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Keeping the United States on Top of Its Game

Robert O. Lindefjeld

©2014. Published in Landslide, Vol. 6, No. 3, January/February 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

The United States economy has long been the envy of many a nation. Investors from around the globe routinely look to the United States to provide leadership during times of global financial crises. Foreign countries, too, continue to hold trillions in U.S. treasuries and other commercial investments in our country. Commodities are priced in U.S. dollar-denominated amounts, and even to this day, many countries still peg the value of their domestic currencies to the U.S. dollar. In so many ways, the world community routinely responds to the exertion of U.S.-led financial pressures aimed at securing vital foreign policy objectives that range from the avoidance of armed conflict abroad to the preservation of international human rights. Each of these behaviors reflects the faith that the world has placed in the historical stability and predictability of the United States economy. As an economic superpower, we are currently at the top of our game.

But being on top does not necessarily mean it will always remain so.

With the increased globalization of world trade made possible through enhanced techniques in communication, manufacturing, and product delivery—along with the rise of multinational corporations, some with annual revenues exceeding the GNP of sovereign countries—we have increasingly found ourselves in a highly interdependent world economy. Gone are the days when the economic failing of one country no longer affects another. And whether the problems of the economic malefactor originate from a lack of fiscal discipline, increased debt-service burdens, imprudent national monetary policy, political in-fighting among policymakers, or the successful lobbying efforts of the few for pecuniary gain, the result is the same: the weaker a country becomes economically, the less able it is to influence the world in which it must co-exist.

Given its dominant role in the world economy for the greater part of the past century, it has often been said that “when the United States sneezes, the rest of the world catches a cold.” We should not be fooled into believing, however, that the failure of economic policy at home means the rest of the world is destined to lay dormant until U.S. policymakers get things right. On the contrary, if the United States gradually loses its economic prominence in the world, more countries will seek to insulate themselves from problems originating in the United States. And the less dependent other countries become on the ebbs and flows of the U.S. economy, the greater the domestic challenges will become, thus beginning the downward cycle of diminished ability of the United States to influence the world economy. Such was the fate of the once-great Roman Empire—and history does have a tendency to repeat itself.

The United States owes much of its economic success to judicial protection and enforcement of intellectual property rights. In a “knowledge-based” economy, intellectual property rights have been essential to ensure success of commercial activity that started out with just an “idea.” And while the United States has always harbored a collective “inventive spirit,” the amount of commercial activity based on a mere “idea” has really exploded in the last 40 years.

There are many reasons for the expansion of idea-based economic activity, such as enhancements made in our nation’s education system and our immigration laws. But there are two events in particular that I believe have made our “knowledge-based” economy possible: (1) “homegrown” technology itself; and (2) the systematic strengthening of intellectual property rights, both domestically and abroad.

With “technology itself,” it is axiomatic that the field of information technology has opened up entirely new areas of commerce that previously did not exist and vastly improved those areas that did. The invention of the computer, in particular, has driven everything from online e-commerce to computer-generated movies and music to more efficient factory assembly lines, and even to the mapping of the human genome. For the greater part of the last century, our country has been able to attract the best and brightest minds the world has to offer, such that most of the world’s major innovations occurred within our shores. But that trend is gradually beginning to diminish for a variety of reasons, attributed by many to be the result of, for example, the numerous challenges facing our nation’s education system vis-à-vis those abroad, stricter U.S. immigration laws that have forced scores of U.S.-educated technology workers to return to their home countries (taking their collective knowledge base along with them), and indeed, the steady increase in the standards of living and other conditions that make entrepreneurship more appealing abroad. Whatever the cause of this “reverse brain drain,” “homegrown” technology innovation in this country is not where it once was.

To date, the United States has managed to stay on top of any major expatriation of human knowledge by maintaining a strong intellectual property system. Besides enactment of the basic laws establishing the rights afforded patents, copyrights, and trademarks, the most important historical moment in our intellectual property system was the formation of the United States Court of Appeals for the Federal Circuit. As IP practitioners know, the Federal Circuit is the court where appeals are brought from patent disputes litigated in the district courts around the country.

