Privacy, Business and Law

As the senior Senator from Oregon, Robert Packwood, left the Senate in disgrace, something was missing from his story. Critics had focused on his romantic style. But behind the steamy stuff, there was a far more difficult story of Packwood’s ethics. It’s tied to two diary entries of favors Packwood asked for and favors he delivered that triggered investigators’ wider scrutiny of the diaries and Packwood’s disastrous attempt to stonewall them.

Packwood was eventually discovered to have solicited personal financial assistance from five individuals with interests he could influence. Though the Ethics Committee declined to hammer down a quid pro quo, it concluded the conduct was improper. Still, the public took this as a ho-hum afterthought that receded into the background of sexual static. Perhaps it was too common to notice. But if one digs carefully under the first red flag, an ugly pattern of Washington influence is unearthed.

In 1989, anticipating divorcing his wife, Packwood solicited a specific retainer amount for her from former aide Steve Saunders, who readily agreed and promoted the idea of Packwood’s wife selling art to Saunders’ Japanese clients. The art business was a sideline for Saunders, who became a lobbyist after serving on Packwood’s staff from 1977 until 1981. Although even Packwood recognized in his diary that this was ethically questionable, reconstruction of a trade issue that was then before the Senate shows that the proposal was especially improper.

Saunders lobbies for Mitsubishi Electric Corporation, and it turns out that Packwood was also an advocate for the giant Japanese conglomerate. One has to keep watching the ball closely to see how Packwood carried it.

In June of 1988, Senator Jay Rockefeller held a Commerce subcommittee hearing on the sad experiences of U.S. companies with Japan’s patent system. According to a Senate committee staffer, a number of the U.S. companies that had had difficulties were reluctant to testify because of confidentiality agreements in court settlements or involvement with Japanese companies. One unreluctant witness was Don Spero, founder of Fusion Systems Corp., a small U.S. high tech company that had the misfortune to invent something Mitsubishi coveted.

As detailed in the Harvard Business Review in 1990, Fusion held multiple Japanese patents on a microwave lamp breakthrough. The company had been doing business in Japan since 1975, but there was no honor given to its efforts. Mitsubishi filed about 250 patents copying and surrounding Fusion’s technology with trivial incidentals. Spero has called them “‘sashimi’ patents- thinly slice derivations from our proprietary technology.”

Mitsubishi summoned the specter of unending litigation to try to induce Fusion Systems to license its technology — in exchange for Mitsubishi licenses of its sashimi patents.

“Mitsubishi wanted our core technology in exchange for giving us the right to use our own invention,” says Spero. Indeed, in 1985, before the glare of publicity hit the dispute, Mitsubishi began negotiations by demanding a worldwide royalty-free cross-license to all of Fusion’s technology, as well as an initial license fee and substantial royalty payments.

In Congressional testimony, Spero cited various features of the Japanese patent system that allow large Japanese companies to manipulate their patent system, including the absence of a strict duty to disclose prior art which also negates the need to demonstrate why the claimed application represents a true inventive step. This cultivates “the penchant in the Japanese Patent Office to award large numbers of trivial or insubstantial patents,” further exacerbated by a hopelessly inadequate number of patent examiners. Spero also stressed “there is no effectively enforced patent fraud statue,” and hence “no danger of penalty, either for applicants or for their patent attorneys who knowingly copy others’ technology and file patents on it.” Moreover, “there are no speedy or effective remedies for companies that are confronted with a patent flooding technique.”

Mitsubishi had taken plenty of well-deserved criticism for its attack on Fusion Systems. The U.S. Trade Representatives Office had been asserting Fusion’s case with Mitsubishi and staffers wanted to make it an example of subtle trade barriers to bring up in bilateral negotiations with Japan. The conglomerate was looking for a way to derail Spero’s criticism at Congressional hearings.

Who would come to mind but Senator Packwood? A member of the Rockefeller subcommittee, friend and former boss of lobbyist Saunders, and recent recipient of a $2,000 honorarium from Mitsubishi, Packwood was ideal.

For this exercise, Packwood was approached by Saunders, who had become part of a team serving Mitsubishi Electric that included Mitsubishi’s lawyers, Baker & McKenzie, its lobbyist Thompson & Co., and a Republican lobbyist with the public relations group Robinson, Lake & Lehrer, James Lake, who also took Mitsubishi’s yen.

As a private citizen Lake, once Reagan’s campaign adviser, press secretary and communications director, was paid a dollar to interview and select staff for Reagan’s U.S. Trade Rep, Clayton Yeutter. Good grease, that. According to Saunders’ deposition for the Senate Ethics Committee, Lake met successfully with U.S. Trade Rep Yeutter and “thereafter USTR’s role and interest in the Fusion case diminished and in fact disappeared.” Yeutter dismissed the conflict as a simple commercial dispute, which fit Mitsubishi’s strategy, though some USTR staff still sought to pursue what they were convinced was a valid issue.

