History and Future of Global Patent Policy
History and Future of Global Patent Policy
Maybe the real innovations were the FRANDs we made along the way
To discuss the domestic and international implications of patent policy, ChinaTalk interviewed Brian Pomper. Brian was the Chief International Trade Counsel to Senate Finance Committee Chairman Max Baucus and is now a partner at Akin Gump.
We discuss:
The history of America’s innovation hegemony, from the signing of the Constitution to patent trolls and Elon Musk
Why big tech companies spent decades systematically attacking the foundations of the US patent system
The thermonuclear patent war of Apple vs Samsung
The evolution of Standard Essential Patents (SEPs) as a battleground for emerging tech competition
Why China’s approach to patent litigation is causing controversy in Europe
The intersection of patent policy and international trade agreements.
Thanks to The Innovation Alliance for sponsoring this episode. The Innovation Alliance is a coalition of research and development-based technology companies representing innovators, patent owners, and stakeholders who believe in the critical importance of maintaining a strong patent system that supports innovative enterprises of all sizes.
A Brief History of Patents in America
Jordan Schneider: Intellectual property as a concept can be traced back to the Greeks— someone in 500BC patented a food dish! Then we get our first real patents in Renaissance Italy. But fast forwarding a bit, Brian why don’t you kick us off with the Constitution?
Brian Pomper: In the original text, aside from the Bill of Rights, the only right explicitly included is that of authors and inventors to exclusive rights to their inventions.
“Congress shall have the power to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
~ Article I, Section 8 of the US Constitution
I’ll share my own history with patents as well. My position in Congress was Chief International Trade Counsel to the Senate Finance Committee, but my experience with intellectual property goes back further.
I have a degree in mechanical engineering, of all things, and I am a member of the US Patent Bar. I took the bar exam because I was trying to avoid work for a week at my private sector law firm job.
That was a failed strategy on my part, but it left me in the unique role of a trade lobbyist with patent bar membership and an engineering background. That’s why I approach patent policy from the standpoint of geostrategic competition with China.
Jordan Schneider: Why did the founders care about this?
Brian Pomper: In England, only those who manufactured a product could have rights over their invention. It was almost like a reward system from the government — a benefit given to favorites of the court.
In America, the idea was to democratize the process. The thinking was that there was significant inventive creativity among the American populace, not just among rich people with government connections or the means to build factories.
One of the first pieces of legislation Congress passed was the Patent Act of 1790. I strongly believe that the patent system has been a foundational component in setting the American economy on the right course and developing a culture of unique, innovative creativity that we still enjoy today.
Jordan Schneider: Can you take us through the 19th century? How were patent rights respected or not respected during this period?
Brian Pomper: I’d refer to the work of my friend, Professor Adam Mossoff from George Mason University. He’s done extensive historical research on this topic. When policymakers are told about “patent trolls” taking over the American economy, Adam points out that the 19th century actually saw a lot of patent litigation activity.
Many famous inventors like Alexander Graham Bell had to litigate to secure their exclusive rights. Thomas Edison and the Wright brothers also engaged in similar practices. However, no one at the time called them patent trolls. That term is really an invention of late 20th-century America.
This brings us to an important inflection point in how we view patents. Around 1982, a commission looking at American competitiveness suggested creating a unified patent court, which led to the establishment of the Federal Circuit. The idea was to ensure uniformity in patent law interpretation across the United States, rather than having different geographical interpretations.
This focus on strengthening patent rights and ensuring predictability contrasts sharply with the current climate.
For at least the last 20 to 30 years, there’s been a sustained attack on the patent system, driven by two main factors: high-technology goods and pharmaceutical products.
Jordan Schneider: Let’s move into the 1990s and 2000s. What are some big legislative landmarks that changed how patents work in America?
Brian Pomper: The high point of support for the intellectual property system in the United States and globally was when the World Trade Organization came into existence in 1995. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provided common standards for how countries around the world needed to treat intellectual property.
This US government initiative aimed to set a foundational floor for intellectual property enforcement in every country. The idea was that the United States, with its highly inventive economy and companies with large patent portfolios, would benefit from instituting a rule of law approach to intellectual property globally.
However, there was a backlash to the TRIPS agreement from some developing countries who felt it was too one-sided, benefiting developed countries more than those still climbing the development ladder.
