April 27, 2016 12:39PM

Redundant Patent Court Faces Much‐​Needed Congressional Scrutiny

The House Judiciary Committee recently held a hearing to discuss potential reforms to Section 337 of the Tariff Act of 1930—a law that is used by U.S. patent holders to ban the importation of infringing products. It was very encouraging to hear from many members of Congress who were concerned that Section 337 was redundant in a world where global companies can easily sue each other in U.S. federal court.

Under Section 337, the U.S. International Trade Commission (ITC) has the power to exclude products from entering the U.S. market in order to prevent “unfair methods of competition and unfair acts in the importation of articles.”  The potential scope of that authority is staggeringly broad, but the vast majority of cases are about patent infringement.  In practice, Section 337 has been used to turn the ITC into a specialized patent court for imports.

I wrote a Cato Policy Analysis in 2012 pointing to the numerous problems caused by having a dual-track patent litigation system that singles out imports.  Section 337’s broad language attracts abuse by enterprising lawyers (examples here and here) and that the law violates U.S. trade obligations.

But Section 337 also impedes the proper functioning of the U.S. patent system.  In today’s globalized economy, lots of high-tech products are imported.  Plaintiffs, therefore, often have a choice whether to bring their patent case in district court or at the ITC, and they choose the ITC when Section 337 offers advantages over traditional litigation.  This is true regardless of the nationality of the plaintiff or the defendant.  For example, because iPhones are assembled in China, Korea-based Samsung was able to take California-based Apple to the ITC.  Both companies were also suing each other in federal district court.

What makes the ITC such an attractive litigation venue is that Section 337 provides only one sort of remedy—exclusion of the infringing product from the U.S. market.  In district court, successful plaintiffs are likely to be awarded only money damages unless they can show special cause to justify an injunction.  In the ITC, every successful plaintiff wins an injunction. 

But there are reasons why courts of law don’t always award injunctive relief to every successful plaintiff.  Courts are especially reluctant to grant injunctions in cases involving standard-essential patents or when the plaintiff’s sole interest in the patent is the collection of royalties or (in the case of “patent trolls”) litigation settlements.  The ITC can be a much more attractive venue for plaintiffs in those cases.

At the hearing, Representative Darrell Issa (R-CA) and others were concerned that companies were using Section 337 to bypass the federal courts.  Issa made the case that if two companies could be litigating their dispute in a court of law then they should be.  He bemoaned the increasingly prominent role of administrative agencies in settling private disputes, saying, “It is our responsibility to preserve the constitutional right of an American entity to have their claim, whether plaintiff or defendant, adjudicated within the court.”

It’s encouraging to see members of Congress recognize that Section 337 provides excessively broad patent jurisdiction to a trade agency.  Momentum seems to be building toward real reform that would reduce the harmful influence of trade protectionism in the U.S. patent system.