China is not known for its respect of intellectual property rights. According to the U.S.-China Business Council, counterfeit products make up approximately 15-20 percent of total Chinese GDP. That is staggering, making China in some ways a scofflaw nation. Thousands of shipping containers arrive in the U.S. daily from China and contain a variety of knockoffs headed for American cities. The sale of these products, both at here and in other countries, takes money out of the pockets of American companies and workers.
As if counterfeit products weren’t bad enough, China just recently ramped up its assault on American innovation. Beijing has established Ruichuan IPR Funds, which is a government-sponsored patent troll. As I explain in Patent Trolls, in the private sector a patent troll acquires vague and outdated patents — not for the purpose of producing an invention or a technology — but as grounds to sue an inventor or company. The troll will claim that a new widget bears some relation to its patent and therefore the troll should be paid a license fee. If target does not willingly pay the tribute, the troll drags them into court. Attorney fees in patent litigation often exceed $1 million dollars for a defendant. Hence, there is much incentive to settle with the troll.
Researchers as the Boston University School of Law estimate that patent trolls are a $29 billion per year drag on the economy. They kill jobs and attack American competitiveness.
With China’s creation of Ruichuan IPR Funds, imagine the assault that U.S. companies will face. Reports are that this government-sponsored troll has been seeded with $50 billion to acquire patents that will be used in actions against U.S. companies. Inasmuch as trolls aren’t sticklers for the quality of the patents they purchase, Ruichuan IPR Funds will be able to build a massive arsenal for use in harassment litigation.
China will now be in a better position to manipulate markets, handicap the overseas competition, and push itself to the head of the pack in the global patent wars.
The American economy depends on innovation. Innovation is the whole reason that governments grant patent rights. Patents are issued in return for a disclosure of the underlying technology so that the invention can enter the public domain when the patent expires. A patent rewards an inventor with a temporary monopoly on an invention that he otherwise might be tempted to keep secret.
Of course, legitimate patents are rendered worthless if they cannot be protected. Chinese disrespect of American intellectual property threatens our entire high-tech sector — one of the few arenas where the U.S. still leads the field.
The engine of our economy, innovation, now imperiled by the Chinese government’s foray into patent trolling. By entering this disreputable business, China has shown that it puts its national interest well ahead of fair and open competition. Given that many technological innovations can have a military application, Ruichuan IPR Funds might well be used to undermine U.S. advances in defense. China is using America’s outdated patent law system as a weapon of economic war.