The PTAB: China’s Silent but Deadly Weapon in Its Economic War Against America

Of the many ways that the Patent Trial and Appeal Board (PTAB) works to the detriment of the U.S. innovation economy, one of the most nefarious is the Chinese government’s use of patent validity review to advance its national interests. Recent briefing filed at the PTAB suggests that the Board is quietly helping China win the war for technological supremacy during the 21st century, mainly by destroying the economic interests of American small businesses innovating in industrial sectors critical to American national security.

The PTAB Helps China Destroy Patent Rights in ‘Made in China 2025’ Critical Sectors

The Chinese government’s aspirations to lead the world in several important sectors of technology development are no secret. For several years, the nation’s communist government has been implementing an industrial policy known as “Made in China 2025” to advance domestic manufacturing and R&D in several key areas like artificial intelligence, robotics and aerospace. While the Chinese economy long thrived on the production of cheap products, including many counterfeits and knockoffs, the leadership in that country has recently learned the hard truth that advancing domestic innovation creates a much stronger national economy.

Given the international tensions between Communist China and the United States’ free market philosophies, it would be bad enough if China sought to best the U.S. on even footing. But the world has long known that Chinese industrial policy seeks to gain an unfair advantage over foreign firms operating within the Chinese domestic market. Chinese economic policy typically requires foreign companies to enter into joint ventures with Chinese domestic firms or strict licensing agreements that require extensive disclosures of confidential information. Many times, information gained in this way is widely disseminated across entire industries in China, helping the nation unfairly increase its rate of technological advance.

Thanks to the America Invents Act (AIA) of 2011, the Chinese government has a lethal tool for snuffing out the business interests of competitive American firms, helping China slow our own domestic industries at the same time that nation bends international rules to help state-owned entities. Inter partes review (IPR) proceedings at the PTAB has all but handed the nation’s innovation economy to Big Tech and other major corporations that are able to squelch smaller competitors by destroying the market advantage offered by patent rights. Now, Chinese companies are filing hundreds of IPR petitions at the PTAB to invalidate the patent rights of American small businesses that are among the leaders in their technological fields.

Invalidating Terves’ Magnesium Alloy Patent Rights Would Violate Executive Order

Recent briefing filed in an IPR proceeding brought by Chinese entity Chongqing Yanmai Technology Co., challenging patent rights held by American dissolvable alloy developer Terves, LLC, underscores how the Chinese government is acting through state-controlled entities to weaponize the PTAB against American companies. As a preliminary response recently filed by Terves reflects, the patent owner is a small business located in Euclid, OH, employing a total of 45 people. Although small, “Terves turned the fracking industry on its head in 2014,” according to the preliminary response, thanks to its novel magnesium alloys, the first in the world to use a magnesium alloy that was dissolvable in situ to overcome the dangers of working with magnesium powders. Terves’ patent rights challenged by Chongqing Yanmai claim the novel magnesium composite used as a dissolvable component for oil drilling.

For years, Big Tech and its supporters have carried on their uncomfortable shadow play to make the PTAB look like a boon to the American economy when they themselves have weaponized the platform to take out competitive interests. Now, China has learned their playbook, and what’s at stake is America’s entire competitive advantage against its biggest foreign rival. Without question, the patent rights at issue in this IPR support a domestic industry critical to U.S. interests. Magnesium is one of 35 critical minerals central to the national emergency declared by Executive Order 13953, signed by former President Donald Trump and continued under President Joe Biden. Freeing America from economic dependence on China, which has accounted for 80% of rare earth imports to the United States, was a major factor driving the declaration of EO13953.

Eliminating Terves’ patent rights would hurt the domestic magnesium production industry, especially given that petitioner Chongqing Yanmai Technology has no known U.S. marketplace presence. Indeed, Chongqing Yanmai appears to be a non-practicing entity without any magnesium production operations anywhere, established for the mere purpose of challenging Terves’ patent rights to magnesium production. This is a tactic that, elsewhere at the PTAB, almost helped Intel evade billions of dollars in infringement liability before it was met with the barest of sanctions. By contrast, Terves is the only company to have built a secondary magnesium processing plant in the United States within the past 50 years. Instituting Chongqing Yanmai’s IPR would “make the Board… the cat’s paw of a foreign sovereign against the interests of a protected domestic industry,” charges Terves.

PTAB’s Lack of Discovery Procedures Allow Chinese Interests to Run Rampant

The Chinese entity petitioning the PTAB is completely unknown to Terves, but its activities are consistent with the Chinese government’s larger scheme to devalue foreign intellectual property through “lawfare.” As Terves’ expert declaration from Chinese patent law expert Mark Cohen explains, proxy litigation is one of the weapons in China’s war chest that the nation uses to devalue foreign IP rights related to industries subsidized by Made in China 2025. Magnesium is of particular importance to the petitioner’s hometown of Chongqing as Chinese industrial policy currently being implemented expressly aims to accelerate the production of high-performance magnesium alloys in that city.

Magnesium production is critical to several areas of national defense. According to a 2020 report by the European Commission, magnesium is one of 22 critical raw minerals necessary for production across the defense industry including aerospace, electronics and missiles. Alleged ties between petitioner Chongqing Yanmai Technology and state-owned Chongqing University, as well as the nation’s ruling Communist Party, make it reasonable to assume that the petitioner is advancing Chinese industrial policy and not acting with the normal motivations of a free market participant, according to Terves’ brief. Chongqing Yanmai is able to use the PTAB to advance Chinese policies because this alternative venue for challenging validity does not carry the protections of Article III courts, such as the promise of a jury trial when a valuable property interest is at stake or discovery processes that would ferret out bad actors.

China is becoming very savvy at understanding the connection between intellectual property and domestic economic growth. In recent years, the Communist nation has made attempts to gain influence at the World Intellectual Property Office (WIPO) and has subsidized a tremendous number of patent application filings that, under U.S. patent law, serve as invalidating prior art preventing American companies from obtaining IP rights that could be used to attract investment that funds capital expenditures. Meanwhile, Congress shuffles its feet despite the growing amount of evidence that the PTAB is a threat and not a boon to the U.S. economy.

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