Hon. Andrei Iancu, former Under Secretary of Commerce for Intellectual Property & Director of the US Patent and Trademark Office, and current Partner at Irell & Manella LLP, spoke with Burford Managing Director Katharine Wolanyk about the intellectual property laws and US global competitiveness at the 2022 Annual ILFA Conference in New York.
An edited transcript of their conversation appears below.
Katharine Wolanyk: Andrei, you were part of a group, along with David Kappos, also a former US Patent and Trade Office Director, and former judges Paul Michel and Kathleen O'Malley of the Court of Appeals for the Federal Circuit, that recently launched the bipartisan Council for Innovation Promotion. What prompted you to come together to forge this coalition now, and what are C4IP’s goals?
Andrei Iancu: First of all, looking at the global competitive landscape and the US position, we saw an issue that needed to be addressed. The world is at the beginning stages of the fourth industrial revolution. We're on the cusp of critically important technologies such as artificial intelligence, quantum computing, autonomous vehicles, biotech, advanced materials and so on. The question is, who is going to lead in those areas and beyond? Will the US continue its leadership role in technology as we have all gotten used to for the past century and a half? Or are we going to cede that leadership position?
Unfortunately, the current state of affairs is that while we are still competitive, in many ways we have lost ground. These are critically important times, because if we lose the edge, it'll be extraordinarily difficult to catch up. Looking at history, it was not clear at the turn of the 20th century that the US would lead into the new century, but we did…. And no one was able to catch up.
The same thing is happening now, and it will be very difficult for the rest of the world to catch up to whoever starts to lead like we did 150 years ago. Some of us are quite concerned about where the US stands right now. There are lots of issues that need to be addressed, such as education, more inclusivity to get more people to the innovation table and so on. But the critically important component, without which none of it can happen, is intellectual property. If the US does not have a robust IP regime, no matter how many inventors we have and no matter how much money we throw at innovation, we will lose ground.
The problem is that most of our legislators and leadership do not see the connection between a robust innovation economy and a robust IP system. People think that innovation just happens, and then the clever ones get protection like a patent or a copyright just to pull the ladder behind them so no one else can participate. That's the wrong view, and it leads to policies that weaken the IP system and therefore weaken our ability as a nation to compete. The point of starting C4IP is to bridge that gap and make clear to our leadership that if you want to compete into the next century, the US needs a robust IP system.
KW: It does feel like we are at a turning point. From your perspective, how important are strong, and more importantly, stable IP laws to promoting global competitiveness for all these future and existing technologies?
AI: They're not just important; they're strictly necessary. Without them, there is no evidence that the free market economy can actually make the investments necessary to generate the innovations and the technology needed at any time—especially at this moment where we are at the beginning stages of the next tech revolution.
We are a free market economy, unlike China, for example, where they have a centralized dictatorship where the government can say that no matter the economic conditions, the country will invest in certain technologies. The US cannot do that. The government cannot dictate to industry what they should build or what they should invent. Competition and a free market have served us really well, but then what drives free industry to make certain investments?
Innovation is risky, by definition. The fact of the matter is, the majority of the time when you invest time and money, you come up with things that do not work. But when it does work, you have to have a way to recoup your investment and make a profit. Otherwise, if as soon as something is proven to work anyone can take it for free, why would you put all that time and money in it; you would rather invest in something else that is not as risky. So, in a free market system, there is no other way to safeguard people’s investments and ensure a fair recovery by the investor and the inventor.
Other countries in history have tried different things—prizes, government incentives, tax breaks, directives—none of that has worked. We know this by thinking about the way the world was when this country was founded. Putting things in perspective, just 200 years ago when this country was founded, we would have probably gotten here by horse and buggy. These lights wouldn't exist; we would have met by candlelight in here. If you needed anesthesia, your best bet would be a shot of whiskey. To get us to where we are now, technological advancement has been at the fastest pace in the entirety of human history.
