The U.S. Needs to Make IP Policy a Priority, Now

[Len]

Once regarded as a copycat, counterfeiter and patent infringer, China is now threatening U.S. IP superiority with a flood of inventions and a superior system for resolving disputes. Until now, the U.S. was the go-to nation for new ideas; the defacto innovation leader.

In the absence of a discernable IP policy, America achieved leadership through laws and courts that supported inventors, and commerce, and that encouraged risk-taking. But the world is now flatter than we could have imagined. If America hopes to remain at the innovation forefront, it needs to rely not only on the ingenuity of its inventors and creators, but on the leadership and vision of government and businesses.

Various regulatory agencies have contributed reports and ideas about IP enforcement that address foreign infringement, but there is no strategic U.S. policy that promotes more and better intellectual property, and seeks to maintain its competitive edge.

Aspects of IP policy can be found in activities conducted by the State Department, Department of Justice, United States Patent and Trademark Office, White House, Federal Trade Commission, and other agencies. This approach may have been acceptable in the past, with lawmakers and the courts providing sufficient direction, but global competition, especially from China, and reduced spending on R&D, have created new challenges. America’s history of invention, authorship, and growing start-ups into job creators, is less certain than at any time since the early 19th century.

Despite the incredible success of several Internet companies — and, some believe, because of it — U.S. IP dominance is in quantifiable decline. Compounding the problem is China, which is now able and willing to fill the void. It has been widely reported that China is a better place than the U.S. and most other nations to obtain patent injunctions and receive a fair hearing in court. Despite this, many U.S. businesses and consumers, impatient with IP rights and cavalier about the impact of IP theft, have come to act with much same attitude the Chinese did before they learned better.

Make no mistake. China’s about face on IP rights is not about ethics or fairness – it is about competing in business and timing.

Copycats No More

“Until only a few years ago, talk of China as an innovator would have elicited scorn from most Western business and government leaders,” reports Fortune magazine. “The country was widely derided as a haven for copycats and pirates, or grudgingly acknowledged as an efficient manufacturing platform whose factories depended on the uneasy union of cheap Chinese labor and foreign technology.”

“Business in China today, however, is being led by innovation-obsessed execs like Ren Zhengfei, founder of Huawei Technologies, which last year filed more patent applications than any other company in the world.”

“The number of patents in force in China has leapt from about 600,000 in 2010 to almost 1.5 million,” said James K. Glassman, undersecretary for public diplomacy and public affairs at the U.S. State Department under George W. Bush, in an article that appeared in the The Hill, the Washington political daily.

“Last year, China accounted for 38 percent of all patent applications in the world, while the United States accounted for 20 percent. When calculated by applications per billion dollars of gross domestic product, the United States drops below South Korea, Japan, China, Germany and Switzerland.”

Entrepreneurial innovation drives developed economies, but with U.S. start-up activity off by 50,000 to 150,00 per year from the 1970s, according to US Census data, the lack of new businesses is likely to continue. Jobs created by businesses less than one year old have dropped from 4.5 million annually at the turn of this century to just three million.

Glassman says what has disrupted our patent system is a series of overreactions, including the America Invents Act.

Mixed Messages

U.S. startups are near a 40-year low. The decrease in U.S. businesses that receive venture funding is not a blip on the innovation radar. It is more likely a harbinger of things to come. This is the new reality that the U.S., the perennial technology leader, must learn to live with unless weakness in the IP system can be reversed quickly. An innovation policy that provide appropriate respect for IP rights would help to provide much-needed direction.

Defining what is or should be a U.S. IP policy is not a simple matter. In December 2016, the Obama White House issued “Supporting Innovation, Creativity and Enterprise: Charting the Course Ahead,” a U.S. joint strategic plan on IP enforcement covering fiscal years 2017 and 2018. It raises many good points about global enforcement, but little about supporting innovation or defending the IP rights of small U.S. businesses, authors, creative artists, and others, which are significant idea and job creators.

While the 152-page White House IP plan is not intended to be political in nature, the fact is that everything an administration does is likely to be seen as political. The Plan’s preamble, “A Reflection on Creativity and the American Spirit,” by California poet laureate, Dana Gioia, which cites Walt Whitman, one of America’s greatest visionaries, is an impressive beginning. But the Plan itself is mostly about foreign threats to U.S. IP, which while real and in need of addressing do not constitute a modern IP policy.

The Plan’s chief architect was Obama appointee Daniel Marti, IP Enforcement Coordinator and Chair of the Interagency IP Planning Committee. He was tasked with coordinating the development and issuance of two major documents: (i) an Annual Report on the progress made towards the effective enforcement of IP rights; and (ii) a Joint Strategic Plan on IP Enforcement (hereafter the “Joint Strategic Plan,” “Strategic Plan,” or “Plan”), issued every three years.

