Congress Is About to Make Patent Theft Easier – Inside Sources

Congress wants to prevent foreign adversaries from harassing American companies and stealing their intellectual property. Its proposed solution would inadvertently leave America’s small inventors and entrepreneurs more vulnerable to IP theft than ever.

The Protecting Our Courts from Foreign Manipulation Act would make it harder for small companies to access the capital they need to defend their patent rights. Patent thieves are often larger and better-resourced than the inventors they steal from, forcing small inventors to seek outside capital to stand a fair chance in court.

By imposing burdensome new disclosure mandates on those arrangements, the bill would deter investment in litigation and prevent many small innovators from accessing justice.

In short, the bill would make it far easier for predatory corporations, both foreign and domestic, to violate the rights of smaller American innovators. That risks doing serious damage to America’s innovation economy.

The Protecting Our Courts from Foreign Manipulation Act is based on a simple premise: that foreign entities secretly fund small companies and inventors in patent lawsuits against U.S. businesses. As the theory goes, foreign funders use those cases to harass American companies and obtain sensitive business information, such as trade secrets — a protected form of intellectual property. To solve this alleged problem, the bill would require companies to disclose any legal funding provided by outside parties.

There is little evidence that such a threat exists. The United States already has robust safeguards against foreign interference. The Committee on Foreign Investment in the United States reviews foreign investments that could pose national security risks, while courts routinely examine litigation funding arrangements when they deem it necessary.

Nor does the theory make much practical sense. Courts typically issue protective orders that prohibit litigants from sharing confidential business information with outside funders. If caught, litigants would face serious legal consequences, putting their funders’ investments in jeopardy.

If foreign actors are determined to steal American trade secrets, they have other ways to do so. Espionage, cyberattacks and other forms of technology theft are faster, more direct, and — unfortunately — already widespread.

There’s little reason to believe the Protecting Our Courts from Foreign Manipulation Act would meaningfully protect American intellectual property. On the contrary, it would endanger another form of U.S. IP by undermining small innovators’ ability to defend their patent rights.

There’s a good reason that small inventors and entrepreneurs frequently rely on external funding to fight patent infringement. Patent lawsuits are expensive. And large patent infringers often use that fact to their advantage. When their smaller victims try to hold them accountable in court, they simply drag out cases and drive up costs until the smaller party can no longer afford to continue fighting.

Third-party litigation funding helps address that imbalance. Small innovators receive the capital they need to compete in court. In return, they provide investors with a share of any recovery. That encourages investment in meritorious cases and ensures that lawsuits are decided on facts rather than finances.

The proposed bill’s disclosure requirements would undermine this mutually beneficial system.

If companies are required to disclose the details of every litigation funding arrangement, they will be forced to reveal valuable information about their financial resources and legal strategy. That would make it easier for corporate patent infringers to turn lawsuits into battles of attrition.

Even more important, disclosure mandates could discourage investment altogether. Venture capital firms, private equity funds and other investors usually operate confidentially, not because they have something to hide but because disclosing their stake in lawsuits would invite pressure campaigns and retaliation from corporations. If there is no way to fund patent lawsuits discreetly, many investors will decline to do so at all.

That would leave startups, entrepreneurs and independent inventors with fewer opportunities to secure the funding they need to protect their intellectual property. At the same time, it would benefit large corporations by reducing the risks of patent infringement.

Because many of the world’s most aggressive patent infringers operate outside the United States, some of the largest beneficiaries could be foreign companies. In attempting to protect U.S. industry, the bill could inadvertently strengthen foreign competitors at the expense of American innovators.

America leads the world in innovation because our patent system gives even the smallest inventors an opportunity to compete. Weakening inventors’ ability to enforce patent rights would make the U.S. economy less dynamic, competitive and fair.

If lawmakers want to protect U.S. businesses from unfair foreign competition, they should reject the Protecting Our Courts from Foreign Manipulation Act, and instead strengthen the patent rights that make American innovation possible.