House Patent Troll Bill Would Shield Pirates, Not Small Inventors

Before he was a member of Congress, Rep. Don Beyer (D-Va.) was known for selling cars. According to his financial disclosures, the holding company for Beyer Auto car dealerships is Pirate Motors LLC. While this might evoke images of Disney’s Captain Hook selling cars, Beyer’s interest in piracy has a less benign side.

Along with Rep. David Schweikert (R-Ariz.), Beyer recently sponsored the inaptly named Advancing America’s Interests Act, which would allow large technology companies to import products that infringe US patents without obtaining a license from patent owners.

Beyer and his co-sponsors claim their bill targets “patent trolls” that sue US companies. Attacking patent trolls is better marketing than protecting patent piracy, just as “Beyer Auto” is better marketing than “Pirate Motors.” Nevertheless, Beyer’s bill would effectively protect pirates—allowing large companies to infringe on rights of small innovators by outsourcing manufacturing to China, and protecting Chinese firms that steal US intellectual property.

Large technology companies copying products from small companies is already such a large problem that it’s called Sherlocking, in reference to Arthur Conan Doyle’s fictional detective who followed clues left by others. Big tech has a reputation for letting small companies develop and test the market for a new product before they come out with their own copies. Small innovators depend on strong patent rights to prevent such copying by larger competitors.

For more than 200 years, US patent law has provided essential protections for innovators of all sizes. The basic guarantee of a US patent, written into our Constitution, was that it provided “inventors the exclusive right” to use their inventions. That means, when necessary, the right to have a court order others to stop using it. In 2006, however, the US Supreme Court said in eBay Inc. v. MercExchange LLC that courts shouldn’t reflexively order a halt to infringement in patent cases.

Since 2006, the eBay decision has been widely read as directing lower courts to allow infringement to continue whenever the patent owner is willing to license its patents, even if the infringer won’t accept the patent owner’s license terms. That leaves inventors to prove a “reasonable royalty.” It also lets infringers know the worst outcome they can expect is paying only later what they should have paid at the beginning. If they fight hard enough, it’s possible they can pay nothing or get the patent owner to accept much less.

Beyer’s bill seeks to prevent small US innovators that license their patents from suing at the International Trade Commission, a court-like executive agency in Washington, D.C. that can block importation of patent-infringing goods. Because it operates under a statute that wasn’t affected by the eBay decision, and since so many large technology companies import their products from overseas, the ITC is often the only hope for small innovators to fight infringement.

The fact a company is willing to license its patents is not reason to deny it ITC protections. For example, making semiconductors is very capital-intensive. Even large US semiconductor companies must license their intellectual property and outsource production to the small number of companies with billions of dollars necessary to build semiconductor plants. If we want to encourage semiconductor innovation, licensing is essential.

Ironically, patent owners commonly choose to license because large companies are already infringing, and the cost of fighting in the marketplace and court is simply too much. The companies that choose to enforce their rights get labeled “trolls,” supposedly because they don’t manufacture any products, but the companies that hurl this epithet often don’t make anything either.

Apple is a good example. Its annual shareholder report says, "[s]ubstantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia.” That’s right. Apple doesn’t actually make anything. Apple licenses its patents and trademarks to its “outsourcing partners” to make products, and no one doubts that Apple would—and should—use the courts to stop imported counterfeits.

The difference between large technology companies like Apple and the companies they deride as trolls is not their willingness to license or enforce their patents. What distinguishes them is marketing budget and lobbying clout.

For example, when Apple was recently accused of Sherlocking a feature for its Apple Watch, the tech giant launched a lobbying blitz to keep the ITC from stopping its infringement. To steal someone else’s idea and successfully label them a troll because they fought back takes chutzpah and marketing genius. Apple has both.

Unsurprisingly, the press release announcing Beyer’s bill included statements of support from big tech-funded lobbying groups like the High Tech Inventors Alliance and the ITC Modernization Alliance, an organization apparently focused just on Beyer’s bill. Startup innovators don’t have budget to fund powerhouse organizations like HTIA or single-issue lobby shops, let alone both. As this bill shows, large lobbying budgets and great marketing don’t necessarily correspond to good innovation policy.

Indeed, eliminating the ability of some US patent holders to block infringing imports would only seem to encourage offshoring of US manufacturing and enable more Chinese intellectual property theft. Congress should be doing the opposite. “Buy now, pay later” may have worked when Beyer was selling cars, but “infringe now, pay never” won’t incentivize innovation in America or discourage Chinese firms from stealing US intellectual property.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Nick Matich, a patent litigator in private practice, served as acting General Counsel at the US Patent and Trademark Office.

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