It can be disconcerting – especially if you are on foreign soil – when a phalanx of armed police march into an exhibition hall and head directly to your booth.
Just ask U.S. company SanDisk and the 50 others that had this experience at the 2006 CeBIT exhibition in Hannover, Germany, an annual international showcase for the latest in consumer and commercial computer and information technology. German police were enforcing a court order issued on behalf of Sisvel, the Italian government-sponsored patent assertion entity (PAE), which claimed SanDisk’s MP3 players infringed on a patent it held. Although SanDisk disputed the allegation, police forced booth personnel to remove all MP3 players it had on display.
Sisvel’s action was among the first volleys in what has grown into a full-fledged war within international trade circles over patent licensing and alleged assertion of acquired rights over production of products.
Just as in the U.S., where both PAEs and non-practicing entities – companies that manufacture nothing and exist only to assert often-expansive libraries of patents – plague technology-reliant businesses and developers, government-sponsored patent trolls bog down the global technology industry in legal battles over frequently questionable infringement claims.
In recent years, the governments of South Korea, Taiwan, Japan, France and China have formed state-sponsored PAEs bent on acquiring all the patents they can, regardless of where the patent is filed or who the filer is, in order to attack international economic competitors by alleging infringement. For example, Intellectual Discovery, the Korean government PAE, has bought more than 200 patents, including one for retinal eye scan technology from Singaporean chipmaker Avago Technologies Ltd., according to U.S. government records. The Chinese government reportedly has backed China’s Ruichuan IPR Funds with a whopping $50 billion to acquire patents that will be used in actions against U.S. companies among others.
Patent trolling in general can be a drag on innovators and entrepreneurs who ultimately spend their limited resources on legal defenses instead of research and development. In 2008, American Intellectual Property Law Association put the median cost of defending a patent claim at $600,000 – just in cases when less than $1 million was at risk. The median cost was $5 million in larger figure infringement claims. Litigation costs U.S. businesses $80 billion a year, according to a 2014 report from Lex Machina, a consulting firm that tracks patent litigation.
Now that foreign governments have become involved in blatantly anti-competitive practices, patent defense can become even more of a jurisdictional and financial nightmare. As I address in a new white paper released today by the Heartland Institute – “Why Patent Reforms Are Needed: Intellectual Property Abuses Threaten Innovation and Cost Consumers Billions” – trolls’ most notable innovations may be the variety of forms they take while they seek to extract revenue from their targets.
Unlike domestic patent trolls, whose objective is a settlement or license fee, state-sponsored PAEs are a newer form of protectionism and government subsidization of private enterprise. Often, government-sponsored PAEs aim to lock-up patents for any technology or device that might conceivably compete with its key domestic industries. Instead of slapping tariffs on imported products which compete with homegrown industries as they once did, governments are dubiously applying patent law to extract a “tax” on any product that threatens native commercial interests.
The European Centre for International Political Economy (ECIPE) characterizes state-sponsored PAEs as the “next generation trade defense,” citing the French government’s troll as an example of the entity’s own admission to their aggressive mission: “Some, like France Brevets, even admit to being retaliatory or discriminatory instruments against foreign actors regardless of whether the original claim is legitimate or not.”
Questionable use of intellectual property internationally is usually more of a trade issue than a legal concern. In the past, most disputes centered on state-owned enterprises appropriating intellectual property from private sectors in other countries, and seeking to avoid payment of patent license fees. Now it is the foreign government claiming intellectual property ownership and pressing foreign companies for payment.
While legislative efforts to address domestic patent trolling may be welcome progress, issues created by government-sponsored PAEs might only be addressable within trade negotiations and agreements. One idea is to include binding oversight within the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership (TTIP), two major international trade agreements currently being negotiated that stand to set new rules for global trade between the U.S. and Europe and the U.S. and Asia for years to come.
An increasingly global economy needs controls, which would support the open markets and free trade that are vital to global economic growth and allow U.S. companies to field questions about their technology from interested customers, not local police.