[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
IP AND STRATEGIC COMPETITION WITH CHINA:
PART IV_PATENTS, STANDARDS, AND LAWFARE
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HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
WEDNESDAY, DECEMBER 18, 2024
__________
Serial No. 118-105
__________
Printed for the use of the Committee on the Judiciary
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
Available via: http://judiciary.house.gov
_______
U.S. GOVERNMENT PUBLISHING OFFICE
57-831 WASHINGTON : 2025
COMMITTEE ON THE JUDICIARY
JIM JORDAN, Ohio, Chair
DARRELL ISSA, California JERROLD NADLER, New York, Ranking
ANDY BIGGS, Arizona Member
TOM McCLINTOCK, California ZOE LOFGREN, California
TOM TIFFANY, Wisconsin STEVE COHEN, Tennessee
THOMAS MASSIE, Kentucky HENRY C. ``HANK'' JOHNSON, Jr.,
CHIP ROY, Texas Georgia
DAN BISHOP, North Carolina ERIC SWALWELL, California
VICTORIA SPARTZ, Indiana TED LIEU, California
SCOTT FITZGERALD, Wisconsin PRAMILA JAYAPAL, Washington
CLIFF BENTZ, Oregon J. LUIS CORREA, California
BEN CLINE, Virginia MARY GAY SCANLON, Pennsylvania
KELLY ARMSTRONG, North Dakota JOE NEGUSE, Colorado
LANCE GOODEN, Texas LUCY McBATH, Georgia
JEFF VAN DREW, New Jersey MADELEINE DEAN, Pennsylvania
TROY NEHLS, Texas VERONICA ESCOBAR, Texas
BARRY MOORE, Alabama DEBORAH ROSS, North Carolina
KEVIN KILEY, California CORI BUSH, Missouri
HARRIET HAGEMAN, Wyoming GLENN IVEY, Maryland
NATHANIEL MORAN, Texas BECCA BALINT, Vermont
LAUREL LEE, Florida JESUS G. ``CHUY'' GARCIA, Illinois
WESLEY HUNT, Texas ERICA LEE CARTER, Texas
RUSSELL FRY, South Carolina
MICHAEL RULLI, Ohio
Vacancy
------
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
THE INTERNET
DARRELL ISSA, California, Chair
THOMAS MASSIE, Kentucky HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT FITZGERALD, Wisconsin Georgia, Ranking Member
CLIFF BENTZ, Oregon TED LIEU, California
BEN CLINE, Virginia JOE NEGUSE, Colorado
LANCE GOODEN, Texas DEBORAH ROSS, North Carolina
KEVIN KILEY, California ZOE LOFGREN, California
NATHANIEL MORAN, Texas MADELEINE DEAN, Pennsylvania
LAUREL LEE, Florida GLENN IVEY, Maryland
RUSSELL FRY, South Carolina Vacancy
CHRISTOPHER HIXON, Majority Staff Director
AARON HILLER, Minority Staff Director & Chief of Staff
C O N T E N T S
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Wednesday, December 18, 2024
OPENING STATEMENTS
Page
The Honorable Darrell Issa, Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
California..................................................... 1
The Honorable Henry C. ``Hank'' Johnson, Ranking Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Georgia...................................... 2
WITNESSES
Mark A. Cohen, Senior Fellow, Antonin Scalia School of Law,
George Mason University; Senior Technology Fellow, Asia Society
of Northern California
Oral Testimony................................................. 4
Prepared Testimony............................................. 7
Kent D. Baker, Head of IP Strategy, Litigation, Standards and
Licensing, u-blox America, Inc.
Oral Testimony................................................. 22
Prepared Testimony............................................. 24
Thomas F. Cotter, Taft, Stettinius & Hollister Professor of Law,
University of Minnesota
Oral Testimony................................................. 44
Prepared Testimony............................................. 46
Walter G. Copan, Vice President, Research and Technology
Transfer, Colorado School of Mines
Oral Testimony................................................. 61
Prepared Testimony............................................. 63
LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING
All materials submitted by the Subcommittee on Courts,
Intellectual Property, and the Internet, for the record........ 83
Material submitted by the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of California, for the record
A letter to the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California, Dec. 18, 2024,
from the Coalition Against Socialized Medicine (CASM)
A letter to the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of California, and the Honorable
Henry C. ``Hank'' Johnson, Ranking Member of the
Subcommittee on Courts, Intellectual Property, and the
Internet from the State of Georgia, Dec. 17, 2024, from
the Council for Innovation Promotion (C4IP)
A letter to the Honorable Jim Jordan, Chair of the Committee
on the Judiciary from the State of Ohio, the Honorable
Jerrold Nadler, Ranking Member of the Committee on the
Judiciary from the State of New York, the Honorable
Darrell Issa, Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
California, and the Honorable Henry C. ``Hank'' Johnson,
Ranking Member of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
Georgia, Dec. 18, 2024, from ACT | The App Association
QUESTIONS AND RESPONSES FOR THE RECORD
Questions submitted by the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of California, for the record
Questions to Kent D. Baker, Head of IP Strategy, Litigation,
Standards and Licensing, u-blox America, Inc.
Question to Mark A. Cohen, Senior Fellow, Antonin Scalia
School of Law, George Mason University; Senior Technology
Fellow, Asia Society of Northern California
Question to Walter G. Copan, Vice President, Research and
Technology Transfer, Colorado School of Mines
Question to Thomas F. Cotter, Taft, Stettinius & Hollister
Professor of Law, University of Minnesota
Questions submitted by the Honorable Scott Fitzgerald, a Member
of the Subcommittee on Courts, Intellectual Property, and the
Internet from the State of Wisconsin, for the record
Question to Kent D. Baker, Head of IP Strategy, Litigation,
Standards and Licensing, u-blox America, Inc.
Question to Mark A. Cohen, Senior Fellow, Antonin Scalia
School of Law, George Mason University; Senior Technology
Fellow, Asia Society of Northern California
Question to Walter G. Copan, Vice President, Research and
Technology Transfer, Colorado School of Mines
Question to Thomas F. Cotter, Taft, Stettinius & Hollister
Professor of Law, University of Minnesota
Questions submitted by the Honorable Ben Cline, a Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Virginia, for the record
Question to Kent D. Baker, Head of IP Strategy, Litigation,
Standards and Licensing, u-blox America, Inc.
Question to Mark A. Cohen, Senior Fellow, Antonin Scalia
School of Law, George Mason University; Senior Technology
Fellow, Asia Society of Northern California
Question to Thomas F. Cotter, Taft, Stettinius & Hollister
Professor of Law, University of Minnesota
Responses to questions from Thomas F. Cotter, Taft, Stettinius &
Hollister Professor of Law, University of Minnesota, for the
record
Responses to questions from Mark A. Cohen, Senior Fellow, Antonin
Scalia School of Law, George Mason University; Senior
Technology Fellow, Asia Society of Northern California, for the
record
IP AND STRATEGIC COMPETITION WITH
CHINA: PART IV--PATENTS, STANDARDS,
AND LAWFARE
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Wednesday, December 18, 2024
House of Representatives
Subcommittee on Courts, Intellectual Property, and
the Internet
Committee on the Judiciary
Washington, DC
The Subcommittee met, pursuant to notice, at 10:02 a.m., in
Room 2141, Rayburn House Office Building, the Hon. Darrell Issa
[Chair of the Subcommittee] presiding.
Members present: Representatives Issa, Massie, Fitzgerald,
Cline, Kiley, Johnson, Nadler, Ross, Lofgren, Dean, and Ivey.
Mr. Issa. The Subcommittee will come to order. Without
objection, the Chair is authorized to declare a recess at any
time.
Today, we welcome everyone here for this hearing on
intellectual property and strategic competition with China.
Before I recognize myself, I want to thank everyone for being
here for what is clearly an investment hearing.
I will now officially recognize myself probably for the
same statement by my staff.
Good morning. I welcome everyone to the hearing today. This
hearing marks the fourth in a series of hearings focused on
strategic competition with China. As this Committee has
documented, the People's Republic of China has been leveraging
the international IP system to serve their strategic interest.
Our first hearing on the topic delivered China's--
recognition of China's intellectual property theft and the rise
of national champions such as Huawei and ZTE. We looked at
China's emergence as the largest filer of international patents
and subsequent use of U.S. patents in litigations against
American companies all with significant national security
concerns.
The second hearing examined how actions under the Biden
Administration allowed greater foreign access to U.S. advanced
technology by waiving IP protections under the TRIPS waiver
provision. This failure threatened to harm U.S. innovation and
jeopardize investments in life saving medical advancements.
The third hearing analyzed the artificial intelligence arms
race between the U.S. and China. We explored how Chinese AI
development threatens a wide range of industries including our
own cyber security.
Today, we will address China's Standard 2035 strategy, a
sophisticated and dangerous plan aimed at dominating critical
global technologies by shaping international standards. This
hearing will explore the PRC's manipulation of global standards
setting organizations through overwhelming and coordinated
participation in State-backed entities. I want to emphasize it
is their leaning into organizations that often the U.S. does
not fully staff to the level we could and, in fact, are often
requested to, and that leaves a void, and China has happily not
only filled the void but lobbied for more slots.
China's unified effort to stack the deck at SSOs allows
them to dominate the discussion and embed PRC technology into
global standards such as 5G, AI, and the Internet of Things. In
particular, we will investigate how the PRC exploits licensing
and rate setting mechanisms for standard-essential patents in
favor of Chinese companies. This behavior includes leveraging
Chinese courts lacking independence or impartiality to set
global licensing terms and undermine foreign competitors,
particularly those in the United States. It includes suing
competitors in the United States in the European Union by
leveraging patents essential to important technology standards
like 5G and others.
