Patents are the primary means of protecting IP — trademarks, copyrights, and trade secrets offer additional IP protection — and represent a rule-of-law guarantee akin to a deed’s role in protecting land ownership. The founders of the United States wrote patent protection into the Constitution to “promote the progress of science and the useful arts.” Abraham Lincoln revered patents for adding “the fuel of interest to the fire of genius.”
A fireside chat with Qualcomm youtu.be
In today’s knowledge-based economy, IP rights play a foundational role. “Core R&D is the first step in getting good products into people’s hands,” said John Smee, senior VP of engineering and global head of wireless research at Qualcomm. “Everything from smartphones to the Internet of Things, automotive and industrial innovation begins as a breakthrough within our research labs.” At Qualcomm, Smee said, strong IP laws help the company confidently conduct cutting-edge 5G and 6G wireless research that will make its way into products ranging from everyday consumer goods to the factory floor.
Semiconductor companies, in particular, are fiercely protective of their IP because it’s their primary competitive advantage. Chip companies go to extraordinary lengths to protect their IP by maintaining black boxes only accessible to one person per fab, choosing highly secure operating locations, and keeping R&D teams separate from fab operations teams.
On the legal side, America’s Semiconductor Chip Protection Act of 1984 bestows legal protection of chip topography and design layout IP while the EU’s Legal Protection of Topographies of Semiconductor Products of 1986 protects IC design. These regulations “have encouraged firms to continue to innovate,” according to the findings of Qualcomm’s and Accenture’s report, Harnessing the power of the semiconductor value chain.Having a high-quality patent portfolio also helps companies build out their ecosystem, should they choose to license, through advising, training, support for launches, assistance in expanding to new markets, and much more.
Licensing democratizes innovation and invention— it makes the cutting-edge IP developed by one firm accessible to a broad range of others. As such, it allows other companies to skip the R&D step and jump right into building on the innovator’s foundation. This lowers the barrier to entry for upstart companies while providing a steady return on investments for the companies who have the resources to dedicate to heavy R&D.
An outsize economic impact
IP protection also has an outsized impact on the US economy and helps create good higher-paying jobs. A report from The United States Patent and Trademark Office (USPTO) found that in 2019 industries that intensively use IP protection account for over 41% of U.S. gross domestic product (or about $7.8 trillion) and employ one-third of the total workforce — that’s 47.2 million jobs. In 2019, the average weekly earnings of $1,517 for workers across all IP-intensive industries was 60% higher than weekly earnings for workers in other industries.
Workers in IP-intensive industries were more likely to earn higher wages as well as participate in employer-sponsored health insurance and retirement plans, the USPTO report found.
But patent laws are often subject to much debate — one person’s idea of protection is another’s view of monopoly. That’s where organizations like LeadershIP come into play. The group brings together experts on IP and innovation to debate issues at the intersection of research, policy, and industry.
In addition, several efforts are underway to help inventors get their ideas into the marketplace. The Inventors Patent Academy (TIPA), for instance, is an online learning platform aimed at guiding inventors through the benefits of patenting and the process of obtaining a patent. TIPA has designed its program to make patenting more accessible and understandable for groups historically underrepresented in the patent-heavy science and engineering fields, including women, people of color, people who identify as LGBTQIA, lower-income communities, and people with disabilities.
Closing these gaps would promote U.S. job creation, entrepreneurial activity, economic growth, and global leadership in innovation. Estimates suggest that increasing participation by underrepresented groups in invention and patenting would quadruple the number of American inventors and increase the annual U.S. gross domestic product by nearly $1 trillion.
If we want our nation’s rich history of innovation to continue, experts say, we must create an IP protection ecosystem that helps ensure that tech innovation will thrive.
“With the protection of patents,” Smee said, “there is no limit to where our creativity can take us.”
“It’s a complex environment. So every CEO and every board has to be a little bit cautious, because there’s a lot of uncertainty,” Circle CEO Jeremy Allaire told Protocol at Converge22.
“Oh, I love it when someone tells me you can’t do this,” Williams, her face projected on a big screen, answered, to cheers in the hall. “Self-doubt is normal,” the managing partner of Serena Ventures added, but you have to “put that in a box.”
It was a fitting exchange to kick off the third day of Converge22, Circle’s first major industry event. The crypto confab is taking place at a time when the stablecoin powerhouse is wrestling with major pressures on multiple fronts, from the crypto market crash to heightened government scrutiny and, more recently, Binance’s controversial decision to change the way it handles USDC, Circle’s dollar-linked stablecoin.
Allaire discussed these challenges in an interview with Protocol during a convention break.
Perhaps the biggest hurdle is the growing regulatory concern about stablecoins in the wake of the luna-UST collapse a few months ago. Federal Reserve Chair Jay Powell warned this week that “if people are going to think something is money, then it needs to actually have the qualities of money.”