What the Federal Circuit really did was change the culture of America and the way we perceive intellectual property rights generally. Prior to the court’s formation in 1982, intellectual property rights were viewed with distrust as inherently “anticompetitive.” The Federal Circuit, however, changed all that by systemically enforcing patent rights, bringing nationwide consistency to the application of patent laws, and providing persuasive reasoning for doing so. It wasn’t any single landmark ruling that did this, but rather a series of decisions within the span of a few decades. Over time, as patent rights were recognized and larger and larger damage awards began to be upheld, Wall Street investors and aspiring entrepreneurs increasingly began to take notice of the importance of intellectual property. The accountants gradually took notice as well, as the idea of “intangible assets” took on a much more prominent role on the company balance sheet than it had at any time in the past.

One group of market participants that also took notice in the success of intellectual property was the group of so-called “patent assertion entities.” The definition of what exactly is a “patent assertion entity” has evolved over time, but it is essentially a party that exploits the limitations of our nation’s laws and legal institutions to extract more monetary value from a patent than it is worth. Few would argue that it is improper to hold a party accountable for asserting a right that is not worth anything, either in the form of asserting a patent right that the asserting entity knows to be invalid or not infringed. In that respect, there is little difference between that and, say, a party who improperly asserts a personal injury claim against a defendant when the so-called injured party is, in fact, not injured or the claim is otherwise meritless.

The answer, to some, is to make it more difficult for anyone to assert a claim in federal court, and to impose stiffer regulatory and litigation burdens on every stakeholder in the system. Some recent proposals in Congress, for example, are generally intended to stiffen the cost of improperly asserting a patent in court and to facilitate the shifting of fees associated with bringing an action in federal court. But responding in this way, regrettably, may serve to open whole new satellite areas of inquiry and controversy in pending actions, adding delay and expense in an already expensive litigation arena and diminishing otherwise meritorious claims brought by less-established market entrants. This would hurt every market participant in the system, regardless of the participant’s ownership interest in a particular patent, and would also serve to make intellectual property rights less alienable and less likely to be enforced in legitimate disputes down the road—a regrettable diminution of the value of intellectual property rights that I believe will be reflected over the long term in the company’s balance sheet. In that sense, it is surprising to see that it is the established technology companies (if you can call companies formed less than 20 years ago “established”) pushing for these shortsighted reforms when they are among those that have most benefited from the current patent system itself.

Present and former judges of the Federal Circuit, the court that has guided our nation so effectively through much of our recent technological boom, have expressed concerns regarding the effect that some of the proposals designed as a response to litigation tactics of some patent assertion entities may have upon the justice system as a whole, and the federal court system in particular. My personal opinion is that Congress should continue to rely primarily upon the courts to handle the problem of overzealous litigants. Putting aside any potential for constitutional infirmities presented in legislative reform measures, I happen to believe that federal courts, particularly the Federal Circuit, are best suited to handle the threat that patent assertion entities present to the vibrancy of our system while doing minimal harm to an intellectual property system that has served our nation so well. Our common law system of justice has really served our nation well for so many years and has been shown repeatedly to be the best way of avoiding “unintended consequences” created by legislative fiat. Indeed, the Federal Circuit is uniquely suited to take a targeted approach and serve as a unifying force in addressing what is essentially a “court problem” with the level of precision that a surgeon might take to a patient.

To stay on top, we as a nation need to strengthen—not weaken—our system of intellectual property rights in the United States. And in the spirit of really “calling a spade a spade,” imposing broad-based hurdles and burdens on all rights holders in the interest of deterring and sanctioning a small subset of abusers risks diminishing and devaluing our nation’s intellectual property system. If our intellectual property system erodes, so will our role as a world economic leader, especially when the intellectual property laws strengthen abroad (ironically at the behest of the United States and other industrialized nations) while weakening at home. And if our country’s economic leadership erodes, the United States will increasingly be met with greater economic challenges in the global marketplace. If we truly lived in a world in which we were not so interdependent, perhaps the risks would be minimal. But we do not.

Robert O. Lindefjeld is chair of the ABA Section of Intellectual Property Law. He is general counsel and chief intellectual property counsel of Nantero Inc.