Republicans Need To Lead Intellectual Property Reform

Freshly minted Speaker of the House Kevin McCarthy and his slender Republican majority may have a long list of legislation that they would like to see become law, but with a Democratic White House and Senate, they need to be strategic in what they pursue.

While the two parties may seem to agree on relatively little, both Republicans and Democrats have indicated a result to take on the country’s economic dependence on China as well as to do more to help U.S. consumers get more for their income. Fortunately, the two parties could accomplish both goals with legislation that reformed intellectual property protections and with greater oversight of the International Trade Commission (ITC), a federal agency whose actions are harming innovators and opening the door to Chinese dominance of key US markets.

Intellectual property is a pillar of innovation that drives America’s economic engine; IP-intensive industries accounted for 41% of domestic economic activity in 2019.

However, our patent system can be manipulated by economic opportunists who have no interest in actually using patents or IP to create anything. These companies—which are usually financed by hedge funds or other wealthy investors—acquire a portfolio of old (and often invalid) patents for the sole purpose of extracting settlements from productive domestic companies by pursuing litigation.

Almost all patent infringement litigation can and should be dealt with in federal district court where the courts can directly discern whether a patent has been violated and award appropriate damages. However, patent opportunists have discovered that it is often possible to file patent lawsuits at the International Trade Commission, and that their odds of succeeding—or extracting a sizable settlement—are significantly higher there.

Congress created the ITC in 1916 and Section 337 of the Tariff Act of 1930 gave it quasi-judicial powers to protect U.S. industries and consumers from unfair trade practices arising from imported goods. But unlike the federal district courts, the ITC has only one remedy – an “exclusion order” — that bans categories of products from the U.S. market. The ITC may ban large swaths of products even if it finds even a minor patent infringement that has a marginal economic outcome.

In fact, the strategy of these patent litigators has been to seize on a small component, feature, or functionality in a highly complex, larger item. In the electronics sector, high-tech devices such as computers, televisions, and cell phones contain thousands of small components providing innumerable features and functionalities.

After Congress passed legislation that made it more difficult to use this strategy to make money in federal courts, they pivoted towards their patent lawsuits ITC’s jurisdiction when possible.

To give just one real-time example of this problem, Daedalus Prime LLC, a patent troll based out of Bronxville, New York, acquired a portfolio of patents from IntelINTC
last year (that had generated no litigation while Intel held them) that it used to file three ITC complaints alleging that a small number of its patents that covered minor features on certain semiconductor chips were being infringed. Daedalus asked the ITC to ban all the chips from the US market as a remedy—along with an import ban on the highly complex products containing those chips. The list of products included cell phones, tablets, and automobiles.

As the ITC readily admits, the number of patent cases it has been asked to adjudicate has grown dramatically in recent years and these often involve products of great interest to the general public, such as cellphones, computers, and other electronic consumer devices. In every case where a violation is found, the law requires the ITC to consider whether an exclusion order would harm the public interest.

While the law specifies that the ITC should not issue an exclusion order if it would harm the public, the commission rarely invokes this provision.

The weaponization of patents stifles economic growth and forces U.S. consumers to pay higher prices for the high-tech devices most Americans depend on in so many facets of their daily lives. One study from a decade ago—when such patent litigation was less common—estimated that these dubious patent litigation suits cost defendants close to $30 billion a year, money that could otherwise be spent on research and development or otherwise creating new and better products for consumers.

Congress passed a bipartisan patent reform bill a decade ago and it should pursue bipartisan legislation today to free the ITC from its current patent morass. As a first step, the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet should hold an oversight hearing regarding the ITC. It has been over a decade since Congress last held a hearing about the ITC’s handling of patent disputes, which is too long for an executive branch agency to go unsupervised.

The House Ways & Means Trade Subcommittee, which has jurisdiction over trade laws, is also past due for oversight of the agency’s handling of Section 337 cases.

Beyond these subcommittees, the House GOP has additional avenues to lead on intellectual property protection. The new Select Committee on China aims to institute a “whole of government approach” to curbing the threat of the Chinese Communist Party to U.S. businesses, and changing the ITC’s approach in Section 337 cases would be a good place to start.

House Republicans need to show they are willing and able to actually legislate, and pursuing oversight and reform of the International Trade Commission and altering its jurisdiction over patent cases would protect America’s consumers, industries, and our strategic advantage against China.