End weaponization of ‘exclusion orders’ and restore the ITC’s original intent

The majority of the economic value of global companies today rests in their patents and other intangible assets. As a consequence, the role of the U.S. International Trade Commission (ITC) as an adjudicator of trade disputes involving intellectual property is more important than ever.

Federal law vests the ITC with extraordinary power to fulfill its mandate to “investigate and make determinations in proceedings involving imports claimed to injure a domestic industry or violate U.S. intellectual property rights.”

Specifically, it has the power to issue “exclusion orders” that can ban infringing imports from entering the United States. In recent years, firms have learned that the ITC can be far more tractable in issuing these orders than courts in issuing injunctive relief.

Unfortunately, the potency of exclusion orders — the primary tool the commission has available in such cases — has made the ITC an appealing venue for those looking to exploit the system for their own purposes. This troubling trend is driven by the influx of non-practicing entities (NPEs) seeking ITC exclusion orders to extract huge financial settlements.

In 2006, the Supreme Court overturned a longstanding practice of U.S. courts offering nearly automatic injunctions whenever patent infringement was demonstrated. A higher standard of injury now would have to be established for such strong action to follow.

However, the Supreme Court decision did not extend to the ITC. It continues to offer near-automatic injunctive relief for patent infringement in the form of exclusion orders. This is particularly ironic, since the commission is mandated to make its decisions with a careful eye on the broader public interest — not simply litigate patent disputes.

The bluntness of its exclusion instrument and the relative speed of its process have thrust the ITC into the middle of many high-profile patent cases. This is not how policymakers envisioned the role of this trade agency.

Patent fights in the tech space can be particularly brutal.

Over the past two decades, NPEs have become central players in many patent disputes. NPEs do not use patents to innovate or support new products; they make money by acquiring patents and then suing others for infringement.

For NPEs, the ITC is the ideal forum. Given the disastrous consequences of exclusion from the U.S. market and the relative ease of initiating an investigation, many on the receiving end of NPE-initiated ITC petitions choose not to take the risk. Instead, they settle and pay outsized licensing fees to the NPEs to make the whole thing go away.

The case of Neodron, a recently formed Irish shell company that is pursuing action against a group of prominent tech firms, including Amazon, Dell, HP, Microsoft and Samsung, has come to exemplify the misuse of the ITC process. Neodron claims that these companies have infringed its patents, which it acquired on the secondary market, related to touchscreen technology.

Josh Landau writes in PatentProgress that the managers and holding companies associated with Neodron have filed almost 200 cases against tech companies over the past two decades. This track record suggests that the patents in question in the current case were acquired as tools for litigation.

In June 2019, the ITC announced that it was initiating a Section 337 investigation into the tech companies named by Neodron, although it did not opine on the merits of the case. If the commission finds against these companies and issues an exclusion order, an estimated 86 percent of Windows tablets and more than half of Android smartphones would be barred from the U.S. market.

The beneficiary of such an action would be an Irish company that employs nobody and makes nothing in the United States. The clear losers would be U.S. consumers who no longer would have access to products they count on, and tech companies that employ thousands of Americans and invest millions of dollars in U.S. innovation. 

The ITC is a nonpartisan institution that is supposed to ensure a fair environment for domestic U.S. industry and act in the public interest in international trade cases involving intellectual property. Allowing Neodron and its NPE compatriots to weaponize the threat of exclusion orders to extract money from U.S. companies makes America a less attractive place to invest.

One way to address this growing challenge would be for the ITC to require any petitioner to comprehensively demonstrate substantial linkages to U.S. domestic industry and harm to the U.S. economy before an investigation is launched. In addition to cutting down on frivolous cases, this might even encourage NPEs to shift business model and start doing something useful for the U.S. economy.

Eric Miller is president of Rideau Potomac Strategy Group and a global fellow at the Woodrow Wilson Center. Follow him on Twitter @ericmiller191.