By Dr. Kirti Gupta
This commentary is part of a report from the CSIS Economic Security and Technology Department, titled Staying Ahead in the Global Technology Race. The report features a set of essays outlining key issues on economic security for the next administration, including global technology competition, industrialization policies, economic partnerships, and global governance.
The global competition for leadership in technologies critical for the economic and national security of nation states—from semiconductors to artificial intelligence and quantum computing—is well understood. A less well-known pillar is the intellectual property (IP) system, which is crucial for incentivizing and enabling the innovation necessary for this technological leadership. This article sheds a spotlight on why and how IP plays that essential role.
The IP system is designed to incentivize innovation by granting the investor temporary property rights for an invention or a creation. The patent system is critical to incentivizing research and development (R&D) in some areas that require massive upfront investment and have uncertain prospects for success. One example is biopharmaceuticals, which requires years of R&D for discovery, in addition to a long regulatory process to get approval for a new drug to enter the market. The design of semiconductor chips is another example, as it requires highly skilled and specialized workers and large upfront costs to develop new and improved cutting-edge circuit design for specific functionalities.
If an invention is finally successful in the marketplace, the patent owner enjoys a temporary right to exclude others from making, using, or selling that invention. Patent owners can also license their invention and grant these rights to another, thereby generating revenues from the initial R&D investment and enabling the diffusion of new technology. On the flip side, there have been concerns about misuse of the patent system by patent aggregators who allegedly amass a number of patents that may not be valid (i.e., erroneously granted in the first place), invoke patent protections in instances where they do not apply, or amass patents of limited value. These patent aggregators are not seeking to develop or market inventions but rather aim to extract quick monetary settlements from the patent implementers, who are seeking to avoid litigation costs or a temporary disruption of their products.
Policymakers face the challenge of striking the appropriate balance between incentivizing investment in risky R&D while ensuring that any social cost due to potential misuse of the IP system is minimized. The United States’ IP system goes through phases. It is sometimes characterized as too strong, granting property rights for “weak” inventions and creating unnecessary costs and uncertainty for implementers. At other times, it is seen as too weak, lacking the tools for proper enforcement of the property rights that incentivize innovation.
If history serves as a guide, it is pointing in the direction of a revival of the IP regime in the United States. The U.S. Chamber of Commerce maintains the Global IP Index, which ranks countries based on the robustness of their IP system; in recent years, the United States slid to number 13, before climbing back up again to first position. A 2011 study on the economic cost to the United States of IP infringement from China received a lot of attention. Moreover, injunctive relief—sought by patent owners in courtrooms to stop infringers from copying their inventions or copyrighted material—has become increasingly rare. The U.S. Patent and Trademark Office (USPTO), responsible for granting patents, can also invalidate patents via serial rounds of challenges on the validity of a patent while such litigation is pending. In response to this environment, several legislative proposals are currently in different phases of markup in Congress. These pieces of legislation involve expanding the eligibility of patentable subject matter, strengthening the enforceability of patents, and limiting serial challenges to a granted patent while it is in the process of a legal challenge based on potential infringement.
The U.S. IP regime does not exist in isolation. Recently, the European Union established the Unified Patent Court, with one of its goals being fast-tracking patent-challenge trials. China has been strengthening its IP regime, including by establishing four specialized IP courts in the last two decades. Since IP rights are often licensed on a global basis to reduce transaction costs, how one country enforces those rights directly impacts others. The IP enforcement regime of the United States needs to become stronger and faster to avoid litigation of disputes around global IP portfolios moving to other jurisdictions.
The United States is currently a leader in several critical technologies that rely on revenues generated from the licensing of IP rights in global markets. Most of the innovation in the United States is driven by R&D investments from the private sector, which must be incentivized to invest in long-term R&D. Technological leadership is the result of long-term, consistent R&D investment, and the United States must continue incentivizing the private sector so that the country remains a technological leader going forward.
If the United States has an innovation agenda—that is, if it aims to invest and lead in critical emerging technologies to bolster U.S. economic and national security—IP must have a prominent role. A strong IP enforcement regime, with clear boundaries around IP rights and which can ensure quality inventions are granted those rights, helps the inventors and implementers, who are both needed for an innovation ecosystem to thrive. The next administration should consider IP as a part of the broader innovation agenda and not view it as an issue of technical obscurity to be treated in isolation. A strong IP system works for everyone. The United States can continue to lead in R&D-intensive innovation and product development and minimize infringement, especially outside of U.S. borders, by pursuing three key actions: (1) strengthening the USPTO with resources to ensure that only quality (and valid) inventions get the appropriate IP protection; (2) streamlining the system of repeat validity challenges on already granted inventions; and (3) making progress on the legislative proposals for enhancing the enforceability of legitimate IP rights.
Kirti Gupta is a Senior Adviser (Non-resident) with the Renewing American Innovation (RAI) at the Center for Strategic and International Studies (CSIS) in Washington, D.C.
This piece was originally published on October 29th with the Renewing American Innovation Project at CSIS.
