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U.S. should keep foreign governments from becoming aggressive 'patent trolls'

Snow falls around the US Capitol Building in Washington, Tuesday, Dec. 10, 2013.
Snow falls around the US Capitol Building in Washington, Tuesday, Dec. 10, 2013.
Pablo Martinez Monsivais, Associated Press

On Dec. 5, the House passed the Innovation Act on a 325-91 vote – a bill authored by House Judiciary Chairman Bob Goodlatte R-Va., and co-sponsored by Rep. Jason Chaffetz, R-Ut., to address patent infringement claims brought forth by companies sometimes referred to as ”patent trolls” (the Senate counterpart is being led by Sen. Mike Lee, R-Ut.).

That proposed legislation’s ability to garner support and momentum amidst an otherwise gridlocked Congress demonstrates the issue’s importance on Capitol Hill. The Goodlatte bill, however, as well as other, similar legislation aimed at patent litigation reform, fail to address an issue that should similarly alarm American consumers, businesses and lawmakers alike: foreign government sponsored patent trolls (GSPTs).

Certain foreign governments – including Japan, Korea, France, and Taiwan – have begun entering the IP aggregating market by establishing what amounts to aggressive government-sponsored patent trolls. Those GSPTs raise numerous anti-competitive and anti-market concerns, which merit close attention and possibly future action.

First, these foreign government-controlled entities aggregate IP rights, but do not apply the patents they control to any pro-innovation end. Rather, they’re formed to generate state revenue through infringement suits, awards and settlements. The revenues gained from lawsuits are awarded to their respective governments and companies based in those nations.

Thus, instead of letting consumers and innovation determine market winners and losers, these GSPTs intervene and tip the scales through protectionist preference given to their home teams.

Second, GSPTs set a risky precedent that could easily result in “copycat” patent trolls and a “race-to-the-bottom” outcome. That’s because a foreseeable result of allowing these troubling entities to tip the scales is that other nations that currently play by the rules will be pushed to start their own GSPTs rather than risk suffering such a huge anti-competitive advantage.

Third, many GSPTs violate a variety of international trade decrees. For instance, these protectionist pools treat foreign products less favorably than domestic products, a clear violation of Article III:4 of the General Agreement on Tariffs and Trade (GATT). GSPTs also abuse the Agreement on Subsidies and Countervailing Measures (SCM Agreement) because they provide financial contributions only to specific favored companies, at the discretion of the given government and to the detriment of foreign companies.

One particularly disturbing example of a state-sponsored troll is the Innovation Network Corporation of Japan’s (INCJ) IP Bridge. INCJ is funded by the Japanese government at 266 billion yen (over $2.7 billion).INCJ established IP Bridge this summer in order to purchase patents it deemed “dormant” and “support” Japanese industry. IP Bridge was a hefty investment, and there is no doubt that with this magnitude of government expenditure it will pay significant rewards for the Japanese government at the serious detriment to their international competitors.

IP Bridge plans to use its intellectual property for “pro-patent licensing,” but also “defensive litigation,” which reveals the aggressive and protectionist tactics that it plans to enlist exclusively to benefit Japanese interests. These actions will in turn make it difficult for other countries to compete on a level playing field with Japanese businesses that enjoy support from INCJ and IP Bridge. Unfortunately, INCJ’s IP Bridge is just one many destructive GSPTs.

Throughout its history, the United States has prospered based upon the principles of limited government, property rights, free markets and free trade. Although citizens, scholars and legal authorities occasionally differ on how to best apply those principles, we can generally agree that gross intervention by foreign governments into the private marketplace is not something with which our country's economic values coincide. Optimally, domestic and international marketplaces should remain open and even for all players, allowing consumers and markets to determine the outcome rather than government-run entities.

As it stands, these foreign-owned government entities are nothing more than an avaricious means to promote one country’s industry and IP over all others, while the government reaps the financial rewards. That not only violates the open-market and free-trade principles on which the U.S. relies, but it threatens both American and international economic prosperity.

Consequently, American companies, citizens and lawmakers must remain aware and work to prevent the destructive consequences these GSPTs threaten.

Timothy Lee is Senior Vice President of Legal and Public Affairs at the Center for Individual Freedom, an Alexandria, Virginia non-partisan organization founded in 1998 to advocate the principles of free markets, limited government and individual lib