If you followed international tech news over the holidays, you’ll have seen a ferocious debate has emerged in the US over SOPA (the Stop Online Piracy Act).

UPDATE: Congress shelves SOPA - but InternetNZ warns threats remain

SOPA has pitted the entertainment industry, and some big media companies, against the technology sector, and Congress (pro, across parties) against President Obama (anti).

A key element of SOPA is that it will allow US rights holders to target websites (and web hosts and ISPs) anywhere around the world that they think are abusing their copyright (InternetNZ chief executive Vikram Kumar provides an example of how it could take a New Zealand website offline, or at least block key services like Google ad and search links, here).

On Saturday (NZ time) two of President Obama’s key advisors warned SOPA could be abused to stifle business innovation.

This immediately reminded me of a recent case of a US company – Bose - using intellectual property law to heavy a New Zealand company – Phitek. The Bose-Phitek dispute illustrated how IP laws can be combined with trade legislation to bully an outsider, and shelter behind protectionism.

In 2007, Bose alleged Phitek - which numbers US airlines among its many customers - had infringed its noise-cancelling headphone technology.

Bose’s secret weapon: it could enlist the support of the US government’s International Trade Commission (ITC).

In late 2007, Bose asked the ITC to investigate the importation of Phitek product to the US, alleging the New Zealand company's headphones infringed two Bose noise-reduction patents.

The ITC voted to institute an investigation under the Tariff Act, and consider Bose's application to halt Phitek imports until the patent dispute was resolved.

It’s no wonder Phitek quickly moved to settle the case, despite its claim it was in the right (Swiss company Logitech settled a similar Bose action). It would not comment on whether the settlement involved a one-off payment and/or ongoing royalty payments to its US competitor.

Phitek simply could not afford to be barred from the US market - and, more, barred for the mere suspicion it had violated an American company’s patents (Phitek subsequently cancelled its planned IPO, and later ran into severe financial strife, albeit in part because of the GFC and management infighting). 

Conversely, if a NZ government agency engineered an import injunction on a company like Bose, they’d barely notice.

I’m also reminded of Nasdaq-listed Smart Technologies’ patent action against New Zealand’s Next Window. CEO Al Monro (who unexpectedly quit ahead of Christmas) told NBR he simply couldn’t afford to defend Smart’s suit. In April 2010, Smart bought Next Window.

The lesson size matters as much, if not more, that the merits of an intellectual property argument.

And in such a street-fighting world, SOPA would be a dangerous thing for New Zealand companies.