Finally, this hearing will highlight the broader
implications of the PRC's efforts including the erosion of U.S.
technological leadership and the entrenchment of the PRC's
dominant technologies into global infrastructure. Let us be
clear. This Committee is not the Committee that will keep us
from losing our lead. This is simply the canary in the coal
mines. We cannot let the PRC dominate global standards and yet,
as we speak, they have made significant advancements in the
previous eight years, six years, four years, and two years, and
as we speak.
I want to thank our witnesses for their time today and as I
said before the opening, this is the last hearing of this
Congress, but a down payment on what we must do in the next
Congress.
It is now my pleasure to recognize the Ranking Member, Mr.
Johnson, for his opening statement.
Mr. Johnson. Thank you, Mr. Chair. Each of us has a cell
phone, more than likely. Many of us look at that cell phone as
just one single entity to itself. It is amazing that this same
phone is held up by people across the world, looking at the
coverage on Syria last week. You see folks holding up their
phones recording the moment. These phones and other products we
can't see inside, but there is not just one patent or one
product in these phones or in many devices. It is made up of
over a thousand patents, this phone. Some are owned by the cell
phone manufacturer. Some are licensed by the owner. A few are
known as standard-essential patents, or SEPs. These patents are
designated SEPs by standards-setting, organizations meaning
that they are necessary to make a cell phone work to global
standards.
The phones in our pockets are the very same as those in the
pockets of people across the world because it is the same on
the inside because they need to be interoperable so that people
in Syria, China, and wherever else they are, can use them. I
can call someone in Iran, and I guess maybe get them on the
phone, same phone we are using.
Mr. Issa. The Chinese will listen as you call.
Mr. Johnson. That is true. Standard-essential patents
guarantee worldwide interoperability of our technology. By
requiring a universal set of patents for a device, global
standards ensure that as technology advances, our machines are
interoperable with the world around them. That is a good thing.
These standards hinge on inventors being fairly compensated for
their inventions so long as they agree to license their
products on fair, reasonable, and nondiscriminatory terms known
in the trade as FRAND.
We are here today to examine the question of what happens
when a country refuses to abide by the international process to
which every other country adheres. Over the last decade,
Chinese courts have advanced its government's technology-
dominance goals through legal decisions that put China out of
step with the rest of the world. The Courts in China have set
royalty rates artificially low for U.S. companies. They ruled
in favor of antisuit injunctions that prevent litigants from
bringing patent suits to other countries' courts, and otherwise
prevented SEP owners from being paid fairly for their
inventions.
Transparency in litigation is another problem. Chinese
court proceedings are infrequently published, making it
difficult for litigants, international courts, and SEP owners
to interpret rulings or to have any semblance of a rule of law.
This absence of clarity has created a complicated system where
the deck is stacked against American companies, one that is
hard to navigate and where litigants struggle to receive a fair
trial.
I am looking forward to hearing from our witnesses about
how we should approach this problem. We cannot expect, much
less demand that the United States always come ahead.
Similarly, it would be unwise to lower ourselves to the lowest
common denominator, making our system similarly unfair to
litigants who use systems other than the United States, or
making the system unfair to patent holders would not even the
score. Imitating China will not make the U.S. more American. It
will take a worldwide effort to overcome China's overreach on
SEPs. International institutions like the World Trade
Organization should seriously consider whether Nations are
meeting their obligations under the TRIPS agreement. We should
be able to turn to international forums for fair adjudication
of disputes, including the use of antisuit injunctions by
Chinese courts.
By working cooperatively through diplomacy and dialog,
Nations disadvantaged by China's unfair decisions can demand a
system that provides transparency and due process at a global
level. America also has an obligation to lead the way. We
should invest in making our patent courts faster, make sure we
get more judges on the bench who are steeped in patent law, and
attract litigation by having a better process in America for
adjudicating disputes.
Other countries will not follow the U.S. blindly. We need
to prove we have a better process to incentivize litigation
here at home.
I thank my colleagues across the aisle. Chair Issa, I thank
you for holding this hearing and working with me on a
bipartisan basis over the last two years on all that we have
worked on together. I thank Ranking Member Nadler for his
support and for his friendship. I thank the witnesses for being
here today. With that, I yield back the balance of my time, but
not before wishing everyone happy holidays.
Mr. Issa. Without objection, all other opening statements
will be included in the record.
It is now my pleasure to introduce our witnesses.
First, we have Professor Thomas Cotter. Mr. Cotter is a
Professor of Law at the University of Minnesota Law School. His
research focuses on domestic and international intellectual
property law, antitrust law, and economics. He is the author of
seven books including several on intellectual property law.
Next, we have Mr. Kent Baker. Mr. Baker is head of IP
Strategy, Litigation, and Licensing of Intellectual Property
and Standards for u-blox America which provides wireless
semiconductor chips, modules, and other technological
components. He is a patent attorney by trade and has more than
30 years of experience in engineering and practice of law and
academia on topics of intellectual property, standards policy,
and regulatory policy. Welcome.
Mr. Mark Cohen. Mr. Cohen is the Senior Fellow at George
Mason University, Antonin Scalia School of Law, and a Senior
Technology Fellow at the Asia Society of Northern California.
He previously served as Senior Counsel to the Patent and
Trademark Office.
Dr. Walter Copan is the Vice President for Research and
Technology Transfer at the Colorado School of Mines. He
previously served as the Under Secretary of Commerce for
Standards and Technology as the Director of the National
Institute of Standards and Technology. Dr. Copan has served in
a number of other positions in public and private life
including as the Principal Licensing Executive for Technology
Transfers at the Department of Energy's National Renewable
Energy Laboratory.
We welcome all our witnesses. We thank you for appearing
here today. As is the rule of this Committee, would you please
rise to take the oath? Raise your right hand.
Do you solemnly swear or affirm under penalty of perjury
that your testimony you are about to give will be true and
correct to the best of knowledge and information and belief, so
help you God?
Thank you. Please sit down. Let the record reflect that all
witnesses did answer in the affirmative.
To all our witnesses here today, some of you have been here
before. All of you have seen this on C-SPAN. We would like you
to summarize what might be much more extensive comments to
about five minutes. We won't cut you off mid-sentence, but we
would appreciate getting to questions as quickly as possible.
Your entire opening statements, plus additional information you
may choose to give us afterwards will be included in the
record, so you will be much more complete with the studious
staff than you are to the public here today. With that, Mr.
Cohen.
STATEMENT OF MARK A. COHEN
Mr. Cohen. Thank you very much, Chair Issa, Ranking Member
Johnson, Members of the Subcommittee, and staff for inviting me
back to testify today. My comments focus on three SEP lawfare
related issues, transparency, intervention in the markets of
subsidies, and global rate setting. I echo Ranking Member
Johnson's comments on the Chinese environment. My comments are
directed to helping ensure that the U.S. system remains the
leading system for adjudicating SEP disputes to support our
innovative companies without compromising our values.
Regarding transparency of the Chinese courts, I am
generally referring to placing final court decisions online on
the official Chinese judicial data base. During the last
decade, this minimal type of judicial transparency has been
decreasing significantly. In the past, only about 50 percent of
patent cases were published. That number has since decreased,
and I can't give you the exact amount. The number of published
civil cases has declined by as much as two thirds. Chinese SEP
cases today have been withdrawn from publication, anonymized,
delayed, or not published at all. This curated, or perhaps
censored approach, makes it impossible to answer basic
questions about China's IP system such as China's compliance
with international agreements including the Phase One
agreement. The Phase One agreement, in fact, did nothing to
advance transparency of judicial decisions.
If there are to be any negotiations with China on IP, and I
encourage them, a focus on transparency to better evaluate
China's adherence to any commercial law commitment is
essential.
The next issue is intervention of the markets. China
distorts its markets involving SEPs through subsidies for
patent filings and grants and for subsidies for attending
standards-setting bodies and even through awards. Patent
subsidies have even been obtained by prisoners to mitigate
their sentences.
Some current subsidies, in Pudong, Shanghai, the subsidy is
about $3,000 per patent grant. If a company wishes to establish
a set patent pool, there is a one-time subsidy of about
$160,000. In Shenzhen, there is a reward for high value SEP
patents with corresponding PCT applications of about $160,000.
Subsidies have often exceeded the cost of the patent
application.
Patent subsidies distort markets and burden overseas patent
offices with low-quality patents. They may lead Chinese courts
to unduly focus on quantitative, rather than qualitative basis
for royalty calculations. They are leveraged to lower royalty
rates. They burden companies with the additional expense of
evaluating patent thickets of low-quality patents before they
do business. Subsidies are also granted to firms for each
proposal they submit to international standards bodies. These
subsidies have led to a flood of low-quality proposals. We need
to ask China to address the problem of IP and standardization
subsidies and to ensure that it renews its efforts to focus on
patent quality.
Global royalty rates. China's long-standing efforts to set
global royalties have taken various forms. The basic goal of
Chinese courts is to set lower rates for FRAND royalties for
implementation in China, thereby giving Chinese companies a
competitive advantage over other markets. One of those efforts
involves interference of the adjudication of SEP disputes by
other countries. The Chinese courts deem the filing of a U.S.
Section 337 action against Huawei as an abuse of dominance
under its antitrust law about 10 years ago.
Chinese courts have also issued antisuit injunctions to
control actions by litigants in foreign courts. Such efforts
are accompanied by extra territorial civil jurisdiction,
exclusive use of China law for determining disputes, lower rate
determinations for licensing to China, unique approaches to
translating and applying FRAND, and efforts to regulate
nonresident patent pools. These efforts that I have only named
a few, low transparency, extra territorial jurisdiction of
patent subsidies, threaten the global territorially based
patent system and the global standardization system by
extending China's reach, providing preferential treatment to
China-based companies, and disregarding the integrity of other
countries' legal systems, including our own.
Thank you once again, and I look forward to your comments.
[The prepared statement of Mr. Cohen follows:]
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
Mr. Issa. Thank you. Mr. Baker.
