How America’s Democratic Foundation Promotes Innovation and U.S. Security

The United States is in a global competition with other nations for leadership in critical and emerging technologies. To succeed, we must protect the national treasures that will ensure America leads the world in such fields as semiconductors, artificial intelligence, advanced communications and biotechnology.

The strength of America’s democratic foundations

In this race to the top of innovation dominance, the United States has key strengths. A strong system of laws protecting property rights and private contract, a democratized system in which patent awards are based on merit, and penalties against intellectual property infringement together have helped make America a global innovation leader.

The legal apparatus in place to protect innovators, from rough sketch to patent to finished product to licensing deals, coupled with holding patent thieves accountable, are paramount for protecting America’s culture of innovation and its place at the forefront in creating new technologies.

The democratization of U.S. patents ensures anyone’s bonafide invention can get a patent regardless of who the inventor is. This is how the little guy can attract investors and compete with established firms.

Our merit-based patent system is far superior to and more just than systems in which patent grants depend on some aspect of the applicant’s status. Recall that before women had the right to vote, American women could patent their inventions. Merit is central to our innovation framework.

Democratized patenting is bolstered by our democratic principles, embodied in the rule of law, property rights, economic freedom, ordered liberty and right to private contract.

Chinese and European Union weaknesses

These democratic foundation stones don’t exist everywhere. Chinese “national champion” companies like Huawei enjoy decided advantages. The Chinese government subsidizes or owns such companies, sparing them from having to succeed in market competition.

China’s judiciary and competition agencies tip the scales against Western firms. University of Southern California law professor Jonathan Barnett explains, “Unconstrained by separation-of-powers or rule-of-law principles, [People’s Republic of China} courts and regulators have implemented policies that tend to depress the royalty rates owed by local device producers to foreign chip suppliers and other holders of wireless technologies. . . . [This] distort[s] pricing in a global market representing billions of dollars annually in IP payment flows. This is mercantilism in the guise of competition law.”

Both China and the European Union are pursuing government rate-setting regimes. These will strip value from cutting-edge innovation—the kind in which American innovators excel.

Last year, the EU proposed a government program to determine which patents are essential to a technological standard and to set an aggregate royalty rate that would supplant market-based rates. The EU’s plan would harm all innovators, including European firms such as Ericsson and Nokia. Some European Commissioners have urged China to set up a patent price regulation program.

Sacrificing justice to favored implementers

Chinese courts willingly sacrifice justice, the rule of law and fairness to benefit Chinese technology implementers. Late in 2023, a Chinese court set a royalty rate for standard-essential patent (SEP) owner Nokia in a case involving Chinese device maker Oppo. The Chinese-set royalty was lower than Nokia had won in an EU court. The Chinese court dictated its royalty rate would apply worldwide.

Some Americans favor weakening our patent system, SEPs and important U.S. institutions as the “solution” to our innovation competition challenges. That is short-sighted. They fail to understand the interrelations of America’s core democratic principles with the various facets of the patent system.

Worse, it’s government picking winners and losers—siding with those who implement cutting-edge innovations in their products over the risk-taking innovators who created those innovations and whose technological success the free market rewards.

Our innovation model incorporates American strengths—property rights, economic freedom, the rule of law and right of contract—to foster the technological achievements that create wealth, new markets and economic opportunity for Americans.

By achieving such economic gains, our merit- and market-based, democratic innovation model is the key to our national security.

Don’t undermine America’s democratic patent foundation

Changing the U.S. patent system from its merit and market basis to a government-run, anti-IP system would undermine the American model and erode our core strengths. This would not deter Chinese patent infringement or help America out-innovate China’s favored firms; it would hinder American innovators and fetter American competitiveness.

Moreover, this foolhardy change would seriously risk U.S. economic security and our national security, both of which rely on innovation. Without maintaining our global technological leadership, which depends on our patent system, the United States would be hard pressed to compete technologically, economically or militarily.

In order to maintain U.S. leadership with innovation and patents, including SEPs, it is critical that we preserve our system’s strengths: fairness, democratization and reliability.

This article was originally published by RealClearPolicy and made available via RealClearWire.