October 10, 2012 2:23PM

Import Patent Court: Reform or Repeal?

Sometime between 2013 and 2015, Congress will likely take up the issue of reforming the rules that allow the International Trade Commission to operate as a specialized patent court for imports.  This is a good thing.  The ITC has seen an explosion in the number of new Section 337 cases brought over the last five years.  Most of these ITC investigations run parallel to district court cases, and many of them are brought by so-called patent trolls, entities that own patents for the sole purpose of litigating them and benefit from the ITC's quick procedures and powerful remedies.

The need for reform has never been so obvious as it is today.  Unfortunately, the rhetoric used by reform advocates and the scope of their proposals misguidedly call for the ITC to return to its protectionist roots.

Some proposals offered to fix the problem with patent trolls include strengthening the domestic industry requirement and the public interest analysis, both of which would limit who could bring a successful case to the ITC.  The only reason these tests exist at the ITC in the first place is because Section 337 was designed to protect U.S. producers from foreign competition.  Strengthening the tests simultaneously makes the process more protectionist and increases the differences between ITC and district court litigation that have caused the problems reformers are trying to fix.

Perhaps these reforms really will reduce problems caused by patent troll access to the ITC, but they assume that the ITC serves a legitimate function that should be preserved.  Before taking this move, reformers need to ask, "Do U.S. manufacturers really need more tools to enforce patents against importers?"

I answer that question in the negative in this week’s National Law Journal.  Section 337 is not only a bad patent law, it is a bad trade law, because it has no non-protectionist justification:

One argument made in favor [of Section 337] is that district courts may lack jurisdiction to stop foreign patent thieves from flooding the market with counterfeit goods.  A quick glance at the parties of any recent ITC investigation shows just how unrealistic that concern is.  Respondents in currently ongoing investigations include many big-name American companies such as Apple, Motorola and Intel as well as reputable foreign brands such as Nintendo, Nokia and Sony. Section 337 is a solution to a nonexistent problem.

Treating imports differently just because they're imports is the essence of protectionism.  Section 337 violates the rules of the World Trade Organization because there is no justification for that different treatment, potentially exposing the United States to embarrassing sanctions and diminishing our ability to provide global leadership in international trade policy.

Curtailing the ability of the ITC to decide patent cases is a good idea, but tweaking the law to address specific problems will not end the protectionism and might make it worse.  Leaving the law intact also leaves the door open to further problems in patent policy.  In addition to easier remedies for patent trolls, the ITC has fewer exceptions for process patent infringement and doesn't follow the new rules in last year’s America Invents Act limiting joinder of unrelated defendants.  The existence of a second enforcement track operating under a different law makes the entire patent system less responsive to unforeseen policy challenges.

What reform advocates fail to realize is that the protectionist impulse keeping Section 337 alive is in fact the underlying cause of all of its problems.  In a recent Cato Policy Analysis, Still A Protectionist Trade Remedy: The Case for Repealing Section 337, I argue that the problems caused by patent enforcement at the ITC cannot be solved by piecemeal reform and that the whole process is not worth fixing anyway.  Partial reform just kicks the can down the road until the next problem boils to the surface of political attention.