Two other elements led to the erosion of support for the intellectual property system, specifically the patent system, in the United States.
First, concerns about rising drug costs led some politicians to point to patent rights as a reason for expensive medicines.
But even more importantly, the late 1990s and 2000s saw the rise of gigantic technology companies. We all know who they are — they are the largest companies the world has ever produced. These companies — while highly innovative and extraordinarily successful — aren’t innovative or successful because of reliance on their patents. Some are essentially advertising companies, while others are effectively online retail companies. Many package other people’s inventions into products they sell.
What all these companies had in common was that patents were a cost for them because they were selling products, not technologies per se. These products often incorporated many other people’s technologies.
For instance, consider a desktop computer. That has numerous technologies implicating many patents. The chances are not insignificant that you’re using somebody else’s technology without permission or a license. This situation ultimately results in a request for a license and perhaps litigation if there’s no agreement.
The rise of the high-tech industry and the business models of these companies led to a circumstance where it was in their economic interest to challenge the foundations of the patent system. This system should provide stability and predictability for patent owners. If you’re a patent owner, you want to know that your right is durable. This allows you to raise money and promise investors that this technology is yours and only you can use it. You can then create a company that implements that technology.
If a patent can be easily challenged, dragged into court, or brought before an administrative tribunal — that creates uncertainty for years. It hinders the inventor’s ability to attract investment and develop the technology as they should.
Speaking as someone who cares about patent policy, I believe this is negative for the U.S. economy. The U.S. economy should welcome inventors and ensure their rights are stable and secure so they can attract investment and become the next very large companies in the United States.
Jordan Schneider: Let’s point to one counterexample. Elon Musk — famously not a big patent advocate — has said in the past that SpaceX basically patents nothing. His argument is, “patents are for the weak,” and anything they patent regarding their rockets would just be something that Chinese competitors could copy and paste.
Clearly, there is significant innovation behind a project like Starship. Writing off companies that make products as “not technologically forward” might be pushing it too far.
However, there are clearly different ways to approach the cost-benefit calculus of patent portfolios. If Elon Musk held more patents and aggressively enforced them, would that hurt small firms or firms focused on R&D instead of productization?
Brian Pomper: First, I want to emphasize that I did not say these companies were not technology-forward. They’re highly innovative and successful companies. They just don’t use their patents to monetize or secure investment in the way that many inventors do. Different companies have different approaches.
When Elon Musk says he won’t patent his inventions because then the Chinese can copy the technology, he’s referencing the fact that patents are public documents. The patent trade-off is that you get exclusive use of that innovation for 20 years from the filing date, but you have to make your idea public. The idea is that if you make it public, others can learn from that technology and build upon it.
If Musk is saying he won’t get a patent because he’s afraid others will steal the technology, he’s really relying on trade secrets. From the standpoint of what’s best for the American economy and innovation, relying more on trade secrets than patents is negative. Trade secrets don’t teach the rest of the public what your technology is, making it difficult for people to build upon it.
Regardless, having a patent is crucial for attracting investment. Ask any venture capitalist what they inquire about when considering investing in a company. One of the first questions is whether the technology is patented. This question is common on shows like Shark Tank for a good reason. Investors need to feel assured that if they invest in Company A, Company B won’t come along and make the same exact product to compete with them.
Patents are undeniably useful for the American economy, but perhaps not for every business model — as Elon Musk has demonstrated.
Jordan Schneider: Let’s go back to the policy wars that have been fought over intellectual property in the 21st century. What have been some landmarks in the 2000s that have changed the terms of debate?
Brian Pomper: Some of the big high-tech companies have fought long and hard to change the patent system to suit their particular business model. If you’re a small company going up against a very large, well-resourced company, it’s difficult to negotiate as equals unless you have the exclusive right to a particular technology that the large company wants or needs to use. Patents level the playing field in negotiations.
This is an important aspect of our system that should encourage innovative challengers to technology incumbents. It’s how we grow and develop. Of course, big tech companies don’t want challengers; they want to preserve their markets and monopolies.
For the last 20 years, these companies have pushed hard for changes to the U.S. patent system, some of which they’ve achieved legislatively.
In 2011, Congress passed the America Invents Act, which created a process at the US Patent and Trademark Office for administrative challenges to patents. If the patent office made a mistake in issuing a patent, then they should be able to revoke it — that was the idea. At the time, the intent was to create a cheaper, quicker alternative to patent litigation for dealing with mistakes made by the Patent Office.
