When the Chinese government announced in April it was establishing a government-controlled patent-operations fund in April, there were few people besides Asian trade analysts who gave the news much attention.
The Beijing-backed effort, Ruichuan IPR Funds, was seeded with the equivalent of nearly $50 billion to assist in “the development and acquisition of core patents to boost market power and profitability of domestic companies.” On the surface, that could appear to be a good thing, a signal the Chinese are moving toward the West on issues of intellectual-property protection.
Think again. The news that the Chinese government is, on the flimsiest of premises, investigating Microsoft and Symantec over what it has called “monopolistic practices” and subpoenaing company executives at the same time President Xi Jinping emphasizes his country’s need to reduce its dependence on technology imports suggests the new fund is really a new front in the global battle for technological supremacy — by any means necessary.
Mr. Xi pulled no punches during a speech he gave in June: “Only if core technologies are in our own hands can we truly hold the initiative in competition and development,” The New York Times reported. Mr. Xi’s words suggest American companies need to prepare to defend themselves against new challenges in the global patent wars.
It has long been the case that some people who are not creators or innovators, but have learned how to manipulate the system to their own benefit. They use patents and intellectual-property claims to make money by filing or threatening lawsuits and other administrative proceedings that end with legitimate innovators paying to settle claims that are too often frivolous, rather than pay for a costly defense. According to a Boston University School of Law study, these patent trolls, as they are frequently called, cost businesses $29 billion last year in direct costs, such as legal fees and licensing, without taking into account the additional harm done to productivity and innovation.
It’s bad enough when individuals use patents offensively as a source of revenue rather than to protect innovation. Imagine the global chaos that might result when patent claimants — behaving in the same manner as the trolls — are also the ones who pass judgment on the validity of their own complaints. Ruichuan IPR Funds, the new Chinese effort, appears designed to acquire the intellectual capital of American companies as part of Beijing’s effort to eliminate its competitors.
China wouldn’t be the first country to establish a pseudo-corporate business model that harasses companies by alleging they are infringing on patents they own or that are under their jurisdiction. France, Japan, Korea and Taiwan, among others, all have state-funded and state-controlled patent operations on the books that utilize the same or similar tactics as privately owned trolls. A few have even admittedly openly that, in any challenge, the claims of what to them are the domestic companies will be taken at face value while the defense mounted by foreign competitors will be skeptically received.
In plain English, this means the deck may be stacked against American companies in China as it is in France, South Korea and other places where these issues have arisen. As Congress continues its internal discussion over the best ways going forward to protect U.S. intellectual property, it must also begin to consider the impact foreign government-sponsored patent trolls may have on American innovation. The issue is of sufficient importance that the U.S. trade representative should take notice and address it.
The spread of ideas and technologies that are improving global living standards is a good thing. A reckless and official disregard for property rights maintained under the cover of law will slow the rate of global innovation and cause every nation in the world, rich and poor, to end up a loser.
Peter Roff is a senior fellow at Frontiers of Freedom and contributor to One America News Network.