A Brief Case Study: The Shortcomings of Counting Patents by Country to Inform Patent Eligibility in the U.S.

By Abby Rives, IP Counsel, Engine Advocacy & Foundation

Evidence and data must inform innovation policy, but numbers without context cannot tell a whole story. When it comes to patent policy, for example, counting certain patent applications that were filed with or abandoned before the U.S. patent office might not indicate much (if anything) about domestic innovation.

Policymakers need to scrutinize high-level patent application data when thinking about how to make the system — and the law of patent eligibility — work best for U.S. innovators and entrepreneurs. As this case study illustrates, there are several questions to unpack. For one, who filed the applications: was it a foreign company like Huawei or ZTE? And where the policy question is patent eligibility, policymakers looking at abandoned applications should ask what types of rejections they faced at the patent office: were applications rejected under §§ 103 or 112 of the Patent Act — because they were obvious or poorly-described — or were the applications ineligible under § 101 of the Patent Act? If policymakers misunderstand the data they are looking at, those applications could lead them in some anomalous directions, with unpatentable claims filed by foreign companies providing the evidentiary basis for eligibility policy that could end up harming U.S. innovators.

The last few years have seen some buzz around patent eligibility (i.e., § 101). As the law currently stands, one person or company cannot patent (or try to “own”) abstract ideas, laws of nature, or natural phenomena. Some see this as a good thing because it means one company cannot own the building blocks of innovation, and bad actors cannot easily use patents claiming abstract ideas to extort nuisance value settlements. Others disagree, hoping Congress will broaden eligibility around patents claiming abstract ideas or natural phenomena. As policymakers hash out any changes in this area of law, they need reliable, inclusive datasets that accurately account for a full range of stakeholders and are understood in context.

Against that background, a 2017 study has contributed to the push for broadening patent eligibility, but it is missing crucial context. The study concludes that 1,694 patent applications filed with the U.S. Patent and Trademark Office (PTO) were abandoned after they were rejected as patent ineligible, yet those same or similar patents were granted by the European Patent Office and/or China. These 1,694 applications (which make up less than 0.1 percent of all patent applications during the relevant time) have been cited to indicate a crisis for domestic innovation caused by § 101.

But the study leaves open several important questions like where did the patent applications come from (i.e., in which country did the underlying innovation occur), what happened to the inventions or innovations at issue, and why were the applications abandoned? Looking more closely at a random ten percent of those applications reveals (1) most were rejected for a variety of reasons (only sometimes including § 101), (2) most of the abandoned applications were filed by foreign entities, and (3) many of the applications either led to other patents or are still pending before the PTO.

First, most of the applications reviewed for this case study cannot be fairly characterized as abandoned because of § 101 and eligibility rejections. Only fifteen percent of those applications faced a sole, eligibility-related § 101 rejection when they were abandoned. For the remaining 85 percent: 24 percent never faced or overcame eligibility-related § 101 rejections and 61 percent faced numerous rejections when they were abandoned — e.g., the claims were also unpatentable because they were anticipated, obvious, or lacked sufficient description (under §§ 102, 103, and/or 112). While public data cannot tell us why an applicant decided to abandon an application, for this 85 percent, even if § 101 did not exist, the application would have faced one or more rejections from the PTO.

Second, the connection to domestic innovation here is tenuous. More than 75 percent of the applications reviewed for the case study were filed by foreign inventors and/or assigned to foreign companies. Looking only at the applications which had at least an eligibility-related § 101 rejection at the time of abandonment, the numbers shift slightly further away from the U.S. Of those applications, approximately 80 percent listed a first named inventor in another country and/or were assigned to a foreign entity. And very few assignees abandoned more than one application while it was facing an eligibility-related § 101 rejection, with the most frequent assignees being:

• Huawei Technologies Co., Ltd. (China), which was the assignee on 5 applications out of the 130 reviewed that had an eligibility-related § 101 rejection at the time of abandonment;
• ZTE Corporation (China) was the assignee on 3 applications out of those 130; and
• Microsoft Technology Licensing, LLC (U.S.) was the assignee on 3 such applications.

Because foreign entities make up most of the inventors and assignees that filed the abandoned applications, it is not possible to conclude, without more information, that these applications reflect anything noteworthy about domestic innovation.

Finally, for twelve percent of the applications reviewed in the case study, the application is still pending or it has child applications — those claiming the same or an overlapping invention — that are either pending or issued. In some cases, the abandoned applications have been followed-up by child applications that resulted in up to four granted patents.

For policymakers seeking to understand the role of § 101 when it comes to domestic innovation, it seems this dataset of 1,694 applications is not especially relevant because most of the dataset appears to involve foreign innovators and a majority of the abandoned applications were unpatentable for reasons other than § 101. If anything could be drawn directly from the 2017 study, the most logical conclusion seems to be that changing § 101 would benefit foreign applicants conducting R&D outside the country, since foreign entities filed most of the abandoned applications among those reviewed.

This case study illustrates critical limitations and faults that can emerge when relying on U.S. patent counts as a proxy for domestic innovation. Policymakers interested in advancing innovation should focus on issues that are front and center for U.S. startups deciding where to launch and grow — including, e.g., where they can access capital and critical Internet infrastructure, where privacy laws and data localization requirements are not unduly onerous, where tax laws and other incentives align to support young companies, and where they can attract high-skilled talent. Expanding access to essential resources and creating a regulatory environment that affords startups freedom to operate would directly and unequivocally support domestic innovators.

Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.