STATEMENT OF KENT D. BAKER
Mr. Baker. Mr. Chair, and distinguished Members of the
Committee, thank you for allowing me to speak today. I come
from the trenches of IT warfare. u-blox is a small to medium
size innovation company that provides wireless semiconductor
chips, modules, and services that power the Internet of Things
to reliably track, locate, and data connect everything. It is
not voice-enabled. It is a data connection. To participate in
standards organizations and associations such as Save Our
Standards, which represents companies in agriculture,
healthcare, energy, automotive, artificial intelligence, and
several other industries. The u-blox modules allow devices to
talk to each other with or without human intervention. We
innovate and design fundamental wireless connectivity,
components that can be used in any IoT machine or product that
needs a wireless connection.
You are going to find our modules in smart cities, water
and gas meters, used with sensors for crop monitoring,
robotics, after-market car alarms, industry floors, and much
more. Even tracking adolescents or children for security
purposes, that is how small these modules can be.
I thought it would be useful to show you one. That is a
module, a little light box you see here. This is a test board,
certainly not that big in the product, but if I were to put
power into this port with this switch, this will connect to any
network. It will connect to your bay stations and cellular
network. Don't be confused. This is the fundamental wireless
connectivity that goes in every product, although granted, it
will be miniaturized.
There is a data port here, a serial type port. Anything you
connect to it, car, laptop, whatever need you have, put your
data in here, and this device is going to send it on to the
network.
As you see, the modules are very small, and they are easily
overlooked. Issues regarding module security threats and the
emerging Chinese dominance in the U.S. and IoT global markets I
think has gone unnoticed.
My intent is to bring to the Committee's attention four
things.
(1) There is a very real threat presented by Chinese IoT
module manufacturers, U.S. communications systems, and Western
manufacturers of IoT wireless modules. These may be companies
you either never heard about or rarely read about. You may
recall similar security issues arising recently with Huawei and
ZTE cellular bay station products and handsets. Now, I am not
sure why, but IoT modules were not part of that discussion.
They certainly should have been. They present an equal or
greater security risk than the mobile handsets did.
Now, appreciate that these modules can talk to each other.
They don't need a bay station. That is part of the reason that
security risks can be even higher. When you have machines
talking to machines without human intervention, that is a
concern.
(2) The eventual collapse of Western wireless module
manufacturers such as u-blox and the loss of the $5 million
global market due to Chinese companies having access to
subsidies and centralized funding as Mark just commented on,
and for us, it is specifically the CCP 13th and 14th Five Year
Plans where these subsidies and additional funds are being
called out specifically as part of an overall strategy.
As discussed in my written testimony, Chinese company
market share and revenue growth now dwarfs Western companies.
At u-blox, we closely studied supply chain data, what does it
take to actually build this module? We find Chinese companies
selling the module at a profit for as low as $7.50 whereas a
Western company can't build it for under $9 sans profit. A good
question about how that happens without subsidies.
Currently, Chinese companies are worried about the growing
concerns in Western companies about the security and subsidies
issues, so they are opening U.S. corporation storefronts to go
ahead and sell their modules, and they appear to be Western
sourced.
(3) There is an understanding of how increasing
participation at international standards organizations, a
company can manipulate the system. If you send enough engineers
into a work group, as we have seen happen with Chinese
companies over the years, you will generate more patents, more
invention disclosures, and it will put you in a dominant
position to then manipulate the entire FRAND promise.
(4) I suggest the U.S. take a leadership role that it has
lost in patents and in the SEP-FRAND licensing debate. That
will bring predictability and stability through IoT
standardization for small and medium enterprises. SEP-FRAND is
currently the Wild West. There are inspirational guidelines
that we follow, but we know how well those guidelines work when
there is money to be made. They simply don't. SEP-FRAND needs
to be addressed and it needs to be defined.
In closing, I think it is imperative that the U.S. protect
national security and wireless IoT services and reject SEP
licensing misconduct by any company. The U.S. must take down
the artificial fence that has been erected between SEP holders
and SEP users. Standards were created to proliferate technology
and protect patent holders. It is time to stop the SEP-FRAND
damage.
[The prepared statement of Mr. Baker follows:]
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
Mr. Issa. Thank you. Professor Cotter.
STATEMENT OF THOMAS F. COTTER
Mr. Cotter. Chair Issa, Ranking Member Johnson, and
distinguished Members of the Subcommittee, I would like to
provide a brief overview of litigation involving FRAND-
committed SEPs in what I view as the four leading
jurisdictions, the United States, the United Kingdom, Germany,
and of course, China.
So, a little context. As you have already heard, some
patents are essential to the practice of standards established
by standard-setting organizations such as the European
Telecommunications Standard Institute. SSOs typically have
policies, encouraging or requiring members to license any such
SEPs on fair, reasonable, and nondiscriminatory FRAND terms,
but they do not define what FRAND means.
So, one other thing to note is that patents are
traditionally viewed as territorial rights, so a company may
own a U.S. patent covering a particular feature, and also a
portfolio of non-U.S. patents covering the same feature. So, as
a result, when parties fail to reach agreement on the terms of
the FRAND license, they could wind up litigating in any country
in which products incorporating the SEPs at issue are sold.
In the U.S., FRAND disputes make their ways to the courts
by different paths.
First, U.S. courts have concluded that FRAND commitments
can create third party beneficiary rights, so an implementer
may be able to assert that an offer to license on above FRAND
terms is a breach of contract. Relatedly, sometimes either a
SEP owner or an implementer may request a court to enter a
declaratory judgment that the owner's offer is or is not FRAND.
Another possibility is that a SEP owner will file a suit for
patent infringement and the judge or jury will decide what a
FRAND royalty is or the patents in suit. However, U.S. courts
have not seen fit to award injunctive relief in these cases
under the Supreme Court's eBay decision. One possible
workaround for SEP owners may be to seek an inclusion order
from the International Trade Commission, but in a 2013 case
involving FRAND-committed SEPs, the U.S. Trade Representative
vetoed on public interest grounds an order that would have
precluded Apple from importing certain devices into the U.S.
Finally, U.S. antitrust law so far has not played a major
role in these cases largely because Section 2 of the Sherman
Act is understood to forbid the willful acquisition on
maintenance of monopoly power, but not its mere exercise or
exploitation.
Second, leading jurisdiction is the United Kingdom. In the
U.K., these issues are typically litigated as patent
infringement actions and over the past few years, the U.K.
courts have developed a procedure whereby if a SEP owner
succeeds in proving that the defendant is infringing one or
more valid FRAND-committed SEPs, the court will offer the
infringer a choice, either be enjoined from practicing the
technology in the U.K., or agree to be bound by the terms of a
global FRAND license to be determined by the court. We have
seen that happen in a few cases.
The third leading jurisdiction is Germany. In Germany and
other civil law countries, injunctive relief is often viewed as
being a matter of right, rather than equitable discretion.
However, in the 2015 decision of Huawei v. ZTE, the Court of
Justice for the European Union held that EU antitrust law
constrains the owner of a FRAND-committed SEP from seeking
injunctive relief unless certain conditions are met, one of
them being that the implementer fails to express its
willingness to license. German courts have interpreted this
decision to mean that the implementers (willingness must be
ongoing, and the end result is that in most cases, German
courts find the implementer to have been unwilling and
therefore have entered injunctive relief for the infringement
of FRAND-committed SEPs. The German courts said that you had to
actually establish the terms of a FRAND license.
Finally, China, since 2013, Chinese courts have presided
over cases involving FRAND-committed SEPs sometimes in the
context of patent infringement actions or anti-trust actions or
sometimes, as I understand it, as a sort of stand-alone cause
of action. In recent years, Chinese courts also had expressed a
willingness to determine the terms of global FRAND licenses
where they believe there is a sufficiently close connection to
China, and we had the first such determination of a global
FRAND royalty just about a year ago in Nokia v. Apple.
Last thing briefly, antisuit injunctions, these have
actually been around for a long time in the U.K. and the U.S.
The application of them to SEP cases actually began in the U.S.
with the Microsoft v. Motorola case in 2013. More
controversially in 2020, Chinese courts entered ASIs in five
SEP cases forbidding parties litigating parallel actions
sometimes anywhere else in the world. That seems to have gone
away to some degree. Now, we don't think we have had any since
2020 for a variety of reasons, but of course that could always
be resurrected.
[The prepared statement of Mr. Cotter follows:]
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Mr. Issa. Thank you. Dr. Copan.
STATEMENT OF WALTER G. COPAN
Mr. Copan. Chair Issa, Ranking Member Johnson, Members of
the Committee, and distinguished participants, it's a privilege
to testify on critical issues for U.S. innovation leadership,
global economic competitiveness, and national security.
It's my honor currently to lead research and technology
transfer at Colorado School of Mines, a top tier U.S. research
university rated in the top three engineering programs in
America.
I recently served our Nation as Director of the National
Institute of Standards and Technology and prior with two of the
U.S. Department of Energy National Labs.
From my leadership experience in public and private sectors
as a corporate executive, entrepreneur and investor, the
requirements have clear, enforceable intellectual property
rights and the right to exclude others is foundational to
innovation success.
Investors must confirm that an organization's IPRs will
secure a protectable market position and provide pathways to
achieve returns on investment as part of the justification to
take on substantial investment risks.
Strong IPRs enable innovators to advance technology
leadership, incentivize investment, and create value, including
from inventions essential to global standards.
The United States is at a critical juncture regarding the
future of American innovation leadership for the world. Our
economic security and national security are closely intertwined
with the reliability of the protections afforded by our IP and
innovation system.
The foundational strength of U.S. IPRs as established by
the framers of the Constitution must continue with the
enforceability of the rights of inventors in the U.S. and
abroad together with the rule of law and respect for private
contracts.
The U.S. must once again lead the world by example through
the development of IPR policies that support innovation at home
and across jurisdictions.
Reliable IP rights and contracts that are respected
globally include the key role of standard-essential patents and
the U.S. must demonstrate leadership in foreign markets
including with the EU and China.