Lake would remain on Mitsubishi’s retainer all through the Bush administration, even while serving as deputy campaign director for the Bush reelection campaign. He later picked up the Japan Auto Parts Industry Association for a client. Recently, he resigned from his lobbying firm after pleading guilty to illegal corporate contributions to retire the debt of a failed congressional candidate, (Henry Espy, who ran to fill the seat of his brother, former Agriculture Secretary Mike Espy).

But I digress. Packwood, according to Saunders’ depositions, was fed questions for related hearings in 1988 and 1989 by Thompson & Co, and worked with the team to set up a hearing of experts that Packwood had wanted. According to Hill sources, Packwood tried to put Mitsubishi on Rockefeller’s June, 1988 witness list to tell its side of the Fusion Systems patent story. That failed, as the hearing focused on the experience of American companies. He then tried to get Unisys, an American licensing partner of Mitsubishi on, but Unisys was under a cloud of defense fraud allegations.

But Packwood substituted from the other side of the hearing table. He asked questions of a panel of government witnesses that were a rehash of what Fusion had previously heard from Mitsubishi – along the lines of the U.S. patent system being out of step with the world. Packwood then left before the U.S. businessmen could state their case or respond to the points Packwood made, but not before pressing Rockefeller for a second hearing with companies that had gotten along well with Japan’s patent system. Packwood later claimed to have long been interested in Japan’s patent system, but according to Ethics Committee findings his interest was born around this time.

When the hearing record emerged, it included a statement by Mitsubishi slipped in too late for Spero to respond to. It cited patents in the microwave field in the 60’s and averaged numbers to disguise the flood. What it didn’t cite was a Columbia University report that concluded Fusion made the original relevant breakthrough and that Mitsubishi had not developed any significant advances of its own. Nor did it note Spero’s observation that Mitsubishi began filing its 250 patent applications in late 1977, just after its purchase of a Fusion lamp, before which it had “not filed a single patent in the field of high intensity microwave lamp technology.” One application on an electrical circuit even contained a slightly altered copy of a drawing in the Fusion instruction manual. If all patents issued, Fusion couldn’t sell Mitsubishi the same lamp it bought in 1977.

The link between Mitsubishi and Packwood goes on. The Senator’s home state of Oregon is adversely affected when its important high tech industries suffer unfair trade practices. Intel, Oregon’s largest private employer, supported Fusion Systems and and its attack on sashimi patents. Intel hand-delivered a letter to the Senator’s podium on June 24, 1988 that echoed Fusion’s concerns, stating that patent flooding “makes the standard for competitiveness in Japan a firms’ size and ability to fund litigation, rather than innovation, productivity and marketing.” Intel described the scenario: A non-Japanese company introduces a new product technology into the market and files patent applications to protect is intellectual property. During long delays in the issuance of those patents, potential competitors can reverse engineer the new product and ‘flood’ the patent office with related applications. Small companies such as Fusion often cannot afford the protracted legal battle to defend its intellectual property and are forced to license it. Thereby, a new competitor is created without having the research and development costs of the original innovator. Based upon such distortions in the pricing system, the smaller company is suddenly at a substantial disadvantage in selling a technology it invented and first brought to market.” These points continued to be ignored by Packwood.

Packwood’s efforts to sideline criticism of Mitsubishi resume in early 1989 during U.S. Trade Representative Carla Hill’s confirmation hearing. Packwood entreated Hills to keep an open mind over allegations of difficulties with Japan’s patent system until she had spoken with “experts”.

Packwood’s requested hearing came on Feb. 28, 1989, before the Subcommittee on Foreign Commerce and Tourism. He dutifully pounded at the U.S. patent system, trying to portray it as out of step and saying “of course, America would love to have a patent system like those that exist in other countries…we could consider changing.” The questions he asked of government witnesses had an odd echo of points Fusion had already heard from Mitsubishi,” as if by a script. It was.

Five days before, Thompson & Co. sent a confidential memo to Mr. Takeshi Sakurai, the President of Mitsubishi Electronics America. It informed him that the lobbying firm met with grateful Packwood staffers to provide a draft opening statement and questions. Packwood’s staff sanctioned a formal inquiry from a Mitsubishi representative requesting that the Senator attend the hearing.

The questions were geared to promote Japan’s first-to-file system over the U.S. first-to-invent system, diverting attention from the issues Spero raised. Japanese companies have long sought to overturn the U.S. first-to-invent system. The issue is irrelevant to the Fusion/Mitsubishi conflict, (although first-to-file competition does promote more and hastier filings from large companies who can afford it, which wasn’t among Packwood’s points). Packwood followed suit, trying to portraying the U.S. patent system as out of step with the world. Never mind that the U.S. has over half the Nobel laureates in science and technology – Japan has none. That’s another essay. The point is, that debate is complex and extremely important. It shouldn’t be driven by a Mitsubishi public relations scheme.

With a literary flair for foreshadowing doom, Packwood’s Feb. 28th diary entry notes “I think we finally laid to rest the Fusion problem.” Oddly, in testimony Saunders states “the Senator was not interested in the details of the dispute between Mitsubishi and Fusion.”

