Professor Xuan-Thao Nguyen explores government created and funded patent funds in Sovereign Patent Funds recently published in the UC Davis Law Review. In part, Professor Nguyen reviews and analyzes the sovereign patent funds of numerous countries and investigates their role in patent enforcement. The following is a part of her introduction of her article:
What are SPFs? How are they created and structured? What purposes do SPFs serve? Are SPFs effective initiatives for foreign governments to encourage innovation and foster competition or are they merely state-sponsored patent trolls? Are they violating international trade law, specifically the World Trade Organization (“WTO”) Agreement on Subsidies and Countervailing Measures?
This Article is the first to address the above questions. The Article proceeds as follows. Part I traces the creation of SPFs in Japan, South Korea, Taiwan, China, and France. Part I also explains when, why, and how each country provides public funding to SPFs. There are many different types of SPFs in different technology and life sciences areas, and with specific goals and mandates, although several share the same goal of aggregating patents. Open innovation and patent licensing are two common themes among the different goals and approaches employed by SPFs. Part II investigates whether SPFs have engaged in patent assertions — attempts to use acquired patents “to generate revenue by asserting them against alleged infringers.” Part II focuses on the simultaneous litigations filed by the French SPF against LG Electronics Corporation and HTC Germany GmbH in Germany and the United States. Likewise, the Asian SPFs have filed lawsuits against multinational companies. The investigation reveals surprises, including that litigation is typically an SPF’s last resort. SPFs are reluctant to embrace litigation. Part II also examines SPFs’ licensing strategies. French and Korean SPFs seem to have success in licensing out. They direct more efforts to selecting quality patents for licensing. In addition, Korean and Japanese SPFs are engaging in licensing for open innovation.
SPFs have been condemned as global patent trolls and state sponsored patent trolls. Part III addresses whether the pejorative label is warranted. Exploring the popular narrative of patent trolls and the evolving landscape of the patent market where former manufacturing companies and research institutions, along with other non-practicing enterprises (“NPEs”), are participants, Part III reveals that the SPF label does not fit SPFs’ characteristics. SPFs are both diverse and complex. Some have collaborated with universities to engage in specific research and development projects. Some share their profits with original inventors. Some facilitate open innovation. Some are doing all of the above. Condemning SPFs as patent trolls amounts to dismissing the true innovations, research, and development that have been the hallmarks of many industries and sectors in Japan, South Korea, China, and France.
SPFs have also been condemned as a trade protectionist measure in violation of international trade law. Part IV examines the heavy charges that SPFs discourage international technology transfers, depress innovation, force foreign companies to accept unfavorable license terms akin to discriminatory tax, support domestic industries at the expense of foreign firms, resurrect ailing national companies, and cause a race to the bottom. Part IV found no evidence to support these condemnations. On the contrary, what SPFs have done since their existence refutes these charges.
If SPFs are illegal subsidies in violation of international trade law, there is an appropriate mechanism to remedy the harm. Part V turns to the WTO solution, analyzing relevant provisions of the WTO Agreement on Subsidies and Countervailing Measures. Part V discusses WTO Tribunal decisions, as they illuminate and interpret legal requirements in subsidy cases. Part V further suggests that the international framework is suited to eliminate SPFs if evidence exists that a particular subsidy is causing injury to a domestic industry. Certainly, using the appropriate channel to address SPFs is preferable to dismissive and pejorative labeling.
Part VI, however, posits that an international trade solution might be unnecessary because SPFs may soon be relics of the past. SPFs can easily alter their structure to remove the government-sponsored characteristic to quiet critics and restless nation litigants in the WTO Tribunal. Moreover, the global innovation and patent market is dynamic and complex; SPFs will not be able to survive and flourish if they are under governmental control. Part VI observes that, in fact, some prominent SPFs are planning to privatize in order to compete and adapt.
Overall, by creating and infusing SPFs with public funding to aggregate patents, a government can seem to have ownership and control of the patents while simultaneously wielding authority in dispute proceedings relating to those very same patents. The government can block or rule against others from challenging the validity of patents. The same government may coerce others into accepting unfavorable patent license terms. The same government also may protect domestic firms at the expense of foreign firms. Such an arrangement seems to create many conflicts. Additionally, SPFs may be illegal subsidies under international trade law. Also, the creation of SPFs suggests a new global chaos in patents. The new chaos raises fear that SPFs would cause a race to the bottom. SPFs become sovereign patent trolls with levers more potent than private patent trolls, depressing innovation for short-term gains. The fear about SPFs, however, is exaggerated. These concerns perhaps emanate from the tendency to group all SPFs from different countries into one and characterize them within the convenient patent troll narrative. Fear not, the present and future development of different SPFs should instead prompt us to rethink patents and the very laws creating them.
The article is available, here.