EXECUTIVE SUMMARY
America’s robust economic competitiveness is due in no small part to a large capacity for
innovation. That capacity is imperiled, however, by an increasingly overprotective patent
system. Over the past twenty-five years, American legislators and judges have operated
on the principle that stronger patent protection engenders more innovation. This principle
is misguided. Although intellectual property rights (IPR) play an important role in
innovation, the recent increase in patent protection has not spurred innovation so much as
it has impeded the development and use of new technologies.
Innovative industries rely on the cross-fertilization of ideas, and participants often
build on the work of their predecessors. Recent trends have worked against these
processes. An underfunded patent office, increasingly diluted patent standards, and a
legislative and judicial presumption of patent validity have combined to make patents
cheaper and easier to defend through litigation. As a result, technology firms wishing to
enter a market must now contend with:
• Mushrooming litigation costs to defend against infringement lawsuits;
• Patents that are overly broad or unclear about the breadth of protection; and
• A laissez-faire antitrust policy that allows firms to use patents to actively
exclude potential competitors.
The burdens of the U.S. system stand in sharp contrast with the more balanced
systems of its major competitors. Other patent regimes in the developed world, such as
those of Canada and the European Union (EU), are more supportive of dynamic
competition and the diffusion of technologies. Major developing countries such as China
also use more flexible patent standards that could be pro-innovation, although they
currently suffer from weak enforcement.
The strategic U.S. response to competition from more efficient patent regimes has
been to push a high-level agenda to harmonize global patent standards with its own
regime. That agenda has made little progress among developed countries, which are leery
of following the high-cost U.S. system. However, the United States has used bilateral
trade agreements to push small developing countries to accept IPR obligations that go far
beyond the global requirements set out by the World Trade Organization (WTO) in its
Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS). Some of
these obligations are inconsistent with development needs and cause resentment of
overall U.S. trade policy without much promise of spurring more innovation.
To address these issues, this report includes the following recommendations:
• Change domestic patent policy in order to return to basic patenting principles
and restore the system to one that encourages innovation rather than extraction
of payments from legitimate competitors.
• Abandon the high-level harmonization agenda, especially in free trade
agreements.
• Mount a stronger global effort to deal with enforcement problems in
developing countries through a combination of incentives and disincentives,
including:
�� fuller collaboration among developed countries to make technical and
financial assistance available for improving enforcement; and
�� a formal complaint at the WTO that specific countries have failed to meet
their enforcement obligations under TRIPS.
