Patent Assertion Policy Takes Priority in 2013, but Threat Looms Abroad
Patent legislation has been no stranger to Congress or the public spotlight lately.
As 2013 came to a close, it’s safe to say that legislation regarding patent assertion entities (PAEs), sometimes labeled “patent trolls,” was among the highest-profile elements of technology policy in 2013. In December, the House passed the Innovation Act, spearheaded by Rep. Bob Goodlatte (R – Virginia), to address many perceived problems related to PAEs. Meanwhile, the Senate is poised to tackle the issue in early in 2014 following a preliminary hearing that was held on December 17. Throughout this period, the Federal Trade Commission (FTC) has also been investigating the issue of PAEs.
Regardless of one’s position on PAEs or legislative efforts to address them, however, another overseas threat looms that the Innovation Act fails to address.
Specifically, the issue of government-sponsored patent trolls (GSPTs), which shamelessly favor their own nations’ patent holders and aggressively assert infringement claims against companies residing in other countries. Imagine a combination of big-government and the worst intellectual property, and you get the idea.
Nations such as Taiwan, France, and Korea, governments have entered the aggressive patent assertion business themselves, not just as legislators or regulators, but also as financiers, owners, and operators. Such lawsuits often target U.S.-held patents, which prove costly for not only the businesses that hold them, but also American consumers who subsequently pay inflated prices due to the cost of legal fees required to defend against them. Making matters worse, GSPTs possess access to their governments’ resources and capital, thereby tipping the scale significantly in their favor.
One particularly egregious example of a GSPT playing a prominent role in the patent-assertion racket is Taiwan’s Industrial Technology Research Institute (ITRI). Earlier this year, ITRI introduced its IP bank, an offshoot of ITRI that claims to assist Taiwanese manufacturers in creating patent portfolios during R&D periods, and to defend those manufacturers against lawsuits, in addition to expanding their market share. Essentially, should a Taiwanese manufacturer encounter an infringement lawsuit, it can receive perpetual legal and financial resources from government-sponsored and -supported ITRI for its defense, which will help increase that company’s market dominance.
In addition to their protectionist defensive services, ITRI currently holds over 19,000 patents and has played a major role in founding 228 new companies. With an intellectual property catalog like that, it’s easy to recognize the risk it poses to the global economy as it ramps up infringement claims against non-Taiwanese companies and individuals it perceives as competitive threats. Back in 2011, for instance, ITRI filed a complaint with the International Trade Commission (ITC) alleging that LG, the popular consumer electronics company, had infringed on some of ITRI’s patents used in LG’s televisions and computer monitors. ITRI’s infringement claim with the ITC sought to exclude LG from importing those products to the U.S. entirely. In 2012, however, the ITC found that not only did LG not infringe on the patents, but that ITRI did not even maintain an “industry” in the U.S., and thus had no justification for seeking exclusion. Although ITRI eventually withdrew the complaint, one can assume LG incurred significant costs preparing their defense.
In light of that example, imagine the even more serious threat if such legal costs were suddenly thrust upon a smaller company or individual that happened to be targeted by the Taiwanese government. Many of the U.S.’s proudest achievements in innovation have not come from large and well-financed corporations, but rather from the small “start-up” companies and individuals who embody America’s entrepreneurial spirit. Obviously, such companies could be crippled by the sheer cost of litigation, as well as cowed into submitting to demand letters in order to avoid conflict.
Taiwan’s ITRI is merely one example of an aggressive GSPT, but its actions illustrate the risks posed by similar government-favored entities across the globe. They pose a direct threat to U.S. economic interests, as well as to our foreign trading partners who opt to play by the rules.
Accordingly, while Congress and the FTC work to protect and modernize U.S. patent laws, it is critical that we not ignore foreign GSPTs. Doing so will only encourage other nations follow their disturbing new trend by starting their own state-sponsored patent trolls rather than get left behind.
America became the most innovative and prosperous nation in human history largely on the basis of its strong intellectual property protections. To allow foreign state-sponsored patent trolls to abuse the system, however, would undermine that regime, trigger protectionism, and ultimately stifle innovation and free trade.
That is an eventuality we must not idly accept.
Timothy Lee is senior vice president of Legal and Public Affairs at the Center for Individual Freedom in Alexandria, Virginia.