The Maladministrative State and Property Theft

Updated: Nov 19, 2020

This summer, U.S. Attorney General William Barr gave a very direct speech at the Gerald Ford Presidential Museum. Mr. Barr aimed to expose how China is gaining dominance in major sectors of the world economy. But his main audience was American business leaders.

“‘For American companies in the global marketplace, free and fair competition with China has long been a fantasy,” Mr. Barr said. “To tilt the playing field to its advantage, China’s communist government has perfected a wide array of predatory and often unlawful tactics: currency manipulation, tariffs, quotas, state-led strategic investment and acquisitions, theft and forced transfer of intellectual property, state subsidies, dumping, cyberattacks and espionage. About 80% of all federal economic espionage prosecutions have alleged conduct that would benefit the Chinese state, and about 60% of all trade secret theft cases have had a nexus to China.” (emphasis added) As an inventor, I’m not surprised that IP theft is a major part of this.

Mr. Barr warned American businesses to stop giving away America’s ingenuity and technology to China to their own companies’ and our country’s detriment. Every U.S. innovation that China begs, borrows or steals reduces the size of our economic pie and steals the fruits of some inventor’s labor. This happens domestically as our patent system becomes part of the Administrative State.

In an age where the Administrative State has come to dominate the economic lives and fortunes of American citizens, American government operates less like a representative republic and more like a banana republic. I recently discussed this on a webinar with NYU Law Prof. Richard Epstein, NCLA’s Peggy Little and George Mason Law Prof. Adam Mossoff.

“Judges” employed by the patent agency adjudicate administrative matters, having irregular rules, broad discretion and clear conflicts of interest. This favors deep-pocketed corporations and wipes out the IP of independent inventors and entrepreneurs.

Congress grew the Administrative State in the “America Invents Act” in 2011. My invention, a self-sealing water balloon inflation device called Bunch O Balloons, was granted patents. But a large company whose business model is infringing patents flooded the market with knockoffs. I fought it in court, but the infringer challenged the validity of my patents in the newly created Patent Trial & Appeal Board.

I faced the big infringer in both federal court and in PTAB. There was a night-and-day contrast. Federal court operates with clear rules and procedures; PTAB (like other administrative adjudicatory bodies) has great discretion and loosey-goosey rules. Courts model fairness and due process; PTAB models bias and a tilted playing field. In short, courts upheld my patents and held the infringing company accountable; PTAB cancelled my patents and sided with the patent infringer.

This experience hardly differs from that of countless Americans who get hauled before unfair, biased administrative proceedings and find themselves in a Kafkaesque maze that robs them of their livelihoods, their property, their reputation and worse. It’s so bad that government agencies win at least 80% of these actions, and in some agencies it is 100%.

What’s this have to do with China’s systemic stealing of American innovation? The Administrative State, where arbitrary rules, regulations and procedures can cost you everything, robs not only American citizens but shrinks our national competitiveness.

PTAB steals IP from the sources of game-changing inventions, which otherwise check incumbent corporations’ dominance and benefit consumers. Meanwhile, Chinese IP thieves can corner the new markets using the details of inventions described in published U.S. patents, without facing competition from the Administrative State’s victims: American inventors.

If we want to stand against China, then we must stop giving away our innovation. That includes curbing the Administrative State and restoring fairness, due process and the rule of law.

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