The U.S. Should Strive to Protect Its Intellectual Property Abroad | Commentary

Posted December 8, 2014 at 6:55pm

The Chinese government recently announced it will establish its first independent court in Beijing for adjudicating intellectual property (IP) rights disputes. Officials plan to create two more in other key commercial hotspots within the next couple years.

Hopefully, this court’s creation serves as inspiration for further reforms, both in China and throughout the international economy. Foreign abuses of American IP inevitably resonate back to the economy here at home.

Intellectual property rights — such as patents, copyrights and trademarks — are the backbone of the American economy. They create the financial incentives for inventors to take risks on their ideas.

As the American economy has evolved from one driven by labor to ideas, IP-related industries have played an integral role in driving growth. They now add $5 trillion to the economy annually and support some 40 million jobs.

American colleges and universities are a key source of new IP. This country’s robust IP laws serve as a magnet for global talent. Top-flight researchers from all over the world come to work at American institutions because our legal system offers an iron-clad guarantee that they can own — and profit from — their ideas.

Academic researchers, usually in conjunction with private industry, have produced breakthrough products in a wide range of fields, including biochemistry, artificial intelligence, and personal electronics. The associated revenues are a vital source of financing. According to the Association of University Technology Managers, American universities earned $2.6 billion from patent royalties alone in 2012, the most recent year data is available.

Many of these IP-based products wind up in foreign markets. It’s largely left up to domestic regulators to clamp down on counterfeiters, protect the underlying ideas, and preserve the incentives for innovation.

Despite recent developments, China remains grossly negligent in this charge. The U.S. Chamber of Commerce ranks the country a dismal 17th out of 25 large economies in terms of the strength of its IP rights regime.

Shoddy knockoffs of American-made IP saturate the country’s economy. The situation has gotten so bad that Google, which was born on the campus of Stanford University, shut down the bulk of its operations in the country several years ago. Company executives specifically cited lax IP enforcement for core products like Gmail as a reason for the decision.

But poor IP rights protection is not exclusively a problem of emerging economies. In fact, Canada, one of the most advanced economies in the world and a long-time trade ally of the United States, has recently emerged as a top violator. And its abuses find their most acute form in how the country governs pharmaceutical patent law.

In most developed countries, including the United States, officials require a drug to meet three standards in order to be awarded a patent: it has to be “new,” “non-obvious,” and “useful.” For that third category, “utility” as understood in the patent approval process is a much lower hurdle than the subsequent health regulator’s determination of the drug is efficacious and safe for sale. They’re distinct evaluations. It’s left up to health officials, not patent officers, to engage in the exacting process of assessing if a patented drug poses any disqualifying health risks.

Canada doesn’t do it this way. In 2002, the country’s Supreme Court raised the standard for patent utility in a way that approaches the requirements for obtaining market approval. As a result, a drug company hoping to secure a patent for a new medicine is stuck in a strange double bind: it has to prove the drug is “useful” through evidence of long clinical trials, but by the time those trials are done, the drugs is likely no longer “new.

As a result of this change, Canadian courts have overturned patents on 17 drugs, prompting the U.S. Trade Office to keep the country on the official “watch list” of IP violators for the twenty-fourth year since 1989.

The IP abuses of China, Canada, and other key economies don’t just damage American businesses and universities — they also cultivate a toxic global legal environment inhospitable to innovation. It’s not enough for the American government to set smart IP laws and enforce them fairly. Our Congress and administrative officials must do everything in their power to ensure that our trading partners do the same.

Sheldon E. Steinbach is the former vice president and general counsel for the American Council on Education.