The parties in Lithium-Ion Batteries (Inv. 1159) announced a settlement on April 10—one day before the deadline for a presidential veto of the ITC’s exclusion order.  The Biden administration has applauded the settlement as a “win for American workers and the American auto industry.”  It would have been better in the long run, however, if the president had simply vetoed the order.

The Lithium-Ion Battery case was based on a complaint by Korean conglomerate LG accusing fellow Korean conglomerate SK of misappropriating trade secrets related to electric vehicle battery technology.  The ITC sided with LG after finding SK in default for destroying evidence and issued a ten-year exclusion order banning the importation of batteries and battery components by SK.

But SK uses those components to manufacture batteries in the United States.  The exclusion order would have resulted in the closure of an existing factory and the halting of construction of a second factory, both near Atlanta, Georgia.  The two factories are forecasted to employ 2600 people by 2024, supplying batteries for U.S.-made Ford and Volkswagen vehicles.

That’s why both automakers and numerous public officials in Georgia had asked the ITC not to issue the order on public interest grounds.

Under the law, the ITC can choose not to issue a remedy if it would be contrary to the public interest.  Indeed, the legislative history of Section 337 makes clear that Congress intended for the public interest to be an “overriding consideration” of “paramount” importance in all ITC investigations.  Unfortunately, the agency has been exceedingly reluctant to forgo a remedy for any reason and has not denied an exclusion order on public interest grounds since the 1980s.

Nevertheless, the ITC did concede in this case that an order could harm the public interest and tailored the remedy to include a temporary, partial exemption.  Under that exemption, SK would still be allowed to import parts needed to serve its existing commitment to Ford and Volkswagen for four years and two years, respectively.

While this exemption was certainly good news for those automakers, it did not assuage the concerns of officials in Georgia, because SK’s investments would cease and the factories would still have to close eventually.

The order would also have conflicted with key environmental and economic policy goals of the Biden administration—namely, the rapid adoption of electric vehicles and the promotion of politically sensitive industries to compete with China.

The White House released a statement taking credit for the settlement and lauding the outcome:

This settlement agreement is a win for American workers and the American auto industry. A key part of my plan to Build Back Better is to have the electric vehicles and batteries of the future built here in America, all across America, by American workers. We need a strong, diversified and resilient U.S.-based electric vehicle battery supply chain, so we can supply the growing global demand for these vehicles and components – creating good-paying jobs here at home, and laying the groundwork for the jobs of tomorrow. Today’s settlement is a positive step in that direction, which will bring some welcome relief to workers in Georgia and new opportunity for workers across the country. I want to thank Ambassador Katherine Tai for her tireless work to resolve this dispute and facilitate a settlement that is good for America’s future in the electric vehicle industry, and good for job creation. My American Jobs Plan will help build on this momentum, creating millions of new jobs, supporting a stronger American auto industry and making sure that we win the electric vehicle markets of the future.

Of course, the only reason the settlement is a “win” is because it eliminates the ITC’s exclusion order.  And its clear the administration viewed that exclusion order as an obstacle to its goals.  But, President Biden could also have easily achieved that win by vetoing the order.  So, the only reason the White House would value a settlement in particular is to avoid the political consequences of issuing the veto.

Those consequences appear to stem from an emerging narrative that a veto would send mixed signals about intellectual property enforcement.  A Politico story published last week described the case as a choice “between swing-state jobs and American intellectual property rules that have come under intense scrutiny during the Covid-19 pandemic.”  A veto in the battery case would inevitably invite accusations of hypocrisy as the United States continues to oppose a TRIPS waiver for vaccine-related patents.

This apparent conflict between economic planning and IP protection makes for an interesting narrative and may have political significance, but that’s not really what’s going on with the ITC case.  The Lithium-Ion Battery investigation stems from a dispute between two large foreign conglomerates whose headquarters are five miles apart in Seoul, South Korea.  One of those companies misappropriated the other’s trade secrets when it hired away employees to bolster its competing battery operation.  The effect of an exclusion order would be to protect one foreign company with U.S. investments from “unfair competition” with another foreign company with U.S. investments by blocking imports used by American consumers and businesses.

There is simply no American intellectual property at stake in this dispute.  The asserted trade secrets involved technology developed in Korea, used only in Korea, and fully protected from misappropriation in Korea by Korean trade secret law.  Those trade secrets would also be protected by U.S. trade secret law if the misappropriation occurred in the United States.  But it did not.

Rather than calling into question America’s consistent commitment to international protection of intellectual property, a veto in this case would have demonstrated respect for Korean sovereignty and for international trade rules against import discrimination.

And a veto would also have helped to rein in the ITC’s misguided efforts to become a global trade secret cop.  The agency has adjudicated numerous trade secret disputes in recent years involving purely foreign conduct by foreign companies.  But any exclusion order issued in such cases will almost always be contrary to the public interest.

As the Korean battery dispute aptly shows, the potential negative consequences of an import ban are numerous and severe.  And the only “positive” from ITC adjudication in this instance is that LG was able to secure a judgment—resulting in a global settlement of a local dispute with its crosstown rival—without having to rely on the procedures and laws applied in Korean court.

The Biden administration is correct to celebrate the settlement as a win for the U.S. economy, but we only needed that settlement because a myopic U.S. trade agency cared more about its own power than the public interest.  If Congress doesn’t step in to limit the ITC’s powers, we’re likely to see more harmful exclusion orders come across the president’s desk.  Hopefully, he will make a bolder choice next time.

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