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State-Sponsored Patent Trolls Signal New Form of Protectionism | Commentary

Congress is preparing to tackle the increasingly problematic role that “patent trolls” are playing in the high-tech sector and today’s digital economy. But while U.S. lawmakers are working to rein in patent trolls and end abusive practices, some foreign governments are taking the exact opposite course.

These governments are establishing state-sponsored patent assertion entities — a development that over time may evolve into a damaging global patent war between countries themselves.

PAEs, often called patent trolls, make no products and exist only to acquire patents and sue on those patents. These patent trolls cost the United States billions of dollars and may even slow the progress of innovation.

Now foreign governments are getting into the patent trolling business, and many are investing in U.S. as well as domestic patents. Among the state-sponsored patent trolls with U.S. holdings are France Brevets (France) with four patents; Intellectual Discovery (Korea) with more than 200 U.S. patents; and Industrial Technology Research Institute (Taiwan), which is listed as an assignee on 5,372 patents.

Japan also has a PAE (Innovation Network Corp. of Japan), and China plans to establish one.

These governments are divided on how to best use their patent holdings. Korea’s Intellectual Discovery stylizes itself as a defensive patent alliance — they won’t initiate lawsuits, but if a member is attacked they can use Intellectual Discovery’s patents to hit back.

France Brevets, in contrast, is dedicated to “patent promotion and monetization.” France Brevets will likely prove to be an offensive entity, which is troubling because it has stated that it will inevitably have a bias toward working with French businesses. It also states that, “in order to leverage on French assets, the best is sometimes to complement assets of French origin with assets coming from outside France.”

Another offensive entity is Taiwan’s Industrial Technology Research Institute, which has already accumulated more than 18,546 patents.

Government participation in PAEs can cause a host of unintentional and intentional consequences. There is the natural tendency to favor domestic industries over foreign ones. This natural tendency can develop into protectionist policies akin to the industrial policies of many 19th-century governments. There is also an incentive for states to use the patents to defend key domestic companies by attacking foreign companies and raising their costs. This would encourage anti-competitive behavior in industries where technology is critical.

Second, there is a natural conflict between the roles of regulating patent law with the enforcement of a portfolio of patents. States are tasked with keeping patent quality high and preventing abuse of their patent systems. When a state is both a market actor and a market regulator, there is always the risk that policies will serve the state interests and not its public interests. For example, if the validity of a state’s domestic patent holdings were challenged, there would be a conflict of interest in the state determining their validity.

Lastly, state-sponsored PAEs set a dangerous precedent that could lead to a “race to the bottom” as countries establish their own PAEs. This race would be exacerbated by political conflicts caused by overzealous enforcement against foreign companies and entities. States would be pressured to form PAEs of their own to protect their domestic companies from foreign patent assertions.

Fortunately none of these concerns have fully come to fruition. However, Taiwan’s PAE Industrial Technology Research Institute has already begun aggressively asserting more than 20 patents in the Eastern District of Texas. These aggressive assertions should be a warning that the problem with state-sponsored PAEs should be addressed early. It is already common for people covering the patent wars to use cold war terms such as “mutually assured destruction.” The last thing we need is to be involved in an actual patent cold war.

David Balto is an antitrust attorney in Washington, D.C. He previously served in the Antitrust Division of the Department of Justice and the Federal Trade Commission.

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