The next round was the Nov. 6, 1989 US-Japan Structural Impediments Initiative hearing before Senator Max Baucus’ subcommittee on International Trade. Packwood’s Nov. 6th diary entry states, “At a request of Steve Saunders I stopped in at the Finance Committee to read two questions which I wanted asked of a man named Spero, the President of Fusion something or other.” Packwood reveals his keen interest in the merits of policy as he wonders why West Virginia Senator Jay Rockefeller has an interest, “It’s funny. Fusion is in Maryland. I don’t know what the connection is with West Virginia. Steve Saunders thinks that Jay is just genuinely concerned, but he keeps pushing and pushing this issue so I said of course I’d go and ask the questions.”

Actually, Packwood tried to get other Senators, including Baucus, to ask questions so he wouldn’t have to. Nancy Chasen, Spero’s spouse, was following the scene closely and says staff told her influential constituents were asking Senators to drill Fusion. Neither strategy found takers. Packwood could never get any other Senator, on Commerce or Finance, to follow his lead.

It was not celebrity witness T. Boone Pickens who interested Packwood at the Nov., 1989 hearing, but the relatively unknown Don Spero. In his opening statement Packwood read questions he’d been fed – such as an assertion that as there were over 1,000 applications on a seemingly simple product like car tires there might also be patent flooding in the U.S. After requesting they be specifically answered by Spero, Packwood left. Again, Packwood’s questions had that deja vu feel for Spero.

According to Saunders’ testimony, it was vital that Packwood show up for the hearing because “We did not want to give Spero and Fusion the idea that we were not dogging them…just to make sure that this issue remained focused in that particular record…we did not want (Spero) to get the feeling that he could mine a whole new forum.”

If Packwood had stayed to address Spero directly, he could have worked off a script mentioned in a Nov. 3rd “confidential attorney client privilege communication” among the Mitsubishi team. The simplistic answers assigned to Spero now provide fun dramatic readings for Spero and his wife, as well as a woeful display of ignorance. Packwood was smart not to wing it with the full script.

Given Packwood’s enduring interest in Japan’s patent system and his inability to hear his questions answered, Spero wrote Packwood seeking a direct exchange, noting the Senator had heard “first hand only from Mitsubishi” and might want “the point of view of the American company,” adding that Fusion’s customers encompassed “virtually all manufacturers of optical fiber and semiconductor wafers worldwide,” including “Intel, Tektronix, Hewlett-Packard and other fine constituents of yours.” Neither the Nov. 10th letter nor periodic follow-up calls ever rated a reply. Nancy Chasen, who lobbied for Fusion, jokes, “I was the only woman in Washington who couldn’t get a date with Packwood.”

Saunders was so pleased with Packwood’s performance that in his Nov. 28., 1989 letter requesting a fee increase and contract renewal with Mitsubishi Electric, he cited Packwood’s help at Rockefeller’s patent hearings, and noted “at our request (Packwood) rearranged his schedule at the last minute in order to make an appearance at the recent SII hearing in order to enter questions to be put to Mr. Don Spero.”

An amusing yet instructive aside is Saunders’ Nov. 20th, 1989 memo to Sakurai laying out options for a “grassroots” campaign to develop political clout from factory locations and by using warranty cards to recruit consumers to write targeted members of Congress to support Mitsubishi positions. Saunders recommended polling to gauge the image results of Mitsubishi’s philanthropic activities. The central strategy was to “develop Mitsubishi’s image on Capitol Hill as a company that looks, sounds, and acts ‘American’”.

Notwithstanding Packwood’s curious blinders, Fusion’s concerns were validated in a July ‘93 GAO report that said while most U.S. companies in Japan didn’t run into difficulties, the minority that were bringing along innovations recognized as important were in fact having their technologies targeted. Even the Japanese negotiators on bilateral agreements with the U.S. have had to acknowledge difficulties with Japan’s patent system. There has been progress on a few points, and some pledges for progress. On some issues, the merits of what the U.S. agreed to remain hotly contested – but that’s a different essay.

“We knew at the time that something unusual was driving Packwood’s behavior,” says Spero. “Even for $2,000, why would a U.S. Senator stiff-arm an American company? What we’ve now learned confirms our worse suspicions as to motivation.”

When Congress sought to chart the shifting shores of a complex trade impediment, Packwood consistently tried to shorten lines used to measure the murky depths. The Senator appears to have been the willing instrument of Mitsubishi’s attempt to dilute Congressional inquiry into unfair practices when the need to understand them was acute.

The Packwood diaries were rushed into print so that the public could see how cynical the Senator could be at play. Unfortunately, he was just as cynical at work, though his obscure and seemingly tangential actions in the patent case don’t have as much appeal.

Sen. Mitch McConnell, the chairman of the ethics committee who handled Packwood’s case, has habitually ridiculed any attempt at serious campaign reform, preferring, like many, a campaign finance system best characterized as the low art of the thinly disguised bribe. Once again, the Senate has slid smoothly beyond a splendid display of shaving points. This passes for statesmanship, in some quarters.

By Skip Kaltenheuser