Changes to ITC's Section 337 Jurisdiction Discussed at House Hearing

Industry players and a law professor argued that the International Trade Commission's power to stop imports that are found to be infringing on domestic patents has become a form of blackmail by foreign companies against domestic companies, and that its original reason for being is no longer true.

At a hearing at the House Judiciary Committee's intellectual property subcommittee, University of Utah law professor Jorge Contreras said that at the ITC's founding in 1916 Section 337's purpose was to stop cheap European imports that infringed on U.S. patents, and the mechanism was necessary because U.S. courts had no jurisdiction over these foreign exporters. But in 2022 and 2023, he testified, only 6% of ITC Section 337 cases lacked a domestic respondent -- which means 93% of the cases could have been handled in federal district courts.

He said that ironically, the targets of Section 337 cases now are U.S. firms that contract with manufacturers overseas. "Nearly a third of ITC patent cases are brought by foreign companies seeking to prevent U.S. companies from importing their own products for sale to U.S. consumers," he said.

Contreras said it's hard to justify $40 million in federal spending to support the ITC's Section 337 cases, given that 83% of the cases are also in district court. He said Congress should limit the scope of Section 337 cases in the ITC to cases where federal courts cannot rule, because there is a foreign exporter with no U.S. subsidiary. He also would like parties that don't make or sell goods in the U.S. to not be allowed to bring cases to the ITC.

Sam Korte, a patent attorney with GPS manufacturing company Garmin, said those firms that hold patents but don't make goods are "patent trolls." He said it has cost Garmin $10 million to defend itself in just one case at the ITC.

University of Akron law professor Michael Doane, who worked as a Section 337 litigator before becoming a law professor, disagreed with the witnesses who want changes to Section 337. He said Congress made changes to the process in 1988 and 1994 to make it easier for small companies to bring suits, and startup companies may still be trying to develop a product when a large competitor copies their IP and brings products to market.

"Efforts to limit it will do more harm than good," he testified.

He argued that an import exclusion order is great leverage for the small patent holder to get the royalties it deserves when a company is holding out in negotiations over licensing.

Tara Hairston, Alliance for Automotive Innovation senior director of technology policy, agreed that plaintiffs have to pay, but she framed it as being forced to settle even when the merits are weak, because having cars banned from import would be so costly.

Hairston argued that complainants should have to disclose their real parties and interests and that only domestic producers should be allowed to bring cases. She said the auto industry would like a de minimis provision, so that if the component that is allegedly infringing is equal to or less than 10% of the value of the finished product, it could still import.

Rep. Thomas Massie, R-Ky., reacted with anger to that last proposal. "I’m appalled that you guys are here, testifying like this. This is shameless. If you’re only stealing 10% of the product, let us keep importing it? We don’t want you stealing things, getting them made overseas, ripping off American inventors," he said.

Democrats on the subcommittee were generally wary of Section 337 reforms, saying they worried that would make it easier for China to abuse U.S. IP, or would make it harder for small companies to get their due, particularly because district courts hearing patent cases have been far less likely to issue injunctions in the past 18 years.

Technically, the ITC is under the jurisdiction of the Ways and Means Committee, and committee staffers sent questions for the record to the witnesses that also suggest skepticism about changes to the statute that would restrict access to Section 337 litigation.

They asked: "How might section 337 be improved to be a more powerful tool to block imports that undermine IP?" They said, to the extent that some witnesses are calling for reforms to the system, would those changes improve the ITC's ability to hold China accountable?

They also asked if the ITC can fix itself in response to these criticisms, or is statutory change needed?

Subcommittee Chairman Darrell Issa, R-Calif., put his car alarm company's cases at the ITC and a U.S. district court into the record. He said the ITC found his company's accuser had unclean hands, and it didn't have a valid patent. Although the ITC found that, that company still went to the district court. He said that while defending his firm at the ITC was expensive, "in fact, it was fair."

Issa suggested that members might find common ground in a change to ITC policies only for standard-essential patents, or SEPs, which are patents on products that must be used to comply with a technical standard. Those patent holders are required to license those technologies "on fair, reasonable and non-discriminatory terms," but there are still Section 337 cases at the ITC regarding these items, because the prospect of an import exclusion order could convince a firm to license its patent more cheaply.

"We could suggest that a bond in lieu could be another remedy made available to ITC," Issa suggested, so that instead of an import exclusion, the importer that isn't paying the licensing fee demanded by the SEP holder can just pay a bond of that amount until the district court finishes its adjudication on whether the SEP holder was reasonable in its terms.

Contreras said, "I would say it’s an improvement," and noted that many European jurisdictions use a bond.

Doane and Hairston said it's worth exploring.