Foreign Patent Trolls Threaten Arkansas Economy (Warwick Sabin Commentary)

by Warwick Sabin  on Monday, Sep. 1, 2014 12:00 am  

Warwick Sabin

At first glance, competition from overseas may not seem like one of the biggest threats to Arkansas businesses — much less from foreign governments themselves. Besides, there are countless other considerations business owners juggle daily to run a successful company. However, a troubling new trend of patent abuse sponsored by other countries is quietly reaching deep into our state, driving up costs and stifling innovation among America’s job creators.

“Patent trolling,” the practice of obtaining large buckets of intellectual property rights with the intention of using them to extract damages and settlement revenue rather than to protect innovation or produce anything, is not a new idea. Over the past 40 years, lawmakers have tried to strike a balance between defending research and advancements while dissuading offensive use of patents that negatively impact our economy.

Unfortunately, countries like France, Taiwan, China and others are now engaged in just that kind of abusive behavior. France established a $134 million investment fund called France Brevets that is dedicated to “patent promotion and monetization”; in Taiwan, the government-backed Industrial Technology Research Institute has secured nearly 20,000 patents and launched more than 225 startups. Earlier this year China also began its own patent trolling effort, claiming it was founded to “help Chinese high-tech companies to gain core IP rights.” However many are skeptical because China is not known for its enforcement against intellectual property and copyright violations.

These government-sponsored patent trolls (GSPTs) amass patents to effectively manipulate markets, and with government funding and regulatory clout behind them, they can do so on an unprecedented scale. They are able to discourage foreign competitors, thereby giving a distinct leg up to companies within their borders.

This new phenomenon puts American businesses at a disadvantage and drives up input costs that ultimately get passed to consumers. Arkansas businesses depend on patents to protect ideas that they have invested heavily in developing. When faced with infringement allegations from a troll, many companies opt to settle rather than face a protracted and expensive court battle. Settlement is usually cheaper even if the troll’s claim lacks merit. And defending one’s business against a foreign government can be daunting.

For businesses statewide, these GSPTs pose a real threat to our economic development. According to a study conducted by Santa Clara (California) University, defending against a troll’s suit costs an average of $875,000 to $1 million in legal fees. Settlement outside the courtroom cost an average of $340,000. For small businesses and startups operating on thin margins, such hefty costs can drive them into bankruptcy, and having a foreign government as your legal adversary does not inspire confidence.

Across Arkansas, businesses are beginning to turn the corner on the sluggish growth that has marked the past several years, led largely by small local businesses. The greater Little Rock area alone has invested $1.55 billion in new capital investment and added $459 million in new payroll. Southern Business & Development recently listed Little Rock among the “Top 10 Smaller Markets in the South for Foreign Investment.” Arkansas business owners have worked too hard to sit by while protectionist foreign governments use patents offensively rather than defensively.

Regrettably in June, a major bipartisan patent reform bill was shelved in the U.S. Senate, marking a major setback in the movement to better shield American businesses from trolls.

Fortunately, Arkansas’ leadership in Washington recognizes the threats posed not just by trolling but GSPTs specifically. Last fall, U.S. Sen. Mark Pryor, D-Ark., posed written inquiries to a Senate committee hearing on trolls, questioning the impact GSPTs have on American companies and asking what Congress can do to act. Hopefully, his colleagues in the Senate also will take notice.

GSPTs undermine the very protections intended for free-market competition. To ensure businesses across The Natural State continue to grow and innovate, lawmakers can’t afford to put off patent reform any longer. n

State Rep. Warwick Sabin, D-Little Rock, is executive director of the Arkansas Regional Innovation Hub (ARHub.org). Email him at WSabin@ARHub.org.

 

 

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