In practice, this has provided a tool for well-resourced accused infringers to go after patent holders.
They can file multiple challenges at the patent office on various grounds, lasting years and grinding down smaller companies that lack the resources to defend against these challenges.
This has created an imbalance, and there are now legislative efforts to bring more fairness to the process and make it more like what the original drafters intended.
While these companies succeeded in getting the America Invents Act passed in 2011, they were unsuccessful in achieving many other changes through legislation. However, they were successful in getting these changes through the courts. Their public relations campaign tarnished the patent system as a playground for abusers and patent trolls, which I believe was always overblown.
This narrative had a profound impact on judges, leading them to feel responsible for providing relief to those being challenged.
One important example is the 2006 Supreme Court decision in eBay v. MercExchange, which made it very difficult for patent owners to get injunctions against further infringement. This means that even if you prove your patent is valid and I’m infringing on it, the court may not allow you to stop me from using your technology. You’re left trying to negotiate how much I’ll pay you to use the patent, even though you can’t stop me from using it.
Thermonuclear Patent Wars
Jordan Schneider: Let’s discuss the most famous patent fight of recent vintage: Apple versus Samsung. How did the post-eBay v. MercExchange landscape affect that famous dispute?
Brian Pomper: The fight between Apple and Samsung was the patent-world equivalent of a global thermonuclear war. It played out in courts everywhere, but most prominently at the International Trade Commission (ITC), where Samsung sought to block the importation of certain iPhones into the United States, alleging they infringed Samsung’s patents.
This case is crucial because the patents Samsung accused Apple of infringing were standard-essential patents (SEPs).
SEPs are a unique type of patent. They are incorporated into industry-wide standards that all companies must use. For instance, every cell phone in the world uses the same wireless standardization.
When a company’s patented technology is incorporated into a standard, it comes with certain responsibilities.
The patent owner must agree to license their patent on fair, reasonable, and non-discriminatory (FRAND) terms to anyone who wants to use it. This responsibility exists because if every company selling a cell phone must use a standard for interoperability, they’re inevitably using the patented technology and must pay for its use. Without FRAND terms, the patent owner could charge extortionate amounts, knowing companies have no choice but to use the standard.
In the Apple-Samsung case, Samsung alleged it had offered to license Apple the patent on FRAND terms, which Apple refused. Conversely, Apple argued Samsung never offered FRAND terms. Ultimately, the U.S. Trade Representative decided there was insufficient evidence to prove Samsung had offered FRAND terms, so they didn’t allow the ITC to block Apple’s phones from being imported into the United States.
This decision called into question the enforceability of SEPs, which are prevalent in various technologies worldwide, especially cell phones. It raised concerns about whether companies would want to contribute their technology to standards if they couldn’t enforce their patents. This controversy continues to this day.
Jordan Schneider: Let’s take a step back and discuss SEPs. Long-time ChinaTalk listeners may remember a fun show from two years ago that covered the 200-year history of international standards [it’s a husband-and-wife team who wrote the book together—adorable!].
SEPs are the reason we have technologies like 5G. Companies worldwide contribute their engineering expertise to solve portions of the problem, then negotiate what percentage of work they should be credited for if their technology becomes part of the standard.
Once everyone agrees on what 5G looks like, companies are paid a percentage based on their contributions. This system allows us to have 5G phones that work anywhere on the planet. It’s a remarkable example of global cooperation. How has the SEP landscape evolved over the past few decades, aside from the Samsung story?
Brian Pomper: The primary question regarding SEPs is how they can be enforced. Specifically, can SEP owners obtain injunctions against infringers or exclusion orders at the ITC? This is the crux of the argument. Some argue that SEP owners should never be able to enforce their patents because they have significant market power due to their patents being included in mandatory standards.
Others, myself included, believe that the negotiation process we’ve established, where the SEP owner must offer to license the patent on FRAND terms to a willing licensee, has worked effectively. This system has been in place since its inception and has proven successful.
Those who argue that the SEP system is broken and that these patents shouldn’t be enforceable through injunctions or exclusionary relief due to anti-competitive impacts overlook a crucial point. There are currently 8 billion humans on Earth and approximately 10 billion cell phones, each of which will be replaced in the next two years. If there were anti-competitive effects in the SEP system, we would see restricted product availability and difficulty obtaining goods. However, that’s not the case with cell phones.
