American history is defined by its innovators. Companies like Amazon, Google, Disney, and Ford all got their start in the United States and have redefined their respective industries – and the economy as a whole. American companies have time and time again changed the way the rest of the world does business, reinforcing the nation’s economic and cultural power abroad. However, a little-known government agency, the International Trade Commission (ITC), is being used to undermine that spirit of entrepreneurship.
The ITC describes itself as an independent government agency tasked to “investigate and make determinations in proceedings involving imports claimed to injure a domestic industry or violate US intellectual property rights.” However, the ITC’s approach to “patent trolls” have undermined this mission and obstructed the U.S. from realizing the immense benefits that come from international free trade.
Patent trolls are non-practicing entities who obtain patents not for the purpose of actually creating products and services, but to use the ITC’s legal system to get payouts from companies to make them go away. Because many American industries utilize numerous patents for each of their products and because of the ITC’s stated goal of protecting intellectual property rights, patent trolls can effectively use this system to enrich themselves without providing any economic benefit.
As Wayne Winegarden – a senior fellow at the Pacific Research Institute – notes, “The ITC fails to strike the right balance between protecting legitimate patents and discouraging frivolous lawsuits.” The ITC takes far too seriously its mission to protect intellectual property rights at the expense of its congressional mandate to ensure the “public interest” is served in all of its orders.
As a panel of unelected arbitrators with no accountability to the public, the ITC can potentially cut off American businesses from consumers altogether with “exclusion orders.” These orders prevent an innovator from importing the product in question, meaning massive losses for the company in question, and a broad swath of consumers missing out.
While the US Patent and Trademark Office (USPTO) is responsible for most patent approvals and determinations, the ITC can pass its own rulings. These rulings occasionally directly conflict with prior rulings from USPTO and federal courts. After the ITC issues and exclusion order, the only means of appeal is a presidential exception stating that the product in question is essential to the public interest. This has only happened a handful of times since the establishment of ITC in 1916.
The effect of an exclusion order has a chilling effect on innovation, as well as on U.S. global economic leadership. For example, the global semiconductor shortage has generated headlines and misguided congressional action in just the last two years. The shortage could have been much worse. In 2021, a South Korean company filed an ITC complaint against a semiconductor manufacturer that made chips for electric vehicles (EVs). The ITC initially issued a ten-year exclusion order, but the industry was spared only by a late multi-billion dollar settlement in favor of the complainant.
Because of harsh exclusion orders like this one, the ITC has become the venue of choice for non-practicing entities who hold large patent portfolios but create nothing for the public. These patent trolls will continue clogging the docket with complaints in hopes of extracting a large settlement or to force companies out of the market altogether.
These lawsuits waste government – and therefore taxpayer – dollars by the millions. They also hurt U.S. consumers by both limiting their choice of products and chilling innovation. The ITC’s incentive structure makes developing new products and services more costly. Firms will have to focus on minimizing litigation risk, rather than focusing on making revolutionary new products for consumers in the US and the world.
The ITC is in desperate need of reform, regardless of whether that reform comes from within, or from the halls of Congress. The ITC must limit the scope of patent infringement cases it is willing to hear. There should also be clear mechanisms in place to implement penalties for lawsuits that fail or are – in some way, shape, or form – deemed frivolous. Until that happens, the ITC will continue being a counterproductive piggy bank for these trolls.