Misguided patent legislation threatens American leadership

The United States is one of the most innovative nations in the world.  The foundation for our strength in innovation rests on our commitment to the rule of law and our strong system of protecting intellectual property (IP).  Our Founding Fathers recognized the critical value of intellectual property to our nation’s future and enshrined in our Constitution the protection of inventors’ discoveries (Article I, Section 8). They believed that America’s ability to invent the “next great breakthrough” required powerful incentives that included enforceable property rights. 

For more than two centuries our legal system has protected the owners of intangible property such as patents with the same rigor as it has protected owners of physical property against wrongful taking or trespass.  That protection has bolstered innovation by universities, research foundations, small and large businesses, and individuals across a broad array of endeavors.  Nearly 40 million America jobs are now directly or indirectly attributable to ‘IP intensive’ industries, which pay higher wages to their workers and account for approximately 90 percent of U.S. merchandise exports and a substantial share of services exports.  

{mosads}We must not erode this incentive to develop novel ideas or restrict the opportunity for inventors to license their know-how.  Unfortunately, there is legitimate concern that patent legislation currently pending before the U.S. Congress — H.R. 9 (the Innovation Act) and S. 1137 (the PATENT Act) — would do just that. 

A stated aim of the pending legislation is to stop abusive patent litigation. Without question those who seek to abuse the patent system should be rooted out for the same reasons that our courts guard against abusive litigation involving physical property.  But as currently drafted, the bills would fundamentally weaken basic patent rights by protecting infringers at the expense of patent holders. This would be devastating to small and large entities that invent or seek licenses to use inventions of others. 

A particularly problematic component of the House and Senate bills is the so-called “customer stay” provision, which like other parts of the legislation is much broader than necessary to achieve its stated goals.  The provision seeks to ensure that a business that buys and uses a patent-infringing off-the-shelf product may avoid litigation that is more appropriately brought against the manufacturer of the product. The provision would “stay” or stop litigation against such “customers” and force patent holders to first go after “upstream” manufacturers. The problem is that the definition of “customer” is so broad that the right to stay litigation would also apply to large manufacturers, assemblers, and retailers that may reap millions or even billions in profits from using and selling the infringing product or component.   

Helping the final end user of the infringing product is one thing — for example, the small business that unknowingly purchases a Wifi router or printer from the local big box store; but this radical change of the law goes too far.  The ambiguous definitions in the provision could be easily abused and allow entire supply chains to continue to benefit from selling stolen intellectual property.  And because many manufacturers and assemblers are based overseas, the provision would force the holders of patent rights to seek redress against foreign infringers that may reside in countries like China where evidence is difficult to obtain and courts do not enforce U.S. judgments.  If the foreign company has no U.S. assets, the patent holder would be out of luck and very possibly out of business.  

In short, the customer stay provision denies, or at least indefinitely delays, the patent owner from having his or her day in court against major infringers, leaving them virtually powerless to defend their innovations.  

If we proceed with weakening our support of the rights of patent holders, we will encourage other nations to do the same, for as a technology leader we set the example. This dynamic is particularly problematic as the United States is currently engaged in major trade negotiations where we have made the international adoption and enforcement of strong IP rules a top priority.  

In today’s world, more than ever, innovation undergirds America’s domestic prosperity and its global leadership.  We need to take care that we do not put our innovation economy at risk by eroding the patent rights that support it. 

Hills served as U.S. Trade Representative from 1989-1993 and as secretary of the Department of Housing and Urban Development from 1975-1977.