VIEWPOINTS : PROTECTING HIGH-TECH PROPERTY : Trade Laws, Court Fights Not the Best Way to Help U.S. Firms Keep an Edge Over Their Competition
Securing home-grown technology against piracy by international competitors has become a near obsession for the U.S. government and American companies in recent years. With good cause: U.S. firms have reported annual sale losses of more than $23 billion worldwide due to inadequate protection here and abroad.
Under pressure from Washington, several Asian countries have agreed to upgrade their laws protecting intellectual property--patents, copyrights, trademarks and trade secrets. And a number of foreign firms were compelled through lawsuits to hand over sizable royalty fees to U.S. companies and halt the use of patented technology.
In the most recent court decision, a federal judge on Tuesday ruled that internal computer chip designs are covered by copyright law. The ruling gave a partial victory to Silicon Valley’s Intel Corp. in a dispute with Japan’s NEC, but left numerous unanswered questions as to how copyright law will be applied in future cases.
The battles continue. In January, Motorola filed a suit against Hitachi in the federal district court in Chicago, charging that the Japanese company was illegally using Motorola patents in the manufacture of its eight-bit microcontrollers. These tiny chips are essential, among other things, to the functioning of the electronic parts used in new automobiles.
If past cases are any guide, Motorola could pick up a tidy sum if it prevails in court; recent settlements with Japanese firms have run into the hundreds of millions of dollars. Motorola evidently hopes, in addition, that its suit will slow down Hitachi’s penetration of the $2 billion-plus U.S. market for microcontrollers.
Some American executives and government officials, in fact, see protection of intellectual property rights as a means of reviving U.S. competitiveness in world markets. Gordon Binder, chief executive of Amgen, the Thousand Oaks-based biotechnology firm, has called for increased protection of patents and a get-tough policy on trade matters to keep the U.S. lead in the biotech field.
But the inadequacies of the U.S. system for enforcing patent and copyright claims, combined with the limited amount of policing that can be done internationally, make intellectual property protection a weak foundation for restoring competitiveness.
After scoring several victories in bilateral negotiations, the U.S. seems to have hit the wall as far as persuading lesser developed nations to boost their intellectual property protection. The 96-member General Agreement on Tariffs and Trade, or GATT, the world body that sets international trade rules, failed to make any progress on the issue at a key meeting held in December in Montreal.
The problem in the GATT is that the U.S. is overreaching. For domestic political reasons, many countries aren’t able to agree to meaningful guarantees on intellectual property. Such guarantees would threaten entrenched monopolies or raise prices of essential goods. This may look like a cop-out to us, but the same set of calculations--essentially, the avoidance of pain--is keeping the U.S. from reducing its budget deficit.
Traditionally, American companies showed little vigilence about protecting their technological advances from competitors overseas. But following a reorganization of the federal court system for patent complaints earlier in the decade--and the onslaught of international competition--high-tech companies have made increasing use of the courts to fight off what they see as intellectual property violations by foreign firms.
These companies are getting more sympathetic hearings. In one of the most significant cases, Texas Instruments won what could amount to close to $300 million in royalties from nine Japanese and Korean firms for use of its patents in making memory chips.
Even so, patent and copyright litigation tends to be an extremely long and expensive process, best suited for well-endowed companies like TI. Copyright law in particular has been found inadequate as a means of settling disputes, says Judith Larsen, an intellectual property specialist for Dataquest. “Technology has outgrown the capacity of the judicial system to handle it,” she says. “Companies are increasingly bypassing the courts and going to arbitration.”
IBM took this course with Fujitsu and won a $833-million package of payments for use of its software by the Japanese company--although Fujitsu also won access to a new version of the IBM software involved in the dispute.
In the field of biotechnology, firms are chafing over a backlog in the U.S. Patent Office for approval of their patent applications. The congressional Office of Technology Assessment says that there are 7,000 applications pending, a buildup that could take three to five years to process. The delay is devastating for small biotech firms, which need protection to reassure nervous investors.
U.S. biotech companies are also looking to the U.S. International Trade Commission, or ITC, an independent regulatory agency, for protection against patent violations by foreign firms. Amgen filed the first complaint before the body in January, 1988, citing Chugai Pharmaceutical of Japan for allegedly infringing on Amgen’s patent for erythropoieten, or EPO, a drug used to treat anemia. Amgen wants the ITC to ban Chugai’s exports of EPO to the U.S., but in an initial ruling in January, an administrative law judge rejected Amgen’s request.
The judge’s decision reflects the wide split within the patent and trade law community over whether existing trade legislation can be used to protect the U.S. biotechnology industry from intellectual property violations.
Japanese companies, meanwhile, are making much greater use of the U.S. patent system these days, and not just for biotechnology. Close to 25% of the patent applications filed so far in the superconductivity field are from Japanese firms. “It’s unlikely that the Japanese will be frozen out” of the U.S. market by patent suits, says Rob Merges, an intellectual property specialist at Boston University Law School.
Indeed, the Japanese are not only registering more patents, but they are trying to enforce them. Hitachi countersued Motorola in the Chicago courts last month, claiming that the American company had infringed one of its microcontroller patents.
The difficulties in tailoring the U.S. legal system to protect American intellectual property shouldn’t come as any surprise. After all, devices such as patents were not developed to enhance a country’s position in the global economy. “The idea of a patent was to bring in technology,” observes Washington patent attorney Harold C. Wegner. “It wasn’t thought of as a trade weapon.”
Since everyone is thinking in trade terms these days, however, the U.S. government should do all it can to speed up the processing of patents. It would also help for Congress to consider clarifying copyright legislation, and pressure should be maintained on foreign governments to improve their patent and copyright laws.
In the meantime, American companies might do well to cool their ardor for a competitive strategy based on intellectual property protection. As one executive, George McKinney, president of the American Superconductor Corp. of Cambridge, Mass., puts it: “I worry about the quality of work the Japanese are doing,” rather than the patents acquired.
