NRPLUS MEMBER ARTICLE F ive years ago, the government of China launched a massive effort, supported by massive funding, to implement an ambitious master plan, Made in China 2025. Its goal is to move away from being the world’s factory of low-cost goods to becoming the world leader in the key technologies of the 21st century. The nation that leads in these technologies will lead the world economically, and likely in other ways as well.
The challenge posed by this offensive is now clear. China is already rapidly gaining on the United States and could surpass it within this decade, and perhaps even by the announced date of 2025. The question becomes: What will our nation do about it?
One of the critical technologies at stake — 5G telecommunications — is of particular concern. Despite U.S. government warnings about the security risks linked to Chinese-based 5G equipment, such equipment is being installed in almost every nook and cranny of our country’s telecom infrastructure. America’s closest allies are similarly buying up these low-cost Chinese products, even though safer Western-made alternatives are available.
Another critical technology is advanced medicines based on the latest biotech developments. China already hosts more clinical trials than America, despite our long dominance in the health-care space. China is also quickly overtaking the United States in artificial intelligence, quantum computing, autonomous vehicles, robotics, 3D printing, and other computer-related technologies.
What has been the U.S. response? We do not have a master plan, nor a strategy to concentrate on advancing the key technologies vital to economic and national security. In fact, rather than increasing government support for critical research and development (R&D) funding, we have reduced it. In the 1960s, U.S. government funding for R&D equaled 1.8 percent of GDP; now it is only 0.6 percent — a two-thirds drop.
Private funding by venture capitalists is also increasingly moving overseas, with the United States’ share of global venture capital shrinking from 84 percent in 2004 to around 50 percent in recent years. China and Europe, with stronger patent protections, have benefitted. U.S. private investments have also disturbingly shifted away from hard technologies, such as computer chips, to lower-risk commercial activities such as entertainment and hospitality.
There are a number of factors contributing to this shift in technological leadership. First, China subsidizes favored firms in key areas, such as Huawei, its leading 5G company. The United States does not. Our strongest 5G company, Qualcomm, must compete against Huawei and the Chinese government, while also contending with legal and regulatory challenges from our own government. For example, the U.S. Federal Trade Commission launched an ill-advised antitrust enforcement action against Qualcomm, shrinking the revenue that the company needs to fund its R&D.
China has also notably boosted private investment incentives by strengthening patent protections in the country. It has upgraded its patent office, repeatedly modernized its intellectual property (IP) laws, and created new IP courts trained in technology, providing fast, cheap enforcement with routine injunctions against infringers.
The United States has done none of these things. Instead, we have weakened patent protections here, creating a disincentive for innovation and investment. In 2011, Congress enacted the America Invents Act, which established an administrative Patent Trial and Appeal Board that allows wealthy corporate infringers to easily invalidate the patents of smaller inventors. Congress continued to divert money away from the U.S. Patent and Trademark Office, harming the agency’s ability to promote U.S. innovation. U.S. courts have also become slower and more expensive than ever. And since the Supreme Court’s 2006 eBay decision, it has become almost impossible for many patent holders to obtain an injunction to stop an infringer.
Fortunately, some in Congress are finally paying attention to this challenge. Several bipartisan bills are now pending that would help to repair our depleted innovation incentives. The Endless Frontier Act would increase R&D funding of vital technologies by $100 billion per year and put the National Science Foundation in charge of the investment. Another proposal, the STRONGER Patents Act, would increase the strength and stability in the U.S. patent system and restore injunctions against proven infringers.
Without a course correction of U.S. policy, our country will almost certainly lose this race for technological leadership. The bottom line is that modern innovation is incredibly expensive, but our progress in these areas is essentially a function of the investment we put into them. We will get the innovation and domestic production needed only if we sharply increase both public investments and private incentives. Let’s start by passing the Endless Frontier Act and the STRONGER Patents Act. The time for action has arrived.
The Honorable Paul R. Michel served on the U.S. Court of Appeals for the Federal Circuit for 22 years, the last six as Chief Judge, until retiring in 2010. He previously helped craft legislation as Counsel to a U.S. Senator, served in the Justice Department as Associate Deputy Attorney General and was a Watergate Special Prosecutor.
Matthew J. Dowd is the Founder and Managing Partner of Dowd Scheffel PLLC, a law firm focusing on intellectual property matters. He served as a clerk for Judge Michel.