The competition issue Congress isn’t talking about: Patent abuse and ITC reform
This somewhat obscure agency was created in 1916 to resolve trade disputes between U.S. industries and foreign competitors. Unfortunately, recent years have seen its procedures abused by American companies seeking to punish other domestic competitors, often at the expense of American consumers. Specifically, patent assertions entities (PAEs) – which acquire large portfolios of patents to fuel litigation and settlements from real producers – have found the ITC to be a powerful and more cost-effective venue for filing claims. Clearly, these harmful tactics merit a closer look.
Under Section 337 of the Tariff Act of 1930, U.S. patent holders can ask the ITC to enact an exclusion order against another company selling a product in the United States found to infringe upon the patent in question. This extreme measure, which bans imports of the infringing product, is the most powerful tool at the ITC’s disposal.
Bans are difficult to obtain in federal court since the Supreme Court stopped them from automatically issuing injunctions as legal remedies in patent disputes. This decision did not extend to the ITC, which makes it an increasingly popular place for PAEs and other bad actors who hope to extract settlements from possible infringers. If weaponized successfully, PAEs can essentially use ITC proceedings to eliminate competitors’ products from the market or force them to pay exorbitant licensing fees to avoid crippling exclusion orders.
While the ITC was created to prevent unfair foreign competition, more often than not patent infringement cases are misused by quarreling domestic parties. In fact, an R Street Institute analysis found that since 2017, just 41 (6.5 percent) of 635 ITC investigations studied involved solely domestic complainants and foreign respondents.
The rest of these cases, in effect, showcase patent abuse that hinders innovation and reduces competition, especially in fast-moving and fiercely competitive markets. This harms American companies and innovators, but it can also impose significant burdens on consumers, banning popular products from the marketplace. One example is a recent decision that alleges that Apple infringed upon a heart-monitoring patent by AliveCor. Should the full commission’s ruling this fall agree, imports of the popular Apple Watch may be banned by an exclusion order.
In response to such abuses, legislation was introduced in the House by Reps. Suzan DelBene (D-Wash.) and David Schweikert (R- Ariz.), the “Advancing America’s Interests Act” (HR 5184). The bill would limit the ability of patent or trademark holders to bring complaints before the agency, requiring that they prove that significant investment has been made to develop the article in question within the United States. Once a complaint has been made, the proposed law would require the ITC to consider the public interest when determining whether to exclude articles that are under investigation.
Dishearteningly, HR 5184 has not advanced, despite presenting promising solutions to some of the ongoing problems at the ITC.
In the coming year, Congress should revisit and further develop Reps. DelBene and Schweikert’s efforts to address a clear need for balance in the U.S. patent system and quell the ITC’s ham-fisted use of exclusion orders in Section 337 investigations. By providing the data and analysis needed to advance appropriate ITC reform, we can improve the patent system and the innovation it powers.