Whenever a newly-minted lobbying group proposes to radically curb a government agency’s enforcement powers, it’s wise to ask, Who will benefit?
Such is the case with the newest lobby in Washington, the self-described “ITC Working Group.” You won’t learn anything about this organization by searching Google — odd, considering that Google is a member — but according to industry sources, its aim is twofold: First, it wants to block the International Trade Commission (ITC) from hearing patent infringement cases brought by “non-practicing entities” — i.e., patent holders like universities, independent inventors, and others who license their patents for manufacturers to commercialize. And second, it wants to weaken the ITC’s power to block the importation of infringing products into the U.S.
Who are the members of the new ITC Working Group lobby? In addition to Google, they are Apple, Avaya, Broadcom, Cisco, Hewlett Packard, Intel and Oracle.
What do all these companies have in common — other than that they comprise a Who’s Who of some of the biggest outsourcers in the U.S. tech industry? First, they all profit from imported products that are manufactured overseas, often using cheap labor from China and other Asian nations. And second, they have all been sued multiple times for patent infringement and from time to time been forced to pay the price.
On the face of it, a skeptic might conclude that these companies are simply trying to make patent infringement less costly and thus more efficient. Only time will tell whether the skeptic is right.
The “efficient infringement” business model focuses on sales and marketing rather than research and development. The business rationale runs something like this: let’s 1) incorporate the best available technology without regard for whether or not we have the rights to that technology, 2) build products employing the cheapest available labor, 3) race our products to market, 4) capture and maintain customers, and 5) pay later (if at all) for infringement. Oh yes, and 6) to the extent that the laws of the United States might slow us down or increase our costs, let’s deploy enough capital to weaken those laws.
How? Spend tens of millions to support a sustained multi-year campaign to delegitimize all patents. Complain about how patent owners victimize giant companies. Focus everyone’s attention on a handful of silly outlier patents that should not have been granted while ignoring the broader national economic benefits generated by legitimate patent licensing. Fund academics and other spokespersons to spread FUD (fear, uncertainty and doubt) about patents in the media and on Capitol Hill. And then lobby lawmakers to further tilt the legal playing field in favor of large, already-dominant businesses that profit handsomely from uninterrupted importing.
What will the FUD sound like? The spokespeople for efficient infringement will claim that the public interest requires that we curb the ITC’s ability to block infringing products from being imported. This is especially true, they will say, when the patentee is a non-practicing entity or NPE.
Exactly why NPEs should have their constitutionally-protected rights curbed will not be made very clear. Instead, efficient infringement representatives will try to delegitimize the entire class of inventors who have neither the capital nor the business model to commercialize their own inventions by name-calling. They will call such inventors and their agents “patent trolls.”
The entire campaign to make identity-based determinations of intellectual property rights is a vast effort to transfer wealth in a manner contrary to our nation’s fundamental principles and historical economic success. For it turns out that NPEs are as American as apple pie and have always been central to U.S. economic growth. Indeed, patent and legal records from the golden age of American invention in the 19th century indicate that more than two-thirds of the 160 so-called “great inventors” of the Industrial Revolution — including Thomas Edison — were NPEs.
Were Thomas Edison alive today, would it be in the national interest to bar him from seeking justice at the ITC?
Besides name-calling, the efficient infringement spokespeople will base their policy arguments on unproven assertions offered as givens. And one of the biggest of these assertions is that the commercially-profitable infringement that goes on is mostly “inadvertent.”
Really? How would they even know, one way or the other? Were these spokespersons for efficient infringement privy to the internal boardroom discussions of the hundreds of companies that have been judged to have infringed the patents of others in recent years? Can they verify that R&D managers and engineers at these firms did not discuss whether any startups with interesting technologies had the $5 million-plus needed to wage an infringement fight against them in court?
In truth, it matters little whether the defendant’s infringement was intentional or not. When infringement occurs, it robs inventors of the fruits of their creative labor and more importantly robs the whole society of the economic incentive to innovate new products and services. Intentional infringement is worse, but as a matter of national interest our system must protect against all infringement, intentional or not.
These same spokespeople will also assert that the very act of enforcing patents against infringers by the ITC constitutes “putting a thumb on the scale in favor of the patent owner.”
Meaning, like the way prosecuting a burglar constitutes “putting a thumb on the scale” in favor of the property owner?
Excuse me, but isn’t that what’s supposed to happen? Isn’t the enforcement of valid property rights, both real and intellectual, the proper role of government? This is certainly what the Founders had in mind when they enshrined in our Constitution government’s duty “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
They will claim that the ITC grants injunctions promiscuously. But true experts know that the number of injunctions granted by the ITC is precisely zero – the ITC grants statutory exclusion orders that are effective only after a lengthy Presidential review has determined that the public interest will not be harmed.
They will claim that only federal courts can properly make determinations about patent validity and infringement. But true experts know that Congress decides which issues should be within the exclusive jurisdiction of our federal courts, and has the full authority to give an Article II agency like the ITC the power to make such determinations in the context of the Tariff Act.
They will claim that the ITC’s power must be limited lest this somewhat-obscure agency thwart the commercial interests of respected American companies. But true experts know that the ITC has no jurisdiction over goods manufactured within the United States. The simplest way for these companies to avoid the reach of the ITC is to bring those manufacturing jobs back home.
Finally, they will offer a constant stream of cryptic arguments conflating patent rights with economic harm. The phrase “patent holdup” — a shorthand reference to the hypothetical claim that “rent seeking” behavior by patentees stifles innovation and harms consumers — has become a term of art lately, where its frequent use is substituted for a full and open discussion of the actual commercial impact of intellectual property on the national and international economy.
But there is another economic term of art that policy makers ought to consider. It’s called “regulatory capture,” which occurs when “groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions gain the policy outcomes they prefer.” The end result is that “a regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry.”
I am optimistic that we will win the battle to preserve the ITC. The very respectable tech giants in the ITC Working Group certainly have the clout to get members of the House and Senate to consider their proposals. But patent owners and other defenders of intellectual property are going to organize and fight back as well.
In the end, we doubt there are enough elected officials in Washington who will be willing to side with foreign manufacturers over American inventors.