Attacking Innovation

By Nguyen, Xuan-Thao; Maine, Jeffrey A. | Boston University Law Review, September 2019 | Go to article overview

Attacking Innovation


Nguyen, Xuan-Thao, Maine, Jeffrey A., Boston University Law Review


Introduction

Twelve years ago, there were about 700,000 new start-up firms every year in the United States, according to the Ewing Marion Kaufman Foundation, but that number has fallen 30% to 500,000 firms and continues downwards.1 In a study conducted by the Chronicle of Higher Education, more than half of the 11,000 researchers surveyed across the nation had abandoned projects central to their labs due to economic pressure.2 In the study entitled The Future Postponed, MIT delivered a shocking list revealing that none of the notable scientific highlights in recent years were U.S.-led achievements.3 The data confirms a new reality that not many care to acknowledge: innovation in the United States is dwindling.4 Several key reasons for this dire situation stem from the multiple and pervasive attacks on innovation. Most startlingly, the attacks are often in disguise as benefiting innovation.5 As a result, there has been an almost universal silence in legal scholarship on how law and policy have discouraged innovation, which has led to the current innovation crisis. This Article breaks that silence.

First, there has been a fierce attack in patent law, where strong patents were once considered incentives for innovation.6 The attack on the patent system cloaked itself in the hysterical "patent troll" narrative that patent owners behave like trolls to extort innovative companies,7 without any consideration of the fact that these infringers are using others' patented technologies without reciprocating compensation.8 Heeding the hysteria, the Supreme Court and the 2013 America Invents Act ("ALA") Patent Trial and Appeal Board ("PTAB") have become forerunners in creating a weak and uncertain patent system.9 Innovations are deemed ordinary, or not worthy of receiving legal protection,10 or just simply categorically ineligible for patent protection.11 This has resulted in important sectors of the economy shutting down.12 Furthermore, without patent protection for inventions, investors are inclined to either reduce their investments in innovation and invention or shift attention to other jurisdictions where strong patent protection and certainty reign.13

Second, for most research universities and institutions, government funding and grants for innovations have diminished and been forced into a constant uncertainty.14 The stagnation in science investment in the United States has opened the door for new breakthroughs to occur outside the United States, notably in China and Europe.15 Part of the reason for the funding decline is the new anti-science rhetoric that has ridiculed scientific projects and injected much uncertainty into ongoing research.16 Moreover, the new patent law regime passed in 2013 removed the grace period for researchers because the first-toinvent system has been replaced by the first-to-file system.17 Researchers must watch their publication or disclosure; otherwise they face a statutory bar for lack of novelty.18 Additionally, once they obtain patents, universities and institutions face challenges to their ownership and commercialization of their patents. Consequently, the incentive to innovate in research centers across the United States is declining.19

Lastly, in its most recent attack, the U.S. government has significantly weakened the tax system governing innovation. In the Tax Cuts and Jobs Act of 2017 ("TCJA"), Congress eliminated an important tax deduction for research and development ("R&D"), eliminated preferential capital gains rate treatment for inventors, added an excise tax on the net investment income (including royalties) of certain private colleges and universities, and enacted a host of international tax provisions that may push innovation offshore. The TCJA is also notable for what it did not do. It did not enhance the current tax credit for R&D, and it did not adopt a so-called U.S. patent box (i.e., a low effective tax rate on intellectual property income). Congress ignored repeated calls for both of these measures-measures that many countries have adopted in recent years to attract valuable innovation activity to their borders. …

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