OPINION:
Congress wants to prevent foreign adversaries from harassing American companies and stealing their intellectual property, but its proposed solution would inadvertently leave America’s small inventors and entrepreneurs more vulnerable to IP theft than ever before.
The Protecting Our Courts from Foreign Manipulation Act would make it harder for small companies to access the capital they need to defend their patent rights.
Patent thieves are often larger and better-resourced than the inventors they steal from, forcing small inventors to seek outside capital to stand a fair chance in court. By imposing burdensome new disclosure mandates on those arrangements, the bill would deter investment in litigation and prevent many small innovators from accessing justice.
In short, the bill would make it far easier for predatory corporations, both foreign and domestic, to violate the rights of smaller American innovators. That risks doing serious damage to America’s innovation economy.
The bill is based on a simple premise: that foreign entities secretly fund small companies and inventors in patent lawsuits against U.S. businesses.
As the theory goes, foreign funders use those cases to harass American companies and obtain trade secrets and other protected intellectual property. To address this alleged problem, the bill would require companies to disclose any legal funding from outside parties.
Yet there is little evidence that such a threat exists. The U.S. already has robust safeguards against foreign interference. The Committee on Foreign Investment in the U.S. reviews foreign investments that could pose national security risks, while courts routinely examine litigation funding arrangements when deemed necessary.
Nor does the theory make much practical sense. Courts typically issue protective orders that prohibit litigants from sharing confidential business information with outside funders. If caught, litigants would face serious legal consequences, putting their funders’ investments in jeopardy.
If foreign actors are determined to steal American trade secrets, they have other ways of doing so. Espionage, cyberattacks and other forms of technology theft are faster, more direct and unfortunately already widespread.
Put simply, there is little reason to believe the act would meaningfully protect American intellectual property. On the contrary, it would endanger another form of U.S. IP — by undermining small innovators’ ability to defend their hard-earned patent rights.
There is a good reason that small inventors and entrepreneurs frequently rely on external funding to fight patent infringement. Patent lawsuits are expensive, and large patent infringers often use that fact to their advantage.
When their smaller victims try to hold them accountable in court, they simply drag out cases and drive up costs until the smaller party can no longer afford to continue fighting.
Foreign litigation funding helps address that imbalance. Small innovators receive the capital they need to compete in court. In return, they provide investors with a share of any recovery.
That encourages investment in meritorious cases and ensures that lawsuits are decided on facts rather than finances.
Still, the proposed bill’s disclosure requirements would undermine this mutually beneficial system.
If companies are required to disclose the details of every litigation funding arrangement, they will be forced to reveal valuable information about their financial resources and legal strategy. That would make it easier for corporate patent infringers to turn lawsuits into battles of attrition.
Even more important, disclosure mandates could discourage investment altogether. Venture capital firms, private equity funds and other investors usually operate confidentially — not because they have something to hide, but because disclosing their stake in lawsuits would invite pressure campaigns and retaliation from corporations.
If there is no way to fund patent lawsuits discreetly, many investors will decline to do so.
That would leave startups, entrepreneurs and independent inventors with fewer opportunities to secure the funding they need to protect their intellectual property. At the same time, it would benefit large corporations by reducing the risks of patent infringement.
Because many of the world’s most aggressive patent infringers operate outside the U.S., some of the largest beneficiaries could be foreign companies. In attempting to protect American industry, the bill could inadvertently strengthen foreign competitors at the expense of American innovators.
America leads the world in innovation because our patent system gives even the smallest inventors an opportunity to compete. Weakening inventors’ ability to enforce patent rights would make the U.S. economy less dynamic, competitive and fair.
If lawmakers want to protect U.S. businesses from unfair foreign competition, they should reject the bill and instead strengthen the patent rights that make American innovation possible.
• Kristen Osenga is the chief policy counselor of the Inventors Defense Alliance and the Austin E. Owen research scholar and professor of law at the University of Richmond School of Law.
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