This includes restoring the ability of rights holders to
obtain injunctive relief and to avoid willful infringement and
documented holdout by parties unwilling to enter license
agreements with rights holders under FRAND terms.
When such negotiations fail in a free market economy,
Knowledgeable American courts can provide resolution with
expertise and wisdom. All are essential for rebuilding and
maintaining U.S. leadership and globally relevant standards
today.
The U.S. leads the world in key standards and,
consequently, is a net exporter of innovation. Reliable IP
rights, license to development, and manufacturing partners
enable trusted global supply chains and value creation for
consumers and for shareholders alike.
The mobile telecommunications sector contributes an
estimated total economic value of more than $4.8 trillion to
the global innovation economy.
Technology innovators, including holders of SEPs, gain
returns on their investments in R&D and standards engagement
through licenses and royalty payment in addition to products
and services sales.
The revenue flows from commerce in intellectual assets
contribute positively to the U.S. trade balance with Chinese
companies contributing over $70 billion in net IP payments to
U.S. entities in 2020.
However, there is widespread unlicensed technology use in
China of innovations and IP assets owned by U.S. entities.
Further, China's government has weaponized its legal system
with a wide range of patent and competition law tools, price
controls on international entities, forced technology
transfers, and by providing selective legal protections and
incentives seeking to advantage Chinese companies.
There is a concerning movement away from market-based
negotiations and valuation to government-controlled price
regulation for standardized technologies.
The EU has proposed a massive new regulatory regime toward
government control of SEP prices. The Chinese Communist Party
has followed suit, issuing guidelines that would apply its
antitrust laws to SEP licenses to benefit Chinese entities.
Supported by the Chinese government incentives and legal
actions, Chinese technologies companies are gaining ground. As
we look to rebuild America's advanced manufacturing base with a
trained domestic workforce and trusted, resilient supply chains
the U.S. must build on the strengths of our free-market economy
and a reliable intellectual property and innovation system that
continues to lead the world.
I'm encouraged by some of the legislation proposed to
strengthen the U.S. innovation system including the bipartisan
Patent Eligibility and Restoration Act, the Promoting and
Respecting Economically Vital American Innovation Leadership
Act, and the Realizing Engineering Science and Technology
Opportunities by Restoring Exclusive Patent Rights Act of 2024.
Thank you to this Subcommittee for your important work
toward securing the technology and innovation leadership for
U.S. economic and national security.
I look forward to answering any questions you may have.
[The prepared statement of Mr. Copan follows:]
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Mr. Issa. Thank you. I thank all our witnesses.
We'll now go into five minutes per side of questioning,
beginning with the gentleman from Kentucky, Mr. Massie.
Mr. Massie. Thank you, Mr. Chair.
I think it's important as we kick this off to talk about
what SEPs are, or SEPs--standard-essential patents.
Mr. Cohen, are these government creations or are these--
were these created by private industry, this nomenclature and
this grouping of patents?
Mr. Cohen. They're predominantly created by private
standards development organizations which have private sector
participants, although there are government standards,
particularly in China, but also in the U.S.
Mr. Massie. OK. Thank you very much.
Dr. Copan, you joined several former administration
officials--the former I say--to send a 2023 letter to the
European Commission opposing the EU's draft of SEP regulation
that would cap royalties for licenses of standard-essential
patents and create separate centralized proceedings at the EU
IP Office.
Do you continue to have concerns about the efforts of
foreign competitors to regulate our IP?
Mr. Copan. I do, Congressman. Those concerns that I also
included in my oral testimony are with respect to the overreach
of governments to regulate free trade, fair commerce, and
standard-essential patents and I stand by that joint letter.
Mr. Massie. Aren't a lot of the patents created by U.S.
entities and isn't it sort of insane to let countries not just
China--we're here ostensibly about China but the EU is talking
about doing the same thing.
Because these patents are so important to things like
national defense or our own competitiveness in the world
economy isn't crazy to go along with this scheme in the
European Union that would let them effectively nationalize our
IP by setting the rate that could be charged globally for it?
Mr. Copan. It is a huge concern. The United States'
sovereignty over its intellectual property rights and the value
that U.S. innovators create in global markets is something that
needs to be part of a free-market economy and we know that
sophisticated companies, developers, and implementers of
technology have the guidance in fair, reasonable royalties that
are nondiscriminatory and enabling the practice of commerce
across borders without government interference.
Mr. Massie. Well, I've heard some arguments that SEP--
standard-essential patents--are so important that you shouldn't
be able to get injunctive relief--that the owners of the IP
shouldn't be able to get injunctive relief.
Do you agree with that argument?
Mr. Copan. No, sir. The intellectual properties that are
standard-essential patents are patents and deserve the same
protections as the intellectual property rights of innovators
in the United States and, indeed, protections in jurisdictions
elsewhere, where intellectual property parallel protections
exist.
Mr. Massie. Let me ask, you mentioned some legislation that
you were a fan of. What could we do in our own country with our
own IP laws to improve American competitiveness and improve our
national security?
Mr. Copan. Definitely the improvement of clarity with
regard to patentable subject matter as an important feature.
Creating greater certainty in our courts on the basis which
decisions are made in particular with respect to standard-
essential patents.
I also believe it's very, very important for the United
States to continue to lead by example, as I had indicated in my
remarks, that the United States has a fair and reasoned process
for adjudicating issues in our courts that enable rights
holders around the world to trust the U.S. judicial system and
that they know that the United States sets the highest standard
globally for fairness in intellectual property matters.
Mr. Massie. Mr. Cohen, I want to give you a chance to
answer the same question. What do you think we could do here
to--with our own IP laws to improve the signal that we send to
other countries that we're the best country for developing IP
in?
Mr. Cohen. Well, I certainly agree with Dr. Copan's
perspective on strengthening the domestic legal system in terms
of patentable subject matter and availability of injunctive
relief.
There's another aspect in terms of the competition globally
for a jurisdiction over FRAND disputes and parallel disputes
that arise.
So, we could find that even if we have the best system in
the world, China can fast track its litigation so that a case
will be resolved on appeal from beginning to appeal within nine
months, according to the Chinese civil procedural law.
At that nine-month stage we haven't even finished discovery
in a U.S. District Court. So, having expedited procedures,
perhaps, specialized tribunals, although I'm not a big fan of
that, but at least slimming things down so that people can get
a quick relief and having better assessment of the foreign
competitive challenges.
Now, I'd like to see our solicitor general from time to
time appear in SEP cases to say whether a particular
jurisdiction is fair or the potential disadvantages.
I know one case in California where the judge was quite
clear that by the time he renders a judgment in that case China
will already have exhausted this appeal.
We have to make our system more attractive in the global
competition for litigation on SEP matters.
Mr. Massie. Thank you both very much. I agree with you on
injunctive relief here domestically. I yield back to the Chair.
Mr. Issa. Briefly, Mr. Baker, did you have something else
to add? You took copious notes.
Mr. Baker. Yes. If you don't use injunctions correctly
FRAND is absolutely meaningless. Injunctions were used because
of a characterization called holdout where a company like u-
blox might not take a license.
Unfortunately, if you look at especially foreign
injunctions in Germany and over in China what you'll find is
there's no FRAND analysis.
It's the fact that, all right, here's something. We're
going to assume it's FRAND. If you don't take that license we
will issue an injunction. You can throw FRAND out the window
with that.
Also, with standard-essential patents the problem that you
come up with is what it used to mean--and I was there in the
work groups and I worked with DG GROW on why the entire
competition SEP regulations coming out--it used to mean
technical essentiality.
Take it off the board. It doesn't work. Take the patent out
of the module. It doesn't work. That's changed and it's been
manipulated. That's the manipulation we're talking about.
What we need is clarity in both what FRAND is and what a
standard-essential patent definition means. Now, you're trying
to control both.
Mr. Issa. I have to keep it too brief. We'll continue.
Mr. Johnson?
Mr. Johnson. Thank you, Mr. Chair.
Dr. Copan, could you enlighten us on how SEPs ensure
worldwide interoperability?
Mr. Copan. Thank you so much, Ranking Member Johnson.
The technical committees working on international standards
bring together science and engineering experts to consider the
broad dimensions of a standard, for example, in advanced
communications.
The organizations participating in those standards
processes provide data, provide insight to the rest of the
Committee with respect to the technical operations and,
ultimately, intellectual properties that underpin those
features that are important to interoperability on a global
basis as you had indicated in your comments as well enable the
inventor--the rights holder--to participate in the standard-
setting process and then also through providing access to those
intellectual properties on fair, reasonable, and
nondiscriminatory terms, enables the actual practice then of an
interoperable standard.
Mr. Johnson. Thank you. How do international standards-
setting organizations go about designating SEPs and why is that
process important?
Mr. Copan. It is, indeed, a very important consideration.
It is an analysis that's carried out by the committees on
contributions to the standard itself and to the merits that are
delivered by the intellectual property, by the invention, to
the standard on a relative basis.
So, there is a technical evaluation that's done of
essentiality by the technical committee itself.
Mr. Johnson. Thank you.
Mr. Cohen, in your written testimony you told us that you
believe that the WTO remains a viable option for airing our
concerns and bringing multilateral attention to areas where
China has departed from international practice.
What SEP disputes do you expect to see at the WTO over the
next five years?
Mr. Cohen. That's a bit of a crystal ball exercise.
Certainly, there's been a lot of frustration about the levels
of the royalty rates that Chinese courts determine.
I tend to think that Chinese practice of giving a
preferential rate to a China-based company violates national
treatment or most favored nation treatment obligations which
are, of course, critical to the WTO generally.
So, that would be one issue that I think is extremely
important. There continue to be serious concerns about
transparency, and I think those need to be clarified with China
either diplomatically or at the WTO.
The extra territorial nature of China's SEP litigation
practice is being raised by the European Union at the WTO. The
global rate setting is another level which deprives countries
of their own sovereign courts to adjudicate their own sovereign
patents, and I think that raises another level of concern about
SEP litigation and kind of an over national focus by China to
extend its reach globally.
