If there is one thing that Democratic and Republican voters can agree on it’s that deep-pocketed special interests, especially foreign interests, have too much power in Washington D.C. However, so far, the Trump administration has shown little desire to keep policymaking separate from the influence of wealthy power players. President Trump’s nominee to lead the U.S. Patent and Trademark Office (USPTO) – a lesser known, but significant agency – appears to continue this trend.
Director-nominee John Squires’s close ties to intellectual property (IP) litigation funders raise questions about whether he will prioritize American inventors over the growing global network of hedge funds, sovereign wealth funds, and other investors exploiting U.S. IP for profit.
IP and intangible assets account for more than 80% of S&P 500 firm value and U.S. patents are coveted globally. Competitors like China are rapidly growing their share of U.S. patents granted, while American inventors accounted for less than half of all grantees last year.
Because these patents are such lucrative assets, U.S. IP rights have drawn attention from investors domestically and abroad. One way this manifests is via litigation investment, a multi-billion-dollar industry built on generating returns through lawsuits. Investors, including those based overseas, finance lawsuits in U.S. courts for a share of any settlement or award. Last year, 32% of the industry’s new capital commitments were for patent litigation, and that money has gravitated to a particular type of arrangement.
Non-practicing entities (NPEs) are companies that don’t sell or make any products. Yet, they are responsible for more than half of all patent litigation and, at minimum, 1 in 4 NPE lawsuits are backed by outside investors. NPEs collect patent portfolios that they identify as unused or under-used and aggressively deploy them. This litigation is used to extort licensing deals, settlements, or jury verdicts from companies that, unlike NPEs, actually produce goods. Policymakers are increasingly concerned that foreign funders anonymously backing patent infringement cases against American companies poses a significant security vulnerability.
This is the world that the likely next USPTO director comes from, having served as chief IP attorney at Goldman Sachs after having worked to establish Fortress Investment Group’s IP fund. Fortress claims to be the world’s largest investor in patent litigation and has backed NPE cases against U.S. manufacturers. A sovereign wealth fund now owns it and has been characterized by a former USPTO acting director as “the antichrist of the patent world.”
Squires’s nomination corresponds with the USPTO shifting policy to give NPE plaintiffs and their investors an advantage over homegrown industries like auto and tech manufacturers, which are commonly victims of the bogus lawsuits.
The best defense against this type of legal harassment is the Patent Trial and Appeal Board (PTAB) at the USPTO. Here, a panel of expert judges can rereview previously issued patents and invalidate them if they don’t meet basic quality standards. The process is an efficient way to clear up patent infringement accusations when the underlying claims are meritless. But interim USPTO leadership has recently chosen to undercut PTAB review, with a series of changes that will make it much more difficult for petitioners to access the PTAB at the very moment when it is most critical, when they are targeted with litigation. As a result, many startups, manufacturers, and others will no longer be able to avoid being held over a barrel in investor-backed litigation.
The self-imposed gutting of the PTAB makes news like a Chinese tech company turning over thousands of patents to an NPE owned by Fortress even more concerning. Chinese entities have a history of prioritizing IP quantity over quality and the only logical reason Fortress would acquire these patents is to profit via litigation. The soon-to-be victims’ best recourse may now be off the table because of the PTAB’s policy changes, an issue that should be relevant for Senate Judiciary Committee members overseeing Squire’s nomination, like Senators Adam Schiff and Josh Hawley, who have long been concerned with Chinese economic interference.
Years ago, Squires himself expressed concern with “patent examination quality issues, predatory patent assertions, and litigation abuse,” which seem to cut against his ties to the likes of Fortress. With the transition in agency leadership, the USPTO has an opportunity to immediately rebalance policy in favor of domestic industry, but doing so will require reprioritizing U.S. interests over foreign entity profits.
In the weeks ahead, as he goes through the confirmation process, Director-designate Squires should make clear that he will do just that.
Mark Udall served Colorado in the U.S. Senate from 2009 until 2015.
Mark Udall served Colorado in the U.S. Senate from 2009 until 2015.
