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The Public Interest Gets Its Day at the International Trade Commission

August 5, 2013

The Public Interest Gets Its Day at the International Trade Commission

We've not talked much about the International Trade Commission (ITC) here, but something quite interesting happened there over the weekend. The White House stepped in and, in a notable and rare move, overruled a ban limiting importation of certain Apple products. That ban was based on an ITC finding of patent infringement, but the White House overruled it based on—get this—the public interest.

First, let's start with the ITC. Like its name suggests, the ITC is tasked with dealing with matters of international trade and competitiveness. So what, you may ask, does this have to do with patents? The Tariff Act allows, which governs the ITC, allows it to investigate patent infringement claims when a U.S.-based company makes those claims against products that are being produced overseas and imported into the States. If the ITC finds infringement, it has only one remedy available—it may issue an exclusion order, or, in other words, block products made abroad from being shipped into the United States.

As you might guess, this can lead to some scary results. First, trolls often sue in the ITC, claiming their "licensing activities" prove that they practice business in the United States (the ITC has hinted that it might be cracking down on this practice soon, which would be a positive development). Second, prohibiting importation of an entire product doesn't just harm the company who sells that product, but it harms the consumer who wants to buy that product, or who might be looking for replacement parts on a product he or she already owns. There are also negative secondary effects, like lack of competition, which leads to higher prices. Put simply, exclusion orders are a harsh remedy, particularly when we're potentially talking about infringing only one patent on any given smartphone, which may be covered by upwards of 250,000!

Here's the thing, though: the Tariff Act actually requires that the ITC consider the public interest before it blocks products. Specifically, it must consider

the effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers, it finds that such articles should not be excluded from entry.

In theory, that sounds great. In practice, however, it almost never works. That is, until this weekend. In June, the ITC found in that Apple infringed certain of Samsung's patents covering certain 3G standards. (An important aside here: because the patents at issue are standard essential patents, Samsung has an obligation to license them on reasonable terms.) As with all ITC rulings, the White House had 60 days to decide whether to veto the resulting exclusion order. On Saturday, for the first time in more than 25 years, the White House set aside an exclusion order, essentially claiming that taking the product off the markets would negatively affect "competitive conditions in the U.S. economy and the effect on U.S. consumers."

The White House, in a letter from U.S. Trade Representative Michael Froman, limited its statements to standard patents, but was clear in its warning to the ITC in future cases:

the Commission should be certain (1) examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues ...

This is an important step in reigning in the ITC and its exclusion-granting-happy ways. (Of course, there is a certain irony in Apple being the first beneficiary of this move given the company's preference for competing in the courts rather than the marketplace and its recent encouragement of a harsh government crackdown on independent phone repair shops). We're pleased to see the White House, who has recently been a strong champion for patent reform, tell the ITC in no uncertain terms that the public interest plays a role in these important patent questions.

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