International trade is always transforming, often in exciting ways. However, a little-noticed trend in litigation at the United States International Trade Commission (ITC) portends serious market disruption and harm to US consumers and businesses.
Since 1916, the ITC has been tasked with protecting domestic industries from unfair imports. Under Section 337 of U.S. trade law, the ITC investigates imports claimed to be competing unfairly and affecting U.S. industries, including by infringing intellectual property (IP) rights. In these cases, the ITC can issue an exclusion order to ban all imports of the infringing product from the U.S. but is to refrain from a ban, if the public interest dictates it should not act.
During my tenure as ITC Chairman, the agency took great care to respect the balance of interests in the cases before us; our goal was to strengthen and support the US economy. Time and again, Congress made it clear that the mission of the ITC is to protect domestic industry – meaning US productive capacity and jobs. It is not simply an expedient alternative forum for enforcement of IP claims that could be heard by courts. Congress made it equally clear that focus on the broader public interest was paramount to striking the right balance. If the harm to consumers or healthy market competition outweighed any gains from protecting the patentholder, no import ban should issue.
Unfortunately, in subsequent years, the ITC in 337 cases has forgotten its history and the critical balance of interests that its decision-making requires. The ITC now elevates the protection of one claimant’s IP right over damage to the US economy writ large. It regularly dismisses evidence of future public harm as speculative – because the damage has not yet occurred. This is at odds with logic, law, and economics, including the ITC’s own expert analyses.
The whole point of an ITC exclusion order is to change which goods can enter the U.S. in the future, so of course, the ITC must consider how its actions will affect the public going forward. It requires the same kind of forward-looking analyses the ITC regularly does when, for example, it evaluates the projected impact of a planned trade agreement on the US economy.
The ITC’s analytic missteps have created a monster. We are seeing an increased 337 cases against complex products involving hundreds, if not thousands of patents, like cars and smartphones. Petitioners know that asserting even one minor patent for one minor component threatens the exclusion of an entire category of downstream products. That creates distorted incentives; even US companies steadfastly denying patent infringement pay outsize settlements to avoid the prospect of losing the U.S. market. Worse still, in many of these cases, petitioners are not U.S. companies and have threadbare connections to the domestic economy. They are instead patent-holding entities – often called patent trolls or “nonpracticing entities” (NPEs) – created and backed by financial firms with the sole purpose of litigating to extract big money.
A double case in point: A newly formed Ireland firm, Neodron Ltd., filed two ITC cases accusing the major smart device innovators, including Amazon, Apple, Dell, LG, Microsoft, Samsung, and Sony, of infringing patents related to touchscreens on smart devices. If the ITC determines even one claim of one patent was infringed, more than 90% of tablets, smartphones, and touchscreen computers could be prohibited from entering the country.
Exclusion would devastate American consumers and these companies. Americans rely more heavily than ever on their smart devices during the COVID-19 pandemic to work from home, learn remotely, consult with their doctors, and stay connected to family and friends.
It might be one thing if an import ban on these crucial devices would strengthen the US economy by protecting some domestic industries from unfair trade. But Neodron produces nothing, and the company it licenses its patents to does not make products that compete with (let alone replace) the smart devices that would be excluded. Neodron, and only Neodron, would benefit; the public and the U.S. economy would suffer. It is exactly the type of exclusion order Congress warned against.
Neodron and other NPEs can pursue their patent claims through the courts if they are legitimate. But claims like theirs do not belong in the ITC–an agency whose purpose is protecting trade. The ITC needs to focus on combatting the insidious and growing economic costs of letting NPEs press this kind of exploitive litigation. It should not conflate NPEs’ narrow interest in monetizing their patents with the actual public interest, which Congress has required it to analyze seriously before excluding products from the market. The ITC’s return to its mandate and mission is an urgent priority.