Promoting Competition in the American Economy
What President Biden’s Executive Order Gets Wrong about Driving Innovation and Supporting U.S. Leadership in Global Technology Standards
Back in July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Little about the political climate around challenging Big Tech firms and establishing U.S. global technological leadership has changed in the months since. The order was issued amid the backdrop of raging discussions on the need to reign in the growing power of Big Tech platforms, whose power is hurting competition in the U.S. economy, and the need to help retain the United States’ position as a global technology leader, considering growing competition from China. In an April 2021 White House press release, the president recognized the importance of leadership in critical technology areas, such as fifth generation (5G) wireless technology and standards, by announcing a new public-private partnership between the National Science Foundation and the Department of Defense to support research on next-generation networks and systems. The priority of maintaining U.S. leadership in 5G standards and deployment is further reiterated in the president’s recent executive order. Yet, some recommendations contained in the executive order expressly contradict and undermine these priorities—specifically, recommendations that are directed toward devaluing American patents through the regulation of standard-essential patents (SEPs). Worse, the order supports China’s 5G leadership and, in doing so, creates an unnecessary national security risk by putting American leadership in this space in a vulnerable position. At the same time, China is recognizing both the power of bolstering intellectual property (IP) rights to encourage its inventors and the power of antitrust as an industrial policy tool, but not to attack its own domestic powerhouses.
Q1: Why are intellectual property rights crucial for start-ups and small and medium-sized enterprises (SMEs)?
A1: While one of the primary intents of the executive order is to contain the growing market concentration and power of the Big Tech platforms, the document firmly undermines its own goals by calling for regulation of patents in many technology areas, such as SEPs, which are patents that claim an invention must be used to comply with a technical standard. Patents are recognized to be one of the only tools available to start-ups, SMEs, and inventors to protect their ideas, while Big Tech platforms have various other means to protect and monetize their ideas, such as vertical integration and forming conglomerates, both of which drive an economy for big platforms. Indeed, research has shown that this is precisely the reason why Big Tech platforms have traditionally been vocally anti-IP in Congress and the courts, lobbying efforts, amicus-brief filings, and more. Smaller firms and individual inventors often do not have the investment and capital necessary to develop their intentions into large-scale marketable products and services or to monetize them in adjacent markets. Rather, they often create prototypes, hoping to find other developers to further manufacture and market their inventions and recoup their research and development (R&D) investments by licensing their inventions to these developers. Recommendations in the executive order that propose weakening IP for reigning in the big platforms are exactly the intended goal of big platforms and cement their power further.
Q2: How does the executive order devalue SEPs?
A2: The executive order suggests revising policies at the intersection of IP and antitrust by revisiting an important 2019 joint statement issued by the Department of Justice, U.S. Patent and Trademark Office (USPTO), and National Institute of Standards and Technology (NIST) that calls for a balanced approach toward SEPs. The ultimate objective of such a revision is denying SEPs critical remedies (such as seeking injunctions) that are available to other types of patents. This ultimately reduces the ability of SEP owners to negotiate licenses for their patents on reasonable terms or enforce them against a growing number of unwilling licensees refusing to negotiate.
The immediate and the largest beneficiaries of regulating SEPs are firms based in China. This is because the implementers, and thus licensees, of cellular technologies are largely based in China. The primary loss from regulating SEPs will be incurred by a handful of U.S.- and EU-based firms that have led the R&D and standards leadership in wireless technologies. This accompanies another shift in the international patent system: since about 2011, international patent applications filed by U.S. inventors under the Patent Cooperation Treaty (which provides the unified procedure for filing international patents) have dropped, and the U.S. Patent and Trademark Office (USPTO) and the European Patent Office (EPO) have seen their global share of patents decline—all while patents filed by Chinese inventors have continued to increase.
Q3: How will regulating SEPs help China in the long run?
A3: Regulating SEPs will help China in the long run by disincentivizing investment by U.S. firms and allowing China to gain leadership in critical 5G (and future 6G) standards. Indeed, over the last decades, China has significantly advanced its role in the development and standardization of cellular technology. Aided by Chinese foreign policy via the Belt and Road Initiative (BRI), this growth has been largely driven by Chinese telecommunications equipment company Huawei, but other Chinese firms are beginning to increase their participation in the cellular technology field as well. Should more and more of the world’s global networks come to run on Huawei and other Chinese technology, the U.S. intelligence community claims that China will gain the ability to steal trade secrets, hold leverage over rivals by shutting down communications infrastructure, find and punish critics, and generally gather intelligence.
The numbers reflecting China’s growing participation are likely inflated in quantity and do not reflect quality; yet the number of delegates affiliated with Chinese entities participating in the 3rd Generation Partnership Project (3GPP) has grown significantly in recent years. Established in 1988, 3GPP is a standards body that has the world’s largest telecommunications firms as its members. Having gained more influence over time with the rollout of 4G and now 5G, 3GPP has been at the center of geopolitical debates because of 5G’s importance for the global economy. Today, China has the most members of any country, which powerfully complements the fact that as of November 2021, Huawei has the largest 5G portfolio and has declared the most patent families (a set of patents taken in various countries to protect a single invention)—leading narrowly over long-entrenched players like the United States’ Qualcomm, South Korea’s Samsung, and Finland’s Nokia. No company and country can close a technology leadership gap this rapidly—though for now, the United States and European Union continue to maintain the lead in the standards participation and technology leadership. While contribution and patent disclosure counts are not a measure of significance or quality, these patterns illustrate the growing investments by China toward the development of cellular technology to close the gap with the United States and European Union. Policies that devalue SEPs undermine U.S. firms’ ability to invest in critical technology standards and give China additional strength in gaining control over technologies that are of essential importance for national security and economic development. Giving China this type of an advantage in the rapidly progressing innovation race around standards is an unneeded and dangerous move that could have profound implications for U.S. innovation competitiveness and standards leadership in this century.
Alexander Kersten is deputy director and fellow of the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Gabrielle Athanasia is program coordinator and research assistant with the CSIS Renewing American Innovation Project.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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