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The spector of state-sponsored ‘patent trolls’

It is increasingly difficult for even the most innovative firms to succeed.

In the midst of a retracting stock market and a stagnant economy, it is increasingly difficult for even the most innovative firms to succeed. Resources are tight and even if you can get a product to market you can‚??t guarantee the customers will recognize its benefits or worse be able to afford it.

This problem is compounded by the parasitic predators — affectionately called ‚??patent trolls‚?Ě ‚?? who‚??s actions cause companies and inventors to waste billions of dollars in legal fees fending off their phony claims.

A patent troll, ‚??non-practicing entity,‚?Ě or ‚??patent assertion entity,‚?Ě is a company or investment fund created to purchase intellectual property rights for the express purpose of suing‚??or at least threatening to sue‚??alleged patent infringers. Many (if not most) of those lawsuits are frivolous, filed in order to elicit hefty financial settlements from companies and innovators unwilling or unable to wage a protracted court battle.

According to the National Economic Council‚??s report in 2013, patent trolls threatened an estimated 100,000 companies with infringement cases in 2012. Some opponents of the patent troll business model have rightly called this ‚??judicial blackmail.‚?Ě

In the United States, both the Federal Trade Commission and Department of Justice have expressed concerns about these destructive strategies, and have explored the regulatory and legal arsenal available to fight such ‚??deceptive trade practices.‚?Ě Congress has also taken bi-partisan aim at patent trolls, and draft bills are pending that would increase patent transparency and make frivolous infringement claims riskier and more expensive for trolls.

But just as lawmakers, regulators, and prosecutors reached into their legal quivers, the patent troll began to mutate into a state-sponsored entity in places like France, Taiwan, and Japan.

The state-sponsored patent troll is a troubling development sure to spawn more aggressive, well-funded patent trolls that will wreak more havoc on innovation, enterprise, and profits‚??only this time, they‚??ll be backed by the full faith and credit of a sovereign government.

France Brevets, for example, is a ‚?¨100 million investment fund co-owned by the French government, and tasked with managing a portfolio of patents and intellectual property rights purchased from French and foreign companies. It is dedicated to ‚??patent promotion and monetization‚?Ě‚??meaning that it doesn‚??t invent or make anything, but will gather ‚??patent clusters‚?Ě from around the world and then ‚??defend those patents‚?Ě by alleging infringement and then threatening lawsuits. All the markings of a predatory patent troll.

The creation of France Brevets exacerbates the risk that France‚??s European neighbors will follow suit, as one international antitrust law scholar has warned, and trigger an ‚??infernal spiral‚?Ě in which ‚??entities such as Germany Patents, Italy Patents, Poland Patents, etc. will paralyze foreign companies‚?Ě and stymie innovators by forcing them into costly intellectual property disputes that will drag on for years.

This nationalistic protectionism is also arising in Asia. In Taiwan, the Industrial Technology Research Institute or ‚??ITRI,‚?Ě a quasi-government agency, holds more than 18,000 patents which it then bundles in a various combinations and licenses to other Taiwanese businesses. ITRI then helps those businesses build intellectual property funding corporations to acquire more relevant patents around the world to construct ‚??patent protection shields.‚?Ě Not content to play defense, ITRI plays offense as well, stating that it ‚??actively extends patent legal right to any infringing party and assists the negotiation and litigation procedures to enforce a patent‚?Ě‚??it plays the role of patent troll.

Similarly, the Innovation Network Corporation of Japan or ‚??INCJ,‚?Ě for instance, is a public-private partnership that has established an initial pool of 5000 patents using 90 million yen in public and private start-up capital, with the long-term goal of building a 30 billion yen patent portfolio. The business and investments of INCJ are managed and supervised by Japan‚??s Ministry of Economy, Trade and Industry.

The negative unintended (or intended) consequences of governments engaging in this sort of anti-competitive behavior and acting as commercial entities in the global marketplace are sure to strain international trade relations, complicate global economic cooperation, and stifle innovation.

Governments are tasked with regulating intellectual property and fairly adjudicating their disputes, not profiting from them. When lawmakers, regulators, and taxpayers become financially entangled in the performance of a patent portfolio or the success of an infringement claim, conflicts of interest will inevitably poison that adjudication process, creating an appearance of bias at best, and actual bias at worst.

Governments should do many things when it comes protecting the legitimate intellectual property interests of their inventors and corporations, but becoming patent trolls is not among them. In a moribund economy, policy makers should be looking at all areas to unshackle innovators. Shutting down the ‚??patent trolls‚?Ě should now be a high priority.

Horace Cooper is a legal commentator and a fellow with the Frontiers for Freedom

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