How France set off a protectionist arms race on tech
The French government acquired patents from the private sector to protect their national smartphone producers from emerging markets' products. This has changed the game for the increasingly disputed market, writes Hosuk Lee-Makiyama.
Hosuk Lee-Makiyama is the director of the European Centre for International Political Economy (Ecipe) and a former representative to the World Intellectual Property Organisation and World Trade Organisation.
Few have missed how the fierce market competition in the smartphone market has led to a number of patent disputes in the technology sector. Companies have filed lawsuits in the courts of Australia, Japan, Korea, the United States and at least six European jurisdictions.
The lawsuits came to a point where governments felt compelled to get involved: President Obama intervened personally in a case that led to a legal injunction and a import ban, and attempted an executive order to stave off patent trolls; the European Commission initiated antitrust investigations against some of the patent owners, but with little results; and Chinese Ministry of Commerce has kindly asked European and US firms to never bring patent cases against a Chinese firm in exchange for approving any mergers and business transactions.
Clearly, all three major economies had to resort to extraordinary measures to defend their patent systems. However, the best defense is a good offense – governments are also acquiring patents from the private sector to assist their national champions. For example, France Brevets, funded by the French government, has acquired smartphone patents from private companies and using them to seek legal injunction to ban imports of Korean and Taiwanese phones.
This is a novel development. Traditionally, governments – on behalf of domestic protectionist interests – resort to antidumping and other trade defense measures that are punitive duties against foreign producers to squeeze them out of the local market. But unlike traditional trade defense, import bans (on the grounds of patent violation) can be sought in other jurisdiction than ones own. France chose to go after the Asian smartphone manufacturers in a far more vital market than its own, namely the US.
In this manner, France and other EU member states can bypass the Commission’s exclusive competence on trade, especially as Brussels is now more cautious about using trade defence instruments after the recent trade wars with China. Antidumping proceedings also require evidence of ‘predatory pricing’, which is relatively easy to feign for non-market economies, but less so for imports from developed countries like the US, Taiwan or Korea. In contrast, governments can deploy patent-trolling practices to block imports from any country.
Patent lawsuits by state-owned patent pools or firms may create a new battery of protectionist measures, especially as patent-intensive technologies (like solar panels and telecom equipment) have increasingly become the target of antidumping investigations. They supplement existing trade defence instruments that have become highly impractical to use due to the risk of retaliation.
It is feasible that state-owned patent pools like France Brevets have no protectionist goals. However, the road to trade disputes is paved good intentions. In trade diplomacy, optics is everything – if a midsized country like France or Korea weaponise their patent arsenals, even inadvertently, it would only serve to legitimize similar behavior by bigger and harder mercantilists like China. In diplomacy and economic statecraft, size still matters – China currently invests more in R&D than any other country in the world. Its state-owned enterprises file 23,000 patents per year and account for 26% of the gross national income. This is a battle that no country – including France, or even the US – should set off: because they are bound to lose.
The major trade agreements, such as Trans-Pacific Partnership (TPP) or Transatlantic Trade and Investment Partnership (TTIP) are very likely to include new disciplines on how state-owned enterprises stopping them from compete by trading below market prices. However, the main purpose of trade agreements is to encourage lower consumer prices – it makes little sense to address underpricing, while turning a blind eye to import bans that limit competition. A principal agreement to refrain from patent abuse could put the qualms of a new arms race to rest.