Commentary

Why Stop with iPhones? All ITC Decisions Deserve a Veto

The U.S. International Trade Commission, a federal agency empowered to ban imports for patent infringement, recently ruled against both Apple and Samsung late model smartphones. In a bold move, President Obama overturned the iPhone ban while leaving the Samsung decision intact. This raises the question: has the President has picked sides in the global smartphone patent war? Time may answer that question, but the most important consequence of the President’s action is that it draws attention to how useless and disruptive it is to have a trade agency deciding patent cases.

As a patent jurisdiction, the ITC is a redundant anachronism. The law that enables the agency to act as a specialized patent court for imports was designed to augment the protectionist designs of the infamous Smoot-Hawley Tariff Act of 1930. The ITC’s mandate under the law is not to prevent patent infringement, but to protect domestic industry from “unfair methods of competition.”

While the agency has morphed over the decades into an efficient and powerful venue to litigate patents, it nevertheless remains a protectionist trade remedy that has no place in our modern globalized economy. The ITC’s exclusion orders harm consumers, violate our international obligations, and seriously disrupt the patent system.

In truth, the ITC’s patent jurisdiction is so worthless and harmful that every decision could rightly be vetoed in the public interest.”

Most observers have correctly come to realize that the ITC’s import bans are an excessive remedy for patent infringement. The iPhone ban is a good example. No federal court would have banned Apple’s products, because Samsung’s patent covered standard-essential 3G technology. Samsung can demand reasonable royalties for licensing, but never had the right to exclude Apple from using the technology. As the Administration’s disapproval letter makes clear, the ITC’s order gave Samsung “undue leverage.”

But banning Samsung’s phones is also harmful to consumers. A federal district court has already refused to ban Samsung products despite infringement of Apple’s patents, although Apple is appealing that refusal. Doesn’t that mean that the ITC’s import ban gives Apple “undue leverage?” If the President can veto the ITC’s iPhone ban because it would be harmful to “competitive conditions in the U.S. economy” and “U.S. consumers,” then surely the Samsung ban deserves a veto as well.

In truth, the ITC’s patent jurisdiction is so worthless and harmful that every decision could rightly be vetoed in the public interest. Just consider the consequences if the President did veto every ITC patent decision.

Every veto would improve choice in the market. The ITC’s import bans enable competitors to use patent litigation to gain unfair advantage. A patented technology may add pennies to the value of a product, but if your competitor owns the rights, they can use the ITC to keep your entire product off the market. A fair and predictable patent law should increase consumer choice, not decrease it.

Every veto would smooth trade relations. Because having the ITC litigate patents is unnecessary and discriminates against imports, its very existence is inconsistent with the rules of the World Trade Organization. Every single exclusion order that the ITC issues is a violation of U.S. treaty obligations. The ITC’s fast procedures and harsh remedies are only available if the defendant is an importer. Ironically many of the victims of ITC investigations are champions of the U.S. tech industry who assemble their final products abroad.

Every veto would reinforce the integrity of the patent system. Having parallel, duplicative litigation venues makes it harder to reform the patent system when problems arise. For example, federal courts require a showing of irreparable harm before issuing an injunction. This rule prevents patent trolls from using low-value patents to gain undue leverage over producers of high-value products, but the rule doesn’t apply at the ITC where injunctive relief (an import ban) is automatic. In this way, the ITC makes patent policy less agile and so less effective.

But what about the benefits of ITC litigation? There are none. The United States has a perfectly functioning court system in which patents can be litigated. This is true regardless of where the products at issue are manufactured. Indeed, Apple and Samsung are using that court system right now to settle a billion dollar dispute over patents. No other country on earth has a specialized patent court for imports.

We shouldn’t need the President to override legal decisions, but if he’s going to decide cases based on policy, he wouldn’t go wrong if he vetoed them all. An even better idea would be to repeal the ITC’s patent jurisdiction entirely. We should trust our judicial system and keep protectionist trade agencies out of the patent business.

K. William “Bill” Watson is a trade policy analyst with the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.