Patent Wars

Von Clausewitz famously wrote that "war is state policy by other means." We can go further and say that economics is war by other means; wealth is power that a country can use to fulfill state policy without mobilizing its military forces. The wealth of corporations, by use of corporate law and trade agreements, complements direct government action in these policy endeavours. In effect the state operates through the private sector by proxy much as two world powers have often funded other countries as proxies to fight their fights in furtherance of their own policies.

Patents and patent law are important parts of economic warfare. It is often a means to extract wealth from other countries by using international agreements to prevent cheaper competitive products that these countries would either import or manufacture themselves. Think of generic pharmaceuticals, genes, machinery, GMOs, among many others. It all works in a manner similar to the way Britain once forced its colonies to import products from British factories even though they could manufacture these themselves from the same raw materials that they exported to Britain. For example, Indian cotton and clothing.

Patents can only be used in this fashion by a country when its citizens and corporations have more and better patents than those countries it wishes to target. This ration can be improved by combining a low standard for granting patents and a judicial system that is loathe to question weak patents. By also allowing corporations a means to request import restrictions by the government on products that are alleged to violate patents, the power of domestic patents is increased. The US today does all of these things.

For this reason I was quite interested to read in The Economist that China is finally catching up to the US with its patent portfolio. The chart they show (from WIPO data) clearly demonstrates the trend. With China's rapid growth, large population and strong national desire to elevate their status among the great countries of the world, this is wholly unsurprising. A good example is their space program. Since the end of the cold war the US space program has drifted, having no clear objective for exploration beyond science. In contrast, China recently announced a new unmanned Moon mission that failed to make more than a small media ripple in this part of the world. The US and Russia are no longer one-upping each other to get to the Moon and beyond, but China is aggressively advancing their space program in a manner somewhat similar to what we saw in the 1960s and 1970s. They feel they have something to prove, and perhaps they do.

With respect to modernization and technological advancement, China is catching up, and patents are only one measure of their progress.

The question for America is not the influx of cheap but what do we do when cheap is gone and China starts to make the expensive stuff, too.

With let up in the trend, the quality and quantity of Chinese patents will pass Europe and the US very soon. As the innovation balance gradually shifts east there will be some profound impacts on the US and Europe, and their private sectors. As this article began, if patents are a battlefield the advantage will shift east as well. Patent law, which currently favours the US due to their larger and stronger portfolio, will, perhaps as soon as 2020, begin to benefit the China more often. Since old patents expire and the majority of new patents will belong to Chinese companies, the winner of more and more patent lawsuits will be won by Chinese companies.

When this happens I think we may finally see patent reform. At first in the US and then, if they negotiate wisely, internationally. If the bar is not set higher so that weak patents cannot be used as weapons in the court, US companies will suffer. Until this happens I suspect that Congress will not change course. However, this is a large ship that changes course only very slowly. Even so it is unlikely to change the outcome, especially so if the US continues to turn out fewer engineers and scientists, or just at a slower rate of growth than the competition.