Lots of factors go into this, but a critically important component to enable that innovation is the inclusion of IP rights in the Constitution. The founders saw that in order for a startup nation and an agrarian society to compete with the UK, which back then ran the globe and led at the beginning stages of the first industrial revolution, we needed IP rights. In fact, the word “right” appears in the Constitution only once, and it's in Article One, Section Eight, Clause Eight that deals with patents and copyrights. Based on that, everybody was incentivized to invent, and innovation was democratized. Anyone was able to invest and invent, and then be protected by IP rights. You didn't have to be rich; it was the first time in an IP system where there was not a manufacturing requirement.
People might mention patent trolls--patent owners who don't actually practice their invention. However, the whole point of the US Constitution on this issue was to divorce IP rights from manufacturing requirements, which enabled only rich people with factories to be able to get protection. We democratized invention.
So, to anyone who suggests that you don't need the system in order to have technological progress, I say, show me the evidence. We have all the proof in the world that we got where we are with an IP system that moved us along from the very beginning. I don't think we're able to compete without it. And if we make a mistake, then the next century and beyond, we'll be governed by technologies developed outside of the US, a path we are unfortunately already on.
KW: The state of patent law is trending against patent owners in troubling ways. It’s also interesting to see that in the last 20 years, there have been more patents issued in the US than in the entirety of US history. Although a lot of them are foreign countries filing here, it gives me hope that innovation is still occurring and people are still filing and getting patents for it, even though it has become a lot more challenging to try and recoup investment and value.
AI: I agree; the patent system always faces an inherent tension. Thomas Jefferson, the first patent examiner in the US while he was Secretary of State, recognized right away this inherent tension. He first believed that patents were an “embarrassment” to the public because he thought ideas should be free for the taking. Then he became the patent examiner, where upon reviewing applications, immediately said that patents were giving a “spring to invention beyond any comprehension.” There’s always this tension that patents, on the one hand incentivize and protect the inventor or patent owner while at the same time they prevent others from competing for that specific technology. This can result in what they refer to as the pendulum swinging. Sometimes patent laws are more in favor of the patent owner and sometimes are more in favor of the implementers of the technology. Over the past 20 years the pendulum has swung, in my opinion, away from the patent owners, and away from the innovation economy in a variety of ways, which I believe has been harmful. We are noticing that effect right now.
You're right that more patents are being filed and issued right now than at any time in history. In fact, when I was the Director, we issued one million patents in three years. But also for the first time, more patents are being issued by the US Patent Office to foreign countries: 56% of US patents right now are being issued to foreign countries. A large portion of that increase is due to China and the applications coming from there. So, yes, innovation is happening. The question is, which inventors, from which countries and investors, are making those innovations? I can't tell you how important that is.
Let me give you a few examples here. Take artificial intelligence. Machine learning depends on a tremendous amount of data that has to be fed back into the machine to train the machine, and then it learns, and as it gets more data, it improves itself and learns and so on. The Chinese government doesn't have a problem collecting data willingly or unwillingly from its citizens in China. There are effectively two cameras in China for each human being in the public domain. Do we want to live in a world where the machines that we interact with here in the US and elsewhere are being developed by and trained by data that comes from that regime? That is something for the policy makers to think about.
Let me give you another example. If you think about national security, think about the war of the future where you don't necessarily have human beings in the field anymore. There are already automated dogs that go sniff bombs and the like. Imagine autonomous soldiers that are being trained by machine learning that can compute at quantum speeds, which is millions of times faster than the fastest supercomputer capable today. When you have the convergence of those technologies, which are already being developed, the nation that puts them together first will have a tremendous advantage that will be extraordinarily difficult to catch up with.
You can imagine the same thing in the finance world. The country that develops automated machines that can compute and communicate extremely fast, managing the banking system, the security codes surrounding it, the stock market and investments will have tremendous advantages. It cannot be underestimated how critical it is that the US and our trade partners compete in this race. We must do everything we can as a nation to enable more investment in innovation and inventors that dedicate their careers to inventing here in the US.
KW: Focusing on innovation in the law, how do you view the role of legal finance and commercial litigation, particularly in the current IP legal landscape?
