How an overzealous trade agency is targeting American businesses
When Comcast designed a mobile app for its cable customers to schedule DVR recordings over the Internet, the company likely had no idea they would end up violating a federal importation law. But that’s just what a federal trade agency determined late last year when it blocked all imports of Comcast’s cable boxes because the mobile app infringed on a patent. And if the U.S. International Trade Commission gets its way, a lot more American companies could be forced to defend themselves from a trade agency— even when their business involves no foreign trade.
The ITC is charged with investigating and blocking importation of goods that infringe on U.S. patents. Of course, as its name indicates, the ITC is a trade agency, and so the commission only investigates accusations against importers. If it finds imports do indeed infringe on a U.S. patent, the agency issues an exclusion order barring the infringing product from entering the country.
Comcast, however, doesn’t import anything or conduct any cross-border trade. It buys cable boxes from domestic suppliers and uses the boxes to provide services to domestic customers. Those cable boxes are just regular cable boxes— they don’t infringe any patents. So how did Comcast end up violating a trade law?
The answer involves a stunning demonstration of bureaucratic gymnastics to expand a federal agency’s power. The ITC says Comcast is an “importer” because the cable boxes were specially designed to work on Comcast’s cable network. And even though the boxes don’t directly infringe on the patent, Comcast induced infringement by providing its customers with a mobile app and instructing them on how to use it to record a show with their DVR. When Comcast pointed out that all of these infringing activities took place in the U.S. and had nothing to do with importing cable boxes, the ITC justified its exclusion order by saying that anyone who imports a product and induces infringement, violates the law.
The drafters of that law, Section 337 of the Smoot–Hawley Tariff Act of 1930, would be surprised to learn it is being used this way— and not just because they’d never heard of mobile apps in the 1920s. The purpose of the law was to protect American industries. And yet the ITC’s decision against Comcast fundamentally changes the congressionally assigned role of Section 337. Instead of preventing unfair trade by blocking infringing imports, the ITC is set to go after the very American industry the agency was meant to protect.
Consider just how many American companies could end up defending their domestic activities before this trade agency. Based on its decision against Comcast, the ITC believes that it has power over any company that infringes on a patent and uses a specialized (but not infringing) part that happens to be imported. Cellphone carriers, airlines, hospitals, retailers, restaurants and other service providers all use specialized, imported parts, and now could all find themselves at the ITC trying to prevent business-crippling import bans because of a patent dispute that has nothing to do with trade.
Even American manufacturers— who are supposedly meant to benefit from trade policy— could suffer at the hands of this agency, because they rely heavily on imported materials and components. Those companies could have their operations threatened by trade laws in a patent dispute about their website or payment methods or some other domestic activity.
Patent owners aggrieved by American companies already have a perfectly good option for redress: federal district courts. So why are they going to the ITC? Unsurprisingly, because the ITC tilts the scales. The agency works faster than courts, its bureaucrats are more friendly to patent owners, and it wields a remedy of total exclusion on importation— a remedy so powerful and ham-fisted that the Supreme Court struck down the equivalent for federal district courts. Plus, smart patent lawyers (that is, almost all of them) will sue in both federal court and the ITC, exploiting the tactical advantages of a litigation twofer.
In short, allowing this trade agency to turn any American patent dispute into a trade case hurts American companies. Just last year, the Supreme Court recognized and cut back on an unfair patent forum, the notorious Eastern District of Texas, in TC Heartland v. Kraft Foods. But if plaintiffs can bring their domestic disputes to the ITC, who needs the Eastern District of Texas?
A federal appeals court is currently reviewing ITC’s action against Comcast. That court can fix this mess and focus the ITC’s attention back on unfair trade. If it does not, then Congress should step in. American companies shouldn’t have their private disputes judged by a trade agency just because they use an imported product. They deserve to have their day in court, where patent lawsuits belong anyway.
