Chinese ‘Patent Trolls’ attack US entities

Chinese ‘Patent Trolls’ attack US entities

WASHINGTON, September 1, 2014 – Comedian Adam Carolla was elated when his Adam Carolla Show won the Guinness World Record as the most downloaded podcast on earth. That was in 2011.

On January 7, 2013, Personal Audio LLC slapped Carolla’s podcasting empire, Carolla Digital, with a lawsuit for alleged patent violations.

According to the complaint, Carolla used an “apparatus for disseminating a series of episodes represented by media files via the Internet as said episodes became available… employing one of said one or more communication interfaces to… download said updated version of said compilation files to said requesting client device.”

In other words, creating a podcast, compiling sequential episodes online, and allowing the public to download them, violates Personal Audio’s patent. In essence, they claim to own podcasting.

Personal Audio recently announced it has dropped its suit against Carolla, but said it will continue to seek damages against CBS, NBC, and Fox, which have deeper pockets.

Personal Audio is known as a “non-practicing entity” (NPE), which produces no products for sale, but uses patent claims to extract money from so-called violators in the form of licensing fees. NPEs are popularly known as “patent trolls.”

A Boston University School of Law study estimates that patent trolls cost U.S. companies $29 billion in 2011.

What if patent trolling becomes a weapon of state-sponsored economic warfare?

“Chinese high-tech companies are on the counterattack regarding intellectual property rights, which used to be very much a soft spot,” said the China Daily. China’s Silicon Valley, Zhongguancun, recently received a $15 million infusion from the state to create a patent acquiring entity called Ruichuan IPR Funds.

Meanwhile, China’s Lenovo, the world’s largest PC manufacture, intends to convert “its previous defense strategy into a defense plus attack strategy,” beefing up its litigation and licensing arm “as part of its overseas development strategy,” said Lenovo’s Senior Executive Li Xin to China Daily.

CEO Lei Jun of Xiami Tech said China’s hi-tech ‘fast movers will take their position and finally challenge overseas giants,” he told the Daily.

This is a rather ironic shift in attitude when you stop to consider that Chinese manufacturers are notoriously lax when it comes to respecting the intellectual property of others. A just-released report by the Office of the U.S. Trade Representative accused China of “inadequacies in trade secret protection” and “troubling ‘indigenous innovation’ policies that may unfairly disadvantage U.S. rights holders in China.”

The “troubling indigenous innovation” policy in question is China’s Utility Model Patent system (UMP). These UMP patent requests, said a U.S. Chamber of Commerce report, are “inexpensive, unexamined, rapidly granted, and difficult to invalidate… it appears to be a potent weapon of choice by non-practicing enterprises… known in many circles as patent trolls.”

In effect, a Chinese legal firm can apply for a cheap, fast-track UMP patent to an existing (and patented) product or process, and then threaten to sue foreign manufacturers in China for infringement.

“Knowing this, accused infringers often find it easier and more financially practical to settle UMP infringement cases, often for an amount small enough to make the transaction more attractive than possible litigation,” said the U.S. Chamber report.

According to the New York Times, “To lift its patent count, China has introduced an array of incentives. They include cash bonuses, better housing for individual filers and tax breaks for companies that are prolific patent producers.”

Last May, the Justice Department indicted five Chinese nationals that the U.S. government accused of belonging to the cyber espionage arm of the People’s Liberation Army known as Unit 61398. They were charged with hacking into the computer systems of U.S. companies to steal manufacturing techniques and even their business negotiating strategies.

“This is a case alleging economic espionage by members of the Chinese military and represents the first ever charges against a state actor for this type of hacking,” said Attorney General Eric Holder.

“Success in the global marketplace should be based solely on a company’s ability to innovate and compete, not on a sponsor government’s ability to spy and steal business secrets.”

And who knows, their trolling may have found innovative processes and technologies worth patenting in China.

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