China Uses the USPTO to Take a Critical Minerals Market

The Chinese Communist Party (CCP) has perfected the art of stealing U.S. technologies and taking control of entire markets. Their methods range from the well-known, like forced technology transfers or outright stealing technology, to more subtle methods like enlisting the U.S. government to destroy U.S. company patents, clearing the way for the CCP to dominate specific technologies, such as critical minerals processing.

Terves, LLC, based in Euclid, Ohio, invented new ways to make dissolvable magnesium materials for oil and gas drilling tools. These materials allow drillers to leave their tools underground, where they dissolve, saving the significant costs of retrieving tools from miles below ground. This innovation made Terves’s products highly sought after in oil and gas fracking industry.  The CCP took note.

(Mark Cohen, a China expert, filed a declaration about a patent challenge by Chongqing Yanmei Technology Co. (Chongqing) against Terves’s patents (IPR2023-00521) at the Patent Trial and Appeal Board (PTAB). Cohen’s declaration provides an exceptional and detailed explanation, and references of how the CCP exploits various tools, including the U.S. government, to achieve its national industrial policy.  While this article highlights a few important points, it is worth reading the declaration in full.)

Magnesium is a Critical Mineral

Magnesium mining and processing are critical to the U.S. national security. In 2017, Executive Order 13817, “A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals” was signed, directing the Secretary of the Interior to identify critical minerals. This order made it a policy of the United States to “reduce the Nation’s vulnerability to disruptions in the supply of critical minerals.” Magnesium, identified as “vulnerable to disruption”, serves “an essential function in the manufacturing of a product, the absence of which would have significant consequences for our economy and our national security.” 

In September 2020, Executive Order 13953 (EO13953), “Addressing the Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries and Supporting the Domestic Mining and Processing Industries” called out “the aggressive economic practices of certain non-market foreign producers of critical minerals” as having “destroyed vital mining and manufacturing jobs in the United States.” It also declared that the U.S. needs to “reduce our vulnerability to adverse foreign government action, natural disaster, or other supply disruptions,” and it is in the interest of “national security, foreign policy and economy” to have a “consistent supply of each of these minerals.”

Critical minerals are clearly important to U.S. national security. But EO13953 specifically identified magnesium mining and processing as critical to national security because it “is of critical importance to the hydraulic fracturing industry, which is vital to the energy independence of the United States” and because of “undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries”, specifically naming China. 

The President declared “a national emergency to deal with the threat” and obligated all federal agencies to support its critical minerals policy. 

Despite its small size, Terves plays a significant role in this strategy. As a small business with fewer than 20 employees, according to LinkedIn Terves stands out as the only U.S. company manufacturing the patented cast magnesium composites. It built the only secondary magnesium processing plant in the U.S. in the past 50 years.

Terves magnesium processing technologies are directly covered by these national security measures and should be protected from aggressive CCP industrial policy by all government agencies including the PTAB.

Terves is Attacked by the CCP

For decades, a major focus of CCP industrial policy has been to control critical minerals industries, a successful strategy that has led to China’s current dominance in most critical minerals industries. China’s strategies for dominance include everything from technology theft and government subsidies to disrupting U.S. producer supply of raw materials.

The CCP also engages in “lawfare” to handicap foreign competition. The lawsuits, often performed by proxy litigation to mask their intent, are intended to restrict the use or value of U.S. IP rights. This type of disruption is particularly damaging because it drives up costs of U.S. companies while simultaneously handicapping their ability to attract financing.  

The CCP explicitly attempts to “solve the problem of enterprise technology and intellectual property bottlenecks.” Bottlenecks are described as patents under the control of foreign entities that restrict China’s industrial ambitions. 

Terves’s patented inventions are a bottleneck. The CCP is solving the Terves bottleneck with lawfare.

Multiple CCP corporations stole Terves’s inventions and flooded the market with low-cost infringing products. CCP dumping and the avoidance of millions of dollars in research and development costs incurred by Terves severely undercuts its pricing, leading to customers buying CCP knockoffs, and slashing Terves’s revenue.

Terves was forced into extensive legal battles to protect its IP, including patent infringement litigation in four U.S. district courts, patent validity litigation in three PTAB trials, and in China, patent validity litigation in two administrative patent challenges.

This CCP lawfare attack has reduced Terves’s market and revenue, increased its costs with litigation on two continents, and created uncertainty damaging its ability to attract investment. 

One PTAB case is illustrative of how the CCP uses the U.S. government to harm U.S. industry.

CCP’s use of the PTAB

In January 2023, Chongqing Yanmei Technology Co. (Chongqing) challenged the validity of Terves patents at the PTAB. (IPR2023-00521).  Chongqing was not an infringer and appears to have no product of its own.

Huang Guangsheng is the principle of Chongqing and a member of the CCP. He also teaches at Chongqing University, a state-owned enterprise deeply involved in Magnesium product development and research. His work at a Chongqing University lab aims to break through bottlenecks.

It is very likely that this IPR is an effort by a CCP controlled entity directed by a known CCP party member to achieve the goal of advancing Chinese industrial policy through lawfare.

In its response to Chongqing’s IPR petition, Terves detailed China’s industrial policy and their tactics to achieve it; the executive orders binding all government agencies to protect the U.S. magnesium industry, which includes Terves; and the limited public information available on Chongqing that strongly indicating an organized CCP attempt to achieve its industrial policy goals by clearing the market of bottlenecks created by Terves’s patents. 

The PTAB’s limited discovery processes restrict the ability to fully uncover the extent of this challenge. An Article III court is “better positioned to address these issues in view of its greater capacity to compel production of foreign evidence and impose penalties for non-compliance with any discovery requests.” 

Terves urged the PTAB to use its discretionary power to deny institution of the Chongqing IPR on national security grounds because instituting “would threaten the domestic supply chain in processed magnesium used in the oil/gas industry,” and it would deplete Terves’s “crucial funds, resources, time and attention,” that should instead be dedicated “to expanding its plant and marketplace footprint, to help our nation address the National Emergency.”

PTAB Instituted Despite its Obligation to Protect the U.S. from Valid National Security Concerns

The PTAB, in violation with EO13953, instituted the Chongqing IPR explaining that no case was cited “in which a Director, past or present, has invoked Executive Order 13953 (or any related Orders) to discretionarily deny institution of an inter partes review.” 

This decision suggests that the PTAB believes the lack of precedent means such an action could not be taken, despite potential national security concerns. Its obligations under the law to protect U.S. national security be damned.The PTAB on every level is damaging to U.S. innovation and national interests. It needs to be disbanded.