Every August, Washington, D.C., quiets down as the legislative classes leave town for recess. And as during every other recess, Congress this year has left important issues unresolved — issues that members will undoubtedly hear about when they return to their districts. Whether it is energy policy, jobs, immigration, or any of a host of other issues, they can anticipate that constituents will make their concerns heard loud and clear, especially given that this is an election year.
Among the issues will be “patent trolls,” entities that acquire patent rights for the sole purpose of collecting revenue through infringement claims and licensing while never using their intellectual property (IP) to produce anything. “Unfortunately, at least in the 113th Congress, it is unlikely that this body will act to end the abuses by patent trolls,” Senator Orrin Hatch (R., Utah) stated on the Senate floor before leaving for recess. “I hope senators will be reminded about the opportunity the Senate abandoned to pass bipartisan, bicameral legislation that was supported by the White House but pulled from the Senate’s agenda by the Majority Leader.”
Global competitors have entered into the IP arena by erecting government-sponsored patent trolls (GSPTs) — cronyist entities that raise the price of goods from potential commercial competitors outside the competitors’ borders. GPSTs use patents offensively, like privately owned trolls, but are supported by the deep-pocketed funding of foreign governments and their regulatory influence. Some of the biggest and most aggressive GSPTs in business today are China’s Ruichuan IPR Funds, France Brevets, the Innovation Network Corporation of Japan, and Taiwan’s Industrial Technology Research Institute.
Recently, the Institute for Liberty looked at the U.S. trade agenda and the World Trade Organization and submitted comments with the U.S. House Ways and Means Subcommittee on Trade. It is imperative that Congress pay particular attention to foreign governments’ treatment of IP rights. As technology advances, IP, like patents, is being licensed in a globalized marketplace.
Under the WTO, member states that control such entities are in violation of numerous trade obligations. Recognizing the WTO’s important role in resolving international trade-agreement disputes, and seeking to reduce unwieldy tariffs, are fundamental to a rational, commonsense approach to trade policy. However, not all tariffs that harm free-trade principles are simply affixed to the price of imports.
For example, GSPTs violate article 7 of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement, since they use their patents only for litigation and licensing, not invention and commercializing. Patent trolls don’t contribute to innovation and the free market but instead bog it down with costly lawsuits, impeding international transfer of IP.
Their violations of WTO obligations don’t end there. GSPTs sideline GATT, the General Agreement on Tariffs and Trade, by treating foreign-owned and domestic IP differently. These trolls are sponsored and funded by their host countries and so are in violation of the SCM (Subsidies and Countervailing Measures) agreement, which states that governments may not provide “financial contributions” to certain companies that create “adverse effects” for foreign entities.
The threats that GSPTs present are not hypothetical. France Brevets and Taiwan’s Industrial Technology Research Institute have already taken infringement actions in the U.S. District Court for the Eastern District of Texas, which has a reputation for siding with patent-infringement plaintiffs.
Because national governments are tasked with regulating IP rights, GSPTs create inherent conflict as the regulators and lawmakers become the shareholders as well. Foreign governments cannot objectively serve as regulatory agents and market actors simultaneously without damaging free trade.
The U.S. must push back against the cronyism of other nations. As the patent-troll debate continues, the Institute for Liberty encourages Congress to enact solutions to the troll threat — including that from foreign trolling — when it reconvenes. We must “protect our country’s premier position as a world leader in innovation,” as Senator Hatch concluded.
Foreign governments that fund and control GSPTs are colluding with their countries’ private corporations. This massive subsidization by nations that host GSPTs tips the scales of the free market and undermines our nation’s economic interests and its role in global trade.
— Andrew Langer is the president of the Institute for Liberty.