IP Rights: A Threat to Innovation

While China has been progressively enhancing its IP safeguards, the US has experienced a gradual decline in the effectiveness of its IP framework.

The United States and China are currently in a rivalry to establish themselves as leaders in technology and innovation. Both countries are making substantial expenditures in their domestic innovation systems while also attempting to weaken the other countries’ innovation systems. As the competition becomes more intense, several policymakers and observers are engrossed in the detailed progress of this race in industrial policy. However, neglecting a crucial factor that fuels innovation is dangerous: a robust and market-oriented framework for protecting intellectual property (IP) rights.

IP rights are essential for establishing a robust innovation system. Secure IP rights enable enterprises to transform their ideas into valuable assets that can be licensed without fear of theft or infringement. This fosters more collaboration among different entities in the economy. A robust IP system also instills in market participants the assurance that they can freely exchange their skills and information with others, thereby broadening the knowledge reservoir of the innovation system. Moreover, temporarily possessing a groundbreaking invention granted by a well-functioning patent system generates profits and motivates investors and entrepreneurs to undertake the challenges of bringing novel concepts to the marketplace.

Considering the advantages of a strong, market-oriented IP system, it appears that the United States has a lasting edge over China in any competition related to innovation. However, a succession of judicial rulings and legislative measures in the past twenty years has diminished IP rights in the US, which might potentially undermine the competitiveness of the US innovation ecosystem. On the other hand, China has dedicated many years to enhancing IP measures to promote innovation and attract foreign funding.

Although the US is currently considered the benchmark for IP rights, it is important not to assume that this position will always be maintained. In order to effectively rival China, the US should prioritize establishing a robust system of secure IP rights. This will enhance the strength and competitiveness of its innovation system.

China is commonly linked to IP appropriation rather than IP protection. During China’s economic ascent, it mostly focused on obtaining foreign IP through appropriation rather than developing it domestically. Academic research consistently finds that strong IP rights have a limited impact on promoting innovation in emerging economies where it is easier to copy external inventions. Although Chinese intellectual property appropriation remains a concern today, there has been significant progress in intellectual property protection in China since 1984. In 2001, China took a significant initial action by making sweeping changes to its IP laws to align with global standards when it joined the World Trade Organisation. China’s IP protections have advanced in parallel with its technological capabilities during the past decade. In 2014, China established its inaugural court dedicated to resolving IP matters, subsequently expanding into a network of IP courts. In 2021, China unveiled its 14th Five-Year Plan, which features a directive on IP with ambitious objectives, including a target to increase the number of patents granted to international companies by 2025.

The IP system in China still has significant potential for enhancement. Foreign corporations conducting business in China continue to be cautious, and examining IP lawsuits in China is limited to information obtained from government-managed databases. Although China’s IP system is not as advanced as that of the United States, China is undeniably making efforts to enhance it, consequently bolstering the competitiveness of its innovation ecosystem.

While China has been progressively enhancing its IP safeguards, the US has experienced a gradual decline in the effectiveness of its IP framework.

A significant portion of this erosion can be attributed to three modifications implemented in the US patent system within the past twenty years. In the 2006 decision eBay v. MercExchange, the Supreme Court diminished the power of patent owners to obtain court injunctions that would prevent infringers from selling their protected technologies. Although injunctions are still accessible, their frequency of being sought and granted has considerably decreased. Furthermore, in 2011, Congress enacted the Leahy-Smith America Invents Act. This act established the Patent Trial and Appeal Board (PTAB) as a more efficient and cost-effective option than district courts for reviewing and determining the validity of patents.

Furthermore, a sequence of rulings by the US Supreme Court from 2010 to 2014 significantly limited the range of subject matter that can be patented. The decisions introduced a two-step assessment for establishing patent eligibility, sometimes called the Alice/Mayo test. This test limits the granting of patents for discoveries based on laws of abstract notions, natural phenomena, and nature.

The primary concern with these three modifications is their heightened ambiguity in the US patent system. Uncertainty, which refers to situations where the range and probability of events cannot be foreseen, negatively impacts economic activity. In particular, uncertainty regarding patent eligibility may discourage investors from investing in companies operating in patent-intensive industries. In the 2023 International IP Index, the United States was ranked as the top country by the American Chamber of Commerce. However, the report also pointed out a significant weakness in US IP protections due to ongoing uncertainty regarding patentability in high-tech areas.

The ambiguity is especially concerning when considering the global competitiveness in technology, as many areas significantly impacted by these modifications are undoubtedly eligible for patents in Europe, China, and other legal systems. Introducing these reforms may create uncertainty, diverting research and development investment away from the US. This, in turn, might undermine the international competitiveness of US enterprises.

The United States possesses a distinct advantage in its robust intellectual property (IP) system when competing with China regarding innovation. However, inadequate policies and legal rulings jeopardize the security of this crucial resource. Instead of diminishing the value of intellectual property rights domestically, the US should enhance and reinforce its IP system. For the US to succeed in a rivalry with China centered around innovation, it is crucial to adopt a long-term strategy and protect and invest in the existing innovation system, which is currently the best in the world and is built on strong and secure IP rights.

Abu Hurrairah Abbasi
The Writer works as a Researcher with an Islamabad-based policy think tank, the Institute of Strategic Studies Islamabad. He can be reached at abuhurrairahah@gmail.com

The Writer works as a Researcher with an Islamabad-based policy think tank, the Institute of Strategic Studies Islamabad. He is also a Research Fellow at Hanns Siedel Foundation Pakistan. He can be reached at abuhurrairahah
@gmail.com

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