Mr. Johnson. Thank you.
Professor Cotter, how does the absence of transparency in
Chinese courts impact FRAND rate setting in other
jurisdictions?
Mr. Cotter. I think Mr. Cohen is correct that it is more
difficult to find the Chinese cases than it is to find cases in
other major jurisdictions such as certainly the U.S., but also
the U.K. and to a great extent the European countries as well.
So, it would be very helpful if those cases were more
readily available and if they were available in some format
where they could be translated either officially or at least at
some high level so that others can actually understand what
they say.
I don't speak or read Chinese so I am always reliant on
translations or reports of these cases, and so I think it would
be advantageous if the cases were more readily available to the
community generally.
Mr. Johnson. Thank you.
Mr. Chair, I'll yield back my three seconds.
Mr. Issa. Thank you very much.
With that, we'll go to Mr. Fitzgerald for five minutes.
Mr. Fitzgerald. Thank you, Mr. Chair.
Mr. Baker, Congress was just recently briefed about Salt
iPhones and very concerning issues related to just how far that
the CCP has kind of penetrated into the U.S. cellular networks.
Do you have concerns regarding security and the
vulnerabilities of Chinese technology? Obviously, there's an
overall concern but specifically in our cellular, the modules
that we use here in the States?
Mr. Baker. Yes. There's an overall security concern not
just in cellular but also there's a hybrid coming along which
merges cellular with satellite and the two together there is a
security concern about the information that you can actually
take.
I appreciate that these modules can talk to each other,
which means you can bypass a base station. If you park your
security software in the base station, you're probably not
going to know that the machines are being corrupted.
Mr. Fitzgerald. What could we do to protect the companies
that we have all become very familiar with--the big cellular
phone corporations?
Mr. Baker. I think the corporations are capable of
protecting themselves, especially those that came from--
Qualcomm was where I spent many, many years and we're perfectly
capable of taking care of that given the opportunity to do so.
Mr. Fitzgerald. Very good.
Dr. Copan, this is more of a general question, and I know
we have already had kind of a couple of others that dug down
into this. The SEP portfolio is owned by Chinese-owned
companies like Huawei.
So, what are the risks associated with amassing such a
portfolio of patents that also include the U.S. patents as
well?
Mr. Copan. Thank you, Congressman.
The risk that we have seen in the application in particular
in the courts in China is to take a numbers only approach, and
regardless of the actual contribution of the intellectual
property to the practice of the standard, by flooding the
intellectual property system in particular in China and
providing a massive stack of patent documents we have seen the
Chinese courts actually favoring that type of approach rather
than what we have seen in the U.K. courts or in the U.S. courts
that take a much more detailed approach toward understanding
the actual contribution of the intellectual property to the
practice of the standards.
Mr. Fitzgerald. Very good.
Professor Cotter, can you please describe how the
injunctions against the American companies sought by foreign
companies in foreign courts hurt the U.S. economy? How can we
draw that line?
Mr. Cotter. Well, there are a variety of approaches, a
variety of perspectives on whether injunctive relief should be
granted generally for SEPs and the German courts and probably
also the Unified Patent Court within the European Union take
the view that injunctive relief is more a matter of right and
so you usually get an injunction in those places.
The UPC has just started up but in Germany, certainly,
usually get an injunction. That puts tremendous pressure on the
implementer to then reach a settlement, and maybe that is
appropriate if the implementer is holding out is delaying the
resolution of the case for strategic advantage.
It also means that in many cases, I believe, the SEP owners
are using the threat of injunctive relief potentially to
extract an above FRAND license.
So, part of this goes to why these FRAND commitments are
required in the first place and that is to constrain SEP owners
from exercising undue market power, raising prices, and
ultimately harming consumers.
So, the IP system has to be about balance, and I think that
some degree of flexibility in awarding injunctive relief is
appropriate. That's what we have in the U.S.
It's also what we have in the U.K., and I would encourage
other countries to follow that path rather than to make--rather
than to making injunctive relief for SEP cases mandatory.
Mr. Fitzgerald. Well, in bringing up the U.K. so is there
an articulated or a specific type of framework in the FRAND
determinations?
What are your thoughts on that framework, and do you
believe there's a concern that it's probably going to lead to
greater instances of venue shopping in the U.K., right?
Mr. Cotter. Well, I think the U.K. went to a place where I
didn't expect. Let me rephrase that. In 2017, the U.K. became
the first country, I believe, to set global FRAND royalties
without consent of both parties. That was the Unwired Planet
case.
Many people and I was critical of that because it seemed
like a bit of overreach. On the other hand, the last couple of
times they've done that the rates that they have set have
actually been relatively favorable to the implementers.
So, if anything, they might be more attractive to
implementers now than to SEP owners. I will say that I think
the U.K. judges do a very decent job. They're very thorough,
very detailed, very well respected.
So, in some ways the U.K. model has proven to be quite a
good one. Doctrinally the idea is you'll either be enjoined or
you let us set a global FRAND rate.
One predictable consequence of that was that other
countries such as China would then follow suit and do the same
thing.
Mr. Fitzgerald. Thank you. I yield back, Mr. Chair.
Mr. Issa. I thank the gentleman.
We now go to the Ranking Member of the Full Committee, the
gentleman from New York Mr. Nadler.
Mr. Nadler. Thank you, Mr. Chair.
Dr. Copan, American companies' ability to invest in R&D
ensures that our patents 10 years from now are competitive with
Chinese companies.
How can investments in American R&D affect our national
security over time?
Mr. Copan. Thank you so much for that question,
Congressman.
The ability of the U.S. to invest from the private sector
and to see value creation in the global marketplace is an
essential part of the workings of a global economy.
These connections, however, between national security and
economic security are very, very clear and direct at this time,
and so the health of the U.S. corporations that have a global
play and also the ability to license under FRAND terms in ways
that truly provide returns on investment for U.S. industry to
continue to drive forward research and innovation and lead the
world is essential also for national security.
Mr. Nadler. Thank you.
Mr. Cohen, we have seen the Chinese government use antisuit
injunctions in the past in a manner that I have characterized
as bullying, but then seemingly move on after being challenged
on the global stage.
Moving on does not mean they have stopped abusing the legal
system, right?
Mr. Cohen. Moving on for China in this case means, I
believe, that the EU WTO case forced China to at least put a
pause on antisuit injunctions, not to stop them entirely, and
what we have seen is the evolution of judicial practice toward
global rate setting and greater extraterritorial reach of the
courts.
So, we're hardly beyond the problem of China setting rates
for SEPs outside of its territorial jurisdiction.
Mr. Nadler. Let me ask you a question that you may have
partially answered just now. Can you describe some of the new
tactics the Chinese government has adopted to reach the same
ends? Given that the Chinese government is clearly skilled at
taking advantage of different legal regimes as needs arise,
what would be an appropriate response from the U.S. Government
in conjunction with our allies?
Mr. Cohen. Well, let me begin by--the second part of that
question. I think the appropriate response if possible is to be
as multilateral as possible. I think that could mean using the
United Nations or negotiating through vehicles like the IP5 or
the U.S. PTO with the other four largest patent offices or
engaging our antitrust authorities also to engage with the
Chinese counterparts.
The issue is the continuing--in Chinese there's a saying,
``you have a policy; I have a counter-policy.'' What we've seen
in China is the continual evolution of counter-policies that
rarely get to the bottom line. That's part of our problem with
the WTO itself because you can't really amend your complaints
with the WTO. You have to file another complaint. So, that's a
limitation. We really need the focus of all our trading
partners on this industrialized--this industrial policy
approach to FRAND and separate--
Mr. Nadler. Should we try to get the WTO to allow the
modification of complaints that you just said?
Mr. Cohen. Yes, I think that would help, frankly, because
otherwise we're filing disputes on yesterday's issues.
Mr. Nadler. Thank you. Mr. Cohen, I understand that the
Chinese Government's approach to dominating standards has
included subsidies for patent applications for technology
related to standards. Can you elaborate on this practice and
describe its implications for what kind and how many patents
Chinese companies might get?
Mr. Cohen. That's a great question. The numbers are in the
thousands, if not tens of thousands. It's not limited to SEPs,
but at least in the SEP area there's a bigger focus of
litigation. It's resulted in overall a lower quality for
Chinese patents. It imposes a burden on patent offices because,
as any skilled bureaucrat knows, they have to use end-of-year
money. If they have subsidies at the end of the year, then
everybody wants to file them to get those subsidies.
We've seen lower quality Chinese patents the last quarter,
in the fall. In fact, I joke sometimes that if China wants to
improve its innovative ecosystem, they just have to ban autumn.
So, what we've seen is China using that quantitative advantage
to achieve an advantage in the courts, because courts and
sometimes antitrust agencies frequently rely on patent counts,
and they don't want to go through the more laborious task of
qualitative analysis.
Mr. Nadler. Thank you. Finally, how does this practice
affect global rate setting and what is the best way to ensure
that rates reflect patent quality rather than quantity as you
just said?
Mr. Cohen. Yes, I've already partially addressed that. It
clearly addresses rate setting, particularly by agencies that
rely on counts. I think the more we bring new information to
the table--PTO did a great report I think about four years ago
on the quality of Founding SEP patents. They also did it on
trademarks. They pointed out the pernicious effect of patents,
of subsidies on that. I think we need to do more of that,
bringing it out into the open air because it's not discussed
enough.
Mr. Nadler. Thank you, and I yield back.
Mr. Issa. I thank the gentleman.
We now go to the gentleman from California, Mr. Kiley, for
five minutes.
Mr. Kiley. Good morning. Mr. Baker, if I could start with
you, I think you made a comment about how we need more of a
leadership role for the United States when it comes to
standard-setting organizations. I wanted to ask you just what
are the ways that we could do that? There are examples of
standard-setting organizations that have managed to keep the
Chinese influence at bay through appropriate governance
measures, so maybe that is one route. Maybe in other cases
where China is gaining influence legitimately, how could we
step up our involvement in these organizations, provide
incentives for participation to match their influence?
