China as Villain

Battle lines are forming over attempts by China's Huawei Technologies to crack the U.S. Internet telephony market. The story can be read as either that of a homegrown Chinese company fighting its way into the ranks of elite telecoms, or one of a serial patent-infringer that poses a threat to U.S. commercial interests and national security.

On issues like this, I like to take a little from Column A and a little from Column B. You can say that I am hedging my bets, but I know of no "good guys" in the telecom sector. China's record with respect to intellectual property rights is a worldwide joke. At the same time, however, patent-infringement suits are routine among tech companies, regardless of their country of origin. Disputes that make it all the way to a court judgment end in the patent in question being invalidated roughly half the time, meaning that for every patent thief there is an over-aggressive patent holder.**

If, like me, you assumed Senator Lieberman's letter to the FCC about the risks associated with Chinese technology was motivated by special interest money, you might be disappointed by his list of contributors. Congress would not be doing its job if it did not consider the security interests tied up in telecommunications (or rare earths, or transportation and logistics, or aviation, or...). After all, the CIA allegedly thinks creatively along these lines.

My guess is this story has already run its course. In the private sector, tech companies will continue, as they always have, to defend their proprietary technologies through lawsuits. At the government level, however, there is not a lot that can be done, apart from congressional hearings and other grandstanding and dilatory tactics. Both the United States and China are members of the World Trade Organization, which apart from very narrow exceptions, does not allow one member country to prohibit investments by firms from another member country. The devil is in the details, of course, and the U.S. and China are constantly at odds over how the other reads the WTO agreements and implements them.

**My technology transfer professor in law school cited this statistic as evidence of an anti-patent bias among courts, but I countered that an even split in results among plaintiffs and defendants represents the optimal balance in civil litigation. Trials are time-consuming and expensive, and are pursued to the point of final judgment only when both parties are confident of a favorable outcome. Conversely, a party that begins to lack faith in its case will always push to settle the matter out of court, at any point short of a decision by an appellate court. Cases that make their way to judgment may be characterized as a coin flip, and as such, 50/50 results should be expected.