The Strategic Plan, said Marti, “represents a ‘call for action’ for all nations—as well as international organizations, industry, educational institutions, and consumer protection and public interest groups—to provide forward-thinking leadership and a collaborative approach to combatting illicit IP-based activities. Together, we can enhance our enforcement programs and policies for the modern era, and ensure that collective efforts to curb illicit trade in counterfeit and pirated goods, online commercial piracy, trade secret theft, and other acts of IP infringement are maintained as a top priority.”

Vishal J. Amin, former senior counsel on the House Judiciary Committee, was appointed by President Trump in 2017 and is the new White House “IP Czar.” He will presumably oversee implementation of the 2017-2018 directives established by Marti and his team from the current White House perspective.

Another document that offers less IP policy and strategy than economic justification and enforcement advice is “Intellectual Property and the U.S. Economy.” Published in 2016 by the USPTO with the Economic and Standards Administration, the 54-page report offers a great deal of data in support of various industries’ reliance on IP, but few specific policy directives for maintaining U.S. IP/innovation leadership, for creating jobs or dealing with sometimes unfair competition, foreign and domestic.

Unicorn IP

A study by the Foresight Valuation Group covered in IPWatchdog in 2015, found that 30% of U.S. Unicorns have no U.S. patent assets. About 62% have only 10 or fewer (issued and pending) U.S. patents in their name; these companies account for more than $157 billion in collective valuation and $25 billion in combined funding. The number of Unicorns, more than two-thirds of which are US software companies, reached 150 two years ago.

Unicorns can well afford to file patents but are either now unable to because of the nature of their business (software), or choose not to because of patents’ increased uncertainty. Snap, Inc. is an example of a leading social media company that had its $31 billion valuation cut in half since March 2017, due in large part to Facebook’s pursuit of highly similar products.

“Facebook/Instagram… has been trying to copy Snapchat out of existence for years, and they might be succeeding,” reports The New York Times. “Instagram Stories, a near-clone of Snapchat’s most distinctive feature, has reached 300 million daily active users, nearly twice as many as Snapchat.”

If Snap with 150 million daily users cannot rely on IP rights fend off Facebook, who can? Falling behind in the amount and quality of IP protection to China, which 35 years ago had no patent system and today has among the best, should not be considered an option. In a recent Wall Street Journal op-ed, journalist David Kline said that it is not China that Americans should fear, but “the US’ own complacency about making the IP system work as it is intended.” He may be right.

Technology giants, especially the FAANGs (Facebook, Amazon, Apple, Netflix and Google) are seen by many as among the most ardent IP abusers. Some see them serial IP infringers. Their respective business models are less about paying for the rights they need than simply taking the IP they require and dealing with the financial consequences, if any.

The FAANGs, and others, who dominate the competition and monetize their customers’ information, often without permission, realize they are increasingly symbols of bad business behavior. The heat they feel from regulators in Europe and the U.S. will continue to rise. IP infringement will come to be seen as an increasingly important part of their bad behavior. The timing is perfect for them to step back and step up and show the leadership they heretofore have chosen to ignore regarding IP rights. Movement toward a responsible IP middle ground – a less entrenched position that recognizes others’ rights and actively conveys a greater willingness to share successes and not only defend them – will help to inform a meaningful IP policy.

A Threat from Within

Inability to predict or control the future is the greatest threat to many market leaders. Their DNA compels them to seek growth and generate shareholder value. But refusal to acknowledge the IP contributions of other businesses and individuals, as well as the rising capabilities of other nations, is a good way for an industry to fuel its own demise and many jobs with it. U.S. automobile-makers are still recovering from the siege mentality that decimated market share and resulted in two huge bankruptcies that to recover from required billions of dollars in government assistance.

Few would disagree that the IP pendulum has over-swung. Here are the facts:
 

• China can and will become the go-to nation for IP, if permitted
• Some leading tech companies put on a friendly face but believe they must succeed at any cost; they see IP as a threat, national priorities be damned
• Audiences need to know how IP rights work, including the prosperity they generate

To strike a proper balance, various parties need to be responsible. IP policy and practice leadership will need to come from government agencies that can work together with each other, as well as inventors, authors, investors, universities and the public. It will also need to come from established businesses willing to think strategically about the future. Willingness to recognize the threat to U.S. IP leadership from within – and the dangers of not – will help to assure that innovation, authorship and know-how remain integral to the nation’s future, and that industry-creating, job-generating American businesses are here to stay. Now, is the time for a U.S. IP policy creators, businesses and government can believe in.