Mr. Baker. That's an excellent question because one of the
things that happens with U.S. corporations that are not
subsidized, when your budget goes down and your returns go
down, you reduce your staffing at standards organizations.
Doesn't occur with Chinese companies. When they're subsidized,
they increase the number of individuals.
As far as participation, remember it's a technical
standard. The idea of more engineers is a good thing. I will
disagree with one thing. The standard essentiality of something
that's put into a standard is not addressed by a work group.
I've been in the work groups and that is specifically excluded.
The technical elegance is what's included in the standard and
you sort out the SEP-ness. The pProblem is nobody's sorting out
that SEP-ness. It's a big question mark.
So, as far as participation, a great start would be having
an initial threshold as far as the number of participants that
could represent a company at a standard, changing voting rights
so that the voting rights are reflected based on an individual
company gets one vote and other such procedural methods. Some
standards have implemented them; many others have not.
Mr. Kiley. So, how could we sort of have more of a voice in
setting those rules of governance?
Mr. Baker. That's a difficult question because the whole
idea of the standardization setup is to have it privatized
under the Western philosophy. In China it's slightly different.
Mark, you know more about that than I do.
As far as the government being able to regulate it, there
are certain programs where there is a role for government to
play in trying to be figuring out the staffing levels for
particular standards.
Mr. Kiley. Let me revisit this question of sorting out the
SEP-ness, as you put it, which refers to whether the patent is
truly standard-essential. You made a comment earlier about how
true essentiality was a matter of whether the device needs to
have that technology to work. That seems maybe not quite
technically the case. Isn't it a matter of whether you need to
practice the patent to achieve compliance with the standard, in
which case having a standards-essential patent is kind of like
a tautology because once it is in the standard you have to use
that technology to achieve interoperability? So, which is it?
Mr. Baker. Congressman, it's actually--you're describing it
correctly, but the technical essentiality is part of the
interoperability of the standard. If you take out that
technical essentiality, it's not going to be interoperable.
Mr. Kiley. Right. So, there is the question of whether
technology is necessary for a device to work and then there is
the question of whether it is essential to achieve
interoperability. The latter question is just a matter of the
choice that was made in the standard-setting process, right?
Different choices could have been made to use different
technologies to achieve the same level of interoperability.
Is it your argument that this essentially renders it not a
SEP patent or does that go to the setting of FRAND rates
because there exist viable alternatives, not to practicing that
particular standard, but rather to achieving some level of
technical interoperability?
Mr. Baker. You're actually hitting on a very good point
because there are different parts of a standard. There can be
the main part of the standard and there can also be appendices
to the standard. So, if you're talking about what is the most
technically elegant way to achieve something given all the
engineering parameters around what that standard seeks to
achieve, that would be what's technically essential. That
doesn't mean a different way of doing it in a different part of
the standard would not yield standard-essential patents if you
implement that part of that standard.
Mr. Kiley. All right. Interesting. Yes, it seems like an
area worth exploring. I guess part of the issue is that there
is just such a mess in terms of what the standard is--probably
a bad word to use standard again, but what the framework is for
setting FRAND rates that has created all this confusion and
uncertainty.
But, Dr. Copan, I wanted to also give you an opportunity
here because I was glad you mentioned the PERA, which I have
introduced, a piece of bipartisan legislation bicameral, which
would go a long way toward clarifying subject matter
eligibility, creating more certainty for those who are looking
to innovate.
Could you talk a little bit more about how that is
particularly relevant to the general theme of today's hearing,
which is the ways in which China has come to use dominance of
intellectual property as a major tool against the United
States?
Mr. Copan. Thank you so much, Congressman Kiley, and
grateful for your leadership in PERA.
The opportunity to provide greater clarity on patentable
subject matter is absolutely important in the United States
with respect to the enforceability of IP rights, as well as to
understand how they read on the practice of a standard. That
clarity benefits not only the United States practitioners, but
companies from other Nations as well seeking to access the
United States market.
Mr. Kiley. Thank you. I yield back.
Mr. Issa. Thank you. I now ask unanimous consent that three
letters to the Committee in support of today's hearing be
placed in the record. The first is from the Coalition Against
Socialized Medicine. The second is from the organization, the
Council on Innovation, C4IP. The third one is from the App
Association.
Without objection, all three will be placed in the record.
We now go to the gentlelady from North Carolina, Ms. Ross.
Ms. Ross. Thank you, Mr. Chair.
Thank you to all the witnesses for joining us today on this
very important topic.
I represent North Carolina's Research Triangle, so I know
firsthand that our Nation's leadership in technology and
innovation depends on strong intellectual property protections.
Among the most critical tools in this regard are standard-
essential patents, SEPs. The backbone of technologies like 5G,
Wi-Fi, and advanced video compression allow companies to build
interoperable products globally.
The American innovators, as we have all discussed, then
license these patented technologies to Chinese and other
foreign implementers. The royalties from these licensing
agreements account for a significant share of the U.S.
innovators' R&D and positive trade balance.
As we have heard, China is actively undermining U.S.
leadership by devaluing these patents directly harming American
innovators and weakening their ability to compete globally.
There are also national security threats in this situation.
These tactics threaten innovation and risk ceding U.S.
leadership for emerging technologies to China at a time when
the State Department report shows that the U.S. already lags
behind China in 37 of 44 key tech sectors from AI to
biotechnology.
We need to defend the ability of American innovators to
license their patents under fair, reasonable, and
nondiscriminatory terms, FRAND, as we have been discussing, and
push back against foreign efforts to impose artificial royalty
limits.
Further, we must condemn China's abusive practices,
including judicial overreach, that harms our IP holders and the
integrity of international agreements like TRIPS. By doing so
we can preserve the incentives that fuel technological
breakthroughs and maintain our edge in global standard setting.
As we face competition from China defending intellectual
property rights is both an economic and a national security
imperative.
Dr. Copan, in a 2022 comment you co-signed for the Renewing
American Innovation Project on multiagency SEP policy you noted
how devaluing U.S. patents is akin to subsidizing tech transfer
to China. How should Congress, the Administration, and the
private sector ensure that companies play a leadership role in
R&D and standard setting for the next generation's critical
technologies? For example, does the U.S. need to increase its
leadership in standard-setting bodies and voluntary standard
development organizations?
Mr. Copan. Thank you so much for that important question,
Congresswoman Ross. It is absolutely essential for the private
sector-led process in standardization to be well understood as
a national security imperative of the Nation. The conversations
here today have discussed the importance of encouraging U.S.
industry to maintain their presence and to contribute actively,
also in partnership with the U.S. Government, with
organizations such as the National Institute of Standards and
Technology at the table with a role as partner and supporter to
the private sector.
The opportunity is absolutely essential for the Nation to
continue to have enforceability of intellectual property rights
on a global basis to work with trade organizations and also
with WTO to ensure that the United States' position is
supported and that the erosion that we have seen of
intellectual property value by the actions taken by the Chinese
courts is condemned by the United States and like-minded
Nations.
Ms. Ross. Thank you.
Then, Professor Cotter, I know we only have a few seconds
left so I will make my question short. You talked about what
goes on in courts around the world, but when it comes to
setting countries' royalty rates would you agree that it is
more efficient and fairer to let IP innovators and implementers
negotiate a rate at arm's length as opposed to having outside
intervention?
Mr. Cotter. I would say that ideally negotiations are best,
but it is often the case, particularly in this particular
sector, that the negotiations cannot take place before the
implementers are locked into particular technological choices.
So, when that happens, I think there is a necessary fallback
for the courts to make decisions in appropriate cases when
negotiations fail.
Ms. Ross. Yes. Correct. Thank you so much.
Mr. Issa. I thank the gentlelady.
We now go to the gentleman from Virginia, Mr. Cline, for
five minutes.
Mr. Cline. Thank you, Mr. Chair.
Mr. Baker, I am looking at your testimony about what should
be done and how to regain leadership in the SEP-FRAND licensing
process to make sure all SEP holders receive fair compensation
for the use of its actual SEPs by all SEP implementers. It is
your testimony that both China and the EU have proposed
oversight to remove the cloak and veil from SEP-FRAND
licensing, provide guidance and level the licensing playing
field between SEP holders and SEP implementers.
How does that give the Chinese a strategic advantage to
remove that cloak and veil?
Mr. Baker. I don't necessarily agree with the process by
either of those entities are approaching the subject matter,
but at least they're making an attempt to address how you
identify a standard-essential patent and also FRAND. Remember
that this FRAND commitment--and Mr. Copan I think said about
honoring contractual rights--when a patent holder, a SEP patent
holder makes an agreement into a--participate in a standard,
they get a quasi-
monopoly which proliferates not only the standard, but also the
use of their patent, which means they're addressing a much
broader market.
The ability to actually define what is a SEP and also give
some parameters, some guard rails around what FRAND means, I
think those are advantages.
Mr. Cline. Your company manufactures modules for standard-
compliant communication devices. Does your company pay
licensing fees for SEPs as a result?
Mr. Baker. Yes, we're a proactive licenser and one of the
biggest frustrations we have is trying to license from China
companies such as Huawei and ZTE.
Mr. Cline. Do your Chinese-based competitors pay these
licensing fees?
Mr. Baker. Ha-ha. Nobody really knows, but I would say no
based on the fact that they're selling a module, as I stated,
that we can't even make it at, and they're making huge profits.
Mr. Cline. Obviously, that has a significant impact on your
business when they are making these profits?
Mr. Baker. I would say that it's probably driving Western
module manufacturers out of business. If you want to have only
Chinese providers of modules, that's the path you're on.
Mr. Cline. When we consider what has happened recently with
Chinese essentially intervention in the cell phone technologies
and, for lack of a better term, hacking into the cell systems
of American companies, the pushing out of every other kind of
manufacturer--this is getting worse, not better, correct?
