Section 337 of the Trade Act of 1930 empowers the U.S. International Trade Commission to investigate complaints of "unfair competition in importation" and to ban offending products from entering the United States. The ITC has used that power to become a specialized, administrative patent court—burdening the U.S. economy with a disruptive and largely redundant dual-track litigation system.
One of the main goals of the ITC Policy Project is to utilize data about patent litigation at the ITC and to make the case for why and how Section 337 should be reformed. To that end, we're publishing a series of "Year in Review" posts focused on what happened (or didn't happen) at the ITC in 2018.
This first installment presents data about complaints made to the ITC in 2018 to counter the myth that Section 337, in its current form, is necessary to protect patent holders from unreachable foreign infringers. Future posts will address application of the ITC's domestic industry requirement, nonpracticing entities, standard-essential patents, the public interest test and other prominent issues.
A Popular Venue
In 2018, the ITC received 47 new Section 337 complaints, matching the average number of new complaints per year over the last ten years. The actual yearly number swings quite a bit, however. There were, for example, 63 new complaints in 2017 but only 32 complaints in 2009.
As always, the vast majority of complaints (42 of 47) asserted allegations of patent infringement. Complaints outside of patent disputes included three allegations of registered trademark infringement and a variety “unfair competition” allegations, including trade dress infringement, antitrust violations and false advertising.
If you compare the ITC’s annual patent caseload with the four-to-five thousand infringement lawsuits filed in district courts each year, the agency’s role looks miniscule. But the settlement rate in district court is about 90%, and even the lawsuits that are not settled are usually resolved by summary judgment before trial. According to official federal court statistics, on average, only 127 patent cases reached trial each year between October 2009 and September 2017.
By comparison, the ITC, which has a settlement rate of about 60%, conducted 136 evidentiary hearings during that same eight year period for an average of 17 per year.
These numbers indicate that the ITC's administrative law judges preside over approximately 12% of all patent trials in the United States. If the ITC were a district court, its share of patent trials over the last decade would be rivaled only by the Eastern District of Texas and the District of Delaware.
American Respondents and Duplicative Litigation
The primary justification for the ITC's patent powers is that if a foreign infringer cannot be sued effectively in district court, patent owners are helpless without a trade-based remedy. It is true that a company with few or zero assets in the United States could frustrate enforcement of a court judgment by hiding its identity and altering its distribution channels. And ITC litigation offers an effective way to address that problem, especially with a general exclusion order.
However, the typical respondent in an ITC investigation is not a shady foreign pirate. Of the 421 named respondents in new 2018 complaints, 255 (61%) had a U.S. address. All but 5 of the 47 complaints included at least one domestic respondent, and in eight of the complaints (17%), all named respondents had a U.S. address. One reason why so many cases involve a mix of foreign and domestic respondents is that patent owners will often bring a complaint against a U.S. company and its foreign suppliers (like a factory in China) or against a foreign company and its U.S. distributors.
The prevalence of domestic companies among ITC respondents is nothing new. Previous studies have consistently found that Section 337 investigations rarely follow the pattern of a home-grown domestic industry seeking protection from unidentifiable foreign infringers.
The typical respondent is, in fact, a U.S. company or large multinational. If you scan quickly down the list of 2018 respondents, you'll see names like Intel, Apple, Nikon, Heineken, Anheuser-Busch, Amazon, Walmart, Home Depot, Panasonic, Toyota, Nintendo, Samsung, and Comcast.
So, it turns out, most Section 337 complaints are brought against companies that can easily be sued in court. In addition to the glaringly obvious examples of suable companies, we also know for certain that many ITC respondents can be sued in court because they have been sued in court—most patent holders who file at the ITC also file a parallel district court lawsuit against the same parties over the same dispute. In 2018, there was identifiable parallel district court litigation for 36 (77%) of the 47 new complaints. This high rate of parallel proceedings is also fully consistent with long-term trends.
What’s Wrong with This Picture?
The prevalence of duplicative litigation is the direct result of extensive overlap in jurisdiction between the ITC and district courts. As long as the ITC has the power to adjudicate patent claims against all importers, the agency's jurisdiction will be much, much broader than it needs to be to address the narrow problem of unreachable foreign infringers.
We know that, most of the time, Section 337 is not helping U.S. companies challenge foreign infringers that can’t be sued in court. What it does instead is give patent owners a second bite at the apple. The first bite is the ITC investigation, because the agency’s proceedings are much faster than district court. But even if a complainant loses its Section 337 case, it can still win its infringement lawsuit in court, where ITC patent decisions are not considered to be binding.
Overlapping jurisdiction also provides patent owners access to an improper remedy. There are times when injunctive relief is inappropriate, because it overly empowers the owner of a low-value patent embodied in a high-value product. This is especially true when the patent owner is a licensing company that can be fully compensated for infringement by an award of monetary damages and ongoing royalties. Unlike federal courts, however, the ITC does not take these considerations into account before issuing an import ban.
Ultimately, jurisdictional overlap directly impairs the effectiveness of the U.S. patent system by enabling forum shopping, excessive remedies and abusive litigation—all while undermining the power of constitutional courts.