When it comes to sexy news topics, the House speaker debacle, fights over Planned Parenthood, Hillary’s email scandals and pretty much anything that comes out of Donald Trump’s mouth easily tops reports about an investigation into an obscure trade and patent dispute at the U.S. International Trade Commission (ITC).
But for Americans who believe in fair and open markets, the case, which enters a new phase this month, should not be missed. It is especially important for the growing number of people who despise so called “patent trolls” – entities that sue companies, often on shaky ground, to collect settlements or awards.
At issue is a case in which the graphics company Nvidia is suing Qualcomm Inc. and Samsung Electronics, arguing the two companies infringed on Nvidia’s intellectual property and deployed it in phones and tablets.
Specifically, Nvidia argues the companies infringed on graphics patents. The claim appears sketchy at best and, while the three companies are currently engaged in license negotiations to iron out differences, Nvidia has decided to try to get an upper hand by taking the matter to the ITC creating an all-out trade war.
The worst-case scenario that could result from Nvidia’s drastic and unnecessary action is that an exclusion order is issued; prohibiting the import of popular Samsung devices like many Galaxy smartphones and Note tablets in the United States, all of which contain Qualcomm processors. In the best case, the ITC recognizes the outlandish suit for what it is and either encourages a settlement, or simply throws it out entirely.
In a bit of good news, an ITC judge ruled Friday in its “initial determination” that Samsung did not infringe two Nvidia patents, and a third Nvidia patent was invalid because it protected an invention that was too similar to previously known patents.
Still, the ITC could make future rulings that functionally ban shipments of Samsung and Qualcomm products into America, including the widely used Galaxy S6 phone.
As American Enterprise Institute visiting fellow Bret Swanson recently concluded, “An exclusion order is an import ban, an extraordinarily blunt tool that, in this case, could plunge the U.S. mobile ecosystem into utter chaos.” The gall Nvidia has demonstrated attempts to exclude Samsung and Qualcomm products – in addition to Nvidia’s simultaneous suit for financial damages in a federal court – mirrors that of the IRS denying they targeted conservative groups. It is unreasonable and spells trouble for companies looking to compete.
In this case, Nvidia’s attacks, no matter how bogus, essentially put Qualcomm and Samsung in a position of having to pay off Nvidia to make the issue go away so the companies don’t risk being outlawed from the U.S. market.
Such nefarious patent litigation is unfortunately on the rise. Suits alleging infringement on someone’s idea are up 11 percent in recent years, costing defendant companies – often in absent of infringement – nearly $30 billion in aggregate costs. One study says this destroys more than $60 billion in wealth each year. The concerns associated with abusive patent assertion and trolling are now commonly understood – hence the scramble on Capitol Hill to do something.
The transition to seek injunctions rather than financial damages within courts only serves to highlight a chilling growth of litigation and the decline in American ingenuity. It is the “get rich fast” culture at its worst. As conservative political analyst Peter Roff remarked on the case, “There is something not quite right when companies attempt to use a federal agency (albeit, an independent one) to gain competitive advantage or to strengthen a negotiating position.”
When coupled with purchased political influence and inept policymakers in Washington, the consequences could be dire for the scores of Americans in search of yesterday’s American dream – in which hard work is still worth something. Deploying unwieldy blocking tactics are undoubtedly the symptom of a larger problem: Too many Americans think they can game the political and legal system to get rich, rather than creating, innovating and putting in time.
Perhaps the Obama administration’s record of playing favorites and hindering economic growth with senseless regulation has become an irreversible norm where companies like Nvidia feel empowered to pursue such ridiculous anti-growth tactics, but it shouldn’t be.
For Americans outside of the Beltway bubble seeking sanity and a return to what made us great, let’s hope that attempts to wipe out half of a market are not rewarded.
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