America Risks Losing The Technology Race To China

A potent mix of bureaucratic red tape and adverse court rulings is deterring U.S. startups and small businesses from investing in cutting-edge technologies -- slowing our tech progress just when America needs to sprint to stay ahead of China.

In fact, thanks to a combination of smart policies and massive investments in advanced technologies, China is rapidly taking the innovation lead. According to a study funded partly by the State Department, America now trails China in 37 of 44 critical technology areas -- from 6G telecommunications and renewable energy to hypersonic missiles.

In particular, China has repeatedly upgraded its intellectual property system -- while for two decades, we've repeatedly downgraded our own. IP protections incentivize investment. So it's no surprise that U.S. investment in advanced technologies has decreased alarmingly as we've weakened these protections.

China, as well as the European Union, has established new, specialized IP courts. By doing so, they strengthened their patent systems and added resources in ways the United States has not. And they routinely stop technology theft with injunctions. American courts used to routinely issue similar injunctions -- but they largely stopped doing so in response to a 2006 Supreme Court ruling that made it difficult for plaintiffs to block such copying, even in cases of proven patent infringement.

Other rulings by the Supreme Court and lower courts have sharply restricted what may be patented, excluding some high-tech advancements like medical diagnostics and IT inventions from protection. Neither China nor Europe has made the same error: Many inventions ruled ineligible here remain eligible there. American courts are also awarding smaller damages than before to the victims of technology theft -- which has emboldened certain Big Tech firms and other frequent infringers to poach the technologies of their smaller rivals.

The weakening of America's IP protections has hit small businesses particularly hard. Small firms are more dependent than large companies on repeated investments from external funders, like venture capital firms. Yet because inadequate IP laws have made investment so risky, these money streams are drying up.

These developments didn't happen overnight. Our IP system has been slowly eroding for almost 20 years -- which is why the gradual changes were barely noticed by news media and policymakers.

But now, America faces a crisis. In effect, we need a crash recovery program to revive our tech sector, with special focus on our small, innovative businesses -- what legendary venture capitalists like Marc Andreessen have dubbed "Little Tech."

Some may assume that tech giants like Google and Apple can power our recovery by themselves. It's true that these companies are extremely influential and grew from tiny startups with the help of patents. The evidence is clear, however, that most real breakthroughs come from small companies -- like Google and Apple once were, not as they are now.

Others may believe the government can fund all the scientific progress we need. In fact, only a small percentage of the federal budget funds research, and that amount pales in comparison to what private sources spend. It's true that we need to increase public investment, which has declined substantially over time. But greatly increased private investment will still be necessary to keep America ahead of China.

Incentivizing such massive investment will require major legislative reforms not seen for nearly half a century.

The last fundamental modernization of the Patent Act was in 1952. The Bayh-Dole Act, which unleashed the commercialization of federally funded research, the Federal Courts Improvement Act, which helped clarify patent law by creating the Court of Appeals for the Federal Circuit (on which I served), and the Hatch-Waxman Act, which created the modern generic drug industry, were all enacted over 40 years ago.

Ironically, the most recent legislative action, the 2011 America Invents Act, actually set innovation back. It established a board at the U.S. Patent and Trademark Office that invalidates patents more often than courts -- using standards lower than what courts apply.

The new administration can work with Congress to lead a broad innovation recovery program. And it must happen immediately -- before China's lead becomes insurmountable.

Fortunately, senators like Thom Tillis (R-NC), Tom Cotton (R-AR), Chris Coons (D-DE), Dick Durbin (D-IL), and Mazie Hirono (D-HI) -- and their counterparts in the House of Representatives -- have already set the wheels in motion.

In the last Congress, they introduced four proposals -- the Patent Eligibility Restoration Act, the PREVAIL Act, the RESTORE Patent Rights Act, and the IDEA Act -- that, if reintroduced and enacted, would catapult U.S. innovation progress by overcoming the adverse court rulings and incentivizing massive private investment.

America's innovation system urgently needs a united, bipartisan, executive-legislative partnership. Only by reforming IP law will we be able to unleash the full inventive power of our private sector and overcome rivals like China. Let our innovation recovery begin now!

Paul Michel served on the U.S. Court of Appeals for the Federal Circuit from 1988 to his retirement in 2010, and as its chief judge from 2004 to 2010. He currently serves on the board of the Council for Innovation Promotion.