The feds have it wrong on patent law

If there’s one constant in the Trump administration’s policy, it’s championing American companies over foreign competitors. So why is the administration arguing for a rule that would favor foreign companies over American ones?

In WesternGeco v. ION Geophysical, the Supreme Court is considering whether violations of U.S. patents can lead to damages awards across the globe. Traditionally, sovereign power has been closely tied to patents — the exclusive right for new inventions was historically granted in “letters patent” sealed by the Crown. As a result, the law has always been that patent enforcement stops at the national border; acts inside the United States can violate a patent, but acts abroad cannot.

{mosads}Besides being the traditional rule, this law makes sense. Countries have differing and inconsistent patent laws, resulting from different policies and approaches to their technology industries. Keeping each country’s law within each country’s borders avoids both conflicts and undue burdens on industry.

Changing that basic domesticity rule in the WesternGeco case would deter American innovation, sending it abroad. Consider a company such as California-based Marvell Technology, which researches and designs semiconductors, has them manufactured abroad, and ships them worldwide. In 2009, Carnegie Mellon University claimed that Marvell’s research and testing infringed its U.S. patents. The university demanded an award based not just on Marvell’s domestic sales, but on every chip sold worldwide, on the theory that all of Marvell’s chips were made based on the domestic research and testing that infringed the patents. 

An appeals court in 2015 rightly rejected Carnegie Mellon’s bid for damages around the world. But what if it hadn’t? In that hypothetical world, Marvell’s research in the United States would cause it to be liable for patent damages on every chip it sells worldwide. Marvell could cut off that theory of liability simply by moving its research operations overseas. It would still be liable for sales of chips into the United States, but that is only a small fraction of its sales. 

In adopting Carnegie Mellon’s stance, the message to companies like Marvell would be clear: Do your research outside the United States, and you will pay patent owners only for domestic sales, but do your research inside the United States, and you will have to pay patent owners for sales worldwide. In other words, allowing for worldwide damages would make it more risky, from a patent liability standpoint, to do research and development in the United States, thus pushing research into foreign nations.

Discouraging American research and development is the opposite of what the Trump administration wants. Yet in its filings with the Supreme Court, the administration called the 2015 appeals court decision an “analytical error,” asking the Supreme Court to change that result in the WesternGeco case.

No upside to worldwide patent liability would make up for these harms to American interest. Patent owners stand to win more money, of course, but patent owners are not just American companies: More than half of recent U.S. patents are owned by foreigners, according to the U.S. Patent and Trademark Office.

In other words, the administration’s view would let foreign companies use American patent law to punish American research and development.

Changing the traditional borders of patent law in the WesternGeco case poses further international problems. If the United States takes steps toward making its patent law apply worldwide, other countries will do the same — creating a patent law “trade war” of sorts. The consequences for American companies, as my colleagues and I have argued in a filing with the Supreme Court, include excessive awards of patent damages, double recoveries and general stifling of invention and technology development.

Why would the Trump administration take a position that would harm the very domestic companies it has sworn to protect? There are many possible answers, but one hypothesis is that the administration has confused patents with other types of intellectual property, such as trade secrets. No doubt the administration has taken a hard line in protecting American companies against theft of trade secrets by Chinese companies.

But when that hard line spills over into wholly different areas such as patents, the unintended consequences can be dramatic. Unfortunately, in its zeal to make patents stronger, the administration may ultimately make American industry weaker.

Charles Duan is the associate director of Technology and Innovation Policy at the R Street Institute, a nonprofit research organization in Washington, D.C.