Senator Chris Coons introduced a bill this week called the STRONGER Patents Act [PDF]. The bill contains many terrible ideas. It would gut inter partes review (a valuable tool for challenging bad patents). It would overturn the Supreme Court’s decision in eBay v. Mercexchange (thereby allowing patent trolls to get injunctions to shut down productive companies, even though the patent infringed is only on a tiny piece of the larger product). Perhaps most strikingly, the bill includes a provision that would discourage companies from doing research and development in the United States. The STRONGER Patents Act shows how far the certain patent owners are willing to go to serve their narrow interests at the expense of everyone else.
The general rule in patent law is that each country has its own patent system. This means that companies can only be found liable for infringing a U.S. patent for manufacturing or sales that occur within the United States. The Supreme Court has issued a number of sensible decisions affirming this rule. Senator Coons’ bill would upend this principle by making companies liable for foreign sales whenever they conducted the research and development for that product in the U.S.
Section 108(3)(A) of the bill says:
Whoever, without authority, supplies or causes to be supplied in or from the United States a design for a product embodying a patented invention in such manner as to actively induce the making of that product outside the United States in a manner that would infringe the patent if made in the United States, shall be liable as an infringer.
In plain English, this means that if you design a product in the U.S., you can be sued for sales around the world. Worse, a separate provision the bill would have this rule apply even if you independently invented your product, and had no idea you were infringing a patent.
To see the impact of this provision, we can consider how it would apply to fabless semiconductor companies based in Austin, Texas or Austria. The Austin company designs chips in Texas then has them manufactured in Taiwan and sold around the world. The Austrian company designs chips in Salzburg then has them manufactured in Taiwan and sold around the world. If these chips are found to infringe a U.S. patent, the Austin company would be liable for all of its global sales. The Austrian company, however, could be found liable only for its U.S. sales. In this way, Coons’ proposal punishes the Austin company for investing in research and development in the United States.
You might think that the STRONGER Patents Act balances this big disincentive to innovate in the U.S. by making U.S. patents stronger. But that is wrong. You do not need to perform research and development in the U.S. to get a U.S. patent. As long as you meet the criteria for getting a patent, it doesn’t matter if your laboratory is in Austin or Austria. Indeed, in recent years more than half of issued U.S. patents were of foreign origin.
Under Senator Coons’ proposal, the most sensible business model is to do research outside the United States. Foreign companies will have their overseas sales protected. Yet they can still get U.S. patents and use those patents to attack the global sales of U.S.-based companies. As Josh Landau suggests at Patent Progress, it’s hard to think of a more effective way to use patent policy to convince companies to shift their investment in research and development overseas.
Patent owners often insist, without evidence, that “stronger” patents will always mean more innovation. The STONGER Patents Act shows why that is not true. The bill would “strengthen” the U.S. patent system in ways that actively discourages doing research and development here. It makes this choice solely to benefit patent owners. We hope that Congress rejects the terrible ideas in the STRONGER Patents Act and turns to patent reform that would actually promote innovation.