A Loaded Gun in the Hands of Lawyers
Among the ways to be destroyed in the arms business, intellectual property does not usually come to mind. Yet that is the prospect that one small company, XTech Tactical, faces today. A few months ago, the Arizona-based distributor of rifle accessories was hit with an IP infringement lawsuit brought by Century International Arms, one of the largest rifle importers in the country. The trademark IP that XTech allegedly stole? An ordinary crisscross pattern, similar in appearance to a waffle, embossed on the sides of a standard AK-47 magazine.
At a high level, it is difficult to find merit in Century's lawsuit: Century’s supposedly exclusive "waffle" design has existed since the 1950s and is easily found across competing products. But the dubious merits may be of little help to XTech. A representative of the company, Jeremy Deadman, explained to me that the cost of the lawsuit alone could put XTech out of business. With attorney fees for IP litigation regularly reaching hundreds of thousands of dollars, he very well could be right.
Intellectual property laws, which include such things as trademarks, patents and copyrights, are powerful government-created exceptions to ordinary free-market competition. They give rightsholders partial monopolies on brand designs, inventions or creative works, along with an ability to sue competitors whose products or services tread too closely to those monopolies. In theory, intellectual property monopolies are important protections against unfair competition for all companies, big and small. But any right to sue invites well-paid lawyers — especially those working for deep-pocketed firms — to exploit it.
That is why XTech's story is far from unique. In 2012, a small online glasses startup known as Ditto.com found itself at the business end of a patent lawsuit filed by a $900 million competitor. And in 2005, a manufacturing giant filed for patents on the inventions of a small engineering startup in order to stop the startup from using its own work. Scholars have reported further instances of intellectual property "predation" and found that small businesses have indeed shuttered their doors as a result. It is David versus Goliath IP litigation, except Goliath holds the sling.
Of course, small businesses use IP to protect themselves from theft of inventions or misuse of trademarks. But a simple, restrained IP law system suffices for that purpose. A massive and massively complicated IP law system, with tentacles that can strangle competitors in unexpected ways, almost exclusively helps the wealthy and powerful at the expense of everyone else.
Jeremy Deadman asked how the law could prevent other small businesses from having to deal with situations like his. Three improvements come to mind. The first, as many have called for in the past, is reforming IP lawsuits. Big companies exploit the cost of complex litigation against the little guys. Measures that level the playing field help to ensure that both meritorious cases and meritorious defenses have their day in court.
The second improvement is shoring up the scope of IP. The reason that Century can somewhat plausibly claim unique rights in a standard-issue magazine is that trademark law is fuzzy, and fuzziness lets lawyers make creative arguments. Patent law also suffers from a fuzzy-boundary problem, as does copyright law — as the "Blurred Lines" music case demonstrated recently. Clear limits on what sorts of IP allegations will not make it past the opening gate would greatly prevent the use of questionable IP claims to harass small businesses.
The third improvement is a change not in law but in rhetoric. Too often, discussions of IP focus on small creators' needs for IP rights to ward off big firms who steal their ideas, leading to strong lobbying to push for stronger rights. No doubt some creators do rely on IP extensively. But by and large, that is not the main concern of small businesses — a 2008 survey found that IP ranks only between "slightly important" and "moderately important" to entrepreneurs.
Most small businesses do not bet their successes on lobbying the government for greater IP benefits. Instead, they strive to succeed by winning in the market: making products better, faster and cheaper than the competition. To them, IP can be a distraction and a drag on their productivity. Lawmakers need to recognize the double-edged sword that IP can be. Small companies like XTech have to deal with many problems already if they want to succeed; dealing with an unnecessary and costly IP legal battle should not be one of them.
Charles Duan is the Director of Technology and Innovation Policy at the R Street Institute, a nonprofit, nonpartisan think tank based in Washington, D.C.