Are patents the next weapon as governments race for economic advantage?

Countries such as China, India and even France have developed "sovereign patent funds" - government-owned patent pools - to champion the interests of domestic companies.

Could "sovereign patent pools" be the latest tactic by countries like China to get ahead in the global race? Image credit: Getty

In the global race for competitive advantage, countries such as China and India are pursuing increasingly aggressive strategies to favor domestic producers and get a leg up on competitors.

Their potential latest weapon? Patents.

A new report by Hosuk Lee-Makiyama and Patrick Messerlin of the European Centre for International Political Economy (ECIPE) highlights the growth of so-called Sovereign Patent Funds (SPFs) – government-owned patent portfolios strategically acquired on key innovations.

The report notes that countries such as France, Japan, Korea, Taiwan, China and India have each created significant government patent pools with patents acquired at home and abroad. Traditionally, these patent pools have functioned like public-private partnerships, helping countries commercialize academic research or enabling them to lower entry costs in targeted sectors. In the 1970s, for instance, Taiwan negotiated key patents on transistors for its growing Information and Communications Technology (ICT) companies.

The authors note, however, that governments are increasingly building patent portfolios as a basis for aggressive global patent litigation to advance discriminatory policies and create barriers for foreign competitors.

France Brevets, the French Government’s patent pool, has acquired patents for products including mobile devices, computers, and smart meters in key target markets like the United States, Japan, Korea, and the European Union. The French fund has, for instance, filed infringement cases against LG of Korea and HTC of Taiwan in plaintiff-friendly jurisdictions in Germany and the United States and, according to the authors, admits that it plans to use patents as “retaliatory or discriminatory instruments against foreign actors regardless of whether the original claim is legitimate or not.” The authors note that Korea intends to use the 3,800 patents in its $250 million Intellectual Discovery fund to similar ends.

According to ECIPE’s Lee-Makiyama, China is not yet using its extensive patent holdings (which include, among other things, a $700 million fund limited to technology patents from Israel) to go on offense in global patent battles. But, as the report notes, China certainly has interest. China has already been extraordinarily aggressive in using “indigenous innovation” policies to mandate the transfer of foreign technologies—a practice that many international companies consider to be government-facilitated technology theft. China has also used its competition rules in deals involving Nokia and Motorola to require that foreign companies take the extraordinary step of agreeing not to bring patent cases against any Chinese firm and has launched recent competition investigations into technology companies like Microsoft and Qualcomm.

According to the authors, growing government involvement in worldwide patent litigation has the potential to damage global trade and development of technology products. It would, among other things, weaken the climate for innovation, complicate global efforts toward patent reform, and provide governments with the highly focused trade tools to discriminate against foreign competitors in favor of inefficient national champions. To address these problems, the authors recommend adding new disciplines against government abuse of patents in pending free trade deals.

Patents are the lifeblood of the modern global economy. Without the protection afforded by patents, technology companies won’t invest billions in innovative new products like smartphones, medical products, or software. And protecting and challenging technology patents has made global patent litigation big business. In the United States, patent litigation is growing by some 25 percent annually, and damages in major cases can exceed $1 billion.

But if governments are now getting into the act—not for commercial purposes, but to advance national industrial policies and support national champion companies – the implications for intellectual property and trade are significant. And the risks that accompany the use of patents as “political instruments” potentially threaten the current infrastructure for the protection of intellectual property.

For U.S. policymakers, this report highlights the importance of pursuing high-standard trade deals like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP).

It’s virtually impossible to conceive of the United States Government building government patent pools in support of retaliatory global patent litigation. (Nor should it because, as ECIPE notes, such an approach is highly likely to be self defeating for the countries that attempt it.) Instead, the United States should work to assure that forums like TPP and T-TIP will be available to address these kinds of emerging, next-generation threats to an open global economy.

Read the full ECIPE report here.