Mr. Baker. Correct. I should add exponentially worse. It's
an ever-evolving rate.
Mr. Cline. So, your company is an SME that implements a
number of technical standards and you have firsthand experience
in licensing of SEPs. You walked us through the process of
licensing SEPs for an SME. How do you assess the value of a
particular SEP during licensing negotiations?
Mr. Baker. Now, appreciate for our method may not be one
that's followed by every company, and the reason for that being
a small/medium-sized company. We don't have a deep pocket to do
a tremendous amount of analysis, but what we do is a
statistically significant analysis. So, when presented with a
portfolio of 1,000 patents, we'll take 100 of them. We will
independently look at those to determine, both internally and
through external experts, whether or not they truly read on the
standard.
The declaration that's filed by a patent holder, a SEP
holder into a standards association has zero relevance to its
actual SEP-ness. So, we actually undertake that burden to do
that. That's unique in the industry. We do it as an--it's an
overhead cost. That's the only way we can have an idea, first,
we are actually using the patent in our product; and second,
what would be a reasonable valuation because are the patents
you hold incremental improvements or are they something truly
monumental and early technology like millimeter wavelength
coming out of 5G? That's brand-new stuff. That's going to be
pricey.
Mr. Cline. Is there a way that you envision that we can
improve the efficiency of the system or--
Mr. Baker. If there was an ability to actually have a
determination of whether or not--close the loophole. You have a
declaration put into a standards group where I believe it's
going to be standards essential. You've got a patent over here
in another dynamic system going through the patent evaluation
system at the U.S. PTO. The two never come together to
determine SEP-ness. So, you don't even know if that originally
filed belief declaration has anything to do with the actual
technology in the patent issued.
One thing that would be good would be to harmonize the
issued patent with that original declaration and see if that
technology actually made it into the standard.
Mr. Cline. Thank you. Yield back.
Mr. Issa. I thank the gentleman.
We now go to the gentlelady from Pennsylvania, Ms. Dean.
Ms. Dean. Thank you, Chair Issa, Ranking Member Johnson,
and, of course, to all our witnesses today, thank you for your
expertise and for sharing this information.
I would like to go back. In a former life I was a professor
of writing at La Salle University, and I really emphasized to
my students the value of plain--English. I can't even say it.
Plain English. For the nontechnical IP and technology folks out
there, can we go back and tell me, tell us what is SEP? I am
laughing because you talked about SEP-ness. I never even heard
such a word. Excuse me for my ignorance. But could we go back?
For everyday Americans, what is a SEP? What are standard-
essential patents and what are the criteria to become one?
Maybe Mr. Copan? Dr. Copan?
Mr. Copan. Thank you so much for that question. I
appreciate the focus on clarity in writing, communication, and
thank you for raising that.
Patents provide innovators with the ability to practice
their invention in the marketplace and the ability to exclude
others. In the case of SEPs the inventor agrees to make that
invention available to everyone who wants to practice a
standard that would also be available then on fair reasonable
and nondiscriminatory terms. So, it really is a commitment to
make an invention broadly available to those interested in
practicing.
Ms. Dean. Thank you. I appreciate that.
Mr. Baker. Ms. Dean, if--
Ms. Dean. Oh, I am sorry. Yes, thank you, Mr. Baker.
Mr. Baker. I'm going to make this very simple. If you have
a car and you take the tires off it, it doesn't work. Those
tires are standards-essential to the operation of the car. It's
that simple. It's not a long definition. I was there when we
wrote the policy guidelines. The language was simple, and it's
currently being totally manipulated on what the original intent
was by other people taking that simple language and trying to
tell us what it means. I wrote the darn guidelines. I can tell
you what it means.
Ms. Dean. That is very helpful. Anecdotes like that are
very helpful to me.
Mr. Cohen, we have heard arguments today, and I am
following up really on what Mr. Massie was talking about, that
SEPs are so important to certain technologies that SEP holders
should not be able to obtain injunctions or exclusion orders,
but doesn't that run the risk of devaluing U.S. IP rights? Why
shouldn't SEP holders have the same rights as other patent
holders to enforce their IP in court?
Mr. Cohen. Yes, I think Professor Cotter's given a brief
explanation of why there's a different kind of balance with
regard to SEPs; that is, that a SEP could be abused to exhort
an exorbitant monopoly rate when it should be made available on
fair, reasonable, and nondiscriminatory terms.
In theory, if you violate that obligation and negotiation,
maybe you should be deprived of the right to an injunction, but
you should still be entitled to a robust royalty, whatever the
appropriate royalty is. That's kind of the tradeoff for
inclusion of the SEP in what is more or less a public good,
which is standard.
Now, having said that calculation, which was first
expressed in a case in Europe called Huawei v. ZTE, can easily
be abused. What constitutes good-faith negotiations? How much
do I have to disclose? What if the implementer delays and
delays for years and years? In a world such as China where they
insist in equality in rates, shouldn't I disadvantage the party
who has delayed and delayed in coming to the table and
negotiating? It shouldn't only be one-sided on the side of the
inventor or the patent owner. You have to also look at the
behavior of the implementer.
Mr. Dean. Do you have any comments on a bill that I am a
part of with Representative Moran, the RESTORE Act, which I
think was talked about before I came into the hearing. I
apologize for missing that. It would provide patent owners who
have proved infringement in court the rebuttable presumption
that they are entitled to an injunction to protect the patent.
I believe in strong patent rights and strong IP rights. They
are essential. Do you have an opinion on RESTORE?
Mr. Cohen. Well, I can say that it severely disadvantages
U.S. courts in the competitive battle to assert jurisdiction
over FRAND disputes to rarely have an injunction available when
there is infringement, including when there is delay. It
particularly disadvantages those companies that may not be
implementing that may simply be engaged in licensing the
patents.
We should keep in mind that the U.S. is the largest
licensor of technology in the world by a long shot, and a large
part of those licensing agreements, particularly in markets
like China, are unrelated parties, so it's not General Electric
to its subsidiary. It's a Qualcomm to an OPO, or whatever the
case may be. This is really important for the innovative
capacity of U.S. companies to derive the appropriate amount of
revenue.
I believe that I support this proposal to go back or have a
presumption of availability of injunctive relief.
Ms. Dean. I appreciate that.
Mr. Chair, thank you. I yield back.
Mr. Issa. I thank the gentlelady.
We now go to the gentleman from Maryland. As long as he
promises not to mention the Army-Navy game, I will grant him
five minutes.
Mr. Ivey. Thank you, Mr. Chair. I have ribbed my Governor
enough about that game, so I will leave it at that.
Just to followup on what Ms. Dean just asked--I think it is
Dr. Copan--you mentioned the RESTORE Act in your written
testimony, I believe in your oral testimony as well. I was
curious about your answer to Ms. Dean's question about the view
about that bill.
Mr. Copan. Yes, thank you so much. Indeed, I did mention
that in my testimony, the important step forward that
represents for U.S. innovators.
I do believe that it is important to provide that kind of
position of strength for the United States innovators to know
that they have the ability to take action in support of their
invention and to deal with bad behavior in the marketplace
those who are holding out, and indeed to have clarity also in
the courts of the ability to move forward with injunctive
action when other remedies fail.
Mr. Ivey. Thank you. Mr. Baker, I want to go back to your
testimony. You said--let me just--I will phrase it as a
question. How do we keep Western module makings in business,
because I think your testimony was the way things are moving;
they will be forced out of business in relatively short order?
Mr. Baker. Leveling the playing field. We're a component
manufacturer. We do not operate at the end-product level.
Leveling the playing field with predictability within the
marketplace so that we know that when we are making a component
we not only have access, direct access to patent rights which
allows us to innovate--because when you have this module that's
standard-essential and you're using it, you then have to take
this module and you have to integrate it into whatever the
device is, whether it's a car alarm, whether it's a tracking
device. So, we are innovators also. We need direct patent
rights, which means a direct patent.
If you go ahead and you do just end-product licensing, what
you make as a commoditized producer and manufacturer of these
products, that only serves the Chinese purposes even more so
because of the way that they actually do business. Leveling the
playing field and requiring everyone who is participating and
using those patents to have predictability in how much we will
need to pay for the patents in an aggregate form and also what
is the true value of the collective standard-essential patents
used by that product, that would go a long way to keeping us in
business.
Mr. Ivey. Let me generalize on your answer there, because I
think there have been a number of comments in the testimony
about how to deal with the activities of the Chinese and how to
sort of address some of the misconduct. We are going to make
efforts, we are going to pressure them, we are going to join
different organizations and exert additional influence. Not to
be cynical, but I don't know that they are always responsive to
those sorts of things.
What actual sorts of legal and economic leverage do we have
that we can assert to force more egalitarian behavior or more--
a level playing field of behavior, so to speak, with respect to
the way China's handling these issues?
I will start with Mr. Cohen, I guess.
Mr. Cohen. Yes, it's a great question. It's one that I
think of constantly. Obviously, one response is tariffs. So,
that's something that I think President Trump is probably going
to look at.
Mr. Ivey. That is timely, yes.
Mr. Cohen. So, that--
Mr. Ivey. Elaborate on that a little bit. What is your take
there?
Mr. Cohen. Well, the problem I have with tariffs is that if
you start imposing tariffs for an IP-related issue, it's going
to invite retaliation by China perhaps on our own IP rights in
China. So, I'm concerned about China's capacity to cross-
retaliate.
We have an IP system that to this day basically treats
every part appearing in a U.S. court, foreign, national, or
local equally. We begin to erode that system. We have to really
think of the global consequences of eroding that system. That
concerns me because we're seeing the erosion of MFN concepts in
tariffs. Is IP next? What are the consequences for that? That's
something to think about.
Mr. Ivey. Let me go to Mr. Baker.
Mr. Baker. Look, I have to agree with the tariffs also.
Although we are not strong supports of subsidies, if we're
going to level that playing field, you have to look at all
options.