AI: To start with, although not everyone agrees, an IP right in my view is a property right. Like with any other property right, it needs to be robust. It needs to be predictable and enforceable. What do I mean by that? If I have a piece of land or a house, I need to know clearly where the boundaries are. I need to be able to predict that the next survey will agree with my presumption of where the boundaries are, because otherwise I'm going to build a factory on it, and half of it might be on the neighbor’s land. So, I need to be able to predict with some accuracy what the property right is, and then I need to make sure that the legal system is enforceable. If somebody decides to come into my land, I need to make sure that the rule of law enables me to evict them or to keep them out. It's the same thing with IP rights. All property rights need to be predictable and meaningfully enforceable.
Legal finance allows the democratization of the enforceability of intellectual property rights. You should not have to be wealthy to be able to appeal to the rule of law and enforce your IP right or to evict somebody from it.
This is especially true because the patent owners that are aggrieved by an infringement, do not usually have the funds precisely because of the infringement. For example, a startup comes up with brand new, brilliant and disruptive technology, gets patent protection for it, but is unable to penetrate the market because the big, established giants steal the technology and put it out as their own. They will usually succeed and take over the market in that particular category due to their size, market power, marketing power, et cetera. The innovative startup cannot compete, and the funds that belong to it go instead to the big established company. When the smaller company then wants to enforce its rights against the established firm, it needs some funding to help do so. It’s then unreasonable on the part of the big, established firm to find fault in the smaller company getting help financing the enforcement of its legal rights that were violated in the first place by the big, established firm. It’s almost as if they’re drowning you and then not allowing you to get a lifesaver. Therein lies the critical use of legal finance: To enable everyone who has meaningful rights to enforce them, if appropriate, so that enforceability is not reduced to just the wealthy.
KW: Let’s come back to how we might use these policies, for C4IP and more broadly, to foster more innovation in the US. I came across a Patent and Trademark Office report just last week that made an interesting point from economists saying that if women were to patent at the same rate as men, commercialized patents would increase by 24%, and per capita gross domestic product would grow by 2.7%. So, let's talk about that a little bit.
AI: Notably, the number of women named as inventors on US patents is less than 13%, and the number of patents that have one woman inventor among the various inventors named is about 20%. In other words, there's an effort to add at least one female contributor to the list of inventors, but nevertheless, the number of inventors that are women is low. And the number of inventors who are racial minorities is in the single digits. In addition to that, innovation in the US is highly concentrated geographically: About 90% of it takes place in just a few major cities, mostly on the coasts.
Putting all these things together, I used to say that the US competes with one hand tied behind its back when it comes to innovation. I’ve come to realize that, actually, it's more like we're competing with one hand and four fingers tied behind our backs. For us to up our game and compete against the countries like China, where they have 1.4 billion people or so, we need a higher percentage of our population to come to the table and invent, and for more people to invest in them.
This is also not something that is happening just in invention: The number of women-led startups to which venture capital dollars goes to is only 2% or 3% in the last year. There's a huge percentage of the population that's left behind, depressing the US' ability to compete in general.
I believe that this is the great equalizer, to enable everybody to innovate. Our GDP would go up significantly, and the amount of innovation quadruples, according to a Harvard study from two years ago. Not only is it good for those individuals, but it's also great for the US and for those individual communities where people live.
Andrei Iancu is the former Undersecretary of Commerce for Intellectual Property and Director of the US Patent and Trademark Office, and currently a partner at Irell & Manella LLP. One of the foremost leaders in the intellectual property space, he has represented clients in a variety of high-profile matters in district courts, US Court of Appeals, and the USITC and USPTO. He co-founded the Renewing American Innovation Project at the bipartisan Center for Strategic and International Studies (CSIS), and the bipartisan Council for Innovation Promotion (C4IP).
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Katharine Wolanyk is a Managing Director at Burford Capital and leads its award-winning IP litigation finance business. She writes and speaks frequently on intellectual property issues and is Chambers ranked as a leader in IP litigation finance. Prior to joining Burford, she held in-house legal roles at several technology companies and was an attorney at Latham & Watkins. She began her career as an engineer at Hughes Aircraft.