Outcompeting China With Intellectual Property Leadership

Outcompeting other countries, especially China, was one of President Donald Trump’s core campaign promises and has been an initial point of emphasis early in his second term.

Competition, especially with China, was also a recurring theme during the confirmation hearing for Trump’s Commerce Secretary nominee Howard Lutnick, who now oversees the agency tasked with promoting U.S. economic growth.

During his confirmation hearing, Lutnick issued a clear warning; “if they’re [China] going to compete with us, let them compete, but stop using our tools to compete with us.”

More specifically, when discussing intellectual property and the U.S. Patent and Trademark Office, which is housed under the Commerce Department, Lutnick noted “the Chinese use our Patent Office against us.” Allowing this type of abuse to persist cannot be left unaddressed. As Trump and Lutnick identify new agency leadership, countering the threat China poses to the American economy through patent abuse should be the top priority.

China’s focus on U.S. intellectual property is accelerating. Last year, most U.S. patents were earned by firms based outside our borders. Of all countries, China had the greatest increase in U.S. patents issued, up more than 30% over the prior year. This is troubling because all patents are not created equal, and Chinese patent holders have a track record of questionable intellectual property claims. Some experts have noted China has a quantity over quality approach to patents and estimate only 10% of China’s patents have actual market value, with 90% being “trash.”

It is in our economic best interest to prevent these questionable patenting practices from spilling over into the U.S. system. Fortunately, there are already protections in place to help, but they must be reinforced.

The Patent and Trademark Office’s Patent Trial and Appeal Board is in perfect alignment with the President’s and the Department of Government Efficiency’s emphasis on maximizing governmental efficiency and productivity.

Established by a bipartisan Congressional majority, the Patent Trial and Appeal Board was explicitly designed to be a more efficient method of resolving intellectual property conflicts and invalidating low-quality patents, as opposed to lengthy litigation. It is also a built-in means for the agency to self-correct bureaucratic mistakes. 

Sometimes the Patent and Trademark Office grants patents in error. Many of these patents fail to describe an invention that is novel, useful, and non-obvious.

Alternatively, some low-quality patents describe concepts that are not eligible for patent protection. When these patents are granted, and particularly to foreign entities, they have considerable potential to produce higher costs and waste and be an economic drag on U.S. companies. Instead of relying on litigation (which commonly runs into the millions of dollars and takes years to conclude) to resolve conflicts and rid these patents from the economy, any member of the public can request that the Patent Trial and Appeal Board review the patent instead.

Technically-trained Patent Trial and Appeal Board judges–administrative patent judges–more quickly and efficiently review patents of questionable quality and correct the agency’s mistakes if necessary and warranted. APJs have proven extremely reliable, with their decisions affirmed by the Federal Circuit on every issue more than 80% of the time. Not only does the Patent Trial and Appeal Board’s efficiency self-correct bureaucratic error, but it also costs taxpayers nothing because – unlike other agencies – the Patent and Trademark Office is fully funded by fees.

The Patent Trial and Appeal Board clearly benefits U.S. patent owners and businesses. Depending on the year, between 67% and 80% of patents challenged at the Patent Trial and Appeal Board are owned by foreign corporations or those affiliated with them, while approximately 63% of challengers are U.S. based companies.

For those worried about China’s influence on our intellectual property system, bolstering the Patent Trial and Appeal Board at this moment should be a clear priority as litigation investment entities have homed in on exploiting U.S. patents.

For example, Fortress Investment Group, a hedge fund owned by interests in Abu Dhabi, has committed billions of dollars toward intellectual property litigation investments and Fortress-owned entities have demanded billions more from American manufacturers in lawsuits, only to have their patents be proven invalid when reviewed by Patent Trial and Appeal Board judges. 

A previous Patent and Trademark Office director, whose prior law firm has counted Fortress and its subsidiaries as clients, scored something akin to an own-goal, imposing rules that make the PTAB more difficult to access and the system easier to game by investors and the shell companies they maneuver. This vulnerability needs to be addressed.

Secretary Lutnick is correct that China’s abuse of our patent system must end immediately. On Wednesday Trump nominated John A. Squires, an ex-Goldman Sachs lawyer, to head the Patent and Trademark Office. To advance Secretary Lutnick’s goal he should commit to executing the law as Congress originally intended and ensuring that PTAB review is available to any member of the public. 

I have every confidence that Secretary Lutnick will faithfully execute the law and efficiently correct the agency’s own errors while shielding American companies from foreign abuse, sending a strong signal the Patent and Trademark Office is serious about standing up to China and putting America’s interests first.

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