Chinese Patent-Infringer Backs US Patent Reform

By Peter Fricke

Needed a reason to be skeptical of U.S. patent reform? Here it is: Reform efforts now have the support of a Chinese company with a history of violating U.S. patents.

ZTE, a state-controlled Chinese telecommunications firm, announced in April that it would join the United for Patent Reform (UPR) coalition, according to TMC Net, leading some to worry that the reforms might enable Chinese firms to steal foreign technology more easily.

The coalition supports efforts to reform the U.S. patent system to prevent frivolous patent litigation, also known as patent trolling. Many believe trolling has become more common in recent years, thanks to the activities of patent assertion entities (PAE’s)— organizations that stockpile patents solely for the purpose of filing infringement suits, with no intention of putting the parents to productive use.

American Conservative Union Executive Director Dan Schneider, who lived in China during the 1980s, told The Daily Caller News Foundation that he believes ZTE’s actual motivation is to reduce the cost of acquiring new patents by making it more difficult for inventors to defend their intellectual property.

“The left, for decades, has attacked the notion of property — real property, personal property, and intellectual property — so it’s not at all surprising that a company backed by a Communist regime would be interested in destroying intellectual property,” Schneider said.

In recent years, ZTE has had numerous infringement claims filed against it by U.S. companies, including Vringo and Interdigital, both of which derive significant business from licensing their patent portfolios.

Moreover, a 2012 report put out by the House Intelligence Committee identified ZTE as a potential security threat, due to its ties to the Chinese government. The report recommends that neither the government nor the private sector do business with ZTE, particularly on projects involving sensitive telecommunications infrastructure.

“Chinese competition agencies are trying to make it as perilous as possible for an American company to prevent its intellectual property from being stolen in China,” Schneider said, noting that, “ZTE is essentially a wholly-owned subsidiary of Communist China,”

Shortly after ZTE joined the coalition, UPR put out a press release applauding the introduction in the Senate of the PATENT Act, which builds on similar legislation in the House called the Innovation Act. Both bills would attempt to limit patent trolling by requiring plaintiffs to detail their allegations more comprehensively when filing a claim, as well as by awarding attorney fees to defendants in cases that a judge declares frivolous.

According to a statement from Erik Telford, president of the Franklin Center, “Both the House and Senate legislation … will deliver a devastating blow to innovation and property rights. China would like nothing more than to see legislation pass that weakens U.S. patent protection and property rights so even more of American invented products can be ripped off.”

Schneider agreed, saying, “The Innovation Act weakens the hand of the actual inventor and strengthens the hand of the person who is unlawfully using patents. It becomes cost-prohibitive for the inventor to defend his or her property interests.”

ZTE, though, claims that it typically deals with around 50 cases brought by PAE’s at any given time, and believes that stricter standards such as those contained in the PATENT Act would dissuade patent trolls from sending unsubstantiated “demand letters” making vague infringement claims.

“Technology innovation is central to ZTE’s business as evidenced by our expanded patent portfolio of more than 60,000 patents filed,” said Lixin Cheng, chairman and CEO of ZTE USA, in a statement. “We hope that by joining other companies who share our mutual respect for intellectual property in the United for Patent Reform, we can encourage others to use their resources to develop new and innovative products for the consumer.”

Schneider challenged that characterization, telling TheDCNF that, “we cannot forget the lessons from Adam Smith: that it’s okay for one person to invent and another person to manufacture. That’s the whole idea of capitalism.”

“The UPR coalition is composed primarily of corporations that acquire patents far more often than they create patents,” he explained. “There’s a dispute between the inventors, who want patent protections to remain strong, and those who acquire patents, who want to reduce the cost of acquiring patents.”

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