Patent Trolls at the ITC
With the government shutdown and Congress and the administration scrambling to cut a budget deal, many are seeking new ways to fund the federal government. Commerce Secretary Howard Lutnick recently proposed a tactic to mandate that universities share the profits generated by their federally funded patents. While the idea of revenue sharing may sound compelling, it distracts from a more fundamental issue that needs to be in the limelight: Patent abuse, which incentivizes litigation, threatens true invention, and rewards parties who contribute nothing to innovation.
This much larger concern about patents stems from the rise of non-practicing entities (NPEs)—the kind that exploit the patent system for profit rather than invention. Such NPEs do not innovate or produce anything. Universities are a form of NPE because they license their inventions to others rather than manufacturing or commercializing them. However, universities typically undertake new research, provide training, and partner with firms to commercialize their discoveries, all of which can encourage innovation and create value.
The real problem lies with another class of NPEs—often called “patent trolls,” or patent assertion entities (PAEs)—who build extensive portfolios of patents of questionable validity to use as leverage in lawsuits against businesses. These PAEs do not manufacture, produce, or innovate, nor do they employ anyone to do so. Instead, they use the legal system to extract royalties and licensing fees from companies producing in America that are actually trying to innovate. The large portfolios of poor-quality patents amassed by PAEs create an “anticommons”—a thicket of overlapping claims that make it difficult for follow-on innovators to enter the market. These impediments to innovation harm economic growth, which, in turn, reduces potential federal revenues.
Overall, these PAEs are key drivers of patent litigation in the United States. In the first six months of 2025, PAEs filed over half of all patent cases in district courts. Considering only tech-related litigation, PAEs accounted for 91 percent of patent cases filed during that time.
Yet PAEs have found an even more amenable venue for patent litigation: the U.S. International Trade Commission (ITC). Originally established to protect American businesses from unfair imports, PAEs have weaponized the ITC to extort settlements from American companies. Unlike the courts, the ITC’s primary response to patent infringement is an exclusion order barring the import of the product. This powerful cudgel can force companies to settle rather than litigate.
As the R Street Institute has documented elsewhere, PAEs have become adept at working the ITC’s system, from exploiting the “little-to-big problem” to utilizing the vague definition of “domestic industry” to bring lawsuits against companies actively innovating in America. The little-to-big problem refers to a situation in which a patent on a single component or part of a product can result in an injunction barring the importation of the entire product. For example, the PAE Daedalus Prime asserted a series of small component patents acquired from Intel against several automobile manufacturers, asking the ITC to ban the import of allegedly infringing automobiles. Exclusion orders give PAEs strong leverage to extract settlements from productive American businesses while adding no value to the U.S. economy.
The ITC’s definition of domestic industry is also problematic, as companies that do not produce or import anything can qualify via token licensing agreements, shell arrangements, or minimal third-party activities. Disturbingly, the recent Lashify v. ITC decision lowers the bar even further, redefining “domestic industry” to include activities like sales, marketing, and distribution. This is how patent trolls become qualified as domestic industries.
Consequently, the ITC has become a venue of choice for many trolls, even though the disputes are typically being litigated in federal court already. The leverage of an exclusion order—coupled with the quick time frame of an ITC investigation (historically, less than 15 months)—makes it advantageous, even if a case is ongoing in a district court.
Yet this imposes significant costs on the economy. Companies face a two-front war with trolls, both in the courts and at the ITC. In fact, in 2024, 83 percent of ITC investigations involved parallel district court litigation. ITC exclusion orders can inflict significant economic damage by diverting resources from true innovation as companies with limited budgets shift funds from research and development to litigation.
In the past, both Congress and the Supreme Court have intervened to improve patent quality and reduce excessive litigation. Yet abuses at the ITC have yet to be addressed. Earlier Congresses introduced the Advancing America’s Interests Act (AAIA) to curb PAE exploitation at the ITC, and the current Congress should consider reintroducing the legislation. The bill tightens domestic industry requirements at the ITC while ensuring the Commission provides a robust review of exclusion orders that includes a full, affirmative assessment of public interest considerations. It would also limit opportunistic litigation at the ITC while ensuring the Commission continues its mandate to identify and eliminate unfair trade practices.
The Founders viewed patents as a means to promote progress and benefit the broader public. Yet the current patent system is often used for private gain, extending monopoly rents while thwarting true innovation. Concerns about revenue sharing with universities miss the mark. The challenges posed by today’s patent system are more fundamental, and Congress would do well to revisit the AAIA in order to minimize excessive patent litigation by PAEs who contribute little to overall economic growth.