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Study: Weak Patents Drive Away VCs

Among its intense assaults on private property rights, the Obama-Biden administration abused regulatory powers to weaken our industrial and innovative base. That regime spent its eight years turning puddles into federal “navigable waters,” exerting regulatory takings against land owners, and depriving citizens and private companies of access to “public” lands. (See a partial litany in this column.)

Another of the Obama-Biden lowlights was a bipartisan transformation of the Patent Office into a tool of the Administrative State. The falsely labeled 2011 “America Invents Act” set up a kangaroo administrative body severely tilted in favor of patent infringers and antipatent parties for wiping out issued patents — that is, for government regulatory takings of private property without any compensation, much less “just compensation.”

The Trump administration (and for two years a Republican Senate and House) has spent four years undoing much of that regulatory red tape, to great, beneficial effect as measured in economic output, jobs (prepandemic particularly) and earnings.

But the PTAB remains a weapon for Google, Apple, Samsung and other weak-patents zealots to cancel others’ intellectual property, while courts have steadily weakened patents.

The cost of battering IP rights, patents in particular, shows up clearly in a recent report on the adverse effect seen in investment. The Alliance for Startups and Inventors for Jobs, or USIJ, sponsored analysis reported in “The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies.”

In short, weakened patents and a weakened patent system have driven venture capital away from patent-intensive sectors and to sectors not reliant on patents.

The USIJ report finds the share of VC funding going to the most patent-intensive businesses fell from 50 percent in 2004 to around 28 percent in 2017. That is, investors pass over computer hardware, semiconductors, medical devices, pharmaceuticals and biotech ventures and put their risk capital in social networking, consumer finance, leisure and similar startups.

“In 2004, patent-intensive industries claimed the majority of venture capital funding, attracting more venture capital than industries that relied less on patents,” USIJ says. “Since then, the sectors experienced a dramatic reversal in fortune, with the nonpatent intensive industries attracting over 70% of venture capital since 2013.”

This should sound alarm bells across the nation.

Why does it matter that venture capitalists now put much less of their money in patent-centric startups and early-stage firms that are developing and commercializing sophisticated patented inventions in sophisticated sectors?

“What venture capitalists invest in matters because it determines the future shape of our economy. Tomorrow’s leading companies, innovative medical treatments, and new products are most likely to arise from companies that start out with venture capital backing. With less investment in patent-intensive industries, society will likely enjoy less of the things those businesses produce: lifesaving and game changing innovations and U.S. technological leadership.”

It all comes back to the necessity of secure private property rights.

USIJ has quantified a serious threat to America’s economic, industrial and quality-of-life future. A mobile app that finds you a B&B or a social-networking or gaming app that wastes your time isn’t going to save a loved one’s life, heal your disease, lead to quantum computing or advanced manufacturing, or deliver good-paying jobs in Middle America created due to these patent-intensive sectors.

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