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In a welcome show of bipartisanship, the U.S. Senate took a significant step in the direction of freer global trade in April. The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA), cosponsored by Sens. Orrin G. Hatch (R-UT) and Ron Wyden (D-OR), is designed to fast-track approval of the Trans-Pacific Partnership (TPP), a landmark trade agreement currently under negotiation by the United States and 10 other Pacific Rim countries.
The legislation would allow President Barack Obama to present the trade pact to Congress for a straight up-or-down vote without lawmakers being able to amend terms, but because the bill has faced numerous delays, congressional support on both sides is waning.
TPA would lower regional market barriers Canada, Chile, Mexico, Peru, and the United States face in East and Southeast Asia. Five key Asian nations—Brunei, Japan, Malaysia, Singapore, and Vietnam—currently are parties to the agreement, and China reportedly is following negotiations closely.
TPP is related to another issue before Congress: patent reform. Patent assertion entities (PAE), or patent trolls, deliberately exploit weaknesses in current patent law and procedures, costing the United States economy $29 billion per year, according to research from the Boston University School of Law.
In my recent Heartland Institute Policy Brief, “Why Patent Reform Is Needed: Stockpiling, Frivolous Lawsuits Threaten Innovation and Cost Consumers Billions,” I address a new and daunting patent assertion issue. The governments of China, France, Japan, South Korea, and Taiwan have invested in and operate PAEs with the mission of acquiring all the patents they can, regardless of where the patent is filed or who the filer is, in order to extract settlements from alleged private sector infringers outside their borders.
Although the TPP language we have seen claims member nations will be obligated to abide by the World Trade Organization agreement on Trade-Related Aspects of Intellectual Property Rights, foreign governments who finance and control PAEs fall short of doing so.
Article 7 of the agreement says, “The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.”
Government-controlled trolls do not contribute to innovation or aide in the dissemination of technology. These entities dissuade innovation through litigation aimed specifically at foreign economic targets they perceive to be threats.
Article 8.2 of the agreement entreats member states to “prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.”
The offensive litigation brought by foreign government-run trolls abuses these rights and restrains trade through tariffs in the form of hefty litigation costs based on frequently frivolous claims.
For example, the Innovation Network Corporation of Japan (INCJ), a government-funded PAE launched in July 2009, says its goal is to provide support to promote the creation of next-generation businesses through the flow of technology and expertise. In July 2013, INCJ raised trade concerns when, along with Panasonic and Mitsui & Co., it established the IP Bridge patent pool to consolidate Japan’s corporate patents for potential protectionist litigation. Initially, IP Bridge stated its plan was to acquire 5,000 patents from electronics companies. In the long run, it plans to expand its funding to ¥30 billion, or about $250 million.
The Chinese government reportedly backed Ruichuan IPR Funds with $50 billion to acquire patents to use in actions against U.S. companies, among other industrial rivals. In today’s intellectual-property-fueled global economy, instead of slapping tariffs on imported products that compete with homegrown industries, governments are dubiously applying patent law to extract a “tax” on any product that threatens the nation’s commercial interests. The European Centre for International Political Economy, a research group advocating global free-trade policies, characterizes state-sponsored PAEs as “next generation trade defense.”
The bipartisan progress on trade issues and intellectual property issues is encouraging. Rapid congressional approval of TPP, engendered by the fast-track bill now before the congressional Finance Committee, will help bring long-term benefit to our economy.