Allaire said there is an ongoing push for a clearer definition of “what’s called a payment stablecoin.” For a U.S. dollar digital currency to function as part of the U.S. financial system, he added, “It’s going to have to behave in certain ways, it’s going to have to be backed in certain ways, it’s going to have to be issued by registered and regulated financial institutions.”
Converge22 is taking place as Circle wrestles with major pressures, from the crypto market crash to heightened government scrutiny and Binance’s controversial decision to change the way it handles USDC, its dollar-linked stablecoin.Photo: Benjamin Pimentel/Protocol
The crash of the UST stablecoin turned regulators’ attention to the risks of so-called algorithmic stablecoins, which use automated systems to dynamically control the supply of tokens in order to maintain a price peg.
Other major stablecoins, such as USDC and tether, maintain monetary reserves to back their pegs. Allaire had predicted that, despite the UST crash, algorithm-based stablecoins are viewed as the “holy grail” in the industry, given many crypto supporters’ aversion to any dependence on fiat currency and their belief that software can help build a more efficient currency and financial ecosystem.
“The technology does allow for a lot of invention,” he told Protocol, adding that risk should always be a serious concern, given what happened.
“These are financial instruments, and financial instruments are regulated,” he said. “So the concept of ‘Hey, you’re gonna go create these high-risk financial instruments, and there’ll be no regulation’ is completely unrealistic.”
Powell had said the Fed is still studying proposals to create an official U.S. digital dollar, a process that he said could take “at least a couple of years.” Allaire said a priority should be to pass legislation defining payment stablecoins, which he said is “the fastest path to define a digital dollar that can be issued and operated on the internet.”
“[T]he concept of ‘Hey, you’re gonna go create these high-risk financial instruments, and there’ll be no regulation’ is completely unrealistic.”
“It already exists,” he said, referring to stablecoins like USDC. “There’s an opportunity to kind of codify that at the federal level, to make that a part of the supervisory framework of the Federal Reserve.”
But despite progress in the deliberations over stablecoins and other aspects of crypto, serious challenges remain on the regulatory front. One recent example is the Treasury Department’s decision to sanction Tornado Cash, a system running on open-source software used in crypto transactions. The transaction-obscuring tool is ostensibly intended to protect consumer privacy, given the traceability of crypto transactions from wallet to wallet, but federal authorities say it is also used for money laundering.
Allaire announced in a blog post that Circle would comply despite serious misgivings about the policy.
“We are a United States financial institution,” he told Protocol. “We are regulated at the federal level, under federal counter-terrorist financing [regulations] and other kinds of financial integrity laws. So we have to be compliant with those.”
Asked about crypto companies that opted to defy or simply ignore the OFAC rule, Allaire quipped, “I can’t comment on their legal bills or anything else.”
“It’s a complex issue,” he said. “The sanctioning of open-source protocols and software I think is very problematic. I’ve made that very clear. The whole world needs to kind of figure out the boundaries.”
Allaire has played a high-profile role in a major crypto industry initiative focused on know-your-customer rules, a major regulatory and law enforcement concern. Major crypto companies, including Circle and Coinbase, unveiled in February a new digital identity protocol called Verite, which would make it possible to verify a customer’s identity digitally without requiring personal information be disclosed.
Allaire touted the progress of the KYC system at the Circle convention, saying Verite enables safe, compliant, privacy-preserving ways of interacting on blockchain networks. “If I’m a giant online retailer, and someone shows up and wants to pay me, I can know, ‘OK, this is an individual that is legit,’” he said. “‘This isn’t money that came through laundered or whatever.’”
Meanwhile, Circle is also facing challenges in a crypto industry that is still struggling to recover from the crash but also becoming increasingly competitive.
Recently, Binance, the world’s biggest crypto exchange, changed the way it handled customers’ USDC deposits by converting them to the company’s own stablecoin, BUSD. Binance CEO Changpeng Zhao told Protocol that it was meant to improve liquidity for USDC users, noting that when customers “finish trading, and they want to withdraw, they can withdraw USDC and the other stablecoins.”
“The sanctioning of open-source protocols and software I think is very problematic … The whole world needs to figure out the boundaries.”
Allaire confirmed that Binance, which does not operate in the U.S., had let Circle know about the plan. He also acknowledged that the move means USDC “can be used to deposit and withdraw right into the most liquid dollar trading books on Binance, and that is a good thing.”
But he also said the move was “really problematic.”
“They unilaterally took customers’ funds and then moved them into something else,” he said. “I think market conduct regulators in the United States would have a real problem with behavior like that.”
The wobbly global economy is another challenge. Circle is benefitting in a way from rising interest rates, he said, since it can make more money on the reserves backing USDC. But it is clearly a time for caution, he added.
“It’s a complex environment,” Allaire said. “So every CEO and every board has to be a little bit cautious, because there’s a lot of uncertainty. And so you don’t want to, you know, go crazy.”
