The misappropriation of American intellectual property (IP) — patents, copyrights, trademarks, and trade secrets — costs American businesses hundreds of billions of dollars a year, and diminishes incentives to innovate that are key to American economic growth and prosperity.
While much attention has been paid to direct theft of IP, actions of foreign governments, particularly (but not exclusively) in Asia, to diminish the value of IP through the misapplication of antitrust law is far less reported — but it is a serious and growing threat to America's economic future. The Trump administration should act decisively to deter such harmful foreign government activity and thus promote American competitiveness.
The experiences of two great American innovative companies and major patent holders, Qualcomm and InterDigital, illustrate the seriousness of the problem.
Qualcomm introduced (among other innovations) CDMA technology to global mobile communications two decades ago, which made access to the internet and the flow of enormous amounts of data possible. Qualcomm is the leader in fourth generation mobile computing and is hard at work on developing fifth generation technological leadership. InterDigital designs and develops advanced technologies that enable and enhance mobile communications and capabilities.
In recent years, both those companies have faced major antitrust charges in China and South Korea, essentially based on the claim that they charged "too much" for patent licenses.
- In 2015 Qualcomm agreed to pay a record $975 million fine in China for alleged monopolistic patent licensing practices, and accepted a major reduction in patent licensing rates.
- 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.
- Qualcomm faces a threatened fine of close to $1 billion based on a Korean Fair Trade Commission (KFTC) investigation of "abusive" (that is, "excessive") patent licensing royalties. This is coupled with the threat that the KFTC may demand a global reduction in Qualcomm's licensing rates, ignoring territorial limitations on its jurisdiction.
- Other leading American high tech companies that hold valuable IP also face close scrutiny in China and South Korea.
- Many observers believe that this uptick in Asian antitrust litigation is aimed at promoting "national champion" companies such as smartphone producers Samsung (South Korea) and Huawei (China). This is at odds with the international consensus that antitrust promotes a vigorous competitive process and consumer welfare, not the interest of particular competitors.
The problems faced in Asia by Qualcomm, InterDigital, and other American technology leaders were discussed in detail in a Dec. 6 Heritage Foundation panel discussion focusing on foreign government antitrust abuses that undermine U.S. IP rights.
Federal Trade Commissioner Maureen Ohlhausen opened by offering recommendations for spurring reform. She explained that American companies too often are not given the opportunity to defend themselves adequately against or to appeal foreign Asian governments' antitrust charges. She urged that Asian enforcers confront this problem by adopting stronger due process and transparency protections, building their cases on hard facts showing harm to competition, not unsupported theories — "evidence-based antitrust." Ohlhausen argued that such steps would enhance the quality and credibility of foreign agencies' decision-making.
Former Patent and Trademark Office Chief David Kappos lamented that a key Chinese agency acts as "judge, jury, and executioner" in antitrust proceedings, neglecting the most fundamental concepts of fairness. He stressed that American antitrust enforcers need to end their own bad policies and actions that undermine strong IP and give rhetorical fuel to foreign regimes.
He proposed that the U.S. Trade Representative focus on better enforcement of bilateral treaty provisions that guarantee due process in antitrust proceedings, and aggressively undertake research and reporting on foreign enforcement abuses. He added that an increased U.S. government presence at foreign enforcement proceedings could prove helpful.
The last two speakers, Stewart Chemtob and Tad Lipsky, leading antitrust lawyers who have also served in the Justice Department, described in detail the arbitrary treatment that American firms have received at the hands of Asian antitrust enforcers. They recommended that solving due process problems be prioritized in bilateral consultations between the United States and foreign countries.
The further proliferation of industrial policy attacks on America's most innovative firms, masquerading as antitrust, is a clear and present danger to American innovation. The recent Heritage panel provided no "silver bullet" solution. Swift and decisive actions by the new Trump administration are called for, in order to curb a severe threat to American innovation and economic vitality. Here are some suggestions:
- The federal antitrust agencies (the Federal Trade Commission and the Justice Department) need to change their anti-IP policies and restore their prior respect for patents as true property rights that merit strong protection.
- The Patent Office should adopt new policies that reflect greater respect for issued patents that are subject to administrative review after issuance.
- The White House should work with antitrust enforcers and other federal agencies to take a strong stance against specific foreign antitrust abuses that target American patents, including international consultations and possible sanctions if all else fails.
- The federal government should insist that foreign governments (for example, South Korea) adhere to antitrust due process commitments made in existing bilateral treaties, and insist on similar binding commitments in new agreements reached with other nations.
These steps are not a panacea, but if the Trump Administration takes them boldly and decisively, they may begin to turn the tide against foreign governmental threats to U.S. innovation.
This piece originally appeared in Investor's Business Daily