing or storage, courts reduce CET inventions to mere mathematical logic that could theoretically be performed on paper or in one’s mind. This untethers innovations from their real-world applications, rendering them patent-ineligible. No other country imposes such a restrictive framework, giving foreign competitors, particularly China, a significant advantage.

PERA’s Promise and Pitfalls

PERA was introduced to restore patent eligibility by eliminating judicial exceptions, including the Alice test, which has hindered innovations in medical diagnostics, gene therapies, and CET. On the surface, this seems a step forward. However, SPARK warns that PERA introduces a new two-step test that mirrors Alice’s flaws, threatening to perpetuate the same damage to American innovation.

Under PERA’s Section 3(b)(1), patent eligibility is excluded for:

• (A) Mathematical formulas not part of a claimed invention in a specified category.
• (B) Processes that are “substantially economic, financial, business, social, cultural, or artistic,” even if they involve a machine (e.g., a computer).

Clause (A) broadly threatens software-based innovations, including AI, which rely heavily on mathematical algorithms. Clause (B) is even more problematic, as its vague categories could encompass nearly any invention, from robotics to agricultural machinery. By explicitly dismissing steps involving a computer, PERA echoes Alice’s rejection of “conventional” computer activities.

PERA’s second step, outlined in Section 3(2)(A), attempts to restore eligibility if an invention “cannot practically be performed without the use of a machine or manufacture.” However, this provision is flawed. The term “practically” is undefined, inviting years of litigation to clarify its meaning. Moreover, evaluating whether an invention requires a machine involves stripping away routine computer activities (data processing, storage, calculations, etc.) leaving only abstract logic. This mirrors Alice’s approach, ensuring that many CET inventions remain ineligible.

Section 4(b) further codifies this issue by stating that “insignificant extra-solution activity” by a computer does not confer patent eligibility if the computer is not necessary to perform the invention. This language directly parallels Alice’s dismissal of routine computer functions, undermining PERA’s intent to restore robust patent protections.

The Long-Term Consequences

SPARK emphasizes that PERA, as currently drafted, risks enshrining Alice’s harmful effects under new terminology. Congress is unlikely to revisit patent eligibility for at least a decade as courts grapple with interpreting PERA’s vague provisions. By then, the U.S. could fall irretrievably behind China in CET innovation, with dire implications for economic competitiveness and national security.

China’s strengthened patent system has enabled it to not only achieve technological parity but to out-innovate the U.S. in critical fields. Without a robust U.S. patent system, American startups, entrepreneurs, and inventors—particularly in CET—face significant disadvantages. Investors are less likely to fund innovations that cannot be protected, and talent may migrate to jurisdictions with stronger intellectual property frameworks.

SPARK’s Call to Action

SPARK US Innovation, dedicated to fostering CET startups and entrepreneurs, urges Congress to amend PERA before it becomes law. Specifically, SPARK recommends removing:

• Section 3(b)(1)(B): The exclusion of processes deemed “substantially economic, financial, business, social, cultural, or artistic.”
• Section 3(2)(A): The flawed condition for restoring eligibility based on impractical machine use.
• Section 4(b): The codification of “insignificant extra-solution activity.”
• Supporting language in Sections 2(5)(D)(vi) and 2(5)(E)(i) and (ii): Findings that justify these problematic provisions.

These amendments would eliminate PERA’s Alice-like exclusions, restoring patent eligibility for CET inventions and leveling the playing field with global competitors. A reformed PERA could empower American innovators to reclaim leadership in fields like AI, quantum technologies, and semiconductors, ensuring economic prosperity and national security.

The United States is at a Crossroads

The U.S. stands at a crossroads. The Alice decision has already cost American innovators dearly, contributing to China’s dominance in 57 critical technologies. PERA, as currently written, fails to rectify this damage and risks codifying a similarly restrictive framework. SPARK US Innovation’s opposition is not a rejection of PERA’s goals but a call for precision and a demand to craft a law that truly protects and promotes American innovation. By amending PERA to remove its flawed provisions, Congress can strengthen the U.S. patent system, empower CET innovators, and secure America’s technological future. The time to act is now, before the gap with China becomes unbridgeable.