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Refocusing the ITC to Protect the US Economy


Refocusing the ITC to Protect the US Economy

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.

Anti-Counterfeit Efforts Finally Go Global

Washington, DC – It’s no longer just the US and the European Union that are concerned with the festering issue of counterfeit products, say Michael Czinkota and Ilkka Ronkainen of Georgetown University.

“Globally, companies reportedly lose a total of $657 billion every year because of product counterfeiting and other infringement on intellectual property,” they say. “Today’s key problems are with high-visibility and strong brand name consumer goods.”

Intellectual property enforcement “ensures that new ideas can blossom into economic opportunity,” they’ve written in a recently published paper addressing the topic of counterfeit goods.

“Intellectual Property Rights (IPRs) have become a core issue in the global economic debate. No longer confined to cheap knockoffs of luxury goods, IP theft is placing industry and the public at risk of highly adverse economic, safety, and health consequences,” they added.

Earlier, the only concern was whether a company’s product was being counterfeited; now, the raw materials and components purchased for production may be counterfeited.  In general, countries with lower per capita incomes, higher levels of corruption in government, and lower levels of involvement in international trade tend to have more intellectual property violations.

Ronkainen teaches marketing and international business at Georgetown University, while Czinkota researches international business and policy issues at the school.

According to the writers, China, long seen as the focal production point of global counterfeiting operations, has taken significant steps to counter what has plagued the country’s e-commerce market particularly hard.

Alibaba “spends more than $16 million yearly fighting counterfeit goods,” they say. Another example is “Hong Kong’s commitment to the protection” of intellectual property.

“With the goal of enhancing consumer confidence in Hong Kong, and to strengthen the city’s reputation as a ‘Shopping Paradise’ for genuine products, the Intellectual Property Department has launched the ‘No Fakes Pledge’ scheme,” Czinkota and Ronkainen said.

The issuing bodies of the scheme are the Hong Kong & Kowloon Electrical Appliances Merchants’ Association Limited and the Hong Kong Coalition for Intellectual Property Rights of the Federation of Hong Kong Industries.

“The international marketer must act to enforce intellectual property rights.  No industry or country is immune from infringement, nor can they address the threat alone. There is also need for better education regarding the risks IPR violations pose and how to defend against them,” they said.

For example, the pharmaceutical industry lobbied to make sure that provisions for patent protection in the NAFTA agreement were meticulously spelled out.

Pharmaceutical Research and Manufacturers (PhRMA) addressed the issue of international IP protection by responding to the Special 301 Report issued by the US Trade Representative in May 2012.

The PhRMA statement cited the need for IP protections in spurring innovation, research and development, as well as the need for fair international market conditions to ensure that patients have access to medications.

One research firm estimated the global market for counterfeit pharmaceuticals to generate revenues between $75 billion and $200 billion a year.

The Pharmaceutical Security Institute (PSI), a trade association created to address illegal pharmaceutical incidents, collects data on the number of counterfeiting, illegal diversion, and theft incidents. These incidents increased seventy-eight percent from 2005 to 2009.

Pfizer reports that between 2004 and 2010 it seized more than 62 million doses of counterfeit medicines worldwide.  More than 200 million counterfeit Eli Lilly medicines have been seized in 800 raids around the world.

“A number of other governments are drafting similar policies, which have served as a catalyst for enhancing protection in both the public and private sectors in those nations,” said Czinkota and Ronkainen.

Efforts to protect intellectual property, and modernize the patent and trademark system are crucial, they added.

“The power of creativity and innovation applied to the solving of practical problems is not the exclusive province of any country or people. A victory over fakes and counterfeits will protect the quality and reliability of products and services, and lets customers be more informed and secure in their usage decisions.”