Governments’ Thumb on the Scales

By James Edwards
March 26, 2017

“In essence, Chinese, South Korean and FTC officials demand the benefits produced by free markets and property rights for free from American innovators in mobile technology, who took all the risk and made investments in research and development.”

Scales of Justice unevenWhen an agency of the U.S. government behaves — or, more accurately, misbehaves — just as a foreign government’s antipatent, antiproperty rights regime, you know the world has gotten far off track.  But that’s what the Federal Trade Commission did in the final days of the Obama administration.

The misconduct of the FTC resembles the misconduct of China, South Korea and other competitor nations.  They all share some common characteristics:  turning antitrust laws into a weapon to appropriate inventive American companies’ intellectual property, predetermining the outcomes of official proceedings, denying private American companies of due process, hammering them through fines and legal jujitsu, and devaluing and imposing fire-sale prices for their patented inventions.

These government agencies target successful, inventive U.S. firms.  They politicize their processes and disregard the exclusivity that rightfully belongs to patent owners.  They take away private property from the creators and give it to favored domestic companies like Samsung and Huawei, which apparently lack the smarts to win fair and square in market-based competition or by ingenuity.

It’s time that America put an end to these threats, foreign and domestic.  Either you believe in property rights and free enterprise or you don’t.

An egregious example of abuse of power is the FTC’s “midnight litigation.”  One of a number of eleventh-hour actions this agency took against U.S. firms on flimsy “anticompetitive” grounds, the FTC filed suit against mobile technology leader Qualcomm three days before the presidential inauguration.

The undermanned commission ramrodded this through when two Obama commissioners outvoted the sole Republican commissioner.  Given the timing of the partisan vote, this smells of politicization of an “independent” law enforcement agency.

The dissenting commissioner, Maureen Ohlhausen, called this an “extraordinary situation: an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide.  These extreme circumstances compel me to voice my objections.”

About 20 conservative leaders wrote the new president urging that the administration drop the last-second lawsuit.  They called the FTC action “midnight litigation at its worst — a misuse of antitrust litigation to promote a destructive policy agenda that aims to undercut patent property rights and conservative free market principles.”

It’s not every day that a Fortune 500 company is the little guy, but that’s exactly what Qualcomm is in the situations it faces today, both from the FTC’s and foreign governments’ machinations.

  • China in 2013 abused antitrust law and denied due process to depress the price Qualcomm could get for its valuable, cutting-edge technologies still under exclusivity of the company’s patents, had China not undercut free market processes.
  • The South Korean FTC-type agency has heavily fined this American company, having predetermined the antitrust outcome in favor of its home company and failing to live up to its trade agreement obligations of giving advance notice, sharing evidence, allowing cross-examination and affording other due process as legitimate, rules-based societies do.
  • South Korea is rivaling China in its assault on American sovereignty.  It’s imposing its anti-IP government price-setting around the world, not just in its national borders.  This stomps on U.S. patents and U.S. national sovereignty!
  • Taiwan is piling onto Qualcomm, ramping up its “investigation,” which mimics Chinese and Korean disrespect for the rule of law, property rights and American sovereignty.

Government bullying isn’t limited to Qualcomm.  As the Heritage Foundation’s Alden Abbott notes, “In 2014 InterDigital agreed to change its patent licensing pricing structure and to limit its ability to seek injunctions against Chinese companies, in a settlement with the Chinese government.”

These agencies blur the lines of antitrust when intellectual property principles should apply.  Patent rights aren’t monopolies.  They rightly deed exclusivity to newly created property, including for licensing or sale of the patent.

Monopolies occur when a firm gains market power by driving out competitors, Black’s Law Dictionary explains.  That’s impossible during IP exclusivity, as common sense instructs.

In essence, Chinese, South Korean and FTC officials demand the benefits produced by free markets and property rights for free from American innovators in mobile technology, who took all the risk and made investments in research and development.

It’s what South Korea, with its government price controls and woefully inadequate sales stay for resolving patent infringement cases, tilts the playing field to achieve — to deprive U.S. innovators of their property rights and enable IP thieves, inconsistent with South Korea’s international commitments.

All have in common the willingness to use the coercive power of government to appropriate, deprive and destroy private property rights and the ability of the private market to determine a fair price for a hard-earned product — especially those under the protection of a patent’s exclusivity.

Memo to the world:  Government expropriation destroys incentives to invent and to create wealth.

The Author

James Edwards

James Edwards consults on intellectual property, health care innovation, and regulatory and policy issues. Among other clients, Edwards advises the nonprofit group Eagle Forum on patent policy and is Co-Director of the Inventor's Project. He participates in the Medical Device Manufacturers Association's Patent Working Group. Edwards mentors start-ups and early-stage companies, largely in the med tech space, and is involved in several IP-centric projects.

Edwards served as Legislative Director to Rep. Ed Bryant, R-Tenn., then a member of the U.S. House Judiciary Committee, and handled IP legislative matters. Edwards also worked on the staffs of Rep. John Duncan, R-Tenn., the U.S. Senate Judiciary Committee, and Sen. Strom Thurmond, R-S.C. In addition, he was an association executive at the Healthcare Leadership Council. Edwards earned a Ph.D. at the University of Tennessee, and bachelor's and master's degrees at the University of Georgia.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments.

  1. Simon Smith March 26, 2017 11:27 am

    Simon Smith from eVestigator here. From Australia’s technology perspective nobody has their own mind to be creative and copies everyones patent without fear. All they have to do is claim groundless threats or launch a appeal and all patent rights are gone any way. The laws here not only punishes innovators but it forces them to take a malicious attack and stop trading in fear of a provision of the law or spend millions in your patent period fighting your patent and even if the other sides sneaky trick does not work you cant sue them but if they prove you might not have had a patent then although you did at the time you are punished for what you find out 6 yrs later. Australia deserves to lose all its human capital and when it needs the only people that can save it from the biggest cyber attack in the world we will all be relaxing back laughing at the useless uneducated justices who caused this.

  2. angry dude March 26, 2017 8:37 pm

    In the meantime, US lemming consumers are buying cutting edge hi-tech products not just made but INVENTED and DESIGNED in China

    Example – Virtual Reality technology:

    http://www.roadtovr.com/hands-pimaxs-8k-headset-proves-high-fov-vr-coming/

    https://www.kickstarter.com/projects/243372678/nolo-affordable-motion-tracking-for-mobile-and-ste

    Why ? Because unlike USA, China takes good care of their startup ecosystem, and that includes patents protection of course, not to mention other government incentives

  3. FRANK LUKASIK March 27, 2017 6:32 am

    Expiring U.S. Patents for non payment of Maintenance Fees certainly helps them (1,500 every week.)

  4. Eric Berend March 27, 2017 1:56 pm

    As has now become deplorably common, wealthy and sovereign interests tussle over how to steal away inventors’ properties. It took some generations, for the awareness and credibility of sacrificing towards sharing benefits between public and founding private interests, to inspire inventors to part with their secrets.

    And now, once the dust settles on this rapacious tide, the broken trust with inventors, will take some generations to restore – and, this assumes a favorable regime for all that time. Not very likely; given said power abuses, are still quite prevalent in the world.

    Do these fools, actually realize what precious fire they quench – Lincoln’s “fire” – and eventually, to extinguish; with this international, criminal racket? Reminds me of the ‘street’ moniker for BCCI back in the days of that scandal: “(Bank of) Crooks and Criminals International”.

  5. angry dude March 27, 2017 2:16 pm

    Eric,

    Let’s put it concisely:

    “Fool me once – shame on you, fool me twice – shame on me”