The system has worked daily to create the profusion of technology we see. While there are occasional instances of intransigent companies on either side, the litigation system exists to resolve these issues.
Jordan Schneider: What should patent owners do if they feel their SEP is being violated?
Brian Pomper: If you’re an SEP owner and someone is using the standard (and therefore your patent), you approach them and say, “I see you’re using this standard. I have an SEP incorporated into it, and you need to license it from me. I’m offering to license the patent on FRAND terms, in accordance with the rules of the standard-setting organization."
The other party might respond, “I don’t think that’s a FRAND offer. You’re asking for too much.” If negotiations fail, you can sue them. In court or at the ITC, you would argue that you offered to license your SEP on FRAND terms, but the other party is an unwilling licensee. The other party would counter-argue that they are a willing licensee, but you’re refusing to offer FRAND terms. The court or commission would then examine the evidence and make a determination.
Jordan Schneider: Can you define FRAND? What parameters do people argue about when one side claims FRAND and the other disagrees?
Brian Pomper: FRAND (Fair, Reasonable, and Non-Discriminatory) is intentionally not a defined term. In antitrust law, competing parties can’t agree on prices, as that would be a classic antitrust violation. Therefore, entities in a standard-setting body can’t collectively agree on a specific price for FRAND terms.
FRAND is a negotiated construct that can vary depending on the counterparty. For one party, it might involve monetary payment. For another, it could be a cross-licensing agreement. For a third, it might be a combination of payment and licensing. It’s a very fact-specific inquiry.
What’s clear is that if I agree to license you a patent on certain terms but tell someone else I won’t license it except for an exorbitant amount, the second offer is clearly not FRAND.
Jordan Schneider: Does every contract involving an SEP have to be public? How do you get to the bottom of this?
Brian Pomper: It’s a determination made by the court. If I claim my offer is FRAND and you disagree, I’m not entirely sure who has the burden of proof. If it’s me, I might need to present to the court the other licenses I’ve negotiated and demonstrate that the terms I’m offering you align with those previous agreements.
There’s no central clearinghouse for this information. You only get to that point once you’re in litigation.
Jordan Schneider: So, let’s say you win, and I’m found to be violating your patent. What are your options to penalize me?
Brian Pomper: Most patent owners, especially those with SEPs, want to license their technology rather than engage in court battles. In 99% or even 99.9% of cases, the SEP owner and the standard implementer agree on license terms.
If you were to lose, and the court ruled in favor of the patent owner, or the ITC said that they were going to issue an exclusion order for your products, then the patent owner would typically say, “Okay, I’m obligated to license to you on FRAND terms. Let’s discuss what that means now.” You could choose to stop implementing the standard, but chances are you’ll want a license.
Jordan Schneider: What’s an exclusion order?
Brian Pomper: The International Trade Commission, established in 1930, protects U.S. commerce from imports that infringe on U.S. intellectual property. If you’re a U.S. company and believe an import infringes your intellectual property, you can file a petition with the ITC requesting an exclusion order. This order instructs the customs department to prevent the infringing product from entering the United States. While this is a simplified explanation, it captures the essence of an exclusion order.
China and International Patent Law
Jordan Schneider: Let’s discuss the patent drama in the EU. What’s happening there?
Brian Pomper: The European Commission proposed, and the European Parliament recently passed, a series of changes to their intellectual property system, including modifications to how the Standard Essential Patent (SEP) system would work in Europe. These changes involve creating a government bureaucracy to determine the essentiality of patents and provide recommendations for license values.
This approach raises concerns. First, it seems to undermine the value of SEPs. Europe has some very large and successful companies that own substantial portfolios of SEPs, most notably Nokia and Ericsson. The motivation behind this regime appears to be driven by the automobile industry, particularly German auto companies, as cars are becoming essentially cell phones on wheels. These companies want to access the necessary technology as cheaply as possible, making it difficult for SEP owners to negotiate significant licensing fees.
It’s worth noting that the licenses for SEPs are relatively modest in the grand scheme of things. For example, Tesla charges users like me $99 a year for Lidar and WiFi technology in their cars, while they likely pay around $20-$25 for a lifetime license to that technology per car. This arrangement seems quite profitable for Tesla.