Mr. Ivey. Mr. Cotter?
Mr. Cotter. I think the options--it's very difficult to
figure out what the options are for compelling China or any
other nation to do what we want them to do with regard to
intellectual property. Most of it I think is going to have to
be carried on through diplomacy, where possible through the
WTO, but that is something that is something that takes a lot
of time and has its defects.
Mr. Ivey. Doctor? Still looking for the cudgel here.
Mr. Copan. Yes, I think that this is a challenge that also
can involve stopping importation of goods into other Nations
that are very clearly infringing. As China seeks to access
global markets, working with other Nations to ensure that
they're not accessing them with infringing products is an
important step to consider.
Mr. Ivey. Thank you for your comments. I know that you had
additional things that you wanted to say. My time is expired. I
yield back. Thank you for your testimony.
Mr. Issa. It was a good use of your time.
Last and probably least, I am going to wrap this up with a
group of questions.
First, I would like to let you know that we had four pages
of questions with followups and we didn't get to them all. So,
we will be sending those to each of you and asking you to
respond for the record, but there are a number of things that I
think in summary that I would like to touch on.
Second, although this hearing was very much put out as
relative to China, I think it is fair--and an acknowledgment
from all of you that there is no question at all that although
China is the most unfair player, there are deep concerns on
this panel about Britain, Germany, and the EU, in general, and
their desire to lower their cost of SEP licensing. Is that fair
to say?
Mr. Cotter. If I may, I'm not sure that I would
characterize it that way exactly. I don't think honestly that
the courts in these countries necessarily have an agenda. They
have very different perspectives. So, the U.K. courts, probably
the most similar to our own, take a fairly balanced approach to
these issues. The German courts, as I've mentioned, see
injunctive relief as a matter of right, and so that tends
actually to give the SEP owners the advantage in those cases.
That may change. As I mention in my written testimony the
European Commission may have other views on that but remains to
be seen.
Mr. Issa. Mr. Baker, that last point, if the whole world
decided that SEP is great but injunctive relief is essentially
the default, how would that affect your ability to go to
market?
Mr. Baker. It would effectively shut us down. The
injunctions without first an analysis of whether or not an
offer is FRAND, you can't determine if there's a holdout. If
you can't determine if there's a holdout, why would you issue
the injunction?
Mr. Issa. The comment of diplomacy was used. I appreciate
that, serving on the Foreign Affairs Committee, but let me
characterize a question for a moment. The most valuable
diplomacy the United States has is probably immersed over in
the Department of Commerce, not the Department of State. Is it
fair to say that China's unfair activities that have been
outlined today and Britain and others' desire to have their
courts make global decisions, and this idea that you can be
banned hypothetically from seeking any relief elsewhere--all
those would be offset by U.S. diplomacy that simply said, you
want access to our market; those rules are not acceptable. Is
that a fair approach for the new administration to look at,
that access to our market is so valuable that all these
activities that we see as unfair should be negotiated in light
of access to our economy?
Anyone disagree with that? Dr. Copan?
Mr. Copan. Yes, let me comment. I think these are very,
very important points that you're raising. I do believe that
the process that the U.K. courts have utilized to be very
thoughtful in their analysis actually provide a really positive
example for the United States with the United Kingdom as a
close ally and partner. So, I think rather than--
Mr. Issa. Hold on a second. You are saying that a Federal
judge, otherwise known as somebody who thinks he is God, should
simply say we are going to make a decision for the whole world
even though the Constitution gives him no such power, and that
this would be good if we mirrored what Britain has done, on at
least a few occasions?
Mr. Copan. I'm talking about the thoughtful approach of
coming to judgment.
Mr. Issa. My Article III judges are thoughtful. The
question is more a matter of jurisdiction and sovereignty. So,
Mr. Baker, you have operated in all these areas. I know it is
frustrating to have 200 countries, each of which asserts its
own sovereignty, but is it fair to say that something between
we will make a decision for the world and then penalize you if
you try to go to another country and seek remedy different
there and the idea that there is only standard? That is really
what global negotiations is about, is to try to cooperatively
find it, not find it based on the decision of one judge, no
matter how thoughtful.
Mr. Baker. Patents have regional boundaries. There's no
doubt about that. A U.S. patent is valid in the U.S., and no
place else. If there's going to be an exception to that rule
relative to licensing, it either comes from the parties that
say we agree to a global license coming out of a U.S. court, or
it can be by the U.S. Government, or through diplomacy striking
a negotiation where you find a broader than the regional
application for a patent.
Mr. Issa. Now, there was one point brought up early on, and
it was the fact that if I am facing this--I love holding up my
Chinese patent. It is small and worthless. If I am in a Chinese
court, in nine months I am going to be through my entire appeal
process.
Is that not true, Mr. Cohen? If I am in a Chinese court,
but I am an American patent holder, do I get done in nine
months or is that a one-way street currently?
Mr. Cohen. By law it's a one-way street, which is to say
that the mandatory timeframes for civil litigation including
the appeal in China do not apply if it's a foreign-related
case. What is a foreign-related case is an undefined term, but
I think your appearance from the United States in a Chinese
court would clearly be a foreign-related case.
Cases will get drawn out frequently because they're afraid
of the diplomatic context, the political context, or perhaps
for other reasons, but they do get drawn out for foreigners.
Mr. Issa. So, in closing, and there will be a lot more
questions that you have kindly said you will answer for the
record, if there was one thing in our dealing with China's
access and China's implementation of their patents that you
would want us to look at for next year would be--I guess it is
two things. One is to find a way to match that nine months as
best we can in the U.S. to bring some level of parity, if at
all possible.
Then, first--and I know the ITC was mentioned; we will
leave that where it was for now. Second, deal with the lack of
reciprocity in that--you have said it very well, Mr. Cohen, in
the U.S. we do not look at the country of origin in an Article
III court case, or even at the PTO. China does. If that
continues then we will never really--will get justice between
the two. It would be like the old days with the Russian judges
at the Olympics.
Anyone see that as not one of the key areas that we have to
work to change?
Any last closing remarks from any of the panelists before I
send you off with your homework in writing? With that--Yes?
Mr. Baker. I would just add that my comments today were for
small-and medium-sized companies that represent 90 percent of
the companies that are building out IoT. They're not large
companies. Much as you started with your technology and then it
grew into a larger entity, that's the type of customer that we
have. If you license us and there is a SEP-FRAND relationship
that can be struck, you're licensing 2,000 people--or 2,000
companies at a time that will never pay royalties to a major
patent holder if you don't license through us. If you want to
go to the end product, the money won't be there in a U.S. court
to sue them and you're leaving that money on the table.
Mr. Copan. If I may add something?
Mr. Issa. Yes.
Mr. Baker. It's not fair.
Mr. Issa. Please.
Mr. Baker. I really appreciate the opportunity to join you
today. The important focus on small- and medium-sized
enterprises as well, because these intellectual property
enforceability issues are existential for these companies, the
ability to continue to operate profitably on a global basis
where we see an uneven playing field.
The United States as a free market economy also has great
benefits to lead the world by example and to take an approach
that is not regulatory-forward but enables the free market to
really work, and then to work diplomatically and, to the point
that was raised earlier, with economic force to ensure that
China does pay attention.
Mr. Issa. Thank you. Yes?
Mr. Cotter. Just briefly, I would just urge the
Subcommittee to be mindful that whatever measures Congress may
see fit to pass to strengthen patent rights--they may see that
as a desirable thing to do to respond to China or to increase
incentives for innovators, but be mindful that those--some of
those provisions, some of those actions could potentially
backfire against other U.S. companies that need access to
technology that should not be excluded from the market, that
should not be threatened by patent assertion entities wrongly.
I think there needs to be a balance.
Mr. Issa. Thank you. As we conclude, I would like to yield
to the Ranking Member if he has any end-of-year comments,
particularly if they are related to the Ranking Member of the
Full Committee who has appeared for the last time in that
particular role here today.
Mr. Johnson. Well, the gentleman is being quite judicious
today and I shall adopt that same stance toward Ranking Member
Jerrold Nadler, who has been Ranking Member or Chair of this
Committee I believe for 15 years. He is stepping down from that
position as of the 119th Congress. He will become just a
singular valued Member of our Committee and Jamie Raskin will
assume the Ranking Membership responsibilities.
So, at this time on behalf of all the Members of the
Judiciary Committee on this side of the aisle I want to thank
Jerry for his service, recognize the great service that he has
rendered, wish him the best as we all move forward together.
I thank once again the Chair of this Subcommittee, my
friend and partner Darrell Issa, for the value that he has
brought to the Committee at large and his leadership of this
Subcommittee.
Once again, happy holidays to everyone and thank you all
for your very great testimony today. Thank you.
Mr. Issa. Thank you.
Mr. Johnson. I see a Member, a former Member of Congress,
Ed Perlmutter, who is in the House today. I want to shout him
out, recognize him.
Mr. Issa. With his Christmas tie on.
Mr. Johnson. Yes, that is right. I see Jamie Simpson who is
here, former lead staffer on the Committee. Also, David
Lachmann, a former Committee staffer is here as well. So good
to see you all.
Mr. Issa. Thank you. I will note for the record that
Ranking Member Nadler has expressed that he will continue to be
on this Subcommittee and has been both Chair and Ranking Member
of this Subcommittee additionally over the years.
This concludes today's hearing, and I want to thank all our
witnesses for what they have done for us here today and what
they have agreed to do in the next five days to come.
Without objection, all Members will have five legislative
days in which to submit additional written questions for the
witnesses and additional materials for the record.
Without objection, for the year we stand adjourned.
[Whereupon, at 11:42 a.m., the Subcommittee was adjourned.]
All materials submitted for the record by Members of the
Subcommittee on Courts, Intellectual Property, and the Internet
can
be found at: https://docs.house.gov/Committee/Calendar/ByEvent
.aspx?EventID=117764.