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Battling the Property Pirates

In guarding patents abroad, U.S. firms get little help from trade talks. But the cause isn't hopeless.

More American companies these days are fighting in court to protect the intellectual-property rights of patents, trademarks, and copyrights. Indeed, roughly 2,700 patent lawsuits were filed in 2002, more than double the filings a decade ago, according to intellectual-property-management consulting firm General Patent Corp. And some companies are winning. Just ask Ebay Inc., which recently lost a $30 million verdict to MercExchange LLC over claims that the Internet auction firm infringed on MercExchange’s patents with its “buy it now” technology. AT&T, too, is suing Ebay and its subsidiary PayPal for patent infringement of technology related to credit-card transactions. Even when such cases are settled, they typically result in licensing arrangements between the two companies.

But when it comes to using the courts to defend company IP rights in developing countries, of course, the proposition is much dicier. For starters, even the most basic property protections are not always recognized. And when they are, legal disputes are often heavily colored by political influence. IP rights are especially vulnerable to such interference. That is why the collapse of the latest round of World Trade Organization (WTO) talks, last fall in Cancun, so disappointed those who believe that patent protection and the like are critical for sustainable economic growth.

High on the agenda at Cancun, at least as far as the United States was concerned, were steps to enforce a 1994 agreement during the GATT Uruguay round of trade talks. The pact, known as the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, not only recognizes IP rights but also sets deadlines for enforcement. Yet the United States insists that many of those deadlines have passed without compliance.

Beaten to the Punch

Such an environment leaves a U.S. company in a tenuous position when it ventures abroad. Without the temporary monopoly that enforceable patents, trademarks, and copyrights provide, there’s nothing to prevent competitors from infringing on a company’s IP rights and undercutting its position in local markets. And that is happening to a worrying degree, in fact, in many emerging markets. A report earlier this year by the U.S. Trade Representative’s office estimated that piracy costs U.S. companies as much as $250 billion a year. Those doing business in China, Taiwan, and Hong Kong are very concerned, says Amy Xu, a Minneapolis-based attorney with Dorsey & Whitney, especially about the fate of “their top-line products.” DuPont, IBM, Kodak, Procter & Gamble, and 3M have all been aggressively filing patent applications with the Chinese patent office, she notes. As early as 2000, P&G had filed 516 applications, the most by any non-Chinese company except Japan’s Matsushita, according to a Website maintained by the Chinese patent office. At the time, IBM was seventh on the list, with 324. (More-recent data on these companies is not available.)

In much of the developed world, to be sure, patent protection just about matches that in the United States, yet important distinctions remain. Patents in Europe are granted on a first-come, first-served basis, for instance, while U.S. patents go to the company that proves it invented the technology. That difference leaves U.S. companies at a decided disadvantage if they are beaten to the punch by European competitors. Nevertheless, some American firms have managed to win at least a handful of patents in Europe. According to a database maintained by Thomson Corp.’s Delphion, Cisco Systems Inc. possesses seven German patents, for example, and an equal number of European patents that cover all 27 countries that belong to the European Patent Convention. Still, that’s a far cry from the 1,371 patents Cisco holds in the United States, according to the database.

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