Another example is the dispute between Apple and Qualcomm over Qualcomm’s SEPs. Public reports suggested that Qualcomm was charging about $10 per iPhone for their license. Considering the price difference between an iPod Touch (without wireless technology) and an iPhone, this $10 fee seems reasonable for the added functionality.
These examples demonstrate that SEP owners aren’t necessarily trying to squeeze excessive profits from technology companies. Many tech companies view this as a volume game, where even small reductions in licensing costs for billions of devices can significantly impact their bottom line.
Jordan Schneider: Can you elaborate on how this situation in the EU relates to China?
Brian Pomper: The EU’s approach seems to inadvertently support China’s efforts in this area. Chinese courts have been attempting to establish authority in setting global licensing rates for SEPs. This means a court in China could dictate what a US or European company can charge for their technology worldwide, not just in China.
This approach undermines the value of SEPs and benefits China in two ways. First, it gives Chinese cell phone manufacturers like Huawei or Oppo cheaper access to necessary technology. Second, it weakens American and European technological leaders, which aids China in its geostrategic competition with the United States.
Jordan Schneider: How does jurisdiction work when there’s a dispute over whether licensing terms are FRAND?
Brian Pomper: In cases involving Chinese handset makers, we’ve seen them file declaratory judgment actions in China, claiming patent invalidity. This strategy aims to bring the case under Chinese jurisdiction, allowing Chinese courts to make global licensing determinations.
We need to consider the US patent system in the context of competition with China. The “Made in China 2025” plan outlines their intentions to dominate future technologies.
China’s command-and-control economy allows for massive, directed investments in specific technologies.
In contrast, the United States relies on market-based incentives to channel private sector money into innovation. The patent system is a crucial part of this policy architecture.
Unfortunately, the evolution of the US patent system over the past 10-15 years has led to a decline in early-stage innovation investment.
Many inventions that are unpatentable in the US are patentable in countries like Germany or China. This situation encourages inventors to develop their industries elsewhere, where they can better protect their technology.
Policymakers should consider the patent system in the context of our competition with China and work to create a more predictable and stable environment for patent rights.
Jordan Schneider: How are international trade agreements addressing these issues?
Brian Pomper: Trade agreements don’t typically address SEP issues directly. We’re seeing a complex situation where a Chinese court might claim the right to set global licensing rates, while the SEP owner might seek an anti-suit injunction in another jurisdiction, such as India, to say that the Chinese court can’t issue a global licensing rate. This results in competing court orders, creating a messy legal landscape.
Ultimately, companies often settle these disputes after extensive litigation. The concern is that the EU’s actions appear to support China’s efforts to become the primary forum for setting global licensing rates for SEPs, potentially undermining the SEP architecture in Europe.
Mom and Dad are Fighting Again
Jordan Schneider: I’m curious about the background of international trade lawyers who focus on technology and patents. Who ends up getting into this field and what are they like?
Brian Pomper: Most people in this field come from an IP law background and encounter international contexts in their work. I’m somewhat unusual in that I’m primarily a trade lawyer with an intellectual property background. There is a significant overlap between international trade and intellectual property, as we’ve discussed.
International agreements, coupled with the global nature of intellectual property companies, create a need for professionals who can defend IP rights overseas. These lawyers tend to be quite technical and detail-oriented.
Jordan Schneider: Litigating these “thermonuclear war” court cases must be fascinating — these companies are fighting over billions of dollars, while still doing business together.
To me, the lawyers in this dynamic are like kids watching Mom and Dad fight. It’s uncomfortable, but no one really thinks that divorce is on the table.
At the end of the day, there’s so much money to be made that these companies end up finding terms.
Any further thoughts on this dynamic?
Brian Pomper: These disputes are ultimately about licensing fees. The litigation is an attempt to gain leverage in determining the ultimate licensing fee. For example, in the Apple-Qualcomm dispute, Apple likely didn’t question whether it was using Qualcomm’s patents but was trying to negotiate a lower licensing fee.
When dealing with billions of products, even small changes in licensing fees can make a significant difference. We’re now seeing automobile companies join this fight as cars become more technologically advanced, seeking cheaper access to patented technologies.
This approach may be short-sighted for the United States and possibly even for the auto companies themselves. It